<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------- -------
COMMISSION FILE NUMBER 1-14236
FELCOR LODGING TRUST INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 72-2541756
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
</TABLE>
(972) 444-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, par value $.01 per share, of
FelCor Lodging Trust Incorporated outstanding on August 10, 1999 was 68,078,492.
- --------------------------------------------------------------------------------
<PAGE> 2
FELCOR LODGING TRUST INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. -- FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements.............................................................................. 3
FELCOR LODGING TRUST INCORPORATED
Consolidated Balance Sheets - June 30, 1999 (Unaudited)
and December 31, 1998..................................................................... 3
Consolidated Statements of Operations -- For the Three and Six Months
Ended June 30, 1999 and 1998 (Unaudited).................................................. 4
Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1999 and 1998 (Unaudited).................................................. 5
Notes to Consolidated Financial Statements..................................................... 6
DJONT OPERATIONS, L.L.C.
Consolidated Balance Sheets - June 30, 1999 (Unaudited)
and December 31, 1998..................................................................... 13
Consolidated Statements of Operations -- For the Three and Six Months
Ended June 30, 1999 and 1998 (Unaudited).................................................. 14
Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1999 and 1998 (Unaudited).................................................. 15
Notes to Consolidated Financial Statements..................................................... 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 18
General/Second Quarter Highlights.............................................................. 18
Results of Operations.......................................................................... 19
Liquidity and Capital Resources................................................................ 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................ 30
PART II. -- OTHER INFORMATION
Item 2. Changes in Securities............................................................................. 31
Item 4. Submission of Matters to a Vote of Security Holders............................................... 31
Item 5. Other Information................................................................................. 31
Item 6. Exhibits and Reports on Form 8-K.................................................................. 32
SIGNATURE....................................................................................................... 33
</TABLE>
2
<PAGE> 3
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of $251,924
at June 30, 1999 and $178,072 at December 31, 1998 .......................... $ 4,037,959 $ 3,955,582
Investment in unconsolidated entities .......................................... 138,554 148,065
Cash and cash equivalents ...................................................... 50,569 34,692
Due from Lessees ............................................................... 32,324 18,968
Deferred expenses, net of accumulated amortization of $3,026
at June 30, 1999 and $2,096 at December 31, 1998 ............................ 13,163 10,041
Other assets ................................................................... 8,057 8,035
------------ ------------
Total assets ........................................................ $ 4,280,626 $ 4,175,383
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt, net of discount of $1,515 at June 30, 1999
and $1,628 at December 31, 1998 ............................................. $ 1,712,540 $ 1,594,734
Distributions payable .......................................................... 42,549 67,262
Accrued expenses and other liabilities ......................................... 78,753 57,312
Minority interest in Operating Partnership, 2,987 and 2,939 units issued and
outstanding at June 30, 1999 and December 31, 1998, respectively ............ 88,202 87,353
Minority interest in other partnerships ........................................ 51,728 51,105
------------ ------------
Total liabilities ................................................... 1,973,772 1,857,766
------------ ------------
Commitments and contingencies (Notes 3 and 5)
Shareholders' equity:
Preferred stock, $.01 par value, 20,000 shares authorized:
Series A Cumulative Preferred Stock, 6,050 shares issued and outstanding .... 151,250 151,250
Series B Redeemable Preferred Stock, 58 shares issued and outstanding ....... 143,750 143,750
Common stock, $.01 par value, 200,000 shares authorized, 69,291 and 69,284
shares issued, including shares in treasury, at June 30, 1999
and December 31, 1998, respectively ......................................... 693 693
Additional paid-in capital ..................................................... 2,142,072 2,142,250
Distributions in excess of earnings ............................................ (89,424) (78,839)
Common stock in treasury, at cost, 1,213 shares ................................ (41,487) (41,487)
------------ ------------
Total shareholders' equity .......................................... 2,306,854 2,317,617
------------ ------------
Total liabilities and shareholders' equity .......................... $ 4,280,626 $ 4,175,383
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue ......................... $ 131,891 $ 62,793 $ 256,882 $ 118,853
Equity in income from unconsolidated entities .... 2,591 2,689 3,837 3,982
Other revenue .................................... 705 1,920 1,385 2,095
---------- ---------- ---------- ----------
Total revenues .......................... 135,187 67,402 262,104 124,930
---------- ---------- ---------- ----------
Expenses:
General and administrative ....................... 2,509 1,375 4,753 2,574
