SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
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| X | Annual Report Pursuant to Section 13 or 15(d) of
- ----- The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
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| | Transition Report Pursuant to Section 13 or 15(d) of
- ----- The Securities Exchange Act of 1934
Commission File Number 000-02290
Efficiency Lodge, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-0898219
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5342 Old Floyd Road, P.O. Box 635, Mableton, GA 30126
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (770) 819-0039
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.10 par value per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. -----
| X |
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State issuer's revenues for its most recent fiscal year. $6,848,997.
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock as of a specified date within the
past 60 days: as of March 1, 2000, there were 840 shares of Common Stock, no par
value, outstanding held by non-affiliates of the issuer, with an aggregate value
of $252,000 (based upon a value of $300.00 per share, the cash value of the
converted shares after the 30 for 1 reverse stock split by the Company on August
5, 1999.) There is no established trading market for the Common Stock, and the
issuer does not know of any sales made in the last sixty days.
At March 1, 2000, there were issued and outstanding 18,364 shares of Common
Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Efficiency Lodge, Inc., formerly known as Southern Acceptance Corporation
(the "Company"), was incorporated in 1962 as a Georgia corporation, and engaged
in the business of real estate sales and development in Georgia. Specifically,
the Company purchased or built and operated motels and apartments. In 1974, the
Company filed for bankruptcy under Chapter XI of the federal bankruptcy laws. It
emerged from bankruptcy in 1980 with a few remaining properties. After selling
most of its remaining operating properties in the early 1980s, the Company
continued to engage to a limited extent in the purchase and sale of real estate
in Georgia. In addition to earning commissions from such real estate sales, the
Company earned interest on its notes receivable, rental income from its rental
properties, and income from the purchase and sale of investment properties. The
principal executive offices of the Company are located at 5342 Old Floyd Road,
Mableton, Georgia 30126, and its telephone number at that address is (770)
819-0039.
On January 22, 1996, the Company entered into an Agreement and Plan of
Merger with Efficiency Lodge, Inc., a Georgia corporation ("ELI") pursuant to
which ELI would be merged into the Company, with the Company as the surviving
corporation assuming ELI's name (the "Merger"). The Merger was effective on
December 31, 1996. In the Merger, the ELI shareholders received approximately
1,102.6 shares of the common stock of the surviving corporation for each share
of ELI (approximately 95% of the surviving corporation). Shareholders of the
Company immediately prior to the Merger received one share of the common stock
of the surviving corporation for each one hundred shares of pre-Merger common
stock of the Company held by them, with any resulting fractional shares being
cashed out at $0.10 per pre-Merger share.
On August 5, 1999, the Company's Shareholders approved a 30 for 1 reverse
split of the Company's common stock (the "Reverse Split"). Pursuant to the
Reverse Split, fractional shares of common stock were converted to cash at the
rate of $10.00 per share of common stock out- standing prior to the Reverse
Split.
ELI was formed in January 1993 as the result of the consolidation of five
existing companies, each of which operated an extended-stay lodging facility.
ELI engaged in the business of developing and owning lodging facilities that
offer both temporary and long-term accommodations ("Efficiency Lodges" or
"Lodges"). The Company now owns and operates twelve Efficiency Lodges, which are
located in or near East Point, Douglasville, Atlanta, Dekalb County, Carrollton,
Cartersville, Forest Park, Kennesaw, Columbus, and Louisville, Georgia, and
Pensacola, Florida. The Lodges have an aggregate of 1,357 guest rooms. In
addition, the Company owns and operates rental properties consisting of 53
single family residences, four duplex residential properties, and one commercial
property in or near Atlanta, Georgia (the "Rental Properties"). In the following
description of the Company's business, activities and properties, ELI's
business, activities and properties, except as otherwise indicated, are
described as those of the Company.
Extended-stay lodges such as the Efficiency Lodges are designed to serve
guests who require lodging for a minimum of seven days in rooms designed to
include functional space and, in particular, fully-equipped cooking facilities.
The extended-stay lodging industry (which includes economy extended-stay motels)
is a relatively small but growing part of the lodging industry. Management of
the Company believes that the consumer demand for economy extended-stay lodges
is underserved and increasing. The economic, social and demographic changes in
the United States contributing to the demand for extended-stay lodging include,
among others, the restructuring of corporate America, the increased mobility of
the population of the United States, the increase in single- person households,
the travel requirements of a service economy and the increasingly strict credit
standards of many apartment operators. Unlike most types of rental property
which are generally subject to leases of six months or longer, extended-stay
lodges, including Efficiency Lodges, may raise or lower rents (i.e., room rates)
with much greater frequency based upon occupancy levels. Typical guests in
economy extended-stay properties include people on short-term work or training
assignments, individuals in the midst of relocation for business or personal
reasons,
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military and government personnel, recreational travelers, and persons who
cannot meet the credit standards of apartments.
The Company has acquired the Rental Properties in and near Atlanta,
Georgia. The Rental Properties are primarily residential buildings with one year
leases. Rents are paid monthly. The Company owns one commercial property which
has two tenants, both of which have one year leases.
OPERATIONS
The Company's operations manual guides on-site management of each Lodge,
which is managed by a Property Manager, who resides on site, and an Assistant
Manager. Managers are trained in all aspects of extended- stay lodge operations,
with particular emphasis placed on customer service. The managers are trained to
provide conscientious customer service, they are provided with incentives to
exercise the authority granted to them, and they are efficiently supervised
through management information systems and on-site audits by the Company's
management, which visits and inspects each Efficiency Lodge on a regular basis
to ensure that consistency and quality standards are being met. Managers and
staff receive bonuses based on both performance and occupancy.
Each Efficiency Lodge is computerized with a software package that handles
all on-site transactions and record keeping. The software provides on-site
management with a database of updated information such as available units, units
needing cleaning or repairs, room charges due, guest payment history, and
telephone volume. Operating results are compiled and reviewed regularly. The
Company's corporate office handles purchasing supplies and virtually all
payments of property expenses.
Each of the Efficiency Lodges collects data about each new guest, including
his or her occupation, permanent residence, length of stay and how they learned
about the Lodge. The Company uses this information in the preparation of
advertising and sales materials for each specific Efficiency Lodge. The Company
employs various marketing techniques, including billboard and print as well as
direct marketing to potential customer groups.
For 1999, the overall average occupancy rate for the Company's Lodges was
85%, the average weekly rental rate was $151.69 and the revenue per available
room was $128.66.
The Company operates its Rental Properties by leasing units to residential
occupants. The average occupancy rate is 98%. The average rental rate is $590.00
per month.
BUSINESS STRATEGY
The Company intends to (i) develop additional Lodges, (ii) purchase motels
for conversion to the Efficiency Lodge format or purchase existing economy
extended-stay motels that meet current Company acquisition criteria, and (iii)
realize increased lease revenues from growth in room revenues. The Company will
focus initially on development and acquisition opportunities available in the
Southeastern United States. The Company may build or acquire additional Lodges
by borrowing funds, exchanging capital stock, raising capital through the
issuance and sale of equity, or through its cash flow.
In considering opportunities for developing additional Lodges, the Company
gives strong consideration to demographic and traffic studies, and it reviews
the availability and pricing of suitable sites, the costs and risks of
developing, the availability of financing, as well as economic variables and any
other factors deemed relevant. This data is compared against site selection
criteria employed by the Company and compiled from the base of existing Lodges.
Each site must satisfy the two most important variables: a high daily automobile
traffic count and a significant amount of employment within a three-mile radius.
The Company may acquire additional economy extended-stay lodges and convert
them to Efficiency Lodges. In appropriate circumstances, the Company also may
acquire and convert conventional motels into Efficiency Lodges.
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The Company considers investments in existing properties, including
properties that would require complete renovation, which meet one or more of the
following criteria: (i) the facility is located in an area with relatively high
demand for rooms, a relatively low supply of extended-stay lodges, and barriers
to easy entry into the lodge business, such as a scarcity of suitable sites or
zoning restrictions; and (ii) the facility is in an attractive location that the
Company believes could benefit significantly by becoming an Efficiency Lodge.
COMPETITION
The lodging industry is highly competitive. Each Efficiency Lodge is
located in a developed area that includes motels and other lodges and in some
cases other economy extended-stay lodges. The Company does not believe that any
single competitor or small number of competitors is dominant in the markets in
which its Lodges are located. The number of competitive facilities in a
particular area has a material effect on occupancy and revenues of Lodges. The
Company seeks to compete based on the prices charged, the quality of the
facilities, and service to guests.
The Company competes for investment opportunities with entities which have
substantially greater financial resources than the Company and which as a
consequence may be in a position to accept more risk than the Company, including
risks with respect to the locations of facilities. Such competition may reduce
the number of suitable investment opportunities offered to the Company and
increase the bargaining power of property owners seeking to sell.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous, toxic or petroleum substances on such property. Such laws
often impose such liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment a
hazardous, toxic, or petroleum substance to another property may be liable for
the costs of removal or remediation of substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to conduct
remediation promptly, may adversely affect the value of the real estate or the
owner's ability to sell the real estate or to borrow using the real estate as
collateral.
Phase I environmental audits have been obtained on all of the Company's
Lodges. The Phase I audits were intended to identify potential sources of
contamination for which the Lodges may be responsible and to assess the status
of environmental regulatory compliance. These audits included historical reviews
of the Lodges, reviews of certain public records, preliminary investigations of
the sites and surrounding properties, screening for the presence of asbestos,
PCB's, and underground storage tanks, and the preparation and issuance of a
written report. The Phase I assessments did not include invasive procedures,
such as soil sampling or ground water analysis.
The Phase I audit reports have not revealed any environmental liability
that the Company believes would have a material adverse effect on the Company's
business, assets, or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these reports do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware.
The Company believes that the Lodges and the Rental Properties are in
compliance in all material respects with all federal, state, and local
ordinances and regulations regarding hazardous or toxic substances and other
environmental matters. The Company has not been notified by any governmental
authority of any material noncompliance, liability, or claim relating to
hazardous or toxic substances or other environmental issues in connection with
any of its present or former properties.
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GOVERNMENTAL REGULATION
A number of states regulate the licensing of lodging facilities by
requiring registration, disclosure statements, and compliance with specific
standards of conduct. The Company believes that each of its facilities has the
necessary permits and approvals to operate the respective businesses, and the
Company intends to obtain such permits and approvals for its new facilities. The
Company is also subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working conditions, and work
permit requirements. An increase in the minimum wage rate, employee benefit
costs, or other costs associated with employees could adversely affect the
Company. Both at the federal and state level, from time to time, there are
proposals under consideration to increase the minimum wage.
Under the Americans with Disabilities Act ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Although the Company has attempted to
satisfy ADA requirements in the design of its facilities, if a material ADA
claim were successfully asserted against the Company, the claim could result in
a judicial order requiring the Company to take additional steps to comply with
some aspect of the ADA. Such additional steps can necessitate the expenditure of
substantial sums, a fine would be imposed, or the private litigants could be
awarded damages. These and other initiatives can adversely affect the Company as
well as the lodging industry in general.
EMPLOYEES
As of December 31, 1999, the Company had no employees. Instead, the Company
leases approximately 65 full-time employees, including members of management,
pursuant to an agreement with Team Staff, Inc. Under the Company's agreement
with Team Staff, the Company selects its employees who are hired by Team Staff,
which provides administrative services and is responsible for the payment of all
employee wages, payroll taxes and employee benefits. The Company also
occasionally hires part-time employees through Team Staff. The Company has
elected to lease employees to minimize its administrative expenses and to take
advantage of economies of scale offered by Team Staff in providing workers'
compensation insurance, employee benefits and administrative services. The
Company is charged a fee for the employee and administrative services received.
The fee is based on the hourly rate of the employee and hours worked plus a
percentage of gross wages for payroll taxes, insurance and other benefits. The
lease was renewed on [June 1, 1999], and may be terminated by the Company on
[June 1, 2000]. The Company believes that its relationship with its leased
employees is good.
TRADEMARKS
The Company has registered the service mark "Efficiency Lodge" in the state
of Georgia and with the United States Patent and Trademark Office for hotel and
motel services. The registration extends until 2003 and is thereafter renewable
for ten-year periods.
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-KSB
contains forward-looking statements. These statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those reflected in such statements. Some of these risks might include, but are
not limited to, those discussed in "Competition" section above. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the factors described in other documents the Company files from
time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-QSB to be filed by the Company in 2000 and any
Current Reports on Form 8-K filed by the Company.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company constructed all but four of the Company's Efficiency Lodges
using a standard design, with similar architectural styles and guest room floor
plans and similar construction materials. Five Efficiency Lodges were purchased
from other operators. Each Efficiency Lodge includes guest rooms, a manager's
apartment, an office and a guest laundry room. Each guest room contains a
combination living room and bedroom, a bathroom, a closet, a fully-equipped
kitchenette, and a table and chairs. Guest services, which are minimal in
comparison to motels or hotels, typically include limited front desk hours and
limited maid service, and extra charges for amenities, such as televisions.
Each Efficiency Lodge is an economy extended-stay facility with room rates
that are typically lower than those charged by most motels and hotels in its
market. Although daily rates are available, most guests at the Efficiency Lodges
choose to occupy rooms on a weekly basis, at rates which, as of December 31,
1999, ranged from $109 to $144 per week for single occupancy. The Efficiency
Lodges are able to charge lower rates (a) because of the elimination of certain
amenities found in higher-priced lodging facilities, such as restaurants,
cocktail lounges, meeting rooms, retail shops, pools and other large common
areas, which the Company has found to be unnecessary for the comfort and
enjoyment of its extended-stay guests, and (b) because they use economical
furniture, fixtures and equipment. The Company provides its extended-stay guests
with free access to satellite TV, convenience items for sale in the front
office, and an on-premises laundry facility.
The following lodges secure a note to one lender, with an outstanding
balance at December 31, 1999, of approximately $10,302,113. The loan accrues
interest at 8.02% annually and matures in 2018.
EAST POINT LODGE. This two-story 40-room Lodge is located at 1275 Norman
Berry Drive near East Point, Georgia on approximately two-thirds of an acre. The
Lodge has been owned by the Company since 1987.
DOUGLASVILLE LODGE. This two-story, 148-room Lodge is located in
Douglasville, Georgia on Highway 92. The Lodge has been owned by the Company
since 1988.
FULTON LODGE. This two-story 152-room Lodge is located on approximately
2.77 acres at 4050 Wendell Drive in Atlanta. The Lodge has been owned by the
Company since 1989.
WEST GEORGIA LODGE. This two-story 128-room Lodge is located on 4.18 acres
on Bankhead Highway in Carrollton, Georgia. The Company has owned this Lodge
since March 1990.
DEKALB LODGE. This 103-room Lodge is located on Flat Shoals Road, Decatur,
Georgia. It was purchased by the Company immediately after its construction was
completed in 1997.
TOWNCENTER LODGE. This two-story 124-room Lodge is located at 2665 North
Cobb Parkway, Kennesaw, Georgia. The Lodge has been owned by the Company since
it was acquired in August, 1998.
The following lodge has long-term debt with an aggregate outstanding
balance at December 31, 1999, of approximately $101,029. The loan accrues
interest at 8.95% annually and matures in 2024.
FOREST PARK LODGE. This two-story 124-room Lodge is located on
approximately 2.28 acres in Forest Park, a commercial area of Atlanta. The
property has an approximately 2,500 square-foot auxiliary building used for
office and retail space. The Lodge has been owned by the Company since 1991.
The following lodge secures an adjustable rate mortgage with an aggregate
outstanding balance at December 31, 1999 of approximately $1,989,919. The loan
accrues interest at 1 1/2% over prime and matures in 2013.
COLUMBUS LODGE. This two-story 124-room Lodge is located at 1776 Betwood
Place, Columbus, Georgia. The Company has owned this Lodge since 1998.
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The following lodge secures debt to two lenders, including the former owner
of the property, with outstanding balances at December 31, 1999, aggregating
approximately $182,520. The first mortgage matures in 2019, and the second
matures in 2025. The loans accrue interest at 10.25% annually.
BARTOW LODGE. This two-story 124-room Lodge is located on approximately
3.89 acres near Highway 20 in Cartersville, Georgia. The Company has owned this
Lodge since July 1995.
The following lodge has long-term debt with an aggregate outstanding
balance at December 31, 1999 of approximately $492,262. The loan accrues
interest at 8.3% annually and matures in 2019.
LOUISVILLE LODGE. This two-storey 42-room Lodge is located at Highway 1
Bypass in Louisville, Georgia on 2.95 acres. It was purchased by the Company in
March of 1999.
The following two lodges secure debt to two lenders, with outstanding
balances at December 31, 1999 aggregateing approximately $6,135,585. The first
loan accrues interest at 8.5% annually and matures in 2004. The second loan
accrues interest at 9.5% annually and matures in 2004.
HOME STAY LODGE. This two story 124-room Lodge is located at Davis Highway
in Pensacola, Florida. The Company has owned this Lodge since December, 1999.
HOME STAY LODGE. This two story 124-room Lodge is located at Mobile Highway
in Pensacola Florida. The Company has owned this Lodge since December, 1999.
The following rental properties have long-term debt with an outstanding
balance at December 31, 1999 of $2,750,000.
RENTAL PROPERTIES. These properties consist of 53 single family residences,
four duplex residential properties and are commercial property occupied by a
convenience store and an automobile repair shop.
Total debt of the Company as of December 31, 1999, was approximately
$27,703,427.
As of December 31, 1999, there were no lease agreements in effect for any
of the Lodges, nor any contracts in place to sell any such properties.
For further information about the operation of the Lodges, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
In the opinion of the Company's management, the Company's properties are
adequately covered by insurance, and the Company believes the properties are in
good condition.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of Shareholders was held on August 5, 1999. The
shareholders approved a 30 for 1 reverse split of the Company's common stock.
Holders of 526,012 shares votes for the Reverse Split, holders of 0 shares voted
against it, and 0 shares abstained.
See also the Company's current reports on form 10-QSB filed November 15,
1999 which is incorporated by reference herein.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
There is no public trading market for the Company's Common Stock. As of
January 1, 2000, there were 18,364 outstanding shares of Common Stock and
approximately 379 holders of record of such shares. Although there are currently
no legal or contractual restrictions on the payment of dividends by the Company,
the Company has not paid dividends in the last two years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
Total assets on December 31, 1999 were $27,462,761, an increase of
$9,934,469 from the same date in 1998. This increase is primarily due to the net
of the following changes: property and equipment increased $10,536,659;
investments increased $333,844; cash decreased $684,129; and notes receivable
decreased $246,898. In March 1999, the Company acquired substantially all of the
assets of an existing lodge in Louisville, Georgia for $975,000. In August 1999,
the Company acquired 58 primarily residential rental properties in the Atlanta
area for $3,132,470. In December 1999, the Company acquired all of the assets of
two existing lodges in Pensacola, Florida for $6,450,000. Surplus cash was
invested in equity securities during the year thereby increasing investments to
$418,405 at December 31, 1999. Total liabilities on December 31, 1999 were
28,426,377 compared to $18,839,721 at December 31, 1998, an increase of
$9,586,656. Notes payable increased $9,119,411 at December 31, 1999 due to the
financing of the Louisville lodge, Rental Properties and the two Pensacola
lodges.
Revenue for the year ending December 31, 1999 was $6,848,997 compared to
$5,363,959 for the year ended December 31, 1998, an increase of $1,485,038, or
28%. This increase is primarily due to the Columbus Lodge and Town Center Lodge
having full years of operations in 1999. The Louisville lodge, Rental Properties
and Pensacola lodges generated an additional $275,645, $210,026 and $91,941 of
revenue, respectively, for the Company during 1999.
Operating expenses increased from $3,313,632 in 1998 to $4,138,853 in 1999,
an increase of $825,221. This increase can be attributed to the fact that
advertising expense increased $27,882, depreciation expense increased $275,447,
employee lease expense increased $101,071, management fees increased $81,486,
repairs and maintenance expenses increased $223,144, taxes and licenses
increased $136,122, and utilities increased $92,777 in 1999. Advertising
expenses increased due to additional expenses incurred by the Columbus Lodge and
the Louisville Lodge. Depreciation, employee lease expense, management fees,
taxes and licenses, and utilities increased due to the full year of operations
of the Columbus Lodge and the Town Center Lodge and due to expenses incurred by
the new properties acquired in 1999. Repairs and maintenance expenses increased
for all lodges, but 27% of the aggregate increase was incurred by the Rental
Properties.
Management fees are based on a percentage of gross revenue; therefore, the
revenue increase resulted in a management fee increase. Interest expense
increased from $1,387,426 in 1998 to $1,677,972 in 1999, an increase of $290,546
or 21%. This increase is due to the financing of the Louisville Lodge, the Home
Stay Lodges, and the Rental Properties, and due to a full year of interest
expense on the Columbus Lodge and the Town Center Lodge.
The Company purchased an existing motel in Louisville, Georgia on March 11,
1999 for a total purchase price of $975,000. The Company paid $475,000 in cash
and obtained a $500,000 loan from Georgia State Bank. On August 1, 1999, the
Company acquired, from a company owned by a stockholder, substantially all of
the assets of 58 rental properties for $3,132,470, assumed existing mortgages of
$2,883,000 and applied certain receivables from the stockholder in the amount of
$246,899 against the purchase price. The resulting credit was to additional
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paid-in capital for $2,571. On December 1, 1999, the Company acquired
substantially all of the assets of 2 existing lodges in Pensacola, Florida for
$6,450,000. The Company paid approximately $293,035 in cash, assumed a Note due
2004, accruing interest at 8.5% annually, in aggregate principal amount of
$5,420,000, and assumed a Promissory Note due 2004, accruing interest at New
York Prime + 1%, in aggregate principal amount of $797,040.83.
The Company entered into a note agreement for $2,750,000 in November 1999
to refinance the debt on the Rental Properties.
During 1999 the Company repurchased 734 shares of common stock from its'
shareholders. This stock is currently held by the Company as treasury stock.
8,333 shares of treasury stock are pledged to secure a loan.
Net income before taxes and extraordinary item increased from $680,093 in
1998 to $992,919 in 1999, an increase of $312,826. Net income was $231,812 in
1998 compared to $617,899 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operations primarily with cash flow
from operations. For the year ended December 31, 1999, the Company had a
decrease in cash of $681,129 compared to an increase in cash of $796,071 for the
year ended December 31, 1998. The Company had cash balances of $237,091 and
$921,220 at December 31, 1999 and 1998, respectively. Idle cash of $333,844 was
invested in equity securities in 1999.
The Company anticipates building or acquiring additional Lodges in the
future and may seek to do so by incurring debt. The Company is currently having
a lodge constructed in Austell, Georgia, which it plans to open in the second
quarter of 2000.
The Company anticipates that the cash flow from operations will be
sufficient to meet its current and future working capital needs. Management
intends for financing to be utilized only for the acquisition or construction of
new Lodges and not for working capital. Management's anticipation of meeting
working capital needs through current operations is based on the past
performance of the Lodges, which have not historically required borrowings to
finance working capital needs. However, there can be no assurance in the future
that any new or existing facility will be able to fully fund its working capital
needs through operations.
There are no other commitments for financing. The Company may, however,
seek to increase its debt, issue equity securities or negotiate additional debt.
Any such commitment would be subject to such terms as approved by the Company's
Board of Directors.
Two risk factors which may affect costs related to operations and
development, and thus affect liquidity, are increases in interest rates and
inflation. Management of the Company recognizes these factors and intends to
manage to reduce these risks. However, there can be no assurance that present or
future performances will be in accordance with management's expectations.
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FORWARD-LOOKING STATEMENTS
To the extent the information contained in this discussion and analysis of
the consolidated financial statements of the Company and the information
included elsewhere in the 1998 Annual Report on Form 10-KSB are viewed as
forward-looking statements, the reader is cautioned that various risks and
uncertainties exist that could cause actual future results to differ materially
from that inferred by the forward-looking statements. Among the risks and
uncertainties that should be considered are: (i) dependence on senior
management; (ii) risks associated with the lodging industry; (iii) risks
associated with compliance with environmental regulations and other government
regulations, and (iv) risks associated with financing. The reader is further
cautioned that risks and uncertainties may exist that have not been mentioned
herein due to their unforeseeable nature, but which, nevertheless, may impact
the Company's future operations.
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is included herein beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors are elected by the Company's shareholders at annual meetings and
serve until their successors are duly elected and qualified. Of the current
directors of the Company, two were appointed by the Board of Directors of the
Company at the time of the Merger, one was appointed in May of 1999, and the
other directors were elected by the shareholders. The Company held a special
meeting of shareholders on April 5, 1999. Directors of the Company remained on
the Board and will continue to serve until their successors are duly elected and
qualified. Officers may be elected by the Company's Board of Directors annually,
and they serve until their successors are duly elected and qualified.
Accordingly, the current officers of the Company are serving until their
successors are so elected and qualified.
-10-
<PAGE>
<TABLE>
<CAPTION>
Name (Age) Position(s) Business Experience During the Past Five Years
- ---------- ----------- ----------------------------------------------
<S> <C> <S>
W. Ray Barnes (60) Director, Mr. Ray Barnes has served as a director, President
President and and Chief Executive Officer of ELI and its
Chief predecessors since 1986. Mr. Barnes has owned and
Executive operated Barnes Store in Mableton, Georgia since
Officer, Chief 1954. He has also been a director of Georgia State Bank
Financial and Community Financial Corporation and a director
Officer and of Alabama National Bancorporation since
Chief December 1998.
Accounting
Officer
Arthur L. Crowe, Jr. (75) Director Mr. Crowe has served as a director of the Company
since 1994. Mr. Crowe, an attorney, has maintained
a solo practice since 1989, and also currently serves
as counsel with the law firm of Cauthorn & Phillips,
P.C. in Marietta, Georgia.
Joseph A. Cochran (69) Director Mr. Cochran has been a director of the Company and
its affiliates, Piedmont Southern Co., Pacemaker
Properties, Inc., Ramco Inns of Georgia, Inc., SAC
Building, Piedmont Southern Insurance Agency and
SAC Holdings since 1966, and President of each of
the foregoing affiliates since 1990. Mr. Cochran, an
attorney, has been a member of the law firm of
Cochran, Camp & Snipes since 1966.
Ken F. Thigpen (59) Director Mr. Thigpen has served as a director of the
Company, Piedmont Southern Co., Pacemaker
Properties, Inc., Ramco Inns of Georgia, Inc., SAC
Building, Piedmont Southern Insurance Agency, and
SAC Holdings since 1994, and as a director of ELI
since 1994. Mr. Thigpen has been President and
Chief Executive Officer of Georgia State Bank since
1990.
Dr. Roy W. Sweat, D.C. Director Dr. Sweat has been a director of the Company,
(72) Piedmont Southern Co., Pacemaker Properties, Inc.,
Ramco Inns of Georgia, Inc., SAC Building,
Piedmont Southern Insurance Agency, and SAC
Holdings since 1963 and Vice President of each of
the foregoing affiliates since 1990. Dr. Sweat, a
chiropractor, is president of Sweat Chiropractic
Clinic, P.C.
Mr. Larry V. Watts (61) Director Mr. Watts has been a director of the Company
since May 1999. He is the owner of Concorde
Development & Construction, Inc., which was
established in 1985. Mr. Watts has ownership
interests in other extended stay lodges.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, each
executive officer, director and beneficial owner of 10% or more of the Company's
Common Stock is required to file certain forms with the Securities and Exchange
Commission. A report of beneficial ownership of the Company's Common Stock on
Form 3 is due at the time such person becomes subject to the reporting
requirement and a report on Form 4 or 5 must be filed to reflect changes in
beneficial ownership occurring
-11-
<PAGE>
thereafter. The Company believes that all filing requirements applicable to its
officers and directors were complied with during the 1999 fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
MANAGEMENT COMPENSATION
The following table sets forth the compensation paid to Ray Barnes, chief
executive officer of ELI.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Principal
Position Year Salary Other <F1>
---------------------------------------------------
Ray Barnes, 1999 $50,000 $280,459
President and Chief 1998 $50,000 $204,474
Executive Officer, 1997 $50,000 $169,487
Chief Financial
Officer and Chief
Accounting Officer
- ---------------
[FN]
<F1> Ray Barnes, doing business as Barnes Store, is paid a fee for management of
the Company's properties. See Item 12 "Certain Relationships and Related
Transactions."
</FN>
DIRECTORS' COMPENSATION
Directors of the Company received $250 for each meeting of the Board of
Directors attended in 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PERSONS BENEFICIALLY OWNING GREATER THAN FIVE PERCENT OF THE COMPANY'S COMMON
STOCK
The following table sets forth the persons known by the Company to own
beneficially more than five percent of the Company's voting securities.
Name and Address of Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Owner Common Stock
- -------------- ------------------- -------------------- ------------
Common Stock W. Ray Barnes 16,540 90.06%
1680 Seayes Road
P.O. Box 21
Mableton, GA 30059
-12-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the Company's common stock by management of the Company, as reflected in the
stock records of the Company or provided to the Company by the beneficial
owners.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Owner Common Stock
- ------------------- ------------------- ------------
W. Ray Barnes 16,540 90.06%
1680 Seayes Road
P.O. Box 21
Mableton, GA 30059
Arthur L. Crowe, Jr. 174 *
567 Colston Road
Marietta, GA 30014
Joseph A. Cochran 26 *
2950 Atlanta Street
Smyrna, GA 30080
Ken F. Thigpen 341 1.86%
2572 Oakwood Trace
Smyrna, GA 30080
Dr. Roy W. Sweat, D.C. 273 1.49%
4735 River Court
Duluth, GA 30155
Larry V. Watts 170 *
988 Graymount Circle
Marietta, GA 30064
All officers and directors as a group 17,524 95.43%
- ------------
* Less than one percent
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has in place a management agreement with W. Ray Barnes (doing
business as Barnes Store) pursuant to which Mr. Barnes provides management of
the Company's properties in exchange for 4% of gross revenues of the Company
less hotel/motel taxes and sales taxes. The agreement may be canceled by either
party upon 60 days notice. In 1999, the Company paid $204,474 to Mr. Barnes for
such management services.
The Company entered into an Agreement for Sales and Purchase of Goods,
effective September 1, 1996, with W. Ray Barnes (doing business as Barnes Store)
pursuant to which Mr. Barnes furnishes merchandise and supplies at distributor's
price plus 1% for the maintenance of the Company's facilities and for the
construction of new units to the extent such merchandise and supplies are
available to Mr. Barnes through Barnes Store's purchasing agreement with
wholesalers. The agreement is cancelable by either party upon 60 days notice. In
1999, the Company purchased maintenance supplies totaling $284,215 from Mr.
Barnes.
The Company acquired the Rental Properties from a company owned by W. Ray
Barnes on August 1, 1999, at a cost of $3,132,470, which included the assumption
of a $2,883,000 mortgage, the application of certain receivables owed to Mr.
Barnes in the amount of $246,899, and additional paid-in capital of
approximately $2,571.
-13-
<PAGE>
Another note receivable of W. Ray Barnes, the majority shareholder, in the
principal amount of $217,117 (plus accrued interest of $106,898 bears interest
at 7% and matures on September 25, 2012.
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
a) EXHIBITS. The exhibits filed as part of this Annual report on Form
10-KSB are as follows:
Exhibit No. Description
- ----------- -----------
2.1 Limited Partnership Interest Purchase Agreement, dated December 1,
1999, between Crown Group, Inc. and Chadco, Inc., and the Company
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on form 8-K/A, as filed with the Commission on February 14,
2000).
2.2 Stock Purchase Agreement, dated December 1, 1999, between Crown
Group, Inc. and the Company (incorporated by reference to Exhibit
2.2 of the Company's Current Report on form 8-K/A, as filed with
the Commission on February 14, 2000).
3.1 Restated and Amended Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997,
as filed with the Commission on April 15, 1998), and as amended by
the Articles of Amendment of Efficiency Lodge, Inc. (incorporated
by reference to Exhibit A of the Information Statement filed on
Schedule 14C, as filed with the Commission on July 6, 1999).
3.2 Bylaws of Efficiency Lodge, Inc., as amended (incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997, as filed with
the Commission on April 15, 1998).
10.1 Towncenter Lodge Purchase Agreement by and between Efficiency
Lodge, Inc. and Towncenter Lodge, Inc. (incorporated by reference
to Exhibit 2.1 of the Company's 8-K as filed with the Commission
on September 3, 1998).
10.2 Promissory Note by and between Efficiency Lodge, Inc. and Chapple,
Inc., dated January 7, 1999.
10.3 Promissory Note by and between Efficiency Lodge, Inc. and
Belgravia Capital Corporation, dated August 18, 1998.
10.4 Promissory Note in the amount of $5,420,000, dated May 21, 1998,
to Bank of Pensacola (incorporated by reference to Exhibit 10.1 of
the Company's Current Report on form 8-K/A, as filed with the
Commission on February 14, 2000).
10.5 Unconditional and Irrevocable Guaranty of Payment to the Bank of
Pensacola, dated December 1, 1999, by Efficiency Lodge, Inc.
(incorporated by reference to Exhibit 10.2 of the Company's
Current Report on form 8-K/A, as filed with the Commission on
February 14, 2000).
10.6 Unconditional and Irrevocable Guaranty of Payment to the Bank of
Pensacola, dated December 1, 1999, by W. Ray Barnes (incorporated
by reference to Exhibit 10.3 of the Company's Current Report on
form 8-K/A, as filed with the Commission on February 14, 2000).
<PAGE>
10.7 Promissory Note in the amount of $797,040.83, dated December 1,
1999, to Crown Group, Inc. and Chadco, Inc. (incorporated by
reference to Exhibit 10.4 of the Company's Current Report on form
8-K/A, as filed with the Commission on February 14, 2000).
10.8 Unconditional and Irrevocable Guaranty of Payment to Crown Group,
Inc. and Chadco, Inc., dated December 1, 1999, by W. Ray Barnes
(incorporated by reference to Exhibit 10.5 of the Company's
Current Report on form 8-K/A, as filed with the Commission on
February 14, 2000).
10.9 Construction and Term Loan Agreement, dated May 21, 1998, among
Bank of Pensacola, Home Stay Lodge I, Ltd., Bonnie M. Bray, and
Crown Group, Inc.
10.10 Mortgage and Security Agreement, dated as of May 21, 1998, by Home
Stay Lodge I, Ltd. in favor of Bank of Pensacola.
10.11 Security Agreement, dated May 21, 1998, between Home Stay Lodge I,
Ltd. and Bank of Pensacola.
21 Subsidiaries of the Registrant (incorporated by reference to the
Company's 10-K for the fiscal year ended December 31, 1995, as
filed with the Commission on April 9, 1996).
27 Financial Data Schedule (for SEC use only)
b) REPORTS ON FORM 8-K.
The Company filed an 8-K, reporting an Item 2: Acquisition or
Disposition of Assets and Exhibits, with the Commission on December 16, 1999,
which has been amended by the Company's 8-K/A, filed with the Commission on
February 14, 2000. The 8-K described the lodges acquired in the Home Stay Lodge
acquisition.
-14-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
EFFICIENCY LODGE, INC.
December 31, 1999
F-1
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED STATEMENTS OF EARNINGS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
F-2
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Efficiency Lodge, Inc.
We have audited the accompanying consolidated balance sheet of Efficiency Lodge,
Inc. (a Georgia Corporation) and subsidiaries as of December 31, 1999, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Efficiency Lodge,
Inc. and subsidiaries as of December 31, 1999, and the consolidated results of
their operations and their consolidated cash flows for each of the two years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles in the United States.
Atlanta, Georgia
February 11, 2000
F-3
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Property and equipment, net (note B) $ 25,658,617
Cash 237,091
Inventory 49,997
Due from stockholder (note G) 15,219
Note receivable - stockholder (note C) 217,117
Interest receivable - stockholder (note C) 106,898
Loan fees, net of accumulated amortization (note D) 498,559
Other assets (note E) 679,263
-----------
$ 27,462,761
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable (note F) $ 27,703,427
Accounts payable 174,614
Customer deposits 34,861
Other liabilities 207,635
Income taxes payable 210,153
Deferred taxes (note H) 95,687
-----------
Total liabilities 28,426,377
STOCKHOLDERS' EQUITY
Common stock - no par value, 250,000 shares
authorized; 34,790 shares issued 159,613
Retained earnings 797,105
Accumulated other comprehensive loss (note E) (52,427)
-----------
904,291
Less 16,426 shares of common stock in treasury at cost (1,867,907)
-----------
(963,616)
-----------
27,462,761
$===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------- ---------------
<S> <C> <C>
Revenue $ 6,848,997 $ 5,363,959
Operating expenses 4,138,853 3,313,632
------------ -------------
Operating profit 2,710,144 2,050,327
Other expense (income)
Interest income (45,070) (35,177)
Interest expense 1,677,972 1,387,426
Other, net 84,323 17,985
------------ -------------
1,717,225 1,370,234
------------ -------------
Net earnings before income taxes and extraordinary item 992,919 680,093
Income tax expense (note H) 375,020 239,488
------------ -------------
Net earnings before extraordinary item 617,899 440,605
Extraordinary item
Write off of loan closing cost, net of applicable
income tax benefit of $113,488 (Note D) - (208,793)
------------ -------------
NET EARNINGS $ 617,899 $ 231,812
============ =============
Earnings per common share - basic:
Earnings before extraordinary item $ 32.54 $ 12.68
Extraordinary item - loss - (6.01)
------------ -------------
Net earnings $ 32.54 $ 6.67
=========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common stock
-------------------------- Accumulated
Additional other
Number of paid-in Retained comprehensive Treasury
shares Par Value capital earnings loss stock Total
--------- ----------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 34,790 $ 104,368 $ 52,674 $ (52,606) $ - $ - $ 104,436
Net earnings for the year - - - 231,812 - - 231,812
Repurchase of shares
on December 31, 1998 (15,692) - - - - (1,647,677) (1,647,677)
-------- -------- -------- --------- -------- ---------- ----------
Balance at December 31, 1998 19,098 104,368 52,674 179,206 - (1,647,677) (1,311,429)
Net earnings for the year - - - 617,899 - - 617,899
Other comprehensive loss
Unrealized net loss on
Investments (note E) - - - - (52,427) - (52,427)
----------
Comprehensive earnings 565,472
Repurchase of shares
during 1999 (734) - - - - (220,230) (220,230)
Reclass no par common stock - 52,674 (52,674) - - - -
Purchase of rental properties - 2,571 - - - 2,571
-------- -------- --------- --------- -------- ---------- ----------
Balance at December 31, 1999 18,364 $ 159,613 $ - $ 797,105 $ (52,427) $(1,867,907) $ (963,616)
======== ======== ========= ========= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------- ---------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings $ 617,899 $ 231,812
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization 870,499 613,619
Write off of loan closing costs - 322,281
Forgave a portion of due from stockholder 65,750 -
Unrealized loss on investments (84,560)
Deferred income tax benefit (9,180) (25,000)
Changes in assets and liabilities
(Increase) decrease in interest receivable (25,280) 13,988
Increase in inventories (4,537) (11,540)
Increase in other assets (10,861) (210,255)
Increase in accounts payable 108,163 15,600
Increase in customer deposits 2,297 5,988
Increase (decrease) in other liabilities 187,945 (160,422)
Increase in income taxes payable 210,153 -
------------ -------------
Net cash provided by operating activities 1,928,288 796,071
Cash flows from investing activities
Purchases of property and equipment (8,555,158) (5,497,320)
Repayments of due from stockholder - 159,991
Repayments by affiliates - 178,747
------------ -------------
Net cash used by investing activities (8,555,158) (5,158,582)
Cash flows from financing activities
Payments for repurchase of common stock (220,230) (1,647,677)
Proceeds from notes payable 9,643,020 16,440,000
Payments made on notes payable (3,406,609) (9,078,312)
Payments for loan origination costs (73,440) (499,516)
Payments made on due to stockholder - (100,010)
------------ -------------
Net cash provided by financing activities 5,942,741 5,114,485
------------ -------------
</TABLE>
F-7
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------ --------
<S> <C> <C>
Net (decrease) increase in cash (684,129) 751,974
Cash at beginning of year 921,220 169,246
------------ ------------
Cash at end of year $ 237,091 $ 921,220
============ ============
Supplemental cash flow information
Cash paid during the year for interest $ 1,638,830 $ 1,387,426
============ ============
Cash paid during the year for income taxes $ 164,218 $ 325,894
============ =============
</TABLE>
Noncash investing and financing activities
During 1999, the Company forgave receivables due from former stockholders of
$65,750.
During 1999, the Company acquired rental properties from a company owned by a
stockholder. As a result of the transaction, the Company acquired property and
equipment of $3,132,470, assumed existing mortgages of $2,883,000 and applied
certain receivables from the stockholder in the amount of $246,899 against the
purchase price. The resulting credit was to additional paid in capital for
$2,571. The cost capitalized by the Company for this acquisition was based upon
the historical cost basis of the related company.
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the accounting policies consistently applied in the accompanying
consolidated financial statements follows.
1. Principles of Consolidation
---------------------------
Efficiency Lodge, Inc. (the "Company") consolidates the accounts of all
majority owned subsidiaries. All significant inter-company transactions and
balances have been eliminated.
2. Nature of Operations
--------------------
The Company owns and operates lodging facilities in Georgia and Florida,
which offer both temporary (minimum seven days) and long-term accommodations
which include fully-equipped cooking facilities and on-premises laundry
facilities. Customers include people on short-term work or training
assignments, recreational travelers, and people in the midst of relocation.
3. Inventory
---------
Inventory consists of personal care items and snack foods for resale and is
stated at the lower of cost or market using the first-in, first-out method.
4. Property and Equipment
----------------------
Property and equipment are recorded at cost including capitalized interest
cost incurred during the period of construction. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives using the straight-line method for
buildings and accelerated methods for furniture and equipment. Facilities are
evaluated annually and written down to fair value when management believes
that the undepreciated cost cannot be recovered through future cash flows.
5. Loan Fees
---------
Loan fees and other associated closing costs are recorded at cost.
Amortization is calculated using the straight-line method over the term of
the related loan.
F-9
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
6. Investments
-----------
Investments consist primarily of equity securities, which are accounted for
as available for sale securities and are stated at fair value. Unrealized
gains and losses on these investments, net of the related income tax effect,
are included in accumulated other comprehensive loss.
7. Income Taxes
------------
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance is
provided for deferred tax assets when it is more likely than not that the
asset will not be realized.
8. Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased with a maturity of three months or less to be
cash equivalents.
9. Earnings Per Share
------------------
During 1999, the Company completed a 1 for 30 reverse stock split of its
common stock. Accordingly, all references to common stock within the
accompanying financial statements have been restated to reflect the effect of
the common stock split.
Earnings per share is computed based upon the weighted average number of
shares outstanding during the period. The weighted average number of shares
outstanding during 1999 and 1998 was 18,896 shares and 34,747 shares,
respectively.
There are no outstanding potentially dilutive securities. Accordingly,
earnings per common share assuming dilution is the same as basic earnings per
common share.
F-10
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
10. Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments recorded on the balance sheet include
cash, investments, accounts receivable, accounts payable and debt. Because of
their short maturities, the carrying amount of cash, investments, accounts
receivable and accounts payable approximates fair market value. The fair
value of the Company's long-term debt approximates carrying value based on
quoted market prices of similar issues or on the current rates offered to the
Company for debt of similar terms.
11. Use of Estimates
----------------
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1999:
<TABLE>
<CAPTION>
Depreciable
lives
------------
<S> <C> <C>
Buildings and improvements 31-39 years $ 23,249,946
Furniture and equipment 5-7 years 2,761,956
-------------
26,011,902
Less: accumulated depreciation (4,284,027)
-------------
21,727,875
Land 3,722,903
Construction in progress 207,839
-------------
$ 25,658,617
=============
</TABLE>
NOTE C - NOTE RECEIVABLE - STOCKHOLDER
The $217,117 note receivable from stockholder bears interest at 7%, matures on
September 25, 2012 and is uncollateralized. Accrued interest on this note
totalled $106,898 at December 31, 1999. Interest income on this note totalled
$25,280 and $32,481 for the years ended December 31, 1999 and 1998,
respectively.
F-11
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE D - LOAN FEES
Loan fees were as follows as of December 31, 1999:
Loan fees $ 658,956
Less: accumulated amortization (160,397)
-----------
Net loan fees $ 498,559
===========
During the year ended December 31, 1998, net loan closing costs totaling
$322,281 relating to loans that were refinanced were written off.
NOTE E - INVESTMENTS
Investments, which are included under the caption "Other Assets", consist
primarily of equity securities that are accounted for as available for sale
securities and are stated at fair value. Unrealized gains or losses on these
investments are included in other comprehensive loss.
As of December 31, 1998, these securities had a cost and fair value of
approximately $117,000. Accordingly, no unrealized gain or loss was
recognized at that time.
At December 31, 1999, other assets include investments in equity securities
that are available for sale and carried at their fair value of $451,284.
These securities cost $535,844. The unrealized loss of $52,427 on these
securities is included as other comprehensive loss in the statement of
stockholders' equity, net of the income tax benefit of $32,133.
NOTE F - NOTES PAYABLE
Notes payable consists of the following at December 31, 1999:
Variable rate mortgage notes - 9.5 to 10.25%,
Payments of principal and interest totalling $28,690
per month, maturing in 2004 and 2019 $ 2,009,575
Fixed rate mortgage notes - 8.0 to 10.0%, payments
of principal and interest totaling $246,481
per month, maturing on various dates through 2025 24,943,852
Efficiency Lodge, Inc. and Subsidiaries
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE F - NOTES PAYABLE - Continued
Fixed rate note - 9%, principal and interest due in 2001,
collateralized by 8,333 shares of the Company's
treasury stock 750,000
-----------
$ 27,703,427
===========
The mortgage notes payable are collateralized by all of the Company's real
property and are guaranteed by the majority shareholder. One mortgage note
payable requires monthly payments of $14,127 into a capital replacement
reserve fund held by the mortgagee. Disbursements from the fund are subject
to approval by the mortgagee. The balance in this fund was $16,244 at
December 31, 1999, and is included in other assets.
Future maturities of long-term debt as of December 31, 1999 are as follows:
2000 $ 547,763
2001 1,343,271
2002 3,208,337
2003 634,060
2004 5,304,533
Thereafter 16,665,463
--------------
$ 27,703,427
==============
NOTE G - RELATED PARTY TRANSACTIONS
Management fees of $280,459 and $204,474 were paid in 1999 and 1998,
respectively, to a stockholder. The Company entered into an agreement for
management services with this stockholder effective September 1, 1996. Under
the agreement, the Company will pay four percent of gross revenues less
certain taxes for management services provided by the stockholder. This
agreement has no specified expiration date and may be terminated at any time
by either party.
As of December 31, 1999, $15,219 was due from a stockholder. This unsecured
receivable is non-interest bearing and has no specified repayment terms.
During 1999 and 1998, the Company purchased maintenance supplies totalling
$247,642 and $284,215, respectively, from a stockholder.
F-13
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - RELATED PARTY TRANSACTIONS - Continued
During 1999, the Company acquired rental properties for approximately
$3,132,470 from a com-pany owned by a stockholder (see Note I).
NOTE H - INCOME TAXES
Income tax expense consists of the following:
1999 1998
------------ ------------
Current expense
Federal $ 323,500 $ 127,000
State 60,700 24,000
----------- -----------
384,200 151,000
Deferred benefit
Federal (7,680) (21,000)
State (1,500) (4,000)
----------- -----------
(9,180) (25,000)
----------- -----------
$ 375,020 $ 126,000
=========== ===========
This expense differs from the expense based on the Federal statutory rate due
primarily to state income taxes. At December 31, 1999 and 1998, the Company's
deferred tax liability is due to the difference between the income tax basis
of property and equipment and investments compared to the amount reported in
the financial statements.
F-14
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - MERGER AND ACQUISITIONS
Acquisition of Town Center Lodge
On August 18, 1998, the Company acquired substantially all of the assets of
an existing extended stay lodge known as Town Center Lodge for $3,000,000
plus other acquisition costs of approximately $126,000. The unaudited pro
forma information for the year ended December 31, 1998 set forth below gives
effect to the acquisition as if it had occurred on January 1, 1998. The pro
forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had this transaction been consummated at the beginning of the
1998 indicated.
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Revenue $ 5,861,071
Operating expenses 3,643,220
----------
Operating profit 2,217,851
Other expense
Interest expense 1,564,952
Other 5,512
----------
Net earnings before tax and extraordinary item 647,387
Income tax expense 220,112
----------
Net earnings before extraordinary item 427,275
Extraordinary item
Write off of loan closing cost, net of applicable
income tax benefit of $113,488 (208,793)
----------
Net earnings $ 218,482
==========
Earnings per common share - basic:
Earnings before extraordinary item $ 12.30
Extraordinary item - loss (6.01)
----------
Net earnings $ 6.29
==========
</TABLE>
Acquisition of Louisville Lodge
-------------------------------
On March 11, 1999, the Company acquired substantially all of the assets of an
existing lodge known as Louisville Lodge for $975,000.
F-15
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - MERGER AND ACQUISITIONS - Continued
Acquisition of Rental Properties
--------------------------------
On August 1, 1999, the Company acquired, from a company owned by a
stockholder, substantially all of the assets of 58 rental properties for
$3,132,470, assumed existing mortgages of $2,883,000 and applied certain
receivables from the shareholder in the amount of $246,899 against the
purchase price. The resulting credit was to additional paid-in capital for
$2,571. The cost capitalized by the Company for this acquisition was based
upon the historical cost basis of the related company.
Acquisition of Home Stay Lodges
-------------------------------
On December 1, 1999, the Company acquired substantially all of the assets of
2 existing lodges in Pensacola, Florida known collectively as Home Stay Lodge
I, Ltd. ("Home Stay") for $6,450,000. The unaudited pro forma information for
the year ended December 31, 1999 set forth below gives effect to the
acquisition as if it had occurred on January 1, 1999. Home Stay began
operations during 1999. Accordingly, pro forma information is not presented
for 1998. The pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had this transaction been consummated at
the beginning of the period indicated.
(Unaudited)
Revenue $ 7,544,379
Operating expenses 4,507,347
-------------
Operating profit 3,037,032
Other expense
Interest expense 2,148,305
Other 31,260
-------------
Net earnings before tax 857,467
Income tax expense 371,976
-------------
Net income $ 485,491
=============
Earnings per common share - basic $ 25.69
=============
F-16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EFFICIENCY LODGE, INC.
By: /s/ W. Ray Barnes
--------------------------------------
W. Ray Barnes
President and Chief Executive Officer
Date: April 14, 2000
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Company in the capacities set forth and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Position Date
--------- -------- -----
<S> <C> <C>
/s/ W. Ray Barnes President and Chief Executive Date: April 14, 2000
- ------------------------- Officer and Director, (Principal
W. Ray Barnes Executive Officer, Principal
Financial Officer, Principal
Accounting Officer)
/s/ Arthur L. Crowe, Jr. Director Date: April 14, 2000
- -------------------------
Arthur L. Crowe, Jr.
Director Date: April ____, 2000
- -------------------------
Joseph A. Cochran
/s/ Ken F. Thigpen Director Date: April 14, 2000
- -------------------------
Ken F. Thigpen
Director Date: April ____, 2000
- -------------------------
Roy W. Sweat
/s/ Larry V. Watts Director Date: April 14, 2000
- -------------------------
Larry V. Watts
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.1 Limited Partnership Interest Purchase Agreement, dated December 1,
1999, between Crown Group, Inc. and Chadco, Inc., and the Company
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on form 8-K/A, as filed with the Commission on February 14,
2000).
2.2 Stock Purchase Agreement, dated December 1, 1999, between Crown
Group, Inc. and the Company (incorporated by reference to Exhibit
2.2 of the Company's Current Report on form 8-K/A, as filed with
the Commission on February 14, 2000).
3.1 Restated and Amended Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997,
as filed with the Commission on April 15, 1998), and as amended by
the Articles of Amendment of Efficiency Lodge, Inc. (incorporated
by reference to Exhibit A of the Information Statement filed on
Schedule 14C, as filed with the Commission on July 6, 1999).
3.2 Bylaws of Efficiency Lodge, Inc., as amended (incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997, as filed with
the Commission on April 15, 1998).
10.1 Towncenter Lodge Purchase Agreement by and between Efficiency
Lodge, Inc. and Towncenter Lodge, Inc. (incorporated by reference
to Exhibit 2.1 of the Company's 8-K as filed with the Commission
on September 3, 1998).
10.2 Promissory Note by and between Efficiency Lodge, Inc. and Chapple,
Inc., dated January 7, 1999.
10.3 Promissory Note by and between Efficiency Lodge, Inc. and
Belgravia Capital Corporation, dated August 18, 1998.
10.4 Promissory Note in the amount of $5,420,000, dated May 21, 1998,
to Bank of Pensacola (incorporated by reference to Exhibit 10.1 of
the Company's Current Report on form 8-K/A, as filed with the
Commission on February 14, 2000).
10.5 Unconditional and Irrevocable Guaranty of Payment to the Bank of
Pensacola, dated December 1, 1999, by Efficiency Lodge, Inc.
(incorporated by reference to Exhibit 10.2 of the Company's
Current Report on form 8-K/A, as filed with the Commission on
February 14, 2000).
10.6 Unconditional and Irrevocable Guaranty of Payment to the Bank of
Pensacola, dated December 1, 1999, by W. Ray Barnes (incorporated
by reference to Exhibit 10.3 of the Company's Current Report on
form 8-K/A, as filed with the Commission on February 14, 2000).
<PAGE>
10.7 Promissory Note in the amount of $797,040.83, dated December 1,
1999, to Crown Group, Inc. and Chadco, Inc. (incorporated by
reference to Exhibit 10.4 of the Company's Current Report on form
8-K/A, as filed with the Commission on February 14, 2000).
10.8 Unconditional and Irrevocable Guaranty of Payment to Crown Group,
Inc. and Chadco, Inc., dated December 1, 1999, by W. Ray Barnes
(incorporated by reference to Exhibit 10.5 of the Company's
Current Report on form 8-K/A, as filed with the Commission on
February 14, 2000).
10.9 Construction and Term Loan Agreement, dated May 21, 1998, among
Bank of Pensacola, Home Stay Lodge I, Ltd., Bonnie M. Bray, and
Crown Group, Inc.
10.10 Mortgage and Security Agreement, dated as of May 21, 1998, by Home
Stay Lodge I, Ltd. in favor of Bank of Pensacola.
10.11 Security Agreement, dated May 21, 1998, between Home Stay Lodge I,
Ltd. and Bank of Pensacola.
21 Subsidiaries of the Registrant (incorporated by reference to the
Company's 10-K for the fiscal year ended December 31, 1995, as
filed with the Commission on April 9, 1996).
27 Financial Data Schedule (for SEC use only)
SECURITY AGREEMENT
------------------
THIS AGREEMENT made this 21st day of May, 1998, between HOME STAY LODGE I,
LTD., a Florida Limited Partnership, of 4040 North McArthur Boulevard, Suite
100, Irving, Texas, referred to as DEBTOR, and BANK OF PENSACOLA, of 400 West
Garden Street, Pensacola, Florida, referred to as SECURED PARTY.