Depreciation ..................................... 37,737 17,429 74,162 33,316
Taxes, insurance, and other ...................... 19,904 7,568 40,857 14,838
Interest expense ................................. 30,750 13,795 59,172 23,526
Minority interest in Operating Partnership ....... 1,519 2,063 2,839 3,813
Minority interest in other partnerships .......... 833 291 1,639 482
---------- ---------- ---------- ----------
Total expenses .......................... 93,252 42,521 183,422 78,549
---------- ---------- ---------- ----------
Income before extraordinary charge ................. 41,935 24,881 78,682 46,381
Extraordinary charge from write off of deferred
financing fees .................................. 1,113 1,113 556
---------- ---------- ---------- ----------
Net income ......................................... 40,822 24,881 77,569 45,825
Preferred dividends ................................ 6,184 4,854 12,368 7,803
---------- ---------- ---------- ----------
Income applicable to common shareholders ........... $ 34,638 $ 20,027 $ 65,201 $ 38,022
========== ========== ========== ==========
Per common share data:
Basic:
Income applicable to common shareholders before
extraordinary charge ........................ $ 0.53 $ 0.55 $ 0.98 $ 1.06
Extraordinary charge ............................. (0.02) (0.02) (0.02)
---------- ---------- ---------- ----------
Net income applicable to common shareholders ..... $ 0.51 $ 0.55 $ 0.96 $ 1.04
========== ========== ========== ==========
Weighted average common shares outstanding ....... 68,013 36,537 68,011 36,541
========== ========== ========== ==========
Diluted:
Income applicable to common shareholders before
extraordinary charge ........................ $ 0.53 $ 0.54 $ 0.97 $ 1.05
Extraordinary charge ............................. (0.02) (0.02) (0.02)
---------- ---------- ---------- ----------
Net income applicable to common shareholders ..... $ 0.51 $ 0.54 $ 0.95 $ 1.03
========== ========== ========== ==========
Weighted average common shares outstanding ....... 68,351 36,851 68,347 36,878
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 77,569 $ 45,825
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ......................................................... 74,162 33,316
Amortization of deferred financing fees .............................. 1,303 1,256
Accretion of debt .................................................... (494)
Amortization of unearned officers' and directors' compensation ....... 350 396
Equity in income from unconsolidated entities ........................ (3,837) (3,982)
Extraordinary charge for write off of deferred financing fees ........ 1,113 556
Minority interest in Operating Partnership ........................... 2,839 3,813
Minority interest in other partnerships .............................. 1,639 482
Changes in assets and liabilities:
Due from Lessees ..................................................... (13,356) (13,793)
Deferred financing fees .............................................. (5,538) (3,558)
Other assets ......................................................... (1,140) (8,436)
Accrued expenses and other liabilities ............................... 15,343 11,599
---------- ----------
Net cash flow provided by operating activities ............. 149,953 67,474
---------- ----------
Cash flows used in investing activities:
Acquisition of hotel assets .................................................... (10,802) (353,615)
Acquisition of unconsolidated entities ......................................... (418)
Sale of hotels ................................................................. 15,091
Improvements and additions to hotels ........................................... (148,519) (22,244)
Bristol Interim Credit Facility ................................................ (120,000)
Cash distributions from unconsolidated entities ................................ 13,297 15,809
---------- ----------
Net cash flow used in investing activities ................. (130,933) (480,468)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings ....................................................... 744,000 461,000
Repayment of borrowings ........................................................ (630,899) (144,145)
Proceeds from sale of preferred stock .......................................... 143,750
Costs associated with public offerings ......................................... (4,686)
Distributions paid to limited partners ......................................... (4,273) (3,336)
Distributions paid to preferred shareholders ................................... (13,619) (7,803)
Distributions paid to common shareholders ...................................... (98,352) (38,269)
---------- ----------
Net cash flow provided by (used in) financing activities ... (3,143) 406,511
---------- ----------
Net change in cash and cash equivalents .................................................. 15,877 (6,483)
Cash and cash equivalents at beginning of periods ........................................ 34,692 17,543
---------- ----------
Cash and cash equivalents at end of periods .............................................. $ 50,569 $ 11,060
========== ==========
Supplemental cash flow information --
Interest paid .................................................................. $ 55,549 $ 22,226
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SECOND QUARTER HIGHLIGHTS
FelCor Lodging Trust Incorporated ("FelCor") is one of the nation's
largest hotel real estate investment trusts ("REIT") which, at June 30, 1999,
owned interests in 187 hotels with nearly 50,000 rooms and suites (collectively
the "Hotels") through its greater than 95% equity interest in FelCor Lodging
Limited Partnership (the "Operating Partnership"). FelCor, the Operating
Partnership, and their subsidiaries are herein referred to, collectively, as the
"Company". The Company owns 100% interests in 163 of the Hotels, a 90% or
greater interest in entities owning seven hotels, a 60% interest in an entity
owning two hotels and 50% interests in separate entities that own 15 hotels.