IN CONSIDERATION of the mutual covenants and promises set forth in this
Security Agreement, DEBTOR and SECURED PARTY agree:
SECTION ONE
-----------
CREATION OF SECURITY INTEREST
DEBTOR grants to SECURED PARTY a security interest in the following
property, whether now existing or hereinafter acquired, and any and all
additions, accessions, and substitutions to or for such property, referred to as
the Collateral, and the proceeds and products of said Collateral:
ALL FURNITURE, FIXTURES, EQUIPMENT, INVENTORY, AND ACCOUNTS
RECEIVABLE, NOW OWNED OR HEREINAFTER ACQUIRED BY THE DEBTOR.
to secure the payment of Five Million Four Hundred Twenty Thousand Dollars
($5,420,000.00), as provided in the Note(s) of DEBTOR of the same date as this
Security Agreement, and also any and all other liabilities of DEBTOR to SECURED
PARTY, direct or indirect, absolute or contingent, due or to become due, now
existing or arising after the effective date of this Agreement, referred to as
the Obligations.
SECTION TWO
-----------
CLAIMS AND DEMANDS AGAINST COLLATERAL
DEBTOR warrants and covenants that, except for the security interest
granted by this Security Agreement, DEBTOR is, or to the extent that this
Security Agreement states that the Collateral is to be acquired subsequent to
the effective date of this Security Agreement, will be, the owner of the
Collateral free from adverse lien, security interest, or encumbrance; and that
DEBTOR will defend the Collateral against any and all claims and demands of all
persons at any time claiming the Collateral or any interest in such Collateral.
SECTION THREE
-------------
USE OF COLLATERAL
DEBTOR warrants and covenants that the Collateral is not used or bought
primarily for personal, family, or household purposes.
<PAGE>
SECTION FOUR
------------
STORAGE OF COLLATERAL
DEBTOR warrants and covenants that the Collateral will be kept at 6315
Mobile Highway, Pensacola, Florida, and 9357 North Davis Highway, Pensacola,
Florida; that DEBTOR will promptly notify SECURED PARTY of any change in the
location of the Collateral within the State of Florida; and that DEBTOR will not
remove the Collateral from the State of Florida without the written consent of
SECURED PARTY.
SECTION FIVE
------------
DEBTOR'S PLACE OF BUSINESS
DEBTOR warrants and covenants that DEBTOR's place of business in the State
of Florida is located at 6315 Mobile Highway, Pensacola, Florida, and 9357 North
Davis Highway, Pensacola, Florida.
SECTION SIX
-----------
ATTACHMENT OF COLLATERAL TO REALTY
DEBTOR warrants and covenants that if Collateral has been attached to or is
to be attached to real estate, a description of the real estate is:
SEE ATTACHED EXHIBIT "A"
and the name of the record title owner is HOME STAY LODGE I, LTD.; and that if
the Collateral is attached to real estate prior to the perfection of the
Security Interest granted, DEBTOR will, on demand of SECURED PARTY, furnish
SECURED PARTY with a disclaimer or disclaimers, signed by all persons having an
interest in the real estate, of any interest in the Collateral that is prior to
SECURED PARTY's interest.
SECTION SEVEN
-------------
FINANCING STATEMENT
DEBTOR warrants and covenants that no financing statement covering any
collateral or any proceeds of such collateral is on file in any public of f ice;
that at the request of the SECURED PARTY, DEBTOR will join with SECURED PARTY in
executing one or more financing statements pursuant to the Uniform Commercial
Code of the State of Florida in form satisfactory to SECURED PARTY; and DEBTOR
will pay the cost of filing such financing statements in all public offices
wherever filing is deemed by he SECURED PARTY to be necessary or desirable.
2
<PAGE>
SECTION EIGHT
-------------
INSURANCE
DEBTOR warrants and covenants that DEBTOR will have and maintain insurance
at all times with respect to all collateral against risks of fire (including
so-called extended coverage theft, 'and other risks as SECURED PARTY may
require, containing such terms, in such form, for such periods and written by
such companies as may be satisfactory to SECURED PARTY, such insurance to be
payable to SECURED PARTY and DEBTOR as their interest may appear; that all
policies of insurance shall provide for ten (10) days' written minimum
cancellation notice to SECURED PARTY, and at the request of SECURED PARTY shall
be delivered to and held by it, and that SECURED PARTY may act as attorney for
DEBTOR in obtaining, adjusting, settling, and canceling such insurance and
endorsing any drafts.
SECTION NINE
------------
LIENS, WASTE AND INSPECTION
DEBTOR warrants and covenants that DEBTOR will keep the Collateral free from
any adverse liens, security interest, or encumbrance and in good order and
repair and will not waste and destroy the Collateral or any part of such
Collateral; that DEBTOR will not use the Collateral in violation of any statute
OR ordinance; and that SECURED PARTY may examine and inspect the Collateral at
any time, wherever located.
SECTION TEN
-----------
TAXES AND ASSESSMENTS
DEBTOR warrants and covenants that DEBTOR will pay promptly when due all
taxes and assessments on the Collateral or for its use or operation or on this
Security Agreement or on any note or notes evidencing the obligation.
SECTION ELEVEN
--------------
DISCHARGE OF ENCUMBRANCE BY SECURED PARTY
At its option, SECURED PARTY may discharge taxes, liens, or security
interest or other encumbrances at any time levied or placed on the Collateral,
any pay for insurance on the Collateral, and may pay for the maintenance and
preservation of the Collateral. DEBTOR agrees to reimburse SECURED PARTY on
demand for any payment made, or any expense incurred by SECURED PARTY pursuant
to the authorization set forth in this Section.
3
<PAGE>
SECTION TWELVE
--------------
POSSESSION UNTIL DEFAULT
Until default, the DEBTOR may have possession of the Collateral and use it
in any lawful manner not inconsistent with this Security Agreement and not
inconsistent with any policy of insurance on the Collateral.
SECTION THIRTEEN
----------------
ACTS OF DEFAULT
DEBTOR shall be in default under this Security Agreement upon the happening
of any of the following events or conditions:
A. Default in the payment or performance of any obligations, covenant,
or liability contained or referred to in this Security Agreement or in any note
or other obligation secured thereby;
B. any warranty, representation, or statement made or furnished to
SECURED PARTY by or on behalf of DEBTOR proves to have been false in any
material respect when made or furnished;
C. Any event that results in the acceleration of the maturity of the
indebtedness of the DEBTOR to others under any indenture, agreement or
undertaking;
D. Loss, theft, damage, destruction, sale or encumbrance to or of any
of the Collateral, or the making of any levy, seizure, or attachment of or on
such Collateral; and
E. Death, dissolution, termination of existence, insolvency, business
failure, appointment of a receiver of any part of the property of, assignment
for the benefit of creditors by, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against DEBTOR or any guarantor or surety
for debtor.
SECTION FOURTEEN
----------------
RIGHTS OF SECURED PARTY ON DEFAULT
A. Upon default and at any time thereafter, SECURED PARTY may declare
all obligations secured by this Security Agreement immediately due and payable
and shall have the remedies of a secured party under the Uniform Commercial Code
of the State of Florida.
B. SECURED PARTY may require DEBTOR to assemble the Collateral and make
it available to SECURED PARTY at a place to be designated by SECURED PARTY that
is reasonably convenient to both parties. Unless the Collateral is perishable or
threatens to
4
<PAGE>
(b) This Assignment shall be governed and construed in all respects by
the laws of the State of Florida.
(c) This Assignment shall be and remain in full force and effect until
payment in full of all indebtedness secured hereby.
(d) If any provision of this Assignment shall be invalid or
unenforceable, the remaining provisions of this Assignment shall nevertheless
survive and be and remain in full force and effect.
(e) As used herein, each term beginning with a capital letter shall
have the meaning specified in the Loan Agreement or the other Loan Documents,
unless another meaning is specified or clearly appears.
(f) As used herein, the singular shall include the plural, and the male
gender shall include the female and neuter genders, and all obligations of
Borrowers hereunder shall be joint and several.
IN WITNESS WHEREOF, Borrower has caused this instrument to be executed by
its duly authorized general partners with an effective date as of the day and
year first above written.
SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF.
SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF.
/s/ Charles L. Hoffman, Jr. HOMESTAY LODGE I, LTD., a Florida
Charles L. Hoffman, Jr. Limited Partnership
By: Home Stay Lodge, Inc., a
/a/ Kate Z. Thomas Florida Corporation
Kate Z. Thomas
By /s/ Edward M. McMurphy
-------------------------------
Its:
------------------------
Its Sole General Partner
STATE OF FLORIDA
COUNTY OF ESCAMBIA
The foregoing instrument was acknowledged before me this 21st day of
May 1998, by Edward R. McMurphy, the President of Home Stay Lodge, Inc., a
Florida corporation, the sole general partner of HOME STAY LODGE I, LTD., a
Florida limited partnership, on behalf of said partnership ( ) who is personally
known to me or (X) who produced Texas driver's license as identification.
/s/ Charles L. Hoffman, Jr.
-------------------------------------------
[NOTARIAL SEAL] NOTARY PUBLIC - STATE OF FLORIDA
Typed Name:________________________________
My Commission Expires: 2/28/01
---------------------
Prepared by:
Charles L. Hoffman, Jr., of
SHELL, FLEMING, DAVIS & MENGE
226 Palafox Place
Seville Tower, Ninth Floor
Post Office Box 1831
Pensacola, Florida 32598-1831
SFD&M File No.: Z2-24430
STATE OF FLORIDA
COUNTY OF ESCAMBIA MORTGAGE AND SECURITY AGREEMENT
-------------------------------
THIS INDENTURE is made and executed as of the 21st day of May, 1998, by
HOME STAY LODGE I, LTD., a Florida limited partnership, ("Mortgagor"), to BANK
OF PENSACOLA with its principal office at 400 West Garden Street, Pensacola,
Florida 32501, as mortgagee ("Lender").
W I T N E S S E T H:
-------------------
WHEREAS, Lender has agreed to make a loan to Mortgagor in the principal
amount of Five Million Four Hundred Twenty Thousand Dollars ($5,420,000.00) (the
"Loan");
WHEREAS, the Loan is evidenced by a Promissory Note (the "Note") of
even date herewith from Mortgagor to Lender in the original principal amount of
$5,420,000.00;
WHEREAS, Lender will not make the Loan unless Mortgagor gives to Lender
this Mortgage as security for the Note and related loan documents;
NOW, THEREFORE, for and in consideration of the Loan and to secure the
prompt payment of the Note, with interest thereon, and any and all extensions,
renewals, replacements, consolidations and modifications thereof, and further to
secure the punctual performance of all covenants, conditions and agreements set
forth herein or in the other instruments securing the Note, Mortgagor does
hereby irrevocably grant, bargain, sell, alien, remise, release, confirm,
pledge, assign, transfer and convey to Lender, its successors and assigns, the
following described property (all of which as described in (A) through (F) below
is referred to herein as the "Mortgaged Property"):
A. Those two parcels of land (the "Property") situated and lying in
Escambia County, Florida, and described in Exhibit "A" attached hereto and
incorporated herein by reference.
B. All structures, buildings, improvements, sewage and utility lines
and equipment, appurtenances and fixtures of every nature whatsoever now or
hereafter situated in, on, above or under the Property (the "Improvements");
C. All building materials, equipment, fixtures and fittings of every
kind or character now owned or hereafter acquired by the Mortgagor for the
purpose of being used or useful in the construction of the Improvements located
or to be located on the Property, whether such materials, equipment, fixtures
and fittings are actually located on or adjacent to the Property or not, and
whether in storage or otherwise, wheresoever the same may be located, including
without limitation all lumber and lumber products, bricks, building stones and
building blocks, sand and cement, roofing material, paint, doors, windows,
hardware, nails, wires and wiring, plumbing and plumbing fixtures, sewer lines
and pumping stations and fixtures and equipment, heating and air-conditioning
equipment and appliances, electrical and gas equipment and appliances, pipes and
piping, ornamental and decorative fixtures, furniture, ranges, refrigerators,
dishwashers and disposals;
<PAGE>
D. All fixtures, appliances, machinery, furniture, furnishings,
apparatus, equipment and other articles of personal property of any nature
whatsoever owned by Mortgagor now or at any time hereafter and now or hereafter
installed in, attached to or situated in or upon the Property or the
Improvements, or used or intended to be used in connection with the Property or
in the operation, occupancy, use, maintenance or enjoyment of any of the
Improvements now or hereafter erected thereon or relating or appertaining
thereto, whether or not such personal property is or shall be affixed thereto,
including without limitation all furniture, furnishings, apparatus, machinery,
motors, elevators, fittings, radiators, ranges, ovens, ice boxes, refrigerators,
awnings, shades, screens, blinds, office equipment, carpeting and other
furnishings, and all plumbing, heating, lighting, cooking, laundry, ventilating,
refrigerating, incinerating, air-conditioning and sprinkler equipment and
fixtures and appurtenances thereto; and all proceeds thereof (including without
limitation condemnation awards and insurance proceeds), all extensions,
betterments and accessions thereto, all renewals and replacements thereof and
all articles in substitution therefor, whether or not the same are or shall be
attached to the Property or Improvements in any manner; it being mutually agreed
that all the aforesaid property shall, so far as permitted by law, be deemed to
be fixtures and a part of the Property, and as to the balance of said Property,
this Mortgage is hereby deemed to be as well a Security Agreement for the
purpose of creating a security interest in said property and securing the Loan
for the benefit of Lender;
E. All easements, rights-of-way, gores of land, vaults, streets, ways,
alleys, passages, sewer rights, waters, water courses, water rights and powers,
riparian rights, water stock, development rights, air rights, public places, and
all estates, rights, titles, interests, privileges, liberties, tenements,
hereditaments and appurtenances whatsoever, in any way belonging, relating to or
appertaining to the Property, or any part thereof, or which hereafter shall in
any way belong, relate or be appurtenant thereto, whether now owned or hereafter
acquired by Mortgagor, and the reversion and reversions and remainder and
remainders thereof, and all rents, royalties, issues, profits, revenues and
income with respect to the Property (including without limitation all
condemnation awards, insurance proceeds, payments under leases and tenancies,
sale proceeds, purchase deposits, tenant security deposits, escrow funds, and
all proceeds, claims, causes of action and recoveries arising on account of any
damage to or taking of, or for any loss or diminution in the value of, the
Property or any Improvements, or any part thereof or interest therein), and all
the estate, right, title, interest, property, possession, claim and demand
whatsoever at law, as well as in equity, of Mortgagor of, in and to the same;
and
F. All right, title and interest of Mortgagor in, to and under any and
all sales contracts now existing or hereafter entered into with respect to the
sale of any portion of the Mortgaged Property or any interest therein, together
with Mortgagor's entire right, title and interest with respect to any and all
earnest money deposits related to such contracts.
TO HAVE AND TO HOLD the Mortgaged Property and all parts thereof,
together with all rights, privileges and appurtenances thereunto belonging, unto
the Lender, its successors and assigns, forever, subject however to the terms
and conditions herein.
ARTICLE I.
----------
COVENANTS AND AGREEMENTS OF MORTGAGOR
-------------------------------------
1.01 SECURED OBLIGATIONS. This instrument secures:
-------------------
(a) The payment and performance of the Mortgagor's indebtedness and
obligations tinder the Note, including all extensions, renewals, consolidations
and modifications of the Note.
(b) The payment and performance of the Mortgagor's obligations under
this Mortgage.
(c) The payment of all sums advanced or paid out by the Lender under
any provision of this Mortgage or to protect the security of this Mortgage.
(d) The payment of the principal and interest on all other or future
loans or advances made by the Lender, at Lender's option, to the Mortgagor (or
any successor in interest to the Mortgagor as the owner of all or any part of
tile Mortgaged Property), when the promissory note evidencing the loan or
advance specifically states that it is secured by the Mortgage ("Future
2
<PAGE>
Advances"), including all extensions, renewals and modifications of any Future
Advances, provided that such Future Advances are made within twenty (20) years
from the date of this Mortgage or within such lesser period of time as may be
hereafter provided by law as a prerequisite for the sufficiency of actual notice
or record notice of such optional Future Advances as against the rights of
creditors or subsequent purchasers for a valuable consideration, although there
may be no advance made at the time of the execution of this Mortgage and
although there may be no indebtedness outstanding at the time any Future Advance
is made. It is intended that the lien of this Mortgage shall be valid as to all
such indebtedness and Future Advances from the time this Mortgage is filed for
record. The total amount of indebtedness that may be secured by this Mortgage
may decrease or increase from time to time, provided, however, that the total
unpaid balance secured at any time shall not exceed a maximum principal amount
of $7,500,000.00 plus interest thereon, and any disbursements made by Lender for
the payment of taxes, levies or insurance on the property covered by this
Mortgage, together with interest thereon, plus reasonable attorney's fees and
court costs incurred in the collection of any or all of said sums of money. To
the extent that this Mortgage may secure more than one note, a default in the
payment of one note shall constitute a default in the payment of all other
notes. However, this provision as to Future Advances shall not be construed to
obligate Lender to make any additional advances or loans.
(e) The payment and performance of the Mortgagor's obligations under
the Loan Agreement and other Loan Documents (as defined in the Note) and under
all other present and future agreements executed by the Mortgagor in favor of
the Lender and relating to the Loan.
1.02 WARRANTY OF TITLE. Mortgagor warrants that it is presently seized
-----------------
and possessed of an unencumbered, indefeasible fee simple estate in the
Property, free and clear of all liens, claims and encumbrances and subject only
to the exceptions, if any, listed in Exhibit "B" attached hereto and
incorporated herein by reference; that it has good right, full power and lawful
authority to sell, convey, hypothecate and encumber the Mortgaged Property; and
that it owns the personal property and fixtures subject to this Mortgage free
and clear of all liens, encumbrances, claims charges, conditional sales
contracts, chattel mortgages, security agreements, financing statements and
anything of a similar nature. Further, Mortgagor warrants that it shall preserve
such title to the Mortgaged Property and shall forever warrant and defend the
same unto Lender and its successors and assigns against the claims of all
persons and parties whomsoever.
1.03 ASSIGNMENT OF RENTS.
--------------------
(a) All of the existing and future rents, royalties, income, profits,
issues, revenues and accounts of or related to the Mortgaged Property that arise
from its use or occupancy are hereby absolutely and presently assigned to the
Lender. Upon the occurrence of any Event of Default under this Mortgage, Lender
may in its discretion at any time without notice to the Mortgagor collect the
rents, royalties, income, profits, issues, revenues and accounts itself or by an
agent or receiver. Mortgagor hereby authorizes and directs all lessees,
sublessees and occupants of the Mortgaged Property or any part thereof to pay
any and all amounts due Mortgagor pursuant to their respective leases, subleases
and occupancy agreements to Lender or such nominee as Lender may designate in
writing upon receipt of written notice from Lender that an Event of Default
under this Mortgage or the other Loan Documents has occurred, and all such
lessees, sublessees and occupants are expressly relieved of any and all duty,
liability or obligation to Mortgagor in respect of all payments so made. No
action taken by the Lender to collect any rents, royalties, income, profits
issues, revenues and accounts shall make the Lender a "mortgagee-in-possession"
of the Mortgaged Property. Possession by a court-appointed receiver shall not be
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considered possession by the Lender. All rents, royalties, income, profits,
issues, revenues and accounts collected by the Lender or a receiver shall be
applied to pay all expenses of collection (including without limitation
attorneys' fees), all costs of operation and management of the Mortgaged
Property, and all indebtedness and obligations secured by this Mortgage in
whatever order the Lender directs in its absolute discretion and without regard
to the adequacy of its security.
(b) Mortgagor shall not execute any lease, sublease or occupancy
agreement affecting any of the Mortgaged Property except with Lender's prior
written consent.
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(c) Without the prior written consent of the Lender, the Mortgagor
shall not accept prepayments of rent more than thirty (30) days in advance of
their due date under any leases, subleases or occupancy agreements affecting any
of the Mortgaged Property, nor modify, amend, extend or renew any such leases,
subleases or occupancy agreements, nor in any manner impair the Mortgagor's
interest in the rents, royalties, income, profits, issues, revenues and accounts
of the Mortgaged Property. The Mortgagor shall perform all covenants of the
lessor under any such leases, subleases or occupancy agreements. Upon the
Lender's request, the Mortgagor shall execute and deliver to Lender for
recordation an Assignment of Rents and Leases in form and substance acceptable
to Lender. Such Assignment of Rents and Leases, if and when recorded in the
public records of the county wherein the Property is situated, shall control as
to any irreconcilable conflict between the provisions of said assignment and the
provisions of this Section.
(d) If required by the Lender, any lease, sublease or occupancy
agreement affecting any of the Mortgaged Property must provide, in a manner
approved by the Lender, that the tenant or occupant shall recognize as its
lessor any person succeeding to the interest of the Mortgagor upon any
foreclosure of this Mortgage.
(e) Nothing herein shall render Lender liable under any existing or
future lease, sublease or occupancy agreement, regardless of the collection of
rents thereunder, for any of the covenants or agreements of Mortgagor under such
lease, sublease or occupancy agreement.
(f) The provisions of this Section 1.03 shall be construed and
interpreted consistently with the provisions of any separate Assignment of Rents
and Leases made by Mortgagor to Lender with respect to the Mortgaged Property,
to the end that all provisions of this Section 1.03 and any separate Assignment
shall be given full force and effect. In the event of an irreconcilable conflict
between any provision of this Section 1.03 and any provision of a separate
Assignment, the provision of the separate Assignment shall control if and when
such separate Assignment has been recorded in the public records of the county
wherein the Property is situated.
1.04 TRANSFER OF TITLE. It is specifically agreed and understood that
-----------------
Mortgagor shall not sell, contract to sell, grant an option to purchase,
transfer or otherwise convey all or any part of the Mortgaged Property, or any
interest therein, nor transfer the benefit of the Loan evidenced by the Note and
secured by the Mortgage or the interest rate specified in the Note to any person
acquiring title from the Mortgagor. Unless Lender gives its prior consent in
writing, the violation or attempted violation of any of the foregoing
prohibitions or restrictions shall be an Event of Default under this Mortgage
and the Note secured hereby. No cure period will apply to this default. Any
consent given by Lender hereunder shall pertain only to the proposed transfer of
title for which the consent was requested and shall not obligate Lender to
approve any further or future transfers.
1.05 CORPORATE STATUS, FINANCIAL AND MANAGEMENT COVENANTS.
----------------------------------------------------
(a) Mortgagor shall keep in effect its existence and rights as a
limited partnership under the laws of the State of Florida and shall not cause,
suffer or permit any changes in the management, ownership or control of
Mortgagor (whether by sale, assignment, transfer, pledge, hypothecation or other
disposition of the stock of Mortgagor or by merger or consolidation by or with
Mortgagor) or any other circumstance or occurrence the effect of which is to
transfer all or any part of the management, ownership or control of Mortgagor or
its stockholders from the persons now holding the same to others.
(b) For all periods during which (i) title to the Mortgaged Property or
any part thereof shall be held by a corporation, limited liability company or
association subject to corporate taxes or taxes similar to corporate taxes or
(ii) a general partner of Mortgagor is a corporation, limited liability company
or association subject to corporate taxes or taxes similar to corporate taxes,
such corporation, limited liability company or association shall file returns
for such taxes with the proper authorities, bureaus or departments and it shall
pay, when due and payable and before interest or penalties are due thereon, all
taxes owing by it to the United States, to the state of its incorporation or
creation and to the State of Florida and any political subdivision thereof, and
shall produce to Lender receipts showing payment of any and all such taxes,
charges or assessments prior to the last dates upon which such taxes, charges or
assessments are payable without interest or penalty charges, and within ten (10)
days of receipt thereof, all settlements, notices of deficiency or over
assessment and any other notices pertaining to such corporation, limited
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liability company or association's tax liability, which may be issued by the
United States, such state of incorporation or creation, the State of Florida and
any political subdivision thereof. Notwithstanding the foregoing, such
corporation, limited liability company or association may in good faith contest,
by proper legal proceedings, the validity or amount of any such tax or charge,
provided (1) an Event of Default hereunder has not occurred; (2) such
corporation, limited liability company or association provides Lender security
reasonably satisfactory to Lender assuring the payment of such contested tax or
charge and any additional charge, penalty or expense which may arise from or be
incurred as a result of such contest; (3) such contest operates to suspend
collection and is maintained and prosecuted with diligence; and (4) such
corporation, limited liability company or association shall pay such contested
tax or charge and all costs and penalties, if any, and shall deliver to Lender
evidence acceptable to Lender of such payment promptly if such contest is
terminated or discontinued adversely to such corporation, limited liability
company or association, and in any event at least thirty (30) days before the
date any of the Mortgaged Property may be sold or otherwise transferred because
of non-payment of the tax or charge.
(c) Mortgagor shall furnish, or cause to be furnished, to Lender (1)
annually within ninety (90) days following the close of each fiscal year of
Mortgagor annual financial statements for the Mortgagor, including income and
expense statements and balance sheets as to assets and liabilities, all in
reasonable detail, all data being prepared according to generally accepted
accounting principles consistently applied, and all such annual statements being
certified by the chief executive officer or chief financial officer of Mortgagor
or the appropriate general partner, as the case may be, and subject only to such
qualifications as may be satisfactory to Lender; (2) annually within ninety (90)
days following the close of each fiscal year of Mortgagor, annual operating
statements for the Mortgaged Property, including without limitation an income
and expense statement, current rent roll, aging accounts payable, aging accounts
receivable and balance sheet as to assets and liabilities, all in reasonable
detail, all data being prepared according to generally accepted accounting
principles consistently applied, and being certified by the chief executive
officer or chief financial officer of Mortgagor and subject only to such
qualifications as may be satisfactory to Lender; (3) annually on or before March
31 of each year, or within 90 days after the close of any corporate guarantor's
year end annual financial statements for each guarantor of the Note or any
portion of the indebtedness evidenced thereby, including a balance sheet as to
assets and liabilities, all in reasonable detail, all in a form satisfactory to
Lender and all such statements being certified by the appropriate guarantor and
subject only to such qualifications as may be satisfactory to Lender; (4)
annually on or before April 30 of each year, true and complete copies of the
federal income tax return of Mortgagor, and each guarantor of the Note or any
portion of the indebtedness evidenced thereby; (5) upon Lender's request at any
time and from time to time, monthly operating statements for the Mortgaged
Property in form, content and detail acceptable to Lender; and (6) such other
records, financial statements, reports and documents concerning the business and
financial condition of Mortgagor, and/or any guarantor of the Note and/or the
operation of the Mortgaged Property as Lender may reasonably request from time
to time.
(d) Mortgagor shall not merge or consolidate with any other entity nor
transfer all or substantially all of its or their assets without the prior
written consent of Lender.
(e) Mortgagor shall not guarantee or otherwise in any way become or be
responsible for the obligations of any other person or entity, whether by
agreement to purchase the indebtedness of any other person or entity or by
agreement for the furnishing of funds to any other person or entity through the
purchase of goods, supplies or services, (or by way of stock purchase,
contribution, advance or loan) for the purpose of paying or discharging the
indebtedness of any other person or entity, or otherwise, except for the
endorsement of negotiable instruments in the ordinary course of business for
collection.
1.06 USE AND OPERATION. Mortgagor warrants and represents to Lender
-----------------
that the proposed use of the Mortgaged Property for an extended stay project,
together with associated facilities and amenities, complies with all existing
development orders, development of regional impact orders, zoning, future land
use maps, comprehensive plans, land use regulations, growth management
regulations and concurrency regulations of all federal, state and local
governmental bodies and agencies having jurisdiction with respect to the
Mortgaged Property which are applicable to the Mortgaged Property and with all
other federal, state and local laws, rules and regulations which are applicable
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to the Mortgaged Property or the use thereof. Without the prior written consent
of Lender, Mortgagor shall not seek, make or consent to any change in any
existing development order or development of regional impact order or in the
zoning, comprehensive plan classification, future land use classification or
conditions of use of the Mortgaged Property which would impair the ability of
Mortgagor to use and operate the Property for an extended stay facility.
Mortgagor shall comply with all existing and future requirements of all
governmental authorities having jurisdiction over the Mortgaged Property.
1.07 SECURITY AGREEMENT. This Mortgage constitutes a Security
-------------------
Agreement under the Florida Uniform Commercial Code and creates a security
interest in all that property (and the proceeds thereof) included in the
Mortgaged Property which might otherwise be deemed "personal property".
Mortgagor shall execute, deliver, file and refile, any financing statements,
continuation statements and other security agreements Lender may require from
time to time to confirm the lien of this Mortgage with respect to such
property. Without limiting the foregoing, Mortgagor hereby irrevocably appoints
Lender attorney-in-fact for Mortgagor to execute, deliver and file such
instruments for and on behalf of Mortgagor, provided that an Event of Default
exists hereunder. For purposes of the foregoing sentence only, an affidavit by
an officer of Lender shall be sufficient evidence of the existence of an Event
of Default by Mortgagor. Notwithstanding any release of any or all of that
property included in the Mortgaged Property which is deemed "real property",
any proceedings to foreclose this Mortgage or its satisfaction of record, the
terms hereof shall survive as a security agreement with respect to the security
interests created hereby and referred to above until the repayment or
satisfaction in full of the obligations of Mortgagor as are now or hereafter
evidenced by the Note.
1.08 HAZARDOUS SUBSTANCES.
--------------------
(a) Mortgagor warrants and represents to Lender after thorough
investigation:
(1) That neither Mortgagor nor any other person to the Mortgagor's
knowledge, after reasonable inquiry, has ever used the Mortgaged Property as a
facility for the storage, treatment or disposal of any "Hazardous Substances,"
as that term is hereinafter defined;
(2) That the Mortgaged Property is now and at all times hereafter will
continue to be in full compliance with all federal, state and local
"Environmental Laws" (as that term is defined hereinafter), including but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), 42 USC Section 9601, et seq., the Superfund Amendments
and Reauthorization Act of 1986 ("SAPA"), Public Law 99-499, 100 Stat. 1613, the
Resource Conservation and Recovery Act ("RCRA"), 42 USC Section 6901, et seq.,
the Florida Resource Recovery and Management Act, Section 403.701, et seq.,
Florida Statutes, the Pollutant Spill Prevention and Control Act, Section
376.011-376.17 and 376.19-376.21 Florida Statutes, as the same may be amended
from time to time and all ordinances, regulations, codes, plans, orders, and
decrees now existing or in the future enacted, promulgated, adopted, entered or
issued, both within and outside present contemplation of the Mortgagor and
Lender;
(3) That (i) as of the date hereof there are no hazardous or toxic
materials, substances, wastes or other environmentally regulated substances
(including solids or gaseous products and any materials containing asbestos),
the presence of which is limited, regulated or prohibited by any state, federal
or local governmental authority or agency having jurisdiction over the Mortgaged
Property, or which are otherwise known to pose a hazard to health or safety of
occupants of the Mortgaged Property, located on, in or under the Mortgaged
Property or used in connection therewith or (ii) Mortgagor has fully disclosed
to Lender in writing the existence, extent and nature of any such hazardous or
toxic material waste or other environmentally regulated substance, which
Mortgagor is legally authorized and empowered to maintain on, in or under the
Mortgaged Property or use in connection therewith, and Mortgagor has obtained
and will maintain all licenses, permits and approvals required with respect
thereto, and is in full compliance with all of the terms, conditions and
requirements of such licenses, permits and approvals;
(4) That Mortgagor shall notify Lender of any change in the nature or
extent of any hazardous or toxic materials, substances or wastes maintained on,
in or under the Mortgaged Property or used in connection therewith, and will
transmit to Lender copies of any citations, orders, notices or other material
governmental or other communication received with respect to any other hazardous
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materials, substances, wastes or other environmentally regulated substances
affecting the Mortgaged Property;
(5) That Mortgagor is not aware of, nor has the Mortgagor nor any of
its subsidiary or affiliated entities received notice of, any past, present or
future events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent compliance or continued
compliance with Environmental Laws or any ordinance, regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
into the environment, of any Hazardous Substance; and
(6) That there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or threatened against Mortgagor or the
Mortgaged Property, relating in any way to any Environmental Laws or any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder.
(b) Mortgagor hereby agrees to indemnify, reimburse, defend and hold
harmless Lender, its officers, directors, employees, successors and assigns,
from and against all demands, claims, civil or criminal actions or causes of
action, liens, assessments, civil or criminal penalties or fines, losses,
damages, liabilities, obligations, costs, disbursements, expenses or fees of any
kind or of any nature (including, without limitation, cleanup costs, attorneys',
consultants' or experts' fees and disbursements and costs of litigation at trial
and appellate levels) which may at any time be imposed upon, incurred by or
asserted or awarded against, Lender directly or indirectly, resulting from: (i)
any acts or activities of Mortgagor or any other person at, on or about the
Mortgaged Property which contaminate air, soils, surface waters or groundwaters
over, on or under the Mortgaged Property; (ii) arising from or out of any
Hazardous Substance on, in or under the Mortgaged Property; (iii) pursuant to or
in connection with the application of any Environmental Law to the acts or
omissions of Mortgagor or any other person and any environmental damage alleged
to have been caused, in whole or in part, by the transportation, treatment,
storage, or disposal of any Hazardous Substance; or (iv) arising from or in
relation to the presence, whether past, present or future, of any Hazardous
Substances on the Mortgaged Property.
(c) Without limiting the foregoing, this indemnification provision
specifically protects the Lender against any claim or action from activities
described in (i), (ii), (iii) or (iv) of subsection (b) above based in whole or
in part upon any environmental statute, rule, regulation or policy, including
but not limited to Chapters 403 and 376, Florida Statutes, the Florida
Administrative Code, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, ("CERCLA") 42 USC Section 9601, et seq., as amended, the
Resource Conservation and Recovery Act, 42 USC Section 6901, et seq., and other
laws, whether now in existence or enacted in the future.
(d) Mortgagor's indemnification obligation hereunder shall be one of
strict liability and shall be enforceable without regard to any fault or
knowledge of Lender with respect to any act or omission or condition or event
which is the basis of the claim under such indemnification obligation.
Mortgagor's obligation under this Section shall not be limited to any extent by
the term of the Note or other obligations secured hereby, and such obligation
shall continue, survive and remain in full force and effect notwithstanding
payment in full or other satisfaction or release of said Note (and other
obligations secured hereby) and this Mortgage, or any foreclosure under this
Mortgage, or any delivery of a deed in lieu of foreclosure. The provisions of
this Section shall be deemed to survive and continue in full force and effect
after any foreclosure or other proceeding by which the Lender, and its
successors and assigns, succeed to ownership of the Mortgaged Property.
(e) As used here in, "Environmental Law" means any federal, state or
local statutory or common law relating to pollution or protection of the
environment, including without limitation, any common law of nuisance or
trespass, and any law or regulation relating to emissions, discharges, releases
or threatened releases of Hazardous Substances into the environment (including
without limitation, ambient air, surface water, groundwater, land surface or
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subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances.
(f) As used herein, "Hazardous Substance" means any substance or
material identified in Section 101(14) of CERCLA, 42 USC Section 9601(14), as
the same may be amended from time to time, or (ii) determined to be toxic, a
pollutant or contaminant, under federal, state or local statute, law, ordinance,
rule or regulation or judicial or administrative order or decision, as same may
be amended from time to time, including but not limited to petroleum and
petroleum products as defined in Sec. 376.301(10), Florida Statutes, as same may
be amended from time to time.
(g) In the event that Lender has reasonable cause to believe that a
violation of an Environmental Law exists with respect to the Mortgaged Property
or in the event that a proceeding or investigation relating to the alleged
violation of an Environmental Law is then pending before any court, governmental
body or agency, Lender shall have the right to require Mortgagor, from time to
time, to perform (at Mortgagor's expense) an environmental audit and, if deemed
necessary by Lender, an environmental risk assessment, each of which must be
satisfactory to Lender in its sole discretion, of the Mortgaged Property,
hazardous waste management practices and/or hazardous waste disposal sites used
by Mortgagor. Such audit and/or risk assessment must be by an environmental
consultant satisfactory to Lender. Should Mortgagor fail to perform such
environmental audit or risk assessment within 30 days of the Lender's written
request, Lender shall have the right but not the obligation to retain an
environmental consultant to perform such environmental audit or risk assessment.
All costs and expenses incurred by Lender in the exercise of such rights shall
bear interest at the default rate set forth in the Note and shall be secured by
this Mortgage and shall be payable by Mortgagor upon demand or charged to
Mortgagor's loan balance at the discretion of the Lender.
(h) Unless otherwise specifically set forth herein, Any breach of any
warranty, representation or agreement contained in this Section which Borrower
has not cured pursuant to Paragraph 7.1.3 of the Loan Agreement shall be an
Event of Default under this Mortgage and shall entitle Lender to exercise any
and all remedies provided in this Mortgage, or otherwise permitted by law.
1.09 NO SECONDARY FINANCING. Without the prior written consent of
----------------------
Lender, Mortgagor shall not create or cause or permit to exist any lien on, or
security interest in, the Mortgaged Property, including any furniture, fixtures,
appliances, equipment and other items of personal property now or hereafter
owned by Mortgagor which are intended to be or become part of the Mortgaged
Property. Mortgagor shall promptly discharge, at Mortgagor's cost and expense,
all liens, encumbrances and charges upon the Mortgaged Property, or any part
thereof or interest therein, except such liens, encumbrances and charges
specifically approved by Lender in writing. In any event, Mortgagor shall have
no right to permit the holder of any subordinate mortgage or other subordinate
lien, whether or not consented to by Lender, to terminate any lease of all or
any portion of the Mortgaged Property whether or not such lease is subordinate
(whether by law or the terms of such lease or a separate agreement) to the lien
of this Mortgage without first obtaining the prior written consent of Lender.
The holder of any subordinate mortgage or other subordinate lien shall have no
such right, whether by foreclosure of its mortgage or lien or otherwise, to
terminate any such lease, whether or not permitted to do so by Mortgagor or as a
matter of law and any such attempt to terminate any such lease shall be
ineffective and void.
ARTICLE II.
-----------
DEFAULT AND REMEDIES
--------------------
2.01 Default. In addition to all other "Events of Default" specified
-------
elsewhere in this Mortgage or the other Loan Documents, an Event of Default
under this Mortgage shall exist if:
(a) Mortgagor fails to make any monetary payment required to be made by
Mortgagor to Lender by the Note or other Loan Documents, as and when due and
such failure shall continue for a period of five (5) days after written notice
by Lender to Mortgagor; or
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(b) Mortgagor fails to perform any other covenant contained in this
Mortgage and fails to commence the cure of such failure within fifteen (15) days
after Lender gives Mortgagor written notice of such failure (unless such
default, if curable, requires work to be performed, acts to be done, or
conditions to be remedied that by their nature cannot be performed, done or
remedied, as the case may be, within such fifteen (15)-day period and Borrower
shall diligently and continuously process the same to completion, or unless
Lender's security reasonably will be materially impaired if Borrower does not
perform in less than fifteen (15) days, in which event Borrower shall have only
such period following demand in which to perform as Lender may specify),
provided that Mortgagor shall have no grace period or right to cure any default
under Sections 1.04, 1.05(a), 1.06 or 1.09; or
(c) Any other Event of Default occurs under any of the Loan Documents
or any other agreement which evidences, guarantees or secures any part of the
indebtedness or obligations evidenced by the Note or secured by this Mortgage;
or
(d) A default occurs under any other mortgage now or hereafter
encumbering all or any part of the Mortgaged Property; or
(e) Any representation or disclosure made to the Lender by or on behalf
of Mortgagor or by any guarantor of any indebtedness or obligation secured by
this Mortgage proves to be materially false or misleading on the date as of
which made, whether or not that representation or disclosure appears in this
Mortgage; or
(f) Mortgagor, or any guarantor of the Note files a voluntary petition
in bankruptcy or any petition or answer seeking or acquiescing in any
reorganization, rehabilitation, arrangement, composition, readjustment,
liquidation, dissolution or other relief under any present or future federal,
state or other statute, law or regulation relating to bankruptcy, insolvency or
other relief for debtors; or an order for relief is entered in an involuntary
bankruptcy case filed against the Mortgagor or guarantor; or the Mortgagor or
guarantor seeks or consents to or acquiesces in the appointment of any trustee,
custodian, receiver or liquidator of itself or of all or any part of the
Mortgaged Property or any interest therein or all or any of the rents, revenues,
issues, earnings, profits or income thereof; or Mortgagor or guarantor shall
make a general assignment for the benefit of its or his creditors; or Mortgagor
or guarantor commits any act providing grounds for the entry of an order for
relief under any chapter of the federal bankruptcy code; or
(g) A petition or case is filed against Mortgagor or any guarantor of
the Note seeking any reorganization, rehabilitation, arrangement, composition,
readjustment, liquidation, dissolution or other relief under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, or the appointment of any
trustee, custodian, receiver or liquidator of the Mortgagor or guarantor or of
all or any part of the Mortgaged Property or any interest therein or of any or
all of the rents, revenues, issues, earnings, profits or income thereof, and
such petition, case or appointment shall not be dismissed within sixty (60) days
after such filing or appointment; or
(h) Any other event occurs which, under the Note or under any other
agreement of the Mortgagor relating to the Loan, constitutes an Event of Default
thereunder by the Mortgagor or gives the Lender the right to accelerate the
maturity of all or any part of the indebtedness evidenced by the Note or related
loan documents or secured by this Mortgage; or
(i) A default occurs in payment of any indebtedness of Mortgagor, or
any guarantor of any portion of the indebtedness secured by the Mortgage, or
under any instrument evidencing, securing or governing any such indebtedness
subject to any cure periods set forth in the Loan Agreement; or
(j) Any judgment or order for payment of money is levied against
Mortgagor, or guarantor of any portion of the indebtedness secured by the
Mortgage and remains unsatisfied for a period of thirty (30) days without a stay
of execution; or
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(k) Any guarantor dies or becomes legally incompetent for a continuous
period in excess of thirty (30) days; or
2.02 ACCELERATION. Upon the occurrence of an Event of Default under
------------
this Mortgage, then the whole of the indebtedness evidenced by the Note or
secured hereby shall, without notice, demand or legal process, become
immediately due and payable at the option of the Lender.
2.03 GENERAL REMEDIES. Upon the occurrence of an Event of Default
----------------
under this Mortgage, the Lender may, at its continuing option, and without
notice to or demand upon the Mortgagor:
(a) Enter onto the Mortgaged Property, in person or by agents or by
court-appointed receiver, and take possession thereof and exclude the Mortgagor
and the Mortgagor's agents and employees wholly therefrom, and upon demand of
Lender, Mortgagor shall forthwith surrender to Lender actual possession of the
Mortgaged Property, and upon every such entering and taking of possession, the
Lender may hold, store, use, operate, manage, control and maintain the Mortgaged
Property and conduct the business thereon and, from time to time, (i) make or
perform all necessary and proper construction, repairs, renewals, replacements,
additions, betterments and improvements thereto and thereon and purchase or
otherwise acquire additional fixtures, personal and other property; (ii) insure
or keep the Mortgaged Property insured; (iii) manage and operate the Mortgaged
Property and exercise all the rights and powers of Mortgagor in its name or
otherwise with respect to the same; and (iv) enter into any and all agreements
with respect to the exercise by others of any of the powers herein granted to
Lender, all as Lender may from time to time determine to be to its best
interest. Further, Lender may collect and receive all of the income, rents,
profits, issues, revenues and accounts of or related to the Mortgaged Property,
including those past due as well as those accruing thereafter, and Lender may
apply any monies and proceeds received by Lender in such order and priority as
Lender in its sole discretion may determine to all expenses of taking, holding,
managing and operating the Mortgaged Property (including compensation for the
services of all persons employed for such purposes), to the cost of all such
maintenance, repairs, renewals, replacements, additions, betterments,
improvements, purchases and acquisitions, to the cost of such insurance, to such
taxes, assessments and other charges as Lender may determine to pay, to other
proper charges upon the Mortgaged Property or any part thereof, to the
reasonable compensation and expenses of attorneys and agents of the Lender, to
accrued interest, to deposits for taxes, insurance and similar items required
hereunder, and to overdue installments of principal. For the purposes of
carrying out the provisions of this Subsection (a), Mortgagor hereby irrevocably
constitutes and appoints Lender as Mortgagor's agent and attorney-in-fact to do
and perform, from time to time, any and all actions necessary or incidental to
such purpose and does, by these presents, ratify and confirm any and all actions
of said attorney-in-fact in the Mortgaged Property. Whenever all Events of
Default have been cured and satisfied, Lender shall surrender possession of the
Mortgaged Property to Mortgagor, provided that the right of Lender to take
possession, from time to time, pursuant to this Section shall exist if any
subsequent Event of Default shall occur and be continuing;
(b) Bring a court action at law or in equity (i) to foreclose this
Mortgage, (ii) to enforce its provisions or any of the indebtedness or
obligations secured by this Mortgage, and (iii) to enforce Lender's rights and
remedies under any or all guaranties, security agreements, assignments and other
instruments and agreements evidencing or securing the Note, or to do any or all
of the foregoing, concurrently or otherwise, and one action or suit shall not
abate or be a bar to or waiver of Lender's right to. institute or maintain any
other, or constitute an election of remedies by Lender, provided that Lender
shall have only one payment and satisfaction of the indebtedness;
(c) Exercise any other right or remedy available at law or in equity;
(d) Bid at any foreclosure sale and purchase the Mortgaged Property,
or any part thereof, if the highest bidder therefor. At the foreclosure sale the
Mortgaged Property may be offered for sale and sold as a whole without first
offering it in any other manner or may be offered for sale and sold in any other
manner Lender may elect in its sole discretion without regard to principles of
marshalling.
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<PAGE>
2.04 PROCEEDS OF SALE. The proceeds of any sale under this Mortgage
----------------
shall be applied in the following manner:
(a) First, to payment of the costs and expenses of tile sale, including
but not limited to Lender's fees, reasonable legal fees and disbursements, title
charges and transfer taxes, and payment of all expenses, liabilities and
advances of the Lender, together with interest at the rate provided under the
Note on all advances made by the Lender.
(b) Second, to payment of all sums expended by the Lender under the
terms of this Mortgage and not yet repaid, together with interest on such sums
at the after-default rate provided under the Note.
(c) Third, to payment of the indebtedness and obligations of the
Mortgagor evidenced by tile Note or related loan documents or secured by this
Mortgage in any order that the Lender chooses.
(d) Fourth, the remainder, if any, to the person or persons appearing
of record to be the owner of the Mortgaged Property, or as a court of competent
jurisdiction shall otherwise order.
2.05 MARSHALLING. Mortgagor waives all rights to direct the order or
-----------
manner in which any of the Mortgaged Property will be sold in the event of any
sale under this Mortgage and also waives any right to have any of the Mortgaged
Property marshalled upon any sale.
2.06 RECEIVER. Upon the occurrence of any Event of Default, the Lender,
--------
upon application to a court of competent jurisdiction, shall be entitled, ex
parte, without notice and without regard to the adequacy of any security for the
indebtedness hereby secured or the solvency of any party bound for its payment,
to the appointment of a receiver of and for the Mortgaged Property to take
possession of and to operate the Mortgaged Property and to collect the rents,
royalties, income, profits, issues, revenues and accounts thereof. The Mortgagor
shall pay to the Lender upon demand all expenses, including receiver's fees,
attorney's fees, costs and agent's compensation, incurred pursuant to the
provisions contained in this Section, and all such expenses shall be secured by
this Mortgage and shall bear interest at the after-default rate provided in the
Note.
2.07 REMEDIES CUMULATIVE. All remedies contained in this Mortgage are
-------------------
cumulative, and the Lender also has all other remedies provided by law, in
equity, by statute or in any other agreement between the Mortgagor and the
Lender. No right, power or remedy conferred upon or reserved to the Lender by
this Mortgage, the Note or any assignment of leases or other agreement now or
hereafter evidencing, securing or otherwise relating to the Loan shall be
exclusive of any other right, power or remedy, but each and every such right,
power and remedy shall be cumulative and concurrent and shall be in addition to
any other right, power and remedy given hereunder or now or hereafter existing
at law or in equity or by statute. No delay or failure by the Lender to exercise
any right or remedy under this Mortgage will be construed to be a waiver of that
right or remedy or of any Event of Default hereunder. The Lender may exercise
any one or more of its rights and remedies at its option without regard to the
adequacy of its security.
2.08 REPOSSESSION AND SALE OF PERSONAL PROPERTY. Expenses of retaking,
------------------------------------------
holding, preparing for sale, selling or the like shall be borne by Mortgagor and
shall include Lender's attorneys' fees and legal expenses. Mortgagor, upon
demand of Lender, shall assemble all personal property subject to this Mortgage
and Security Agreement and make it available to Lender at the Property, a place
which is hereby deemed to be reasonably convenient to Lender and Mortgagor.
Lender shall have the right to cause any of the Mortgaged Property which is
subject to the security interest of Lender hereunder to be sold at any one or
more public or private sales as permitted by applicable law. Any such
disposition may be conducted by an employee or agent of Lender. Any person,
including Mortgagor and Lender, shall be eligible to purchase any part or all of
such property at any such sale. Lender shall give Mortgagor at least five (5)
days' prior written notice of the time and place of any public sale or other
disposition of such property or of the time of or after which any private sale
or other intended disposition is to be made, and if such notice is sent to
Mortgagor as provided for the mailing of notices herein, it is hereby deemed
that such notice shall be and is reasonable notification to Mortgagor.
11
<PAGE>
2.09 EXPENSES. Mortgagor shall pay all of the Lender's expenses
--------
incurred in any efforts to enforce any terms of this Mortgage or to collect
the indebtedness secured hereby, whether or not any lawsuit is filed,
including but not limited to reasonable attorneys' fees and disbursements,
foreclosure costs, appraisal costs and title charges, the payment of which
sums is secured by this Mortgage.
ARTICLE III.
------------
GENERAL PROVISIONS
------------------
3.01 PARTIAL INVALIDITY. The invalidity or unenforceability of any one
------------------
or more provisions of this Mortgage will in no way affect the remaining
provisions hereof which shall be and remain in full force and effect.
3.02 MONTHLY DEPOSITS. At Lender's request after the occurrence of an
----------------
Event of Default under this Mortgage or upon Mortgagor's failure to pay the
taxes, lease payments, insurance premiums, assessments and other similar charges
hereinafter described when due, Mortgagor shall pay to the Lender on the first
day of each month, together with and in addition to the regular installment of
interest or principal and interest under the Note, until the Note is fully paid,
an amount equal to one-twelfth (1/12) of the yearly taxes, lease payments,
insurance premiums, assessments and other similar charges against the Mortgaged
Property or any part thereof as estimated by the Lender to be sufficient to
enable the Lender to pay all such charges at least thirty (30) days before they
first become due. Such added payments shall not be, nor be deemed to be, trust
funds, but may be commingled with the general funds of the Lender, and no
interest shall be payable in respect thereto. Upon demand of the Lender the
Mortgagor shall deliver to the Lender such additional monies as are necessary to
make up any deficiencies in the amounts necessary to enable the Lender to pay
such taxes, lease payments, insurance premiums, assessments and similar charges.
Upon the occurrence of an Event of Default under any of the terms, covenants or
conditions in the Note, Loan Agreement or related Loan Documents, or under this
Mortgage, the Lender may apply to the reduction of the sums secured hereby, in
such manner as the Lender shall determine, any amount under this Section
remaining to the Mortgagor's credit.
3.03 TAXES, UTILITIES AND LIENS.
--------------------------
(a) The Mortgagor shall pay promptly, when and as due, and shall
promptly exhibit to the Lender receipts for the payment of, all taxes, lease
payments, insurance premiums, assessments, water rates, dues, charges, fines and
impositions of every nature whatsoever imposed, levied or assessed or to be
imposed, levied or assessed upon or against the Mortgaged Property or any part
thereof, or upon the interest of the Lender in the Mortgaged Property as well as
all income taxes, assessments and other governmental charges lawfully levied and
imposed by the United States of America or any state, county, municipality,
borough or other taxing authority upon the Mortgagor or in respect of the
Mortgaged Property or any part thereof, or any charge which, if unpaid, would
become a lien or charge upon the Mortgaged Property prior to or equal to the
lien of the Mortgage for any amounts secured hereby or would have priority or
13
<PAGE>
equality with the mortgage in distribution of the proceeds of any foreclosure
sale of the Mortgaged Property or any part thereof.
(b) Upon demand, Mortgagor shall promptly reimburse Lender for any and
all sums Lender pays as intangible tax and documentary stamp tax on the Note or
this Mortgage, or any future modification or extension thereof, pursuant to law
as it now exists or may be hereafter amended.
(c) The Mortgagor shall promptly pay all charges by utility companies,
whether public or private, for electricity, gas, water, sewer or other utilities
furnished to the Mortgaged Property.
(d) The Mortgagor shall promptly pay any and all mechanic's, laborer's,
statutory and other liens upon any of the Mortgaged Property and shall not
suffer any of the same to be created or to remain outstanding upon any of the
Mortgaged Property.
12
<PAGE>
3.04 INSURANCE.
---------
(a) Coverages. Mortgagor shall at all times keep the Mortgaged Property
---------
insured against loss or damage from such causes as are customarily insured
against by prudent owners of similar properties, and, without limiting the
generality of the foregoing, Mortgagor shall obtain, maintain in effect and pay
for such insurance or evidence of insurance as Lender may reasonably require,
including, but not limited to, the following:
(1) Builder's Risk Insurance. Builder's all-risk insurance with respect
------------------------
to all portions of the Mortgaged Property and all personal property and
equipment affected by or involved in the construction of the Improvements to
such extent as is necessary to provide for full payment of the cost of restoring
or replacing the property damaged or destroyed or, if insurance to such extent
is not available, to the extent of the full insurable value of such portions of
the Mortgaged Property, including without limitation personal property, with
standard non-contributing mortgagee clauses and standard waiver of subrogation
clauses, such insurance to be in such amounts (not less than the outstanding
Loan indebtedness) and form and by such companies as shall be approved by
Lender, the originals of which policies (together with appropriate endorsements
thereto, evidence of payment or premiums thereon and written agreement by the
insurer or insurers therein to give Lender thirty (30) days prior written notice
of intention to cancel) shall be promptly delivered to Lender, said insurance
coverage to be kept in full force and effect at all times until the insurance
described in subsection (a)(2) below is obtained;
(2) Hazard Insurance. Insurance against loss or damage to the Mortgaged
----------------
Property (including plate glass breakage) due to fire, lightning, water, wind,
theft, vandalism and malicious mischief with a uniform standard extended
coverage endorsement under which endorsement any loss is valued on a replacement
cost basis, to the extent of the full insurable replacement value of the
Mortgaged Property, with standard non-contributing mortgagee clauses and
standard waiver of subrogation clauses, such insurance to be in such form and by
such companies as shall be approved by Lender, the originals of which policies
(together with appropriate endorsements thereto, evidence of payment of premiums
thereon and written agreement by the insurer or insurers therein to give Lender
thirty (30) days prior written notice of intention to cancel) shall be promptly
delivered to Lender, with such insurance to be kept in full force and effect at
all times thereafter until the payment in full of the Loan;
(3) Flood Insurance. Flood insurance if the Mortgaged Property or any
---------------
part thereof is located in a flood hazard zone designated by the United States
Department of Housing and Urban Development, Federal Insurance Administration,
or other governmental agency, in the amount of (i) the unpaid principal amount
of the Loan or (ii) the maximum limit of coverage made available with respect to
the Mortgaged Property under any applicable federal flood insurance program, and
if the maximum limit under such program is less than the principal amount of the
Loan, Mortgagor shall provide excess coverage up to the principal amount of the
Loan, such insurance to be in such form and by such companies as shall be
approved by Lender, the originals of which policies (together with appropriate
endorsements thereto, evidence of payment of premiums thereon and written
agreement by the insurer or insurers therein to give Lender thirty (30) days
prior written notice of intention to cancel) shall be promptly delivered to
Lender, said insurance coverage to be kept in full force and effect at all times
thereafter until the payment in full of the Loan;
(4) Workers' Compensation Insurance. Workers' compensation insurance
--------------------------------
covering all persons involved in the construction of the Improvements and all
employees of the Mortgagor to the full extent required by applicable law by such
companies as shall be approved by Lender, certified true copies of such policies
(together with appropriate endorsements thereto, evidence of payment of premiums
thereon and written agreement by the insurer or insurers therein to give Lender
thirty (30) days prior written notice of intention to cancel) shall be promptly
delivered to Lender, said insurance coverage to be kept in full force and effect
at all times thereafter until the payment in full of the Loan; and
(5) Public Liability Insurance. Public liability insurance against
--------------------------
liability for bodily injury to or death of persons and for damage to or loss of
property occurring on or about the Mortgaged Property or in any way related to
the condition or operation of the Mortgaged Property in the minimum amounts of
$1,000,000.00 for death of or bodily injury to any one person, $3,000,000.00 for
all death and bodily injury claims resulting from any one incident, and
$100,000.00 for property damage, and in form and content and issued by such
companies as shall be approved by Lender, the originals of which policies
13
<PAGE>
(together with appropriate endorsements thereto, evidence of payment of premiums
thereon and written agreement by the insurer or insurers therein to give Lender
thirty (30) days prior written notice of intention to cancel) shall be promptly
delivered to Lender, said insurance coverage to be kept in full force and effect
at all times thereafter until the payment in full of the Loan.
(b) General Insurance Requirements.
------------------------------
(1) All policies of insurance required hereunder shall be in form and
with insurers acceptable to Lender in its sole discretion, and all such policies
shall be in such amounts as may be satisfactory to Lender. Without limiting the
generality of the foregoing, all insurance coverage required hereunder shall be
provided by insurance companies acceptable to the Lender that are rated "A" or
better by Best Insurance Guide and Key Ratings and with a claim payment rating
by Standard & Poor's Corporations of "AA" or better. The aggregate amount of
coverage provided by a single company may not exceed five percent (5%) of said
company's policyholders' surplus. Any reinsurance endorsements must be approved
by the Lender in writing, with such approval to be given or withheld by Lender
in its sole discretion. Reinsurance endorsements shall stipulate that the Lender
will receive ten (10) days' advance written notice of any change and/or
cancellation of the reinsurance agreement. All insurance companies must be
licensed and qualified to do business in the State in which the Mortgaged
Property is located. Such policies of insurance shall contain an endorsement, in
form and substance acceptable to Lender, showing loss payable to Lender. Such
endorsement, or an independent instrument furnished to Lender, shall provide
that the insurance companies shall give Lender at least thirty (30) days prior
written notice before any such policy or policies of insurance shall be altered
or canceled and that no act or default of Mortgagor or any other person shall
affect the right of Lender to recover under such policy or policies of insurance
in case of loss or damage. Mortgagor hereby directs all insurers under such
policies of insurance to pay all proceeds payable thereunder directly to Lender.
Without limiting the foregoing, Mortgagor shall cooperate fully with Lender in
obtaining for Lender the benefits of any insurance or other proceeds lawfully or
equitably payable to Lender in connection with the transactions contemplated by
this Agreement.
(2) The deductible amount under each insurance policy shall not exceed
$5,000.00. The original of each insurance policy or, in the case of a blanket
policy, a copy of the original policy certified in writing by a duly authorized
agent for the insurance company as a "true and accurate" copy of such policy,
shall be promptly delivered to the Lender. The Mortgagor shall not submit a
certificate of insurance in lieu of the original policy or certified copy
thereof.
(3) Each insurance policy shall provide that, insofar as the Lender's
interests under the policy are concerned, the coverage afforded thereby shall
not lapse or be terminated, cancelled or modified by reason of (i) any act or
negligence, or breach of any condition, declaration or warranty contained in any
such policy, by the Mortgagor or any third party, (ii) the occupation, operation
or use of the Mortgaged Property for purposes more hazardous than those
permitted by the terms of such policy, (iii) any foreclosure or other proceeding
or notice of sale relating to the Mortgaged Property, or (iv) any change in the
title to or ownership of all or any portion of the Mortgaged Property.
(4) Each insurance policy shall (i) provide primary insurance without
right of contribution from any other insurance carried by the Lender, (ii)
contain an express waiver by the insurer of any right of subrogation, setoff or
counterclaim against any insured party thereunder, (iii) permit the Lender to
pay premiums at the Lender's discretion, and (iv) provide that no claims in
excess of $5,000.00 thereunder shall be adjusted or settled without the prior
written consent of the Lender, which consent shall not be unreasonably withheld
or delayed by the Lender.
(5) Each insurance policy shall contain the following special
clauses:
(i) Mortgagee's Clause:
------------------
BANK OF PENSACOLA, its successors and assigns
Attn: Ashley H. Schubert, Jr.
400 West Garden Street
Pensacola, Florida 32501
14
<PAGE>
(ii) Loss Payable Clause:
-------------------
Loss, if any, under this policy, shall be payable to BANK OF
PENSACOLA, its successors and assigns, as their interest may
appear Attn: Ashley H. Schubert, Jr. 400 West Garden Street
Pensacola, Florida 32501
(iii) Cancellation and Modification Clause:
------------------------------------
The Insurer hereby agrees that this policy will not lapse or
terminate, or be amended, modified or cancelled, unless and until
BANK OF PENSACOLA has received not less than thirty (30) days'
prior written notice thereof at the following address:
BANK OF PENSACOLA
Attn: Ashley H. Schubert, Jr.
400 West Garden Street
Pensacola, Florida 32501
(iv) Differences in Conditions Clause:
--------------------------------
The form and substance of this clause shall be satisfactory to
Lender in its sole discretion.
(c) Insurance Claims. The Lender is hereby authorized and
----------------
empowered, at its option, to adjust or compromise any loss under any insurance
policies on the Mortgaged Property and to collect and receive the proceeds from
any such policy or policies. After deducting from said insurance proceeds any
expenses incurred by it in the collection or handling of said fund, the Lender
may apply the net proceeds, at its option, either toward restoring the
improvements on the Mortgaged Property or as a credit on any portion of the
indebtedness secured by this Mortgage as Lender may select, whether then matured
or to mature in the future, or at the option of the Lender such sums, either
wholly or in part, may be paid over to the Mortgagor to be used to repair such
improvements or to build new improvements in their place or for any other
purpose or object satisfactory to the Lender without affecting the lien of the
Mortgage for the full amount secured hereby before such payment took place.
Lender shall not be held responsible for any failure to collect any insurance
proceeds due under the terms of any policy regardless of the cause of such
failure.
3.05 CONDEMNATION. Mortgagor shall give Lender immediate written notice
------------
of any actual or threatened condemnation proceeding affecting all or any part of
the Mortgaged Property or any interest therein. If all or any part of the
Mortgaged Property shall be damaged or taken through condemnation (which term
when used in this Mortgage shall include any damage or taking by any
governmental authority and any transfer by private sale in lieu thereof), either
temporarily or permanently, the entire indebtedness secured hereby shall at the
option of the Lender become immediately due and payable; provided, however, that
in the event of a partial taking of the Mortgaged Property, Lender shall be
entitled to accelerate the entire indebtedness secured hereby only if Lender in
good faith deems itself insecure by reason of such partial taking. The Lender
shall be entitled to all compensation, awards and other payments or relief
thereof and is hereby authorized, at its option, to commence, appear in and
prosecute, in its own or the Mortgagor's name, any action or proceedings
relating to any condemnation. All such compensation, awards, damages, claims,
rights of action and proceeds and the right thereto are hereby assigned by the
Mortgagor to the Lender, which, after deducting therefrom all its expenses,
including attorney's fees, may release any monies so received by it without
affecting the lien of this Mortgage or may apply the same in such manner as the
Lender shall determine to the reduction of the sums secured hereby, and any
balance of such monies then remaining shall be paid to the Mortgagor. The
15
<PAGE>
Mortgagor agrees to execute such further assignments of any compensations,
awards, damages, claims, rights of action and proceeds as the Lender may
require.
3.06 CARE OF THE PROPERTY.
--------------------
(a) The Mortgagor shall preserve and maintain the Mortgaged Property in
neat, orderly and good condition and repair, shall maintain all equipment and
personal property comprising the Mortgaged Property in good working order, shall
not commit or suffer any waste, and shall not do or suffer to be done anything
which might increase the risk of fire or other hazard to the Mortgaged Property
or any part thereof or invalidate any insurance carried thereon. In the event
Mortgagor defaults under its obligations under this Section 3.06(a), then in
addition to all other remedies available to Lender by reason of such default,
Lender shall be entitled to establish a maintenance reserve escrow account and
to require Mortgagor to pay to Lender on the first day of each month, together
with and in addition to the regular installment of interest or principal and
interest under the Note, until the Note is fully paid, an amount deemed
sufficient by Lender in the reasonable exercise of its judgment and discretion
to provide for the present and future maintenance of the Mortgaged Property.
(b) Except as otherwise provided herein or in the Loan Agreement, no
buildings, fixtures, personal property or other improvements shall be
constructed, removed, demolished or materially altered on any part of the
Mortgaged Property without the prior written consent of the Lender. The
Mortgagor may sell or otherwise dispose of, free from the lien of this Mortgage
and Security Agreement, furniture, furnishings, equipment, tools, appliances,
machinery, fixtures and appurtenances which may become worn out, undesirable,
obsolete, disused or unnecessary for use in the operation of the Mortgaged
Property, upon replacing the same by, or substituting for the same, other
furniture, furnishings, equipment, tools, appliances, machinery, fixtures or
appurtenances not necessarily of the same character, but of at least equal value
to the Mortgagor and costing not less than the amount realized from the property
sold or otherwise disposed of, which shall forthwith become, without further
action, subject to the lien of this Mortgage and Security Agreement.
(c) The Lender is hereby authorized to enter upon and inspect the
Mortgaged Property at any time and from time to time during normal business
hours.
(d) The Mortgagor shall promptly comply with all present and future
laws, ordinances, rules and regulations of any governmental authority affecting
the Mortgaged Property or any part thereof.
(e) If all or any part of the Mortgaged Property shall be damaged by
fire or other casualty causing damage in excess of $5,000.00, the Mortgagor
shall give immediate written notice of same to Lender and shall promptly restore
the Mortgaged Property to the equivalent of its original condition, regardless
of whether insurance proceeds are made available. If a part of the Mortgaged
Property shall be physically damaged through condemnation, the Mortgagor shall
give immediate written notice of same to Lender and shall promptly restore,
repair or alter the remainder of the Mortgaged Property in a manner satisfactory
to the Lender.
3.07 REQUIRED NOTICES. In addition to all other notices required by
----------------
the Loan Documents, Mortgagor shall promptly notify Lender in writing of the
occurrence of any of the following:
(a) A fire or other casualty causing damage to the Mortgaged Property
in excess of $5,000.00;
(b) Receipt of notice of eminent domain proceedings or condemnation of
all or any part of the
Mortgaged Property;
(c) Receipt of notice of any violation of any law, ordinance or
regulation from any governmental authority relating to the structure, use or
occupancy of the Mortgaged Property;
16
<PAGE>
(d) Receipt of any default or acceleration notice from the holder of
any lien or security interest in the Mortgaged Property or any portion thereof;
and
(e) Commencement of any material litigation affecting the Mortgaged
Property.
3.08 PERFORMANCE BY LENDER OF DEFAULTS BY MORTGAGOR. If the Mortgagor
----------------------------------------------
shall default in the payment of any tax, lien, assessment or charge levied or
assessed against the Mortgaged Property; in the payment of any utility charge,
whether public or private; in the payment of any insurance premium; in the
procurement of insurance coverage and the delivery of the insurance policies
required hereunder; or in the performance or observance of any other covenant,
condition or term of this Mortgage, then the Lender, at its option, may perform
or observe the same, and all payments made or costs paid or incurred by the
Lender in connection therewith shall be secured hereby and shall be, without
demand, immediately repaid by the Mortgagors to the Lender with interest thereon
at the after-default rate set forth in the Note. The Lender shall be the sole
judge of the legality, validity and priority of any such tax, lien, assessment,
charge, claim and premium; of the necessity for any such actions; and of the
amount necessary to be paid in satisfaction thereof. The Lender is hereby
empowered to enter and to authorize others to enter upon the Mortgaged Property
or any part thereof for the purpose of performing or observing any such
defaulted covenant, condition or term, without thereby becoming liable to the
Mortgagor or any person in possession holding under the Mortgagor.
3.09 LENDER'S OPTION ON FORECLOSURE. Upon the occurrence of an Event of
------------------------------
Default, at the option of the Lender, this Mortgage may be foreclosed in
accordance with applicable law, in which event reasonable attorney's fee shall,
among other costs and expenses, be allowed and paid out of the proceeds of the
sale. In the event Lender exercises its option to foreclose the Mortgage in
equity, Lender may, at its option, foreclose this Mortgage subject to the rights
of any tenants of the Mortgaged Property and the failure to make any such
tenants parties defendants to any such foreclosure proceeding and to foreclose
their rights shall not be, nor be asserted to be by the Mortgagor, a defense to
any proceedings instituted by the Lender to collect the sums secured hereby or
any deficiency remaining unpaid after the foreclosure sale of the Mortgaged
Property.
3.10 WAIVER OF EXEMPTION. Mortgagor hereby waives all rights of
---------------------
exemption pertaining to real or personal property as to any indebtedness secured
by or that may be secured by this Mortgage, and Mortgagor waives the benefit of
any statute regulating, restricting or prohibiting the obtaining of a deficiency
judgment by Lender against Mortgagor or requiring that the value of the
Mortgaged Property be set off against any part of the indebtedness secured
hereby, except as might be provided under Florida law in the event of
foreclosure of this Mortgage.
3.11 NO WAIVER.
---------
(a) No delay or omission of the Lender or of any holder of the Note to
exercise any right, power or remedy accruing upon any Event of Default shall
exhaust or impair any such right, power or remedy nor be construed to be a
waiver of any such Event of Default or acquiescence therein; and every right,
power and remedy given by this Mortgage to the Lender may be exercised from time
to time and as often as may be deemed expedient by the Lender.
(b) No waiver of any Event of Default hereunder shall extend to or
shall affect any subsequent Event of Default or any other then existing Event of
Default or shall impair any rights, powers or remedies consequent thereon.
(c) If the Lender (i) grants forbearance or an extension of time for
the payment of any sums secured hereby; (ii) takes other or additional security
for the payment thereof, (iii) waives or does not exercise any right granted
herein or in the Note; (iv) releases any part of the Mortgaged Property from the
lien of the Mortgage or otherwise changes any of the terms of the Note or this
Mortgage; (v) consents to the filing of any map, plat or replat thereof, (vi)
consents to the granting of any easement thereon; or (vii) makes or consents to
any agreement subordinating the lien of this Mortgage or to any change in the
Note or this Mortgage, then any such act or omission shall not release,
discharge, modify, change or affect the original liability under the Note,
Mortgage or otherwise of the Mortgagor or any subsequent purchaser of the
Mortgaged Property or any part thereof, or any maker, co-signer, endorser,
surety or guarantor of the Note; nor shall any such act or omission preclude the
Lender from exercising any right, power or privilege herein granted or intended
17
<PAGE>
to be granted in the event of any other Event of Default then made or of any
subsequent Event of Default; nor, except as otherwise expressly provided in an
instrument or instruments executed by the Lender, shall the lien of this
Mortgage be altered thereby. In the event of the sale or transfer by operation
of law or otherwise of all or any part of the Mortgaged Property, the Lender,
without notice to any person or corporation is hereby authorized and empowered
to deal with any such vendee or transferee with reference to the Mortgaged
Property or the indebtedness secured hereby, or with reference to any of the
terms of conditions hereof, as fully and to the same extent as it might deal
with the original parties hereto and without in any way releasing or discharging
any of the liabilities or undertakings hereunder of Mortgagor or of any maker,
co-signer, endorser or guarantor of the Note.
3.12 DISCONTINUANCE OF PROCEEDINGS - POSITION OF PARTIES RESTORED. In
------------------------------------------------------------
case the Lender shall have proceeded to enforce any right or remedy under this
Mortgage by foreclosure, entry or otherwise and such proceedings shall have been
determined adversely to the Lender, then and in every such case tile Mortgagor
and the Lender shall be restored to their former positions and rights hereunder,
and all rights, powers and remedies of the Lender shall continue as if no such
proceeding had been taken.
3.13 LITIGATION AND ATTORNEY'S FEES. Mortgagor shall pay or reimburse
------------------------------
Lender for all reasonable attorney's fees, costs and expenses incurred by Lender
in any proceeding involving the estate of a decedent or an insolvent, or in any
action, proceeding or dispute of any kind in which the Lender is made a party or
appears as party plaintiff or defendant, affecting this Mortgage or the
Mortgaged Property, including without limitation the foreclosure of this
Mortgage, any condemnation action involving the Mortgaged Property, or any
action to protect the security hereof, and in any situation where Lender employs
an attorney to protect the Lender's rights hereunder, whether or not legal
proceedings are commenced or involved. All such amounts paid by Lender shall be
secured by this Mortgage, shall bear interest at the after-default rate
specified in the Note and shall be payable by Mortgagor upon demand.
3.14 NOTICES. All notices and other communications required hereunder
-------
shall be in Writing and shall be delivered personally, or by registered or
certified mail, return receipt requested, postage prepaid, or by Federal
Express, Express Mail or Air Courier, fees prepaid. Such notices shall be deemed
to have been received (i) upon delivery, if personally delivered; (ii) upon the
earlier of actual receipt or the fourth day after mailing, if mailed by
registered or certified mail, return receipt requested, postage prepaid; and
(iii) on the next business day if sent by Federal Express, Express Mail or Air
Courier, fees prepaid. The address for delivery of such notices shall be as
follows:
(a) To Lender at: BANK OF PENSACOLA
400 West Garden Street
Pensacola, Florida 32501
Attn: Ashley H. Schubert, Jr.
with copy to: Charles L. Hoffman, Jr., Esquire
Shell, Fleming, Davis & Menge
226 Palafox Place, Ninth Floor (32501)
Post Office Box 1831
Pensacola, Florida 32598-1831
(b) To Borrower at: HOME STAY LODGE 1, LTD.
c/o Home Stay Lodge, Inc.
4040 North McArthur Boulevard
Suite 100
Irving, Texas 75038
with copy to: Tilman J. Falgout, III
4040 North McArthur Boulevard
Suite 100
Irving, Texas 75038
18
<PAGE>
3.15 MISCELLANEOUS. The term "Mortgagor" includes both the original
-------------
Mortgagor and any subsequent owner or owners of any of the Mortgaged Property,
and the term "Lender" includes the original Lender and also any future owner or
holder, including pledgees, assignees and participants, of the Note or any
interest therein. Whenever the context requires, the singular includes the
plural and vice versa and each gender includes each other gender. The headings
of the articles, sections and paragraphs of this Mortgage are for convenience
only and do not limit its provisions.
3.16 LAWS. In the event of the passage of any state, federal, municipal
----
or other governmental law, order, rule or regulation, subsequent to the date
hereof, in any manner changing or modifying the laws now in force governing the
taxation of mortgages or debts secured thereby, or the manner of operation of
such taxes so as to adversely affect the interest of Lender, then Mortgagor
shall bear and pay the full amount of such taxes unless such payment would be
unlawful, in which event Lender may at its option declare the entire balance of
the principal sum secured by this Mortgage and all interest accrued thereon and
all other sums secured by this Mortgage to be immediately due and payable upon
written notice delivered by Lender to Borrower in accordance with Section 3.14
above, and thereupon Lender may foreclose upon this Mortgage without further
notice.
3.17 SUCCESSORS. The terms of this Mortgage shall bind and benefit the
----------
heirs, legal representatives, successors and assigns of the Mortgagor and the
Lender. If the Mortgagor consists of more than one person or entity, each shall
be jointly and severally liable to perform the obligations of the Mortgagor.
3.18 WAIVER OF JURY TRIAL. MORTGAGOR AND ALL PERSONS OBLIGATED FOR
--------------------
REPAYMENT OF ALL OR ANY PART OF THE INDEBTEDNESS SECURED BY THIS MORTGAGE
(WHETHER AS MAKER, COMAKER, GUARANTOR, SURETY OR ENDORSER) (COLLECTIVELY, THE
"OBLIGORS") HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AGREE THAT:
(1) MORTGAGOR AND THE OBLIGORS HEREBY WAIVE THE RIGHT TO TRIAL BY JURY
IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, CROSS-CLAIM OR OTHER ACTION OR
PROCEEDING ARISING FROM OR BASED UPON THIS MORTGAGE OR ANY OF THE LOAN
DOCUMENTS, AND NEITHER THE MORTGAGOR, NOR MORTGAGOR'S HEIRS, LEGAL
REPRESENTATIVES, SUCCESSORS OR ASSIGNS, NOR ANY OTHER OBLIGOR OR SUCH OBLIGORS
HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS SHALL SEEK A JURY TRIAL IN
ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, CROSS-CLAIM OR OTHER ACTION OR PROCEEDING
ARISING FROM OR BASED UPON THIS MORTGAGE OR ANY OF THE LOAN DOCUMENTS.
(2) NEITHER THE MORTGAGOR, NOR MORTGAGOR'S HEIRS, LEGAL
REPRESENTATIVES, SUCCESSORS OR ASSIGNS, NOR ANY OTHER OBLIGOR OR SUCH OBLIGOR'S
HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS, SHALL SEEK TO CONSOLIDATE
ANY CLAIM AS TO WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY CLAIM IN WHICH A
JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED.
(3) THE PROVISIONS OF THIS SECTION 3.18 HAVE BEEN FULLY NEGOTIATED BY
LENDER, MORTGAGOR AND THE OTHER OBLIGORS, AND THESE PROVISIONS SHALL BE SUBJECT
TO NO EXCEPTIONS.
(4) NEITHER LENDER NOR ANY OFFICER, EMPLOYEE, ATTORNEY, AGENT OR OTHER
REPRESENTATIVE OF LENDER HAS IN ANY WAY AGREED WITH OR REPRESENTED TO MORTGAGOR
OR ANY OTHER OBLIGOR THAT- THE PROVISIONS OF THIS SEC71ON 3.18 WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
(5) THIS SECTION 3.18 IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO
THE LOAN AND OTHER TRANSACTIONS EVIDENCED OR SECURED BY THIS MORTGAGE AND THE
LOAN DOCUMENTS.
19
<PAGE>
3.19 ESTOPPEL AFFIDAVITS. Mortgagor, within ten (10) days after written
-------------------
request from Lender from time to time, shall furnish written statements, duly
acknowledged, setting forth the unpaid indebtedness evidenced by the Note and
whether or not there exists any offset or defense against the Note and whether
or not there exists any Event of Default or event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default by
Mortgagor or Lender under the Note, this Mortgage, the Loan Agreement or any
other instrument evidencing or securing the Loan.
IN WITNESS WHEREOF, Borrower has caused this instrument to be executed
in its name by its duly authorized officer as of the day and year first above
written.
SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF.
/s/ Charles L. Hoffman, Jr. HOME STAY LODGE I, LTD., a Florida Limited
- ---------------------------- Partnership
Charles L. Hoffman, Jr. By: Home Stay Lodge, Inc., a Florida Corporation
/s/ Kate Z. Thomas By: /s/ Edward R. McMurphy
- ---------------------------- ---------------------------------------------
Kate Z. Thomas Its: PRESIDENT
-------------------------------------
Its Sole General Partner
STATE OF FLORIDA
COUNTY OF ESCAMBIA
The foregoing instrument was acknowledged before me this 21st day of May 1998,
by Edward R. McMurphy, the President of Home Stay Lodge, Inc., a Florida
corporation, the sole general partner of HOME STAY LODGE I, LTD, a Florida
limited partnership, on behalf of said partnership (___) who is personally known
to me or (X) who produced Texas drivers license as identification
/s/ Charles L. Hoffman, Jr.
-----------------------------------------------
[NOTARIAL SEAL] NOTARY PUBLIC - STATE OF FLORIDA
Typed Name: Charles L. Hoffman, Jr.
My Commission Expires: 02-28-01
20
<PAGE>
EXHIBIT "A"
Lots 15, 16, 17 and 18, Block 2, Bellview Heights, according to Plat recorded in
Plat Book 1, at Page 27, of the Public Records of Escambia County, Florida.
AND
From a concrete monument located at the intersection of the Westerly
right-of-way line of the new Pensacola-Ferry Pass Road (SR 1-A) and the
centerline of public road known as the 9 Mile Rd., said center line being an
extension of the line between Sec. 4 and 16, TIS, R30W, Escambia County, Florida
(the said monument being 606.16 ft, more or less, from the West line of the said
Joseph Noriega Grant) run Westerly along the center line of said 9 Mile Road 8.6
feet to a point; thence Southerly at an angle 90 degrees from said centerline go
1.5 feet to a stake located at the intersection of the right-of-way of the said
two roads for Point of Beginning; thence run Westerly parallel to the above
mentioned 9 Mile Road a distance of 495 feet to a stake; thence Southerly, at an
angle of 90 degrees 39.5 minutes with the Westerly course just run go 260.9 feet
to a stake; thence Easterly at an angle of 89 degrees 20.5 minutes with the
Southerly course just run go 343.4 feet to a stake on the West line of the
right-of-way of the above mentioned SR 1-A; thence along the said right-of-way
line of SR 1-A around a 1 degree circular curve to the right in a Northeasterly
direction 300.8 feet, more or less, to the Point of Beginning, all lying and
being in the Joseph Noriega Grant, Section 15, T1S, R30W. Also, Lots 5, 6 and 7,
Block 17, Ferry Pass Heights, a S/D of Fractional Section 4 and portions of
Section 15 and 16, T1S, R30W, Plat of said S/D being recorded in Plat Book 1, at
Page 64, Records of Escambia County, Florida.
<PAGE>
EXHIBIT "B"
-----------
Permitted Title Exceptions
--------------------------
1. The lien of all taxes for the year 1998 and subsequent years, which are not
yet due and payable.
2. Road Right of Ways.
CONSTRUCTION AND TERM LOAN AGREEMENT
This Loan Agreement is made on May 21, 1998, by BANK OF PENSACOLA, a
banking corporation, and its successors and assigns ("Lender"); HOME STAY LODGE
1, LTD., a Florida Limited Partnership, ("Borrower"); and BENNIE M. BRAY, whose
address is 3003 Carlisle, Suite 107, Dallas, Texas 75204 and CROWN GROUP, INC.,
4040 North McArthur Boulevard, Suite 100, Irving, Texas 75038 ("Guarantor").
RECITALS:
---------
WHEREAS, Borrower represents and warrants that Borrower is the owner of
a fee simple estate (such fee simple estate being hereinafter referred to as the
"Land") in the real properties situated in Escambia County, Florida, more
particularly described in Exhibit "A" (the "Realty"); and
WHEREAS, Borrower is or shall be in the process of constructing the
Improvements (as hereafter defined) on the Realty; and
WHEREAS, Borrower has requested Lender to lend certain money to
Borrower for the purpose of financing the construction of the Improvements on
the Realty, Various Engineering and other professional fees in connection with
the Project (as hereinafter defined), certain closing costs, and other expenses;
and
WHEREAS, Borrower and Guarantor have agreed to provide Lender with
certain collateral to secure the repayment of the Loan (as hereinafter defined);
and
WHEREAS, Lender has agreed to make and Borrower has agreed to accept
the Loan, subject to terms, provisions, and conditions hereinafter set forth;
NOW, THEREFORE, it is agreed by the parties as follows:
ARTICLE I.
DEFINITIONS
-----------
As used in this Agreement and in the Exhibits hereto, the following
terms shall have the following meanings, unless the context otherwise requires:
1.1 Additional Future Advances: The meaning assigned in 7.3.
--------------------------
1.2 Advance: The meaning assigned in Article IV.
-------
1.3 Agreement: This Construction and Term Loan Agreement and any
---------
written amendments or modifications thereto duly executed by all of the parties
hereto.
<PAGE>
1.4 Architect's Certificate: The certificate of the Inspecting
------------------------
Architect required pursuant to the terms of this Agreement, as a prerequisite to
each Advance.
1.5 Budget: The total of the Construction Costs and Non-Construction
------
Costs as estimated by Lender and Borrower to be necessary to enable Borrower to
complete the Project in accordance with the Plans.
1.6 Business Day: Any day on which banking institutions are open for
------------
business in Escambia County, Florida.
1.7 (Omitted).
1.8 Completion and Occupancy Advances: The meaning assigned in 4.7.
---------------------------------
1.9 Completion Date: Within two hundred seventy (270) days from May
---------------
21, 1998.
1.10 Completion Contract: The two Agreements between Borrower and
--------------------
Contractor dated as of May 18, 1998.
1.11 Construction Costs: All costs for labor, materials, fixtures,
-------------------
other than Nonconstruction Costs, incurred and to be incurred in the development
of the Project, and as more particularly described in Exhibit "B" hereto.
1.12 Construction Loan Fund: The meaning assigned in 4.1.
----------------------
1.13 Contractor: Loftin Construction Company.
----------
1.14 (Omitted).
1.15 Escrow Agreement: The escrow agreement, if any, between Borrower,
----------------
Lender, and Title Company (or its duly authorized agent), relating to the
disbursement of the Advances.
1.16 Events of Default: As stated in Article VII hereof.
-----------------
1.17 Fee: The meaning assigned in 2.3.
---
1.18 General Partner: The person or entity described in 3.1.
---------------
1.19 Governmental Authority: Any municipal, county, state, or federal
----------------------
governmental authority or other governmental authority (domestic or foreign)
having or claiming jurisdiction over the Land, the Realty, the Improvements,
Lender, or Borrower.
1.20 (Omitted).
2
<PAGE>
1.21 (Omitted).
1.22 Guaranty: The guaranty agreements executed and delivered by
--------
Guarantor to Lender.
1.23 (Omitted).
1.24 Impositions: All (a) real estate and personal property taxes and
other taxes and assessments, water and sewer rates and charges, and all other
governmental charges and any interest or costs or penalties with respect
thereto, and charges for any easement or agreement for the benefit of the
Project, which at any time before or after the execution of the Security
Documents may be assessed, levied, or imposed on the Project or the rent or
income received therefrom, or any use or occupancy thereof, and (b) other taxes,
assessments, fees, and governmental charges levied, imposed, or assessed on or
against Borrower or any of its properties.
1.25 Improvements: The improvements to be made to the Realty,
consisting of any improvements now existing or hereafter erected on the Realty,
all of which are more particularly described in the Plans.
1.26 Inspecting Architect: W. Lewis Culver, or an Architect designated
--------------------
by Lender from time to time to perform the duties of Inspecting Architect as
provided herein.
1.27 Interest Reserve: The meaning assigned in 2.5.
----------------
1.28 (Omitted).
1.29 (Omitted)
1.30 Loan: The $5,420,000.00 construction and permanent loan to be
----
made by Lender to Borrower, pursuant to this Agreement.
1.31 Mortgage: The first mortgage and security agreement securing in
--------
part the Loan, dated of even date herewith, and all other documents and
instruments executed in connection with the Mortgage and this Agreement.
1.32 Non-Construction Costs: All costs, other than Construction Costs,
-----------------------
incurred and to be incurred in development of the Project, and as more
particularly described in Exhibit "C".
1.33 Note: A certain promissory note, dated of even date herewith, made
----
by Borrower to the order of Lender, in the principal amount of $5,420,000.00.
1.34 (Omitted).
1.35 (Omitted).
3
<PAGE>
1.36 (Omitted).
1.37 (Omitted).
1.38 (Omitted).
1.39 Organizational Agreements: The meaning assigned in 3.2.
-------------------------
1.40 Permitted Encumbrances: The encumbrances stated in Exhibit "D".
----------------------
1.41 Plans: The architectural, structural, and mechanical engineering
-----
plans, drawings, and specifications for the completion of the Improvements
prepared by Borrower's Architect, and all supplements, amendments, and
modifications thereto and as more particularly described in Exhibit "E".
1.42 Premises or Project: An extended stay lodge facilities consisting
-------------------
of the Improvements to be constructed with the proceeds of the Loan, all located
on the Realty.
1.43 (Omitted).
1.44 Request for Advance. The Request for Advance on an AIA form, as
-------------------
may be amended from time to time, or such other form as Lender may require.
1.45 Security Documents: All other documents now or hereafter securing
------------------
the repayment of the Loan, including, without limitation, those instruments
described in 2.2 hereof.
1.46 (Omitted).
1.47 Survey: The surveys prepared by Walters Land Surveying, Inc., Job
------
No's: 9801069 and 9801070, and all updated versions, supplements, and changes
thereto.
1.48 (Omitted).
1.49 (Omitted).
1.50 (Omitted).
1.51 (Omitted).
1.52 Title Company: Attorney's Title Insurance Fund, Inc., or its duly
-------------
authorized agent.
1.53 Title Insurance Policy: The policy or policies of title insurance,
----------------------
issued by Title Company in favor of Lender, insuring the lien of the Mortgage.
4
<PAGE>
1.54 (Omitted).
1.55 (Omitted).
ARTICLE II.
LOAN, COLLATERAL, AND LOAN ORIGINATION FEE
------------------------------------------
2.1 Loan. Borrower may borrow a principal amount not to exceed
----
$5,420,000.00, for the purpose of providing a source of funds to enable Borrower
to construct and complete the Project and to pay certain closing costs and
development expenses. Borrower agrees to accept the Loan and to use the proceeds
thereof only as provided herein. The Loan shall be evidenced by the Note, with
principal and interest being payable as provided in the Note and the Mortgage.
2.2 Security for the Loan. The obligations of Borrower to repay the
---------------------
principal and interest on the Loan shall be secured by:
2.2.1 The Mortgage;
2.2.2 the Assignment of Rents, Leases, and Profits relating to
the Project dated as of even date herewith;
2.2.3 the Assignment of Construction Documents, Contracts, Rights
and Intangibles, dated as of even date herewith;
2.2.4 the UCC Financing Statements filed with the Clerk of
Escambia County and the Secretary of State of the State of Florida;
2.2.5 the Guaranty of each Guarantor;
2.2.6 any other documents providing collateral and security
that Lender and Borrower may agree on.
2.3 Loan Origination Fee. In consideration of Lender making the Loan,
--------------------
in addition to interest and any and all other payments due Lender under the Note
and this Agreement, Borrower has paid to Lender a nonrefundable loan origination
fee (the "Fee") in an amount equal to .5% of the principal amount of the Loan;
i.e., $27,100.00. The parties agree that the Fee is not a charge for the use of
money but is a charge for the purchase of the right to secure a loan of money.
It is agreed that the Fee was a material inducement for Lender to continue to
make the Loan and to be ready, willing, and able to fund the Loan in accordance
with the terms hereof. The Fee shall be in addition to all other payments
(including, without limitation, principal and interest), due and payable
pursuant to the terms, provisions, and conditions of the Note and this
Agreement.
2.4 Voluntary Prepayments. Borrower may, without penalty, prepay the
----------------------
indebtedness evidenced by the Note in whole or in part.
5
<PAGE>
2.5 Interest Reserve. Lender shall allocate the sum of $0.00 of the
----------------
Loan to an interest reserve (the "Interest Reserve") to ensure payment by
Borrower of the interest due to Lender under the Loan. Lender shall disburse
from the Interest Reserve such amounts as may be necessary to pay interest on
the Loan on the first banking Business Day of each respective month that the
same becomes due under the terms of the Note, unless Borrower elects to pay such
interest in cash when due. It is understood that as long as there are sufficient
funds in the Interest Reserve, Borrower has the option of not paying such
interest in cash, but rather of having such interest paid from the Interest
Reserve and the amounts thus disbursed added to the outstanding amount of the
principal of the Loan. This option is given at Borrower's request and for the
benefit of Borrower and shall be deemed to have been exercised by Borrower
without the necessity of further documentation on each interest payment date
during the period that the Interest Reserve has sufficient funds. At any time
that interest payments on the Loan shall be due, Lender shall bill Borrower for
that interest and Borrower may either (a) pay the interest and request Lender to
reimburse Borrower for any such Interest so paid from, the Interest Reserve and
charge Borrower's account therefor, or (b) request Lender to advance any such
amount of interest due to itself from the Interest Reserve and simultaneously
charge Borrower's account therefor. Before any default in any of the terms,
covenants, and provisions of any of the documents evidencing and securing the
Loan, Lender shall, to the extent the Interest Reserve is sufficient, either (a)
advance any such amount of interest due to itself from the Interest Reserve and
simultaneously charge Borrower's account therefor, or (b) reimburse Borrower
from the Interest Reserve for any interest paid by Borrower, as may be requested
by Borrower under the terms hereof. The amount of the each payment out of the
Interest Reserve shall increase in respective amounts the then-outstanding
principal balance due on the Loan. When and if such Interest Reserve is
depleted, all monthly interest payments shall be paid by Borrower in cash. If at
the time the Final Advance under Paragraph 4.4 hereof is made there remain
undisbursed amounts in the Interest Reserve, such amounts shall be disbursed to
Borrower as part of the Final Advance.
2.6 (Omitted).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lender as follows:
3.1 Organization, Formation, Power, Etc. (a) Borrower is a Florida
---------------------------------------
limited partnership duly organized, validly existing, and in good standing under
the laws of Florida; (b) Borrower's sole general partner is HOME STAY LODGE,
INC., ("Corporate General Partner"), a corporation duly organized, validly
existing, and in good standing under the laws of Florida (sometimes referred to
as "General Partner"); (c) Borrower has the power and authority to own property
and to carry on its business in every jurisdiction in which the nature of its
business or its properties make such qualification necessary, and General
Partner has the power and authority to own property and carry on its business in
every jurisdiction in which the nature of its business or its properties make
6
<PAGE>
such qualification necessary; and (d) Borrower and General Partner are in
compliance with all laws, regulations, ordinances, and public authorities
applicable to them and have the full power and authority to consummate the
transactions contemplated herein.
3.2 Organizational Agreements. The partnership agreement and
---------------------------
certificate of limited partnership of Borrower and the corporate charter and
bylaws of Corporate General Partner (collectively the "Organizational
Agreements") that have been given to Under have not been modified or amended
except by amendments of which Lender has been advised and furnished copies; and
the Organizational Agreements will not be, in any manner, materially changed,
modified, or altered without the prior written consent of Lender.
3.3 Corporate General Partner. All of the stock of Corporate General
-------------------------
Partner is fully paid and non-assessable; there are no outstanding rights or
options to acquire any additional shares of Corporate General Partner's stock;
and the stock of Corporate General Partner is not subject to any commitments,
liens, or encumbrances.
3.4 Validity of Loan Instruments. The execution, delivery, and
-------------------------------
performance by Borrower of this Agreement, and the borrowing evidenced by the
Note, and the execution and delivery of the Mortgage and Security Documents (a)
have been duly authorized by all requisite corporate/ partnership action on the
part of General Partner and Borrower respectively; (b) do not require the
approval of any governmental authority; and (c) to Borrower'9 knowledge and
belief, will not violate any provision of law (including, without limitation,
any applicable usury law or similar law), any order or regulation of any court
or other Governmental Authority, or any indenture, agreement, or other
instrument to which Borrower is a party or by which it or any of its property is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any indenture, agreement, or other
instrument, or result in the creation or imposition of any lien, charge, or
encumbrance of any nature whatsoever on any of its property or assets, except as
contemplated by the provisions of this Agreement. The Security Documents
constitute the legal, valid, and binding obligations of Borrower and, to the
best of Borrower's knowledge and belief, are enforceable against Borrower in
accordance with their respective terms.
3.5 Financial Statements. All balance sheets, statements of profit and
--------------------
loss, and other financial data that have been given to Lender by Borrower or
Guarantor with respect to Borrower and Guarantor (a) are complete and correct in
all material respects; (b) accurately present the financial condition of said
entity and person as of the dates, and the results of its operations for the
periods, for which the same have been furnished; and (c) have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods covered thereby. All balance sheets disclose all known
liabilities, direct and contingent, as of their respective dates and there has
been no change in the condition of Borrower or such Guarantor, financial or
otherwise, since the date of the most recent financial statements given to
Lender with respect to Borrower and Guarantor, other than changes in the
ordinary course of business, none of which changes has been materially adverse.
3.6 Other Information. All other information, reports, papers, and data
-----------------
given to Lender by Borrower or Guarantor with respect to Borrower and Guarantor
are accurate and correct in all material respects and complete insofar as
7
<PAGE>
completeness may be necessary to give Lender a true and accurate knowledge of
the subject matter.
3.7 Other Agreements. To the best of their knowledge and belief,
-----------------
neither Borrower nor Guarantor is a party to any agreement or instrument
adversely affecting its present or proposed business, properties or assets,
operation, or condition, financial or otherwise, and Borrower is not in default
in the performance, observance, or fulfillment of any of the material
obligations, covenants, or conditions set forth in any agreement or instrument
to which it is a party.
3.8 Taxes: Borrower has filed all income tax returns required to have
-----
been filed by it and has paid all taxes that have become due pursuant to such
returns or pursuant to any assessment received by it, and Borrower does not know
of any basis for additional assessment in respect to such taxes.
3.9 Litigation. To the best of Borrower's knowledge, there is not now
----------
pending against or affecting Borrower or Guarantor, nor to the knowledge of
Borrower is there threatened, any action, lawsuit, or proceeding at law or in
equity by or before any Governmental Authority that, if adversely determined,
would impair or affect Borrower's financial condition or operations.
3.10 Title. Borrower has good and marketable title to a fee simple
-----
"state in the Realty, and is indefeasibly seized of the Improvements and such
tangible property as constitutes, or is or may be determined to be, fixtures or
equipment, in fee simple, in each case free and clear of any liens, charges,
encumbrances, security interests, and adverse claims whatsoever, except for the
Permitted Encumbrances.
3.11 Plans, Building Permit. The Plans have been or will be approved by
----------------------
each Governmental Authority having or claiming jurisdiction over the Land,
Realty, and Project and any other person whose approval of the Plans, in whole
or in part, may be called for by applicable undertakings of Borrower, and all
building permits and other required permits and approvals required before the
commencement of construction have been or will be obtained before the
commencement of construction, and all other permits and approvals required
subsequent to the commencement of construction will be obtained before
commencing the stage of construction for which any such permit or approval is
required. The Plans have been reviewed and approved by Borrower.
3.12 Zoning and Other Requirements. The constructing of the
---------------------------------
Improvements, in accordance with the Plans, conforms and will conform to all
zoning and other governmental regulations and to any covenants, conditions, and
restrictions contained in any deed or deeds covering or affecting all or any
portion of the Realty.
3.13 Utilities and Roads. All utility services necessary for the
--------------------
construction of the Improvements and the operation thereof for its intended
purpose are available to the Realty, including water supply, storm and sanitary
sewer facilities, electricity, and telephone facilities. All roads necessary for
the full utilization of the Improvements for their intended purposes have been
completed or all necessary steps have been taken by Borrower to ensure their
8
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completion or to ensure the complete construction thereof by the Completion
Date, and such roads will be available to Under and to tenants of the Project
for use by their vehicles without interruption (except interruptions caused by
construction in accordance with the Plans).
3.14 Other Financing. Borrower has not received any other financing
----------------
for the acquisition of the Land or the construction of the Improvements.
3.15 Water and Sewer. There is, or will be, available before the
-----------------
Completion Date water and sewer lines to the boundaries of the Land so that the
Improvements may be connected to the water and sewer plants providing water and
sewerage services to the area in which the Land is located, and on the date
hereof, to the best knowledge of Borrower, such water and sewer plants have
adequate capacity to provide both adequate water and sewerage distribution,
collection, and treatment services for the Project. Such water and sewer lines
are adequate in size to service the Project and have been or will be installed
before the Completion Date in the rights of way abutting and adjoining the Land.
No private easements are required or necessary for the furnishing of water and
sewerage services to the Improvements, or if any private easements have been
obtained by recorded easement agreements, the agreements shall be approved by
the appropriate utility companies and Governmental Authorities having
jurisdiction over them.
3.16 Moratorium. To the best of Borrower's belief and based on due
----------
inquiry and the advice of engineers and architects, there is no moratorium or
like governmental order or restriction now in effect or contemplated with
respect to the Premises.
3.17 Environmental Laws. To the best of Borrower's belief and based on
------------------
due inquiry and the advice of engineers and architects, the requirements of all
pollution and environmental control laws and regulations applicable to the
Premises and the use thereof have been and will be satisfied.
3.18 No Event of Default. No Event of Default exists under this
---------------------
Agreement or the Note, the Security Documents, or the Permitted Encumbrances,
and no event has occurred and is continuing that, with notice or the passage of
time or either, would constitute a default under any provision thereof. The
consummation of the transactions hereby contemplated and performance of this
Agreement and the Mortgage will not result in any breach of, or constitute a
default under, the Permitted Exceptions, or any mortgage, deed of trust, lease,
bank loan or credit agreement, corporate charter, partnership agreement, bylaw,
or other instrument to which Borrower or Guarantor is a party or by which either
of them may be bound or affected.
3.19 Sale of Securities and Land Sales. Borrower has not instituted,
---------------------------------
caused to be instituted, or been a party to, and, to the best of Borrower's
knowledge, there has not been, any public offering with respect to the Land
and/or the Improvements within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Borrower has complied with and will comply with
all laws and regulations of Florida applicable to the Project. Borrower has not
received any notice of commencement of any proceeding or investigation by any
Governmental Authority with respect to any offering of the Project. Borrower
will not institute, cause to be instituted, be an issuer or underwriter of, or
be a party to, an offering with respect to the Land, the Improvements, or
interests therein or in Borrower that is not exempt from the "public offering"
9
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requirements of the aforesaid acts and applicable Florida laws and regulations
without the prior written consent of Lender.
3.20 Priority of Lien on Personalty. No chattel mortgage, security
-------------------------------
agreement, financing statement, or title retention agreement (except those
executed in favor of Lender) has been or will be executed with respect to any
personal property, chattel, or fixture used in connection with the construction,
operation, or maintenance of the Premises.
3.21 Condition of the Project. The Premises are not now damaged or
--------------------------
injured as a result of any fire, explosion, accident, flood, or other casualty.
3.22 Labor and Materials. All labor and materials contracted for in
-------------------
connection with the construction of the Improvements shall be used solely for
the construction of the Improvements.
3.23 Zoning. The Realty is zoned in accordance with all applicable
------
governmental rules, ordinances, regulations, and laws so as to permit the
proposed Improvements and related amenities to be constructed thereon, and such
zoning and all other applicable laws and ordinances do not impose any setbacks
or other requirements that would make the construction infeasible; and Borrower
is not aware of any problem or requirement that would jeopardize the building
permits for the Improvements.
3.24 Improvements. The Improvements as of the date of this Agreement
------------
(if there be any) are free of any material defects in construction and are in
compliance with all applicable construction codes and other governmental
requirements. To the best of Borrower's knowledge and belief, all surveys, plot
plans, and other documents heretofore furnished by Borrower to Lender with
respect to the Realty and Improvements are accurate and complete as of the
respective dates thereof.
3.25 Construction Costs. To the best of Borrower's knowledge, the
-------------------
amounts of the Construction Costs and Non-Construction Costs are accurate, true,
and correct and are satisfactory to Borrower.
3.26 Construction Liens. As of the date hereof, no notice of
--------------------
commencement has been filed of record with respect to the Land, the Realty, or
the Improvements, and no claims of lien have been filed with respect to the
Land, the Realty, or the Improvements, and no other act or thing has been or
will be done with respect to the Land, the Realty, or the Improvements that
could, under any circumstances, give rise to any lien of a mechanic, material
supplier, contractor, subcontractor, or laborer, before the recording of the
Mortgage.
3.27 (Omitted).
3.28 Reaffirmation of Representations and Warranties. Each request by
------------------------------------------------
Borrower for an, Advance hereunder (a) shall constitute a reaffirmation that the
foregoing representations and warranties (except with respect to the warranties
contained in Paragraph 3.26) remain true and correct in all material respects as
of the date of such request and, unless Lender is notified to the contrary
10
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before disbursement of the requested Advance, will be so on the date of such
Advance, and (b) shall constitute Borrower's representation and warranty that
the information set forth in each such request and any certification by
Borrower's Architect supplied in connection therewith is true and correct and
omits no material fact necessary to make the same not misleading.
ARTICLE IV.
ADVANCES AND COMPUTATION AND PAYMENT OF INTEREST
------------------------------------------------
4.1 Purpose, Time, Place. Subject to the provisions of this Agreement,
--------------------
from time to time as work on the Project progresses, Lender shall make advances
on the Loan to Borrower, in aggregate principal amount not to exceed the Budget,
in the amounts specified in Paragraph 4.3 hereof for the purpose of paying
Construction Costs (the "Construction Loan Fund") and Non-construction Costs
incurred in connection with the Project (hereinafter an "Advance"); provided,
however, no more than the total certified Construction Costs approved by Lender
shall be disbursed at any time under the Loan, and Lender shall not be obligated
to make any Advance for work not completed before the Completion Date. Borrower
agrees that all Advances will be made by such means as Lender may from time to
time designate; however, Lender shall not be required to see to the proper
application of any such Advance and shall not incur any liability for any
failure of such proper application. Furthermore, following an Event of Default
and for as- long as such Event Of Default remains uncured (if cure thereof is
accepted by Lender), Lender reserves the right to disburse Advances directly to
contractors and subcontractors, and no further direction or authorization from
Borrower shall be necessary following an Event of Default to permit disbursement
directly to the contractors, subcontractors, and material suppliers, and all
disbursements so made shall satisfy pro tanto the obligations of Lender
hereunder. As a condition precedent to the initial Advance, Borrower shall
furnish to Lender a complete construction schedule and a current trade cost
breakdown of the entire Project, itemized as to trade items, trade descriptions,
and correct lists of all subcontractors and suppliers employed or to be employed
in connection with the construction of the Improvements.
Lender shall make Advances for materials that are stored on the
Premises but not affixed to or incorporated in the Improvements, if the
materials are securely stored and protected from and insured against theft,
vandalism, and the elements to Lender's reasonable satisfaction.
The Budget (also referred to as Schedule of Values) for the
Construction Costs is attached hereto as Exhibit B. The Non-Construction Costs
are described in Exhibit C. Notwithstanding anything else in this Loan Agreement
to the contrary, no disbursements will be made for Construction Costs or
Non-Construction Costs until Borrower has paid out of pocket (and provided
satisfactory receipts of payment to Lender) Three Hundred Twenty One Thousand
and No/100 Dollars ($321,000.00) in costs. The $321,000.00 shall not include any
payments for the appraisal, survey update, feasibility study, origination fee
and loan closing costs, all of which will be paid out of pocket by Borrower in
addition to the $321,000.00.
11
<PAGE>
4.2 Amount. Each Advance shall be based on a percentage of completion
of work in place and be in an amount equal to the lesser of (a) the amount of
the Non-Construction Costs and Construction Costs incurred since the date of the
then immediately preceding Advance (or since the date of commencement of the
Project in case of the initial Advance) that is then due and payable; or (b) an
amount that does not exceed the budgeted amount for such work in accordance with
the Budget. Lender may (but shall not be obligated to) make an on-site
inspection and review of construction to verify the percentage of completion and
certify any Request for Advance. The initial Advance may defray certain of
Borrower's costs incurred in improving and developing the Premises and marketing
the Project before the date of this Agreement; however, none of the foregoing
costs and expenditures shall have the effect of diluting Borrower's equity in
the Project and none shall exceed the budgeted amount for such items in
accordance with the Budget. Lender may deduct from any Advance the amount of any
retainages, initial fees, expenses, and deposits in accordance with the terms of
this Agreement.
4.3 Advances - Procedure. Lender will make advances hereunder no more
--------------------
frequently than once a month. On or before the 5th day of each month, unless
otherwise specified herein, Borrower shall deliver to Lender all of the
following:
4.3.1. A fully completed Request for Advance signed by
Borrower and Inspecting Architect (and such persons and entities indicated
therein), which shall constitute a representation and warranty that the work
stated therein has been performed in accordance with the provisions of this
Agreement, the Plans, and all contractual obligations of the parties therein
named as well as a representation and warranty that all conditions precedent to
the Requested Advance have been satisfied and that there is no Event of Default
hereunder.
4.3.2 Certificate from Inspecting Architect recommending the
amount to be disbursed, stating that the amount requested for Construction Costs
is correct for that stage of construction, and setting forth such details
concerning the construction of the Improvements, including but not limited to
(a) a statement that the portion of the Improvements then completed has been
constructed in a good and workmanlike manner and in compliance with the Plans
and all applicable laws, ordinances, and building codes; (b) a schedule of work
in place; (c) the extent of completion of the Improvements and the value
thereof; (d) the estimated costs of completing the Improvements in accordance
with the Plans; (e) a statement that sufficient work has been completed to
warrant the draw being requested; (f) a statement that the amounts indicated to
complete are accurate; (g) a statement that the remaining undisbursed funds in
the Construction Loan Fund are adequate to complete the Improvements; and (h) a
statement that there have been no material deviations from the Plans except as
approved in writing by Lender.
4.3.3 A sworn statement from Borrower setting forth the nature of
all Construction Costs and Non-Construction Costs for which the Advance is
requested and the names of the obligees in respect of such costs and the
respective amounts owing to each; and such evidence (including receipted
invoices, billings, and affidavits) that such costs have been incurred as Lender
may reasonably request.
12
<PAGE>
4.3.4 Waivers, releases, or satisfactions of liens in form and
substance reasonably satisfactory to Lender, and such other evidence as Lender
may reasonably request showing that all outstanding claims for Construction
Costs, including claims of contractors, subcontractors, laborers, and material
suppliers, have been paid through the date of the preceding Advance, and will be
paid to date with the funds being currently advanced and that there are no liens
outstanding.
4.3.5 A current dated copy of the Survey, showing the proposed
location of all the Improvements on the Land and showing the location of the
completed Improvements and the certificate of the surveyor stating that they are
within the building lines and in compliance with any restrictions of record or
ordinances relating to the location thereof; however, Borrower shall be required
to provide only an initial boundary survey, a foundation survey as hereinafter
described, and an "as-built survey" as described in Paragraph 4.4.3 hereof,
unless the Title Company requires additional surveys. Within 10 days after
laying the foundation, Borrower shall provide Lender with a foundation survey,
certified to Borrower, Lender, and the Title Company, showing the location of
the foundation within the Realty and showing compliance with all governmental
and privately imposed setback or other restrictive construction requirements.
4.3.6 A current endorsement to the Title Insurance Policy (a)
increasing the aggregate amount of the policy by an amount equal to the Advance
then being requested; (b) confirming that the lien of the Mortgage remains a
valid first lien on the Premises; and (c) reflecting that no matters adversely
affecting title to the Land or Realty have been filed of record.
4.3.7 (Omitted).
4.3.8 Borrower will have submitted, and Lender and the
Inspector will have approved, detailed plans and specifications for the project
including without limitation, the site plan and the interior layout
(collectively, the "Plans and Specifications"), stamped and certified as true
and correct by the architect, engineer, designer or planner who has prepared the
same, and approved by all necessary government and private authorities and
agencies. All plans and specifications must comply with all applicable building
codes and the Americans with Disabilities Act of 1990, Public Law 101-336,42
U.S.C. 12101.
4.3.9 Upon Lender's request, Borrower will have submitted and
Lender and the Inspector will have approved a schedule of equipment necessary
and sufficient to fully equip and operate the project for its intended use.
4.3.10 Upon Lender's Request, a bar graph or critical path
construction schedule setting forth the anticipated starting dates and
completion dates of the various elements and categories of the work in
constructing, equipping and completing the project.
4.3.11 (Omitted).
4.3.12 An agreement is to be executed by both Borrower and
General Contractor providing for the assignment of Borrower's rights and
interests under the Construction Contract in the event of default by the
Borrower.
13
<PAGE>
4.3.13 Borrower will have entered into and Lender will have
approved contracts or agreements with architects, engineers, designers and
planners to provide the architectural, engineering and design services required
for completion of the project, with such architects, .engineers, designers and
planners as are approved by Lender.
4.3.14 Lender will have received Certificates of Borrower's
Architects and engineers containing a detailed listing and description of the
Plans and Specifications and certifying to the effect that: (i) when completed,
the project will comply with all currently applicable building codes and laws
(including, without limitation, the Americans and Disabilities Act of 1990,
Public Law 101-336, 42 U.S.C. 12101), ordinances, rules and regulations, and
with all covenants, conditions, easements and restrictions to which the project
is subject, (ii) that any and all required licenses, certificates, consents and
permits for, and approvals of, the project and the Plans and Specifications have
been issued by all governmental and private authorities and agencies having
jurisdiction thereof, (iii) that there is adequate and sufficient water, storm
sewer, sanitary sewer, gas, electrical and telephone service available to the
project without the necessity of any off-site improvements, and without the
necessity of any on-site improvements other than those provided for in the
approved Plans and Specifications and the Project Cost Budget, and (iv) that the
amounts set forth in the Project Cost Budget are adequate and sufficient for the
final completion and equipping of the project.
4.3.15 The Borrower will have obtained and delivered to Lender
consent agreements, in form and substance satisfactory to Lender and Lender's
counsel, of all contractors, architects and engineers engaged by the Borrower in
connection with the Improvements. Such consent agreements will provide that the
rights and liens of such persons are subordinate to Lender's rights and mortgage
lien, that Lender will be entitled to use all plans and specifications,
drawings, and other documents prepared by such parties to complete the
Improvements in the event of a default under the loan by the Borrower, and that
each such party will perform for Lender its obligations with respect to the
project under the same terms contained in its agreement with the Borrower if the
Borrower defaults under the loan and Lender elects to complete the Improvements.
4.3.16 (Omitted).
4.3.17 (Omitted).
4.3.18 (Omitted).
4.3.19 Upon Lender's request, Borrower or Borrower's project
General Contractor will furnish to Lender performance and payment bonds in form
and content satisfactory to Lender in an amount equal to one hundred percent
(100%) of the stipulated sum or guaranteed maximum contract price of the
Improvements under the General Contract, issued by a bonding company
satisfactory to Lender with a dual-obligee rider naming Lender as co-oblige. Any
and all conditions in the payment and performance bond(s) must be approved by
the Lender, and must comply with the following terms:
14
<PAGE>
4.3.19.1 The construction contractor must given written notice
to the Lender of any alleged default by the Borrower/Owner under Title Contract
or any other contract documents relating to the Contract.
4.3.19.2 The Lender will have not less than sixty (60) days after
receipt of such notice or such time as is reasonably necessary to cure such
default, whichever is greater. Failure to give such notice will constitute a
waiver of such default and the bond will remain in full force and effect
notwithstanding the Owner's alleged default.
4.3.19.3 (Omitted).
4.3.19.4 Claims submitted to arbitration will not constitute
defaults.
4.3.19.5 Any changes or modifications in or under the Contract or
the other contract documents will not release the surety.
4.3.19.6 The surety will waive any defense of timeliness of
completion of time extensions are granted by the Borrower/Owner to the
contraction contractor.
4.3.20 Borrower will provide satisfactory evidence td" Lender that
(i) the architect/engineer maintains professional liability (errors and
omissions) insurance in an amount satisfactory to Lender, (ii) the General
Contractor maintains workman's compensation insurance and public liability
insurance (if applicable), and (iii) such other insurance as may be required by
Lender in connection with the Mortgaged Premises.
4.3.21 Lender will have been furnished with copies of all
construction and/or building permits or written evidence satisfactory to Lender
and all applicable governmental and regulatory authorities that all necessary
licenses, permits and approvals have been issued by all governmental and
regulatory authorities to permit construction of the Improvements and use of the
project for the intended purposes. (Except for any amounts to be disbursed by
Lender at closing, no further amounts will be disbursed by Lender until Borrower
has obtained the building permit and all other permits necessary to construct
the Improvements).
4.3.22 A satisfactory current appraisal of the Realty and
Improvements by an appraiser acceptable to Lender in an amount not less than
Seven Million Four Hundred Thousand Dollars ($7,400,000.00). Lender, on behalf
of itself and its appraisers, reserves the right to enter onto the Mortgaged
Premises at reasonable times during the term of the Loan for the purposes of
inspecting and appraising the Mortgaged Premises. All such appraisal costs and
fees will be paid by Borrower, provided, however, Borrower will have no duty or
obligation to pay for an appraisal during the sixteen (16)-month period
following closing, or for more than one (1) such appraisal in any sixteen
(16)-month period thereafter. If Lender is required by any federal or state
authority or by Lender's auditors, or if the Loan is in default, additional
appraisals at Borrower's expense may be required.
15
<PAGE>
4.3.23 Such other instruments, documents, and certificates as
Lender may reasonably request.
4.4 Final Advance. At least 10 days before the date of the Final
--------------
Advance with respect to the Improvements described in the Construction Contract,
and following the substantial completion of the Improvements, unless otherwise
specified herein, Borrower shall deliver to Lender all of the following:
4.4.1. The documents, instruments, and certificates required by
subparagraphs 4.3.1-4.3.7.
4.4.2. A final Certificate of Inspecting Architect stating (a)
that the construction of the Improvements has been completed in a good and
workmanlike manner and in compliance with the Plans (including, but not limited
to, the equipping, furnishing, and fixturing of the Improvements, all clearing,
landscaping, lighting, and paving of the Premises) and all applicable laws,
ordinances, and building codes; and (b) such other details concerning the
construction of the Improvements as Lender shall request.
4.4.3. A final currently dated copy of the Survey, showing the
location of all the Improvements evidencing that the same are in compliance with
any restrictions of record or ordinances relating to the locations thereof; and
final "as-built" Plans of the-Improvements.
4.4.4. The final and unconditional acceptances of the
Improvements, or appropriate portions thereof, by the appropriate Governmental
Authority to the extent that any such approval is a condition to the lawful use
of the Improvements and the sale or leasing of the same to the public; or a
letter from the appropriate Governmental Authority to the effect that no such
certificate or other approval is issued by it, accompanied by Borrower's
certificate that no notices of any claimed violations of ordinances have been
served on Borrower.
4.4.5. Certified copies of all maintenance/warranty bonds, if any,
with respect to the Improvements as may be required by applicable Governmental
Authority.
4.4.6. Final construction lien affidavits from Borrower and
Borrower's general contractor disclosing that all persons, firms, and
corporations who have supplied labor and materials with respect to the Project
have been paid in full, which affidavits shall have attached to them recordable
final releases of lien from all such persons, firms, and corporations.
4.4.7. A letter from Borrower stating that Borrower (a) has
inspected the Improvements and is satisfied that they have been completed in
accordance with the Plans; (b) accepts the work as completed, or if there is a
dispute between Borrower and any contractors, setting forth the nature of such
dispute and the amount disputed, which amount shall be withheld by Lender
pending resolution of such dispute; and (c) waives any action against Lender for
payment of Construction Costs on work that Borrower may later consider to be
substandard or unsatisfactory.
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4.4.8. A current endorsement to the Title Insurance Policy (a)
increasing the aggregate amount of the policy by an amount equal to the Advance
then being requested; (b) confirming that the lien of the Mortgage remains a
valid first lien on the Premises; and (c) reflecting that no matters adversely
affecting title to the Land or Realty have been filed of record.
4.5 (Omitted).
4.6 (Omitted).
4.7 (Omitted).
4.8 Conditions of Advances. Anything contained herein or in any other
----------------------
agreement between Borrower and Lender to the contrary notwithstanding, Lender
shall not be obligated to make an Advance hereunder if, on the date such Advance
is to be made, any of the following conditions exist:
4.8.1. Borrower shall be unwilling or unable to pay for that
portion of Construction Costs and Non-Construction Costs then due and payable
that will not be covered by the Advance.
4.8.2. There is of record any mortgage, lien, charge, or other
encumbrance on the Premises other than the lien of the Mortgage and the
Permitted Encumbrances, or there is any mortgage, lien, charge, or other
encumbrance not of record that, in the reasonable opinion of Lender, may
constitute a cloud on the title to the Premises, render such title unmarketable,
or otherwise invalidate or adversely affect the lien of the Mortgage.
4.8.3. There is any litigation or proceedings pending or
threatened that may affect the validity or priority of the lien of the Mortgage
or that may materially affect Borrower's ability to perform its obligations
under this Agreement or any other agreement relating to the Premises.
4.8.4. Any of the representations and warranties set forth in
Article III hereof shall prove to have been false or misleading in any material
respect as of the date on which such representation or warranty was made.
4.8.5. The portion of the Improvements theretofore constructed
shall have been destroyed or materially damaged by fire or other casualty and
either (a) Lender shall not have received insurance proceeds `sufficient in the
judgment of Lender to effect the satisfactory restoration of the Improvements
and to permit the completion thereof before the Completion Date; or (b) Borrower
shall not have agreed to fund any deficit as estimated by Lender and in a manner
satisfactory to Lender to effect the satisfactory restoration to the
Improvements and to permit the completion thereof before the Completion Date.
4.8.6. (Omitted).
4.8.7. Borrower shall fail to deliver any of the instruments,
documents, certificates, and opinions required pursuant to the provisions of
Paragraph 4.3 hereof.
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4.8.8. Lender shall determine that there will not be available by
the Completion Date (a) adequate road access to the improvements; (b) adequate
potable water supply meeting all governmental and fire underwriter requirements;
(c) adequate sanitary sewer collection and disposal services meeting all
governmental requirements; and (d) all other public utility services
contemplated to be necessary or desirable for the improvements.
4.8.9. Lender shall determine that the undisbursed portion of the
Loan is insufficient to fully complete the Improvements (including the Tenant
Improvements) in a lien-free condition before the Completion Date and to pay or
provide for all reasonably anticipated NonConstruction Costs through the
maturity of the Loan, and Borrower is unwilling or unable to fund such deficit
on Lender's request therefor.
4.9 (Omitted)
4.10 Initial Advance. Without limiting any of the other terms,
provisions, and conditions hereof, the initial Advance hereunder shall not be
made until Borrower has delivered to Lender the following (each of which shall
be in form and substance acceptable to Lender): (a) such surveys, plats, plans,
and reports with respect to the Premises as Lender may reasonably require; (b)
such permits, certificates, instruments, additional or supporting documents,
and-other information with respect to the operations and affairs of Borrower and
the Premises as set forth in the Commitment and as Lender shall reasonably
require; and (c) opinions of counsel for Borrower in form, scope, and substance
satisfactory to Lender.
ARTICLE V.
AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that, from the date hereof and
until Lender shall have no further obligation to make Advances and until all
Construction Costs, Non-Construction Costs, and other indebtedness and
obligations incurred in connection therewith shall have been paid, performed,
and discharged in full:
5.1 Payment of Construction Costs and Non-Construction Costs. Borrower
--------------------------------------------------------
shall promptly pay all Construction Costs and Non-Construction Costs incurred in
connection with the Premises as and when the same become due and payable, paying
for the same with the proceeds of the Loan advanced from time to time and with
its own funds to the extent the same are not covered by the proceeds of the
Loan.
5.2 Additional Investment: Payment. Before any disbursement of the Loan
------------------------------
proceeds is made, Borrower shall, if required by Lender, pay an amount to the
Construction Loan Fund equal to the difference between the amount of the Loan
and the estimated cost of construction and completion of the Project as
determined by Lender. If the estimated cost of completing the Project, as
determined by Lender, shall at any time exceed the undisbursed portion of the
Loan, Borrower shall pay an amount equal to such excess. Any amounts determined
18
<PAGE>
in accordance with the foregoing shall be paid to contractors, suppliers,
material suppliers, and laborers before any additional Loan proceeds are paid
out or disbursed. Notwithstanding anything to the contrary contained in this
Agreement, the Note, or the Security Documents, if Lender shall, at any time,
determine and notify Borrower that the amount of money remaining undisbursed
under the Loan is less than the amount required to fully complete and pay for
the Project, including the payment of all Construction Costs (including Tenant
Improvements), Non-Construction Costs, and Loan interest, and Lender demands
that Borrower pay an amount equal to such deficiency, as determined by Lender,
Borrower shall comply with such demand and pay such deficiency to the
Construction Loan Fund before any additional Advances are made under the Loan.
Lender and Borrower agree periodically to reevaluate the Budget, and any savings
or deficiencies determined as a result of any such reevaluation will be taken
into account in determining the amount of any additional investments required by
Borrower pursuant to the provisions of this paragraph.
5.3 Contracts, Subcontracts, Etc. Borrower shall deliver to Lender for
-----------------------------
its approval upon request by Lender (a) copies of all construction contracts and
subcontracts relating to the Project, and any change orders thereto, and if in
the reasonable judgment of Lender such contracts do not cover all of the work
necessary to substantially complete the Project, Borrower shall obtain firm bids
from responsible parties, or estimates and other information reasonably
satisfactory to Lender, for the work not so covered, to enable Lender to
ascertain the total estimated cost of all work done and to be done; (b)
invoices, bills of sale, statements, receipted vouchers, or agreements under
which Borrower claims title to any materials, fixtures, or articles used in the
construction of the Improvements; (c) a list of all unpaid bills for labor and
materials with respect to construction of the Improvements; and (d) budgets of
Borrower and revisions thereof showing estimated costs of construction of the
Improvements and funds required at any given time to complete and pay for such
construction.
5.4 Construction. Borrower shall commence construction of the
------------
Improvements within 30 days after the date of this Agreement (and in any event
within 30 days after the issuance of a building permit with respect thereto),
and thereafter shall diligently and continuously proceed toward the completion
of the Project in a sound and workmanlike manner so that it will be completed on
or before the Completion Date (a) strictly in accordance with the Plans (with
only such changes therein as are approved in writing by Lender, except that
until the aggregate value of all change orders equals or exceeds $50,000,
individual change orders in an amount not exceeding $10,000 shall not require
Lender's prior written approval, but copies thereof shall be promptly provided
to Lender and Inspecting Architect); (b) in accordance with existing zoning
ordinances or existing variances thereof and in compliance with all building and
use restrictions applicable to the Premises and all other applicable laws,
rules, permits, ordinances, regulations, or restrictive covenants or
requirements of Governmental Authorities; and (c) free and clear of all adverse
claims and liens, encumbrances, and security interests other than the liens of
the Mortgage and the Permitted Encumbrances.
5.5 Performance of Obligations. Borrower shall duly pay, perform, and
--------------------------
discharge all of its other obligations hereunder, under the Note, and any other
agreement between Borrower and Lender.
19
<PAGE>
5.6 Inspections. Lender may enter on the Realty at any reasonable
-----------
time and from time to time, to do the following:
5.6.1. Inspect the same and all materials used in construction of
the Improvements or stored on the Premises.
5.6.2. Examine or copy (a) all plans, specifications, shop
drawings, and work details that are or may be kept on the Realty; (b) all of
Borrower's books, records, and accounts relating to work contracted for and
materials ordered and received, and all disbursements and accounts payable in
connection with the Improvements; (c) certificates and reports of inspecting
architects, Architects, and public officials; and (d) all subcontracts, bills,
bank accounts, and records pertaining to same, and papers pertaining to the
Improvements. To the extent to which they lawfully may do so, all interested
Governmental Authorities shall be permitted access to enter on the Realty at any
reasonable time to inspect the Improvements and all materials used in
construction of the Improvements or stored on the Premises.
5.7. Fire and Extended Coverage Insurance. Borrower shall keep the
--------------------------------------
Improvements and all material (installed and uninstalled), supplies, and other
personal property on the Realty insured against loss or damage by fire,
vandalism, burglary, theft, mysterious disappearance, malicious mischief, riot,
earthquake, and other hazards insured against by a standard form of extended
coverage insurance and such other insurance (including, but not limited. to,
flood) as may be specified by Lender from time to time, in amounts, and with
insurance companies authorized to do business in Florida, that are approved by
Lender. Each insurance policy shall be in the so-called "Builder's Risk 100%
Completed Value Non-Reporting" form and shall provide that (subject to the
rights of the landlord under the Ground Lease) (a) losses will be adjusted as
provided in the Mortgage; (b) loss payments will be payable to Lender alone and
applied as provided in the Mortgage; (c) the interest of Lender shall be insured
regardless of any breach or violation by Borrower of any warranties,
declarations, or conditions contained in such policy; and (d) if such insurance
is canceled or materially changed for any reason, the insurer shall promptly
notify Lender and such cancellation or change shall not be effective as to
Lender for 30 days after receipt by Lender of such notice. Borrower shall
deliver to Lender copies of each policy upon the execution hereof, and copies of
each renewal policy not less than 30 days before the expiration of the original
policy or preceding renewal policy (as the case may be), and deliver to Lender
receipts or other evidence that the premiums have been paid. The form and
content of all insurance policies required under this Agreement shall be
satisfactory to Lender as to form and content.
5.8. Public Liability Insurance. Borrower shall carry and cause all
----------------------------
contractors to carry comprehensive public liability and property damage
insurance in connection with the Project, and during construction, contractor's
protective liability insurance (including explosion and collapse coverage) and
comprehensive automobile liability insurance covering all motor vehicles, owned
and non-owned, used in connection with the Project. Each insurance policy issued
in connection with the Project shall name Lender as an "Additional Insured" and
"Mortgagee/Loss Payee" and provide that if such insurance be canceled or
materially changed for any reason, the insurer shall promptly notify Lender, and
such cancellation or change shall not be effective as to Lender for 30 days
after receipt by Lender of such notice. Borrower shall deliver to Lender copies
of each policy upon the execution thereof, and copies of each renewal policy not
20
<PAGE>
less than 30 days before the expiration of the original policy or preceding
renewal policy (as the case may be), and deliver to Lender receipts or other
evidence that the premiums have been paid. All policies shall be in amounts and
with insurers and in a form acceptable to Lender.
5.9. Workers' Compensation Insurance. Borrower shall carry or cause all
-------------------------------
contractors to carry workers' compensation and employer's liability insurance
covering all liability in connection with the Project under applicable workers'
compensation laws, and deliver to Lender a certificate indicating that the
policy or policies evidencing such insurance have been issued.
5.10. Flood Insurance. Borrower shall comply with the requirements of
---------------
the Flood Disaster Protection Act as and when required.
5.11. Proceedings. Borrower shall notify Lender of the institution of
-----------
any proceedings at law or in equity against Borrower or Guarantor, including,
but not limited to, any proceedings to assert or to enforce mechanics', material
suppliers', or other involuntary liens.
5.12. Compliance with Laws. Borrower shall promptly and faithfully
--------------------
comply with, conform to, and obey all present and future laws, ordinances,
rules, regulations, and requirements of every Governmental Authority.
5.13. Payment of Impositions. Except with respect to contests permitted
----------------------
in accordance with the terms of the Mortgage, Borrower shall pay the Impositions
not later than the due date thereof, or on the day any fine, penalty, interest,
or cost may be added thereto or imposed by law for the nonpayment thereof (if
such day is used to determine the due date of the respective item); however, if
by law any Imposition may be paid in installments (whether or not interest shall
accrue on the unpaid balance of such Imposition), Borrower may pay the same in
installments. Borrower also shall pay and discharge promptly all taxes,
assessments, and governmental charges or levies imposed on Borrower or on its
income, receipts, or any of its properties before the same shall become in
default.
5.14. Existence, Properties, Etc. Borrower shall do all things
------------------------------
necessary to maintain (a) its existence as a limited partnership under the laws
of Florida; (b) all qualifications or licenses, if any, required for the conduct
of its business; and (c) the existence of the Corporate General Partner as a
corporation under the laws of Florida.
5.15. Notice. Borrower shall give prompt written notice to Lender (a)
------
of any action or proceedings instituted against Borrower or Guarantor in any
court or by any commission or other regulatory body, or of any such proceedings
threatened against Borrower or Guarantor in writing that might result in a
judgment or judgments in excess of $10,000; (b) of any other action, event, or
condition known to Borrower or of which it should have knowledge that
constitutes an Event of Default under this Agreement or that, with notice or
lapse of time or both, would constitute such an Event of Default, or a default
of Borrower under any other contract, instrument, or agreement to which it is a
party or by which it or any of its properties or assets may be bound or to which
any may be subject, which default might have an adverse effect on the business,
21
<PAGE>
operations, properties assets, or conditions (financial or other) of Borrower or
Guarantor; and (c) any change in the condition of Borrower or Guarantor that
materially and adversely affects the ability of Borrower or Guarantor to perform
under this Agreement, the Note, or any of the Security Documents.
5.16. Hold Harmless. Borrower shall defend, at its own cost, and hold
-------------
Lender harmless from, any action, proceeding, or claim affecting the value of
the Note.
5.17. Books and Records. Borrower shall maintain complete books of
-----------------
account and other records reflecting the results of its operations (in
conjunction with its other operations as well as its operation of the Project),
in accordance with generally accepted accounting principles. At any time and
from time to time, Borrower shall deliver to Lender such other financial data as
Lender shall reasonably request with respect to the ownership and operation of
the Project, and Lender shall have the right, at reasonable times and on
reasonable notice, to audit (at Lender's expense) Borrower's books of account
and records relating to the Project, all of which shall be made available to
Lender and Lender's representatives for such purpose, from time to time, at the
Project. If such statements or balance sheets are not received within the time
provided, Lender shall have the right to employ independent auditors of its
choice to inspect the books and other records of Borrower to obtain or verify
the necessary information, for which audit Borrower shall pay.
5.18. Personal Property. Borrower shall furnish to Lender from time
-----------------
to time as required by Lender evidence that all fixtures and equipment necessary
for the operation of the Premises have been or will be obtained and in place
at the time of completion of the Improvements.
5.19. Verification of Assets. Guarantor shall provide annual updates to
----------------------
their financial statements certified by the Guarantor, disclosing that, except
with respect to third-party arm's-length transactions for market value or gifts,
in either case having no material negative impact on Guarantor's net worth,
Guarantor has transferred no assets subsequent to the date of this Agreement.
ARTICLE VI.
NEGATIVE COVENANTS
Borrower covenants and agrees that, from the date hereof and as long as
any of the Advances shall not have been paid in full, as to both principal and
interest, it will not do or allow any of the following:
6.1. Materials, Fixtures, Etc. Borrower will not use or permit the
--------------------------
use of any proceeds of the Loan for the acquisition of materials, fixtures, or
equipment that are under lease or have been purchased on a conditional bill of
sale or to which Borrower does not have absolute and unencumbered title.
6.2. Plans. The Plans shall not be modified, without the prior
-----
consent of Lender, except as permitted in Paragraph 5.4 of this Agreement.
22
<PAGE>
6.3. Other Financing. Borrower will not obtain other financing
---------------
(secured and unsecured) in connection with the Project without the prior consent
of Lender.
6.4. Limitation on Transfer of Assets by Guarantor. Except in
---------------------------------------------------
connection with third-party arm's length transactions for market value or gifts,
in either case having no material negative impact on Guarantor's net worth,
Guarantor will not transfer any of its assets during the term of the Loan
without Lender's prior written consent.
6.5. Transfer or Conveyance. Borrower will not sell, convey, transfer,
----------------------
or permit to be sold, conveyed, or transferred, any interest in or any part of
the Premises, and except as permitted in the Mortgage, no voluntary sale,
pledge, or other transfer of any interest in Borrower shall be effected, without
the prior written consent of Lender.
6.6. Change in Ownership of Borrower. There shall be no transfer of any
-------------------------------
interest of any general partner of Borrower, directly or indirectly (except as
permitted in the Mortgage and other than a transfer due to death or disability),
nor shall any new general partner be admitted to Borrower, without the prior
written consent of Lender.
6.7. Security Documents. Borrower will not create, incur, assume, or
------------------
permit any assignment, lien, pledge, or other encumbrance on any of the
collateral described in any of the Security Documents, or grant any interest or
equity therein other than to Lender.
6.8. Disposition of Rents. Borrower will not consent to or permit any
--------------------
sale, conveyance, or other disposition of any rents or other funds arising from
the Realty.
6.9. Maintenance of Improvements. Borrower will not fail to keep and
---------------------------
maintain or fail to cause to be kept and maintained in good order and repair any
portion of the Improvements.
6.10. Impairment of Premises. Borrower will not permit any action to
----------------------
be taken that would result in any material impairment of the value of the
Project.
6.11. Breach of Any Contract. Borrower will not commit any act, or
suffer or permit any act to occur, that would in any manner give rise to the
material breach of any term, covenant, or condition on Borrower's part to be
performed under any contract to which Borrower is a party or by which it is
bound, or that would have a materially adverse effect on the Premises or the
ability of Borrower or Guarantor to perform their obligations under the Security
Documents or Guaranties.
6.12. Judgments. Borrower will not permit any final judgment obtained
---------
against Borrower to remain unpaid for more than 30 days unless Borrower
transfers such judgment to substitute security in the manner provided by
Florida law.
6.13. Permitted Encumbrances and Prior Liens. Borrower will not amend,
--------------------------------------
modify, or permit to be modified or amended any provision of any document
evidencing, creating, or affecting the Realty, or any of the Permitted
Encumbrances.
23
<PAGE>
ARTICLE VII
DEFAULT
-------
7.1. Events of Default. The following (continuing beyond any applicable
-----------------
specified curative period) shall constitute an "Event of Default" hereunder:
7.1.1. Default in Payment. Borrower's failure to pay any
--------------------
installment of interest on the Note or any other amounts required pursuant to
the terms of the Note when due and payable, or within any applicable grace
period, without notice or demand.
7.1.2. Performance of Covenants. Default in the due observance
------------------------
or performance of any covenant or agreement made by Borrower or Guarantor
hereunder or under any other agreement between Borrower and Lender, including
the Security Documents (other than payment of money), and such default shall
continue for a period of 15 days after written notice thereof from Lender to
Borrower (unless such default, if curable, requires work to be performed, acts
to be done, or conditions to be remedied that by their nature cannot be
performed, done, or remedied, as the case may be, within such 15-day period and
Borrower shall diligently and continuously process the same to completion, or
unless Lender's security reasonably will be materially impaired if Borrower does
not perform in less than 15 days, in which event Borrower shall have only such
period following demand in which to perform as Lender may specify).
7.1.3. Breach of Warranty. Any representation or warranty made
------------------
by Borrower under any statement, instrument, or certificate delivered by
Borrower or Guarantor to Lender pursuant to the provisions hereof, under any
other agreement among Borrower, Guarantor, and Lender, or between Borrower and
Lender, including the Security Documents, or otherwise, that shall be determined
by Lender to have been false or misleading in any material respect as of the
date on which the same was made.
7.1.4. Default under Mortgage. An Event of Default under the
------------------------
Mortgage that shall occur and be continuing.
7.1.5. (Omitted).
7.1.6. Delay in Construction. Borrower does not, in the
-----------------------
opinion of Lender, proceed continuously and diligently toward completion of the
Project; or the Project is discontinued or abandoned for a period of 15 days.
7.1.7. Cancellation of Building Permit. Borrower neglects, fails,
-------------------------------
or refuses to keep in full force and effect any building permit required in
connection with the Premises or notice is given that any such permit has been
canceled.
7.1.8. Destruction of Improvements. The Improvements are damaged
---------------------------
or destroyed by fire or other casualty and Lender determines that there is
reasonable doubt, by reason of such loss or damage or of delays in making
24
<PAGE>
settlements with insurers, as to Borrower's ability to complete the Premises on
or before the Completion Date.
7.1.9. Injunction. The entry of an order or decree in any court
----------
of competent jurisdiction enjoining or delaying the construction of the
Improvements or completion of the Improvements or enjoining or prohibiting
Borrower or Lender from carrying out the provisions of this Agreement and such
order or decree is not vacated within 30 days.
7.1.10. Attachment. Except as expressly provided otherwise
----------
hereunder, an attachment or any other lien (construction or otherwise) against
the Land that is issued or entered and that remains undischarged or unbonded for
30 days after the filing thereof.
7.1.11. Levy On the Land or Realty. Levy is made under any
----------------------------
process on, or a receiver is appointed for, the Land or Realty or any other
property of Borrower.
7.1.12. Bankruptcy, Receivership, Insolvency, Etc. Borrower or
------------------------------------------
Guarantor commits an act of bankruptcy within the meaning of the Federal
Bankruptcy Code; or bankruptcy, receivership, insolvency, reorganization,
dissolution, liquidation, or other similar proceedings are instituted by or
against Borrower or Guarantor for all or any part of its property under the
Federal Bankruptcy Code or other law of the United States or of any state or
other competent jurisdiction (domestic or foreign) and, if against Borrower or
Guarantor, it shall consent thereto or shall fail to cause the same to be
discharged within 60 days.
7.1.13. Failure to Complete Project. Borrower fails to complete
---------------------------
the Project in accordance with the Plans on or before the Completion Date.
7.1.14. Improper Materials. If any of the materials, fixtures,
-------------------
or articles used in the construction of the Improvements or the appurtenances
thereto, or to be used in the operation thereof, are not substantially in
accordance with the Plans as approved by Lender.
7.1.15. Failure to Pay Other Debts. Borrower fails to pay any
-----------------------------
other debt related to the Project in a timely manner.
7.1.16. Notice by Borrower Pursuant to F.S. 622.04(1)b). Borrower
-----------------------------------------------
files for record a notice limiting the maximum principal amount secured by the
Mortgage to an amount less than the amount specified in Paragraph 1.01(d) of the
Mortgage.
7.2. Remedies. If an Event of Default shall occur and be continuing,
--------
Lender may, at its option, do any of the following:
7.2.1. Termination of Advances. Terminate any obligation of
-------------------------
Lender to make any further Advances.
7.2.2. (Omitted).
25
<PAGE>
7.2.3. Acceleration. Declare all amounts previously advanced to
------------
Borrower hereunder and under the Note, and all interest accrued and unpaid
thereon, and all other amounts due under the Note and this Agreement, to be
immediately due and payable without presentment, demand, protest, or further
notice of any kind (all of which hereby are expressly waived), and Lender may
thereupon institute proceedings to collect the same and/or foreclose the
Mortgage.
7.2.4. Completion of Construction.
--------------------------
7.2.4.1 To the maximum extent permitted under the laws of
Florida, Lender shall have the right, but not the duty, in addition to the
rights or remedies afforded to Lender under the Mortgage (a) to enter on the
Premises and take possession thereof, complete the Improvements in accordance
with the Plans (with such changes therein as Lender may deem appropriate), and
take all action it deems necessary to protect the Premises, all at the risk,
cost, and expense of Borrower; (b) at any time discontinue any work commenced
with regard to the Project or abandon the project or change any course of action
undertaken by it; or (c) assume (but not be obligated to assume) any
construction contract made by Borrower in any way relating to the Project and
take over and use all or any part of the labor, material, supplies, and
equipment contracted for by Borrower, whether or not previously incorporated
into the Improvements.
7.2.4.2. In connection with any construction undertaken by
Lender pursuant to the provisions of this subparagraph 7.2.4, Lender may do any
of the following:
7.2.4.2.1. Employ builders, contractors, subcontractors,
architects, Architects, inspectors, and others for the purpose of furnishing
labor, materials, and equipment in connection with the Project.
7.2.4.2.2. Purchase all materials necessary or proper or
convenient for completing the Improvements.
7.2.4.2.3. Pay, settle, or compromise all bills or claims
that are or may become liens against the Premises, or any portion thereof, or
that have been or may be incurred in any manner in connection with the
completion of the Improvements or for the discharge of liens or encumbrances
on, or defects in, the title of the Premises or any portion thereof.
7.2.4.2.4. Execute all applications and certificates in the
name of Borrower that may be required by any construction contract.
7.2.4.2.5. Institute legal or other proceedings, and defend
actions or proceedings, as Lender shall deem appropriate in connection with the
Premises.
7.2.4.2.6. Take, delay in taking, or refrain from taking such
action hereunder as Lender may from time to time determine.
26
<PAGE>
7.2.5. Enforcement of Security. Exercise its rights and
-------------------------
remedies under the Note, and any other agreement between Borrower and Lender,
including the Security Documents, in accordance with the respective terms
thereof.
7.2.6. Receiver. Appoint a receiver as a matter of strict
--------
right, for the purpose of preserving the Land and Realty and Project, preventing
waste, and protecting all rights accruing to Lender by virtue of this Agreement.
All expenses incurred in connection with the appointment of a receiver, or in
protecting, preserving, or improving the Land and Realty and Project, shall be
chargeable against Borrower and shall be enforced as a lien against the Land.
7.2.7. Guards. Employ security guards to protect and preserve
------
the premises and the materials located thereon.
7.2.8. Other. Cumulatively exercise any other remedy
-----
specifically granted hereunder or now or hereafter existing in equity, at law,
by virtue of statute, or otherwise.
7.3. Borrower's Liability for Expenditures and Advances. If Lender
-----------------------------------------------------
undertakes any of its rights in subparagraph 7.2.4, Borrower agrees that (a)
Lender may continue to make advances of the Loan that need not be in accordance
with this Agreement in such manner and for such purposes as Lender deems
advisable; and (b) Lender may make additional future advances (the "Additional
Future Advances") in such manner and for such purposes as Lender'-deems
advisable. The Additional Future Advances shall bear interest at the rate
specified in the Note from the date of disbursement, and the Additional Future
Advances and interest thereon shall be payable in accordance with the terms of
the Note. Borrower agrees that all of the advances made under the provisions of
this paragraph shall be deemed to have been advanced by Lender to Borrower and
all such advances shall be a portion of the Loan. For the purpose of Lender
exercising its rights under subparagraph 7.2.4, Borrower hereby constitutes and
appoints Lender its true and lawful attorney-in-fact with full power of
substitution and empowers said attorney or attorneys to execute, acknowledge,
and deliver any instruments and do and perform any acts such as referred to in
subparagraph 7.2.4 in the name and on behalf of Borrower. The powers vested in
said attorney-in-fact are coupled with an interest and cannot be revoked. Lender
shall indemnify Borrower for damages sustained by Borrower as a result of
Lender's gross negligence or willful and wanton misconduct in the conduct of its
powers pursuant to this subparagraph.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1. Additional Rights of Lender.
---------------------------
8.1.1. Lender shall have the right to commence, appear in, or
defend any action or proceedings purporting to affect the Premises or its
furnishings or equipment or the rights or duties of the parties hereunder or the
payment of any of the Loan proceeds and, in connection therewith, to pay all
necessary expenses, including reasonable attorneys' and legal assistants' fees,
and any such sums paid or expended by Lender, plus interest thereon at the rate
27
<PAGE>
applicable to Advances hereunder (as specified in the Note), shall be repaid by
Borrower to Lender on demand and shall be secured by the Security Documents.
8.1.2. If Lender determines that any work or materials are not in
material conformity with the Plans or ordinances, statutes, permits, and
regulations, and Lender's security is placed in jeopardy thereby, Lender may
stop the work and other replacement or correction regardless of whether such
work or materials have theretofore been incorporated into the Improvements.
8.1.3. For the purpose of exercising the rights granted by this
Paragraph 8.1, Borrower irrevocably constitutes and appoints Lender its true and
lawful attorney-in-fact, with full power of substitution, to execute,
acknowledge, and deliver any instruments and to do and perform any acts in the
name and on behalf of Borrower.
8.1.4. Any notices under this paragraph shall specify the
reason Lender is taking any of the acts and actions authorized under this
paragraph.
8.2. Lender's Rights Optional. Whenever in this Agreement Lender is
--------------------------
given the right to take any action or execute any instrument, Lender shall not
incur any liability for failure to exercise such right or for any delay in so
exercising such right.
8.3. No Representations by Lender. Lender has no obligation in
-------------------------------
connection with the Premises, except to advance the proceeds of the Loan. Lender
shall not be responsible for the performance, nonperformance, or delay in
performance of any contractor, subcontractor, or supplier of materials, or for
the quality of workmanship or materials, or for the failure to construct,
complete, protect, or insure the Improvements, or for the payment of any cost or
expense incurred in connection therewith, or for the performance or
nonperformance or delay in performance of any obligation of Borrower. Any
inspection by Lender, or the approval of any plans, contracts, or other
activities in the nature thereof, shall be only for the sole and separate
benefit of Lender and for the purpose of protecting the security of Lender, and
the same shall in no way be construed as a representation that there is
compliance on the part of Borrower or that the construction of the Improvements
is free from faulty material or workmanship. The fact that Lender makes
inspections shall not relieve Borrower from its duties to independently
ascertain that the Improvements are being completed in accordance with the
Plans, and Borrower has no right to rely on any procedures taken by Lender.
8.4. Loan Expenses. Borrower shall pay all costs and expenses in
--------------
connection with the Loan, including but not limited to brokers' fees and
commissions; lender's attorneys' and legal assistants' fees; documentary,
intangible, and other taxes; recording costs and expenses; cost of surveys,
appraisals, abstracting, policies of title insurance and any endorsements
thereto, and license and permit fees. Borrower shall indemnify and hold Lender
harmless from and against any and all costs, losses, liability, and expense
arising in connection with any of the foregoing. Borrower authorizes Lender to
use proceeds of the Loan to satisfy any of the costs and expenses referred to
herein, and no further direction or authorization from Borrower shall be
necessary to warrant disbursements in payment of the foregoing.
28
<PAGE>
8.5. Further Assurances. Borrower agrees that after the execution and
------------------
delivery of this Agreement, it shall execute and deliver such further documents
and do such further acts and things as Lender may reasonably request in order to
fully effectuate the purposes of this Agreement.
8.6. Assignment. Lender may assign this Agreement and the other
----------
agreements contemplated hereby and all of its rights hereunder and thereunder,
and cause the assignee or any subsequent assignee to make any Advances not made
at the time of the assignment, and all the provisions of this Agreement shall
continue to apply to the Loan. Lender shall have the right to participate the
Loan with other lending institutions. Borrower shall not assign this Agreement
or the proceeds to be advanced hereunder. The rights of Borrower under this
Agreement are not assignable. Notwithstanding the foregoing, if Borrower does
make an assignment of this Agreement or of its rights hereunder, Lender may, at
Lender's option, continue to make Advances hereunder to Borrower or Borrower's
successors in interest in the Premises, and all sums so advanced shall be deemed
Advances made in pursuance and not in modification hereof and shall be evidenced
and secured by the Note and the Mortgage.
8.7. Rights, Remedies, Powers. Each and every right, remedy, and power
-------------------------
granted to Lender hereunder shall be cumulative and in addition to any other
right, remedy, or power herein specifically granted, now or hereafter existing
in equity, at law, by virtue of statute, or otherwise, and may be exercised by
Lender from time to time concurrently or independently and as often and in such
order as Lender may deem expedient. Any failure or delay on the part of Lender
in exercising any such right, remedy, or power, or abandonment or discontinuance
of steps to enforce the same, shall not operate as a waiver thereof or affect
Lender's right thereafter to exercise the same, and any single or partial
exercise of any such right, remedy, or power shall not preclude any other or
future exercise thereof or the exercise of any other right, remedy, or power. If
Lender shall have proceeded to enforce any such right, remedy, or power and such
proceedings shall have been determined adversely to Lender, in each such event
Borrower and Lender shall be restored to their former positions and the rights,
remedies, and powers of Lender shall continue as if no such proceedings had been
taken.
8.8. Modification, Waiver, Consent. Any modification or waiver of any
-----------------------------
provision of this Agreement or any consent to any departure by Borrower
therefrom shall not be effective in any event unless the same is in writing and
signed by Lender, and then such modification, waiver, or consent shall be
effective only in the specific instance and for the specific purpose given. Any
notice to or demand on Borrower in any event not specifically required of Lender
hereunder shall not entitle Borrower to any other or further notice or demand in
the same, similar, or other circumstances unless specifically required
hereunder. Any advance of Loan proceeds hereunder shall not constitute a waiver
of any of the conditions of Lender's obligations to make further advances nor,
in the event Borrower is unable to satisfy any such condition, shall any such
waiver have the effect of precluding Lender from thereafter declaring such
inability to be an Event of Default as provided in Paragraph 7.1.
8.9. (Omitted).
29
<PAGE>
8.10. Further Assurances. Borrower agrees that after the execution and
------------------
delivery of this Agreement, it shall execute and deliver such further documents
and do such further acts and things as Lender may reasonably request in order to
fully effectuate the purposes of this Agreement.
8.11. Severability. If any provision of this Agreement shall be
------------
declared in contravention of law or void as against public policy, such
provisions shall be considered severable and the remaining provisions of this
Agreement shall continue in full force and effect.
8.12. [Omitted].
8.13. Entire Agreement. [Omitted].
----------------
8.14. Binding Effect. This Agreement, subject to the provisions of
--------------
Paragraph 8.6 hereof, shall be binding on and shall inure to the benefit of the
respective permitted successors and assigns of Borrower and Lender.
8.15. No Agency. Lender is not the agent or representative of Borrower,
---------
and Borrower is not the agent or representative of Lender, and nothing in this
Agreement shall be construed to make Lender liable to anyone for goods delivered
or services performed by them on the Realty or for debts or claims accruing to
them against Borrower. Nothing herein shall be construed to create a contractual
relationship between Lender and anyone supplying labor or materials to the
Realty; Lender's obligations are not for the benefit of or enforceable by any
successor to or assignee of Borrower except as specifically provided herein.
8.16. Agreement Solely For Benefit of Lender. Etc. All conditions
----------------------------------------------
precedent to the obligation of Lender to make Advances are imposed solely and
exclusively for the benefit of Lender and its assigns, and no other person shall
have standing to require satisfaction of such conditions in accordance with
their terms or be entitled to assume that Lender will refuse to make Advances in
the absence of strict compliance with any or all provisions thereof, and no
other person shall, under any circumstances, be deemed to be a beneficiary of
such conditions, any or all of which may be freely waived in whole or in part by
Lender at any time if in its sole discretion it deems it advisable to do so.
8.17. No Partnership or Joint Venture. Nothing contained herein nor
-------------------------------
the acts of the parties shall be construed to create a partnership or joint
venture between Borrower and Lender.
8.18. Public Announcement. A public relations announcement may be made
-------------------
by Lender regarding the making of this Loan to Borrower. In addition, during the
term of the Loan, Lender shall be entitled to place on the Premises a sign
notifying the public that Lender is providing the financing for construction of
the Improvements.
8.19. Receipt of Money. The receipt by Lender of any sum of money
------------------
pursuant to this Agreement with knowledge of the breach of any term, covenant,
or provision of this Agreement shall not be deemed a waiver of the breach.
Payment by Borrower or receipt by Lender of a lesser amount of any sum of money
herein stipulated shall be deemed to be on account of the next due payment under
30
<PAGE>
the Loan or this Agreement. No endorsement or statement on any check, or any
letter accompanying any check, shall be deemed an accord and satisfaction, and
Lender may accept any payment or check without prejudice to Lender's right to
recover the balance of any payment or other money due under this Agreement or
pursue any of the remedies in this Agreement or the Security Documents provided.
8.20. Accrual of Interest Under the Note. Interest under the Note shall
----------------------------------
begin to accrue as of the date of disbursal or wire transfer by Lender,
notwithstanding whether Borrower shall receive the benefit of such money as of
that date and even if the money is held in escrow pursuant to the terms of any
escrow arrangement or agreement. When money is disbursed by wire transfer, the
money shall be considered advanced at the time of the transmission of the wire
rather than the time of receipt by the receiving bank.
8.21. Survival of Provisions. All covenants, agreements,
--------------------------
representations, and warranties made in this Agreement and the documents
delivered in support of the Loan shall be deemed to be material and to have been
relied on by Lender. They shall survive the execution and delivery to Lender of
the Note, the Security Documents, and the disbursement and advance of funds
pursuant to this Agreement.
8.22. Indemnification. Without limiting any of the other provisions
---------------
contained in the Agreement, the Note, or the Security Documents, Borrower agrees
to indemnify and hold Lender harmless against and with respect to any and all
liability, deficiency, damage, cost, or expense resulting from any
misrepresentation, material omission, breach of warranty or representation, or
the nonfulfillment of any covenant or agreement on the part of Borrower under or
relating to this Agreement, the Note, or the Security Documents, except damage,
cost, or expenses arising from Lender's gross negligence or willful and wanton
misconduct and any and all actions, lawsuits, proceedings, demands, assessments,
judgments, costs, legal and accounting fees, or other expenses incident of the
foregoing indemnification of Borrower pursuant to this paragraph.
8.23. Loan Proceeds Limitations. All Loan proceeds are to be used
--------------------------
solely in connection with the Project and for no other purpose.
8.24. Loan Funds. Lender shall not be required to segregate the Loan
----------
funds or to earmark such funds in any manner. The sole obligation of Lender
shall be to disburse the funds in accordance with this Agreement.
8.25. Materials for Construction. All materials delivered to the
--------------------------
Realty for use in the construction of the Improvements shall be considered
annexed to the Realty and shall become a part of the Realty as if actually
incorporated in the Improvements and shall be subject, as against Borrower and
all parties acting or claiming under them, to the rights, conditions, and
covenants to which the Realty and Improvements are subject under this Agreement
and the Mortgage. Nothing herein contained shall be construed to make Lender
responsible for any loss, damage, or injury to such materials nor for the
payment of the same.
31
<PAGE>
8.26. Conflict With Note and Security Documents. In the event of any
------------------------------------------
conflict between the terms of the Note and Mortgage, and this Agreement, the
terms of the Note and Mortgage shall control and govern in all respects.
Whenever possible, the provisions of this Agreement shall be deemed supplemental
to and not in derogation of the Note or the Mortgage.
8.27. Rights of Third Parties. Lender makes no representations and
------------------------
assumes no obligations as to third parties concerning the quality of the
construction of the Improvements. In this regard, Borrower shall indemnify
Lender from any liability, claim, or losses resulting from the disbursement of
the Loan funds or from the condition of the Premises whether related to the
quality of construction or otherwise, and whether arising during or after the
term of the Loan. This paragraph shall survive the repayment of the Loan and
shall continue in full force and effect as long as the possibility of any
liability, claim, or loss exists.
8.28. Headings. The paragraph headings in this Agreement are intended
--------
for convenience only and shall not be taken into consideration in any
construction or interpretation of this Agreement or any of its provisions.
8.29. Assignment and/or Participation by Lender. Lender reserves the
------------------------------------------
right to assign, transfer, participate, pledge, hypothecate, or encumber, or any
combination thereof, all or any part of Lender's interest in this commitment or
any of the collateral and security instruments and documents mentioned herein
without Borrower's consent. Borrower agrees to assist Lender in completing any
documents necessary to accomplish any such transfer.
8.30. Consents. Whenever any provision of this Agreement or any of the
--------
Security Documents require Lender to approve, determine, opine, consent, or be
satisfied, such consent, determination, opinion, approval, or satisfaction shall
not be unreasonably withheld.
8.31. Brokerage Commissions. Any brokerage commissions or finder's fees
---------------------
in connection with the Loan and this Agreement and all of the transactions
contemplated hereby shall be payable by Borrower and not by Lender, and Borrower
agrees to forever indemnify, exonerate, and hold Lender harmless against any and
all claims of any broker or finder arising out of the transactions contemplated
hereby. Lender represents to Borrower that it has not dealt with any broker with
respect to the Loan and the transactions contemplated under this Agreement.
8.32. WAIVER OF JURY TRIAL. BORROWER, BORROWER'S GENERAL PARTNERS, AND
--------------------
ANY AND ALL GUARANTORS, SURETIES, ENDORSERS AND OTHER OBLIGORS UNDER THE NOTE
REFERRED TO IN THIS LOAN AGREEMENT (COLLECTIVELY REFERRED TO AS THE "OBLIGORS")
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AGREE THAT:
(1) NEITHER THE BORROWER, NOR ANY OF THE OBLIGORS, NOR THEIR RESPECTIVE
HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS, SHALL SEEK A JURY TRIAL IN
ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, CROSS-CLAIM OR OTHER ACTION OR PROCEEDING
ARISING FROM OR BASED UPON THIS LOAN AGREEMENT OR ANY OF THE LOAN DOCUMENTS.
32
<PAGE>
(2) NEITHER THE BORROWER, NOR ANY OF THE OBLIGORS, NOR THEIR RESPECTIVE
HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS, SHALL SEEK TO CONSOLIDATE
ANY CLAIM AS TO WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY CLAIM IN WHICH A
JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED.
(3) THE PROVISIONS OF THIS SECTION 8.32 HAVE BEEN FULLY NEGOTIATED BY
THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
(4) NEITHER LENDER NOR ANY OFFICER, EMPLOYEE, ATTORNEY, AGENT OR OTHER
REPRESENTATIVE OF LENDER HAS IN ANY WAY AGREED WITH OR REPRESENTED TO BORROWER
OR ANY OF THE OTHER OBLIGORS THAT THE PROVISIONS OF THIS SECTION 8.32 WILL NOT
BE FULLY ENFORCED IN ALL INSTANCES.
(5) THIS SECTION 8.32 IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO
THE LOAN AND OTHER TRANSACTIONS EVIDENCED OR SECURED BY THIS MORTGAGE AND THE
LOAN DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
under seal on the date first above written.
BORROWER:
/s/ Charles L. Hoffman, Jr. HOMESTAY LODGE, LTD., a Florida
- ------------------------------ - limited partnership
Charles L. Hoffman, Jr
By: Home Stay Lodge, Inc.
/s/ Kate Z. Thomas
- -------------------------------
Kate Z. Thomas By: /s/ Edward R. McMurphy
-------------------------------
Its:
------------------------
Its Sole General Partner
LENDER:
/s/ Lori a. Enfinger BANK OF PENSACOLA
- -------------------------------
Typed Name: LORI A. ENFINGER
--------------------
/s/ Kate Z. Thomas By: [NAME UNREADABLE]
- ------------------------------- -------------------------------
Typed Name: KATE Z. THOMAS Its: VICE PRESIDENT
-------------------- ------------------------
33
<PAGE>
GUARANTORS:
/s/ Charles L. Hoffman, Jr. CROWN GROUP, INC.
- ------------------------------
Charles L. Hoffman, Jr.
By: /s/ Edward R. McMurphy
/s/ Kate Z. Thomas -------------------------------
- ------------------------------ Its:
Kate Z. Thomas ------------------------
/s/ Charles L. Hoffman, Jr. /s/ Bennie M. Bray
- ------------------------------ ----------------------------------
Charles L. Hoffman, Jr. BENNIE M. BRAY
/s/ Kate Z. Thomas
- ------------------------------
Kate Z. Thomas
STATE OF FLORIDA
COUNTY OF ESCAMBIA
The foregoing instrument was acknowledged before me this 21st day of
May 1998, by Edward R. McMurphy, the President of Home Stay Lodge, Inc., a
Florida corporation, the sole general partner of HOME STAY LODGE I, LTD., a
Florida limited partnership, on behalf of said partnership (____) who is
personally known to me or (X) who produced Texas drivers license as
identification.
/s/ Charles L. Hoffman, Jr.
------------------------------------
NOTARY PUBLIC - STATE OF FLORIDA
Typed Name: Charles L. Hoffman, Jr.
My Commission Expires: 02-28-01
STATE OF FLORIDA
COUNTY OF ESCAMBIA
The foregoing instrument was acknowledged before me this 21st day of
May 1998, by Ashley H. Schubert, Jr. the Vice President of BANK OF PENSECOLA, on
behalf of the Bank, (X) who is personally know to me or (____) who produced
_________________________________ as identification.
/s/ Kate Z. Thomas
------------------------------------
[NOTARIAL SEAL] NOTARY PUBLIC - STATE OF FLORIDA
Typed Name: KATE Z. THOMAS
-------------------------
My Commission Expires: 02-23-00
--------------
34
<PAGE>
STATE OF FLORIDA
COUNTY OF ESCAMBIA
The foregoing instrument was acknowledged before me this 21st day of
May 1998, by Edward R. McMurphy the President of CROWN GROUP, INC., on behalf of
the said company, ( ) who is personally know to me or (X) who produced Texas
drivers license as identification.
/s/ Charles L. Hoffman, Jr.
[NOTARIAL SEAL] ------------------------------------
NOTARY PUBLIC - STATE OF FLORIDA
Typed Name: Charles L. Hoffman, Jr.
My Commission Expires: 02-28-01
STATE OF FLORIDA
COUNTY OF ESCAMBIA
The foregoing instrument was acknowledged before me this 21st day of
May 1998, by BENNIE M. BRAY, ( ) who is personally know to me or (X) who
produced Texas drivers license as identification.
/s/ Charles L. Hoffman, Jr.
------------------------------------
[NOTARIAL SEAL] NOTARY PUBLIC - STATE OF FLORIDA
Typed Name: Charles L. Hoffman, Jr.
My Commission Expires: 02-28-01
35
<PAGE>
EXHIBIT "A"
Lots 15, 16, 17 and 18, Block 2, Bellview Heights, according to Plat recorded in
Plat Book 1, at Page 27, of the Public Records of Escambia County, Florida.
AND
From a concrete monument located at the intersection of the Westerly
right-of-way line of the new Pensacola-Ferry Pass Road (SR I-A) and the
centerline of public road known as the 9 Mile Rd., said center line being an
extension of the line between Sec. 4 and 16, T1S, R30W, Escambia County, Florida
(the said monument being 606.16 ft, more or less, from the West line of the said
Joseph Noriega Grant) run Westerly along the center line of said 9 Mile Road 8.6
feet to a point; thence Southerly at an angle 90 degrees from said centerline go
15 feet to a stake located at the intersection of the right-of-way of the said
two roads for Point of Beginning; thence run Westerly parallel to the above
mentioned 9 Mile Road a distance of 495 feet to a stake; thence Southerly at an
angle of 90 degrees `09.5 minutes with the Westerly course just run go 260.9
feet to a stake; thence Easterly at an angle of 89 degrees 20.5 minutes with the
Southerly course just run go 343.4 feet to a stake on the West line of the
right-of-way of the above mentioned SR 1-A; thence along the said right-of-way
line of SR 1-A around a I degree circular curve to the right in a Northeasterly
direction 300.8 feet, more or less, to the Point of Beginning, all lying and
being in the Joseph Noriega Grant, Section 15, T1S, R30W. Also, Lots 5, 6 and 7,
Block 17, Ferry Pass Heights, a S/D of Fractional Section 4 and portions of
Section 15 and 16, TIS, R30W, Plat of said S/D being recorded in Plat Book 1, at
Page 64, Records of Escambia County, Florida.
4
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000092066
<NAME> EFFICIENCY LODGE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 237,091
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 49,997
<CURRENT-ASSETS> 0
<PP&E> 25,942,644
<DEPRECIATION> 4,284,027
<TOTAL-ASSETS> 27,462,761
<CURRENT-LIABILITIES> 0
<BONDS> 27,703,427
0
0
<COMMON> 159,613
<OTHER-SE> (1,123,229)
<TOTAL-LIABILITY-AND-EQUITY> 27,462,761
<SALES> 0
<TOTAL-REVENUES> 6,848,997
<CGS> 0
<TOTAL-COSTS> 4,138,853
<OTHER-EXPENSES> 39,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677,972
<INCOME-PRETAX> 992,919
<INCOME-TAX> 375,020
<INCOME-CONTINUING> 617,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 617,899
<EPS-BASIC> 32.54
<EPS-DILUTED> 32.54
</TABLE>