FelCor strives to be the premier full-service lodging REIT partnered
with leading brands and management companies to create shareholder value. The
Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels
in the world. The following table presents the Hotels, by brand, operated by
each of the Company's Lessees at June 30, 1999:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ---------- ---------- ----------
<S> <C> <C> <C>
Embassy Suites 58 58
Holiday Inn 45 45
Doubletree and Doubletree Guest Suites(R) 16 16
Crowne Plaza and Crowne Plaza Suites(R) 17 17
Holiday Inn Select(R) 10 10
Sheraton(R)and Sheraton Suites(R) 9 9
Hampton Inn(R) 9 9
Holiday Inn Express(R) 5 5
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independent 1 2 3
Courtyard by Marriott(R) 2 2
Four Points by Sheraton(R) 1 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Westin(R) 1 1
---------- ---------- ----------
Total Hotels 86 101 187
========== ========== ==========
</TABLE>
The Hotels are located in the United States (34 states) and Canada,
with 79 hotels in California, Florida and Texas. The following table provides
information regarding the net acquisition of hotels through June 30, 1999:
<TABLE>
<CAPTION>
NET HOTELS
ACQUIRED/(DISPOSED)
-------------------
<S> <C>
1994 7
1995 13
1996 23
1997 30
1998 120
FIRST QUARTER 1999 (4)
SECOND QUARTER 1999 (2)
------------
187
============
</TABLE>
6
<PAGE> 7
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SECOND QUARTER HIGHLIGHTS -- (CONTINUED)
At June 30, 1999 the Company leased 86 of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company, or a consolidated
subsidiary thereof (collectively "DJONT"), 100 of the Hotels to Bristol Hotels &
Resorts or a consolidated subsidiary thereof ("Bristol" and, together with
DJONT, the "Lessees"). One hotel, managed by Bristol, was not leased.
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. DJONT has entered into management agreements pursuant to which 73 of
the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation
("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood"), and three are managed by two independent
management companies.
Bristol leases and manages 100 Hotels and manages one hotel which
operates without a lease. Bristol is one of the largest independent hotel
operating companies in North America and operates the largest number of Bass
Hotels & Resorts-branded hotels in the world.
A brief discussion of the second quarter 1999 highlights follows:
o Completed renovations at 20 hotels at a total project cost of
$123.6 million.
o Ten additional hotels were undergoing renovation.
o Capital expenditures to the Hotel portfolio per the Company's
renovation and redevelopment program totaled $56 million in
addition to $11 million of routine capital replacements and
improvements.
o Raised $550 million of new long term debt (five and ten year
maturities), which was used to prepay the $250 million term
loan due December 31, 1999, and initially to reduce
outstanding borrowings under the Company's Line of Credit. An
extraordinary charge of $1.1 million was incurred for the
early retirement of the $250 million term loan.
o Declared second quarter dividends of $0.55 per share on the
Company's Common Stock, $0.4875 per share on its $1.95 Series
A Cumulative Convertible Preferred Stock and $0.5625 per
depositary share evidencing the 9% Series B Cumulative
Redeemable Preferred Stock.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the financial statements and notes thereto of
the Company and DJONT included in FelCor's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "10-K"). The notes to the financial statements
included herein highlight significant changes to the notes included in the 10-K
and present interim disclosures required by the SEC. The financial statements
for the three and six months ended June 30, 1999 and 1998 are unaudited;
however, in the opinion of management, all adjustments (which include only
normal recurring accruals) have been made which are considered necessary to
present fairly the operating results and financial position of the Company for
the unaudited periods.
7
<PAGE> 8
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT IN UNCONSOLIDATED ENTITIES
At June 30, 1999, the Company owned 50% interests in separate entities
owning 15 hotels, a parcel of undeveloped land, and a condominium management
company. The Company also owned a 97% nonvoting interest in an entity that is
developing condominiums for sale and owns a recently completed hotel annex. The
Company accounts for its investments in these unconsolidated entities under the
equity method.
Summarized combined financial information for 100% of these
unconsolidated entities is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
Balance sheet information:
<S> <C> <C>
Investment in hotels, net of accumulated depreciation ..................... $269,123 $269,881
Non-recourse mortgage debt ................................................ $196,462 $176,755
Equity .................................................................... $ 93,524 $105,347
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statements of Operations Information:
Percentage lease revenue .............................. $ 14,399 $ 14,222 $ 26,970 $ 26,569
Other income .......................................... 2,738 954 4,327 1,114
---------- ---------- ---------- ----------
Total revenue ................................ 17,137 15,176 31,297 27,683
---------- ---------- ---------- ----------
Expenses:
Depreciation ..................................... 4,629 4,278 9,508 8,543
Taxes, insurance, and other ...................... 2,682 1,594 5,024 3,160
Interest expense ................................. 3,468 3,095 6,687 6,354
---------- ---------- ---------- ----------
Total expenses ............................... 10,779 8,967 21,219 18,057
---------- ---------- ---------- ----------
Net income ............................................ $ 6,358 $ 6,209 $ 10,078 $ 9,626
========== ========== ========== ==========
Net income attributable to the Company ................ $ 3,127 $ 3,105 $ 4,908 $ 4,813
Amortization of cost in excess of book value .......... (536) (416) (1,071) (831)
---------- ---------- ---------- ----------
Equity in income from unconsolidated entities ......... $ 2,591 $ 2,689 $ 3,837 $ 3,982
========== ========== ========== ==========
</TABLE>
3. DEBT
On April 1, 1999, the Company closed a five-year, $375 million term
loan (the "Senior Term Loan"). The Senior Term Loan is collateralized by stock
and partnership interests in certain subsidiaries of the Company and bears
interest at 250 basis points over LIBOR (30-day LIBOR at June 30, 1999, was
5.24%). The financial covenants in the Senior Term Loan are consistent with
those in the Company's existing Line of Credit. In connection with this
transaction, the Company's $850 million Line of Credit and existing seven and
10-year publicly-traded term notes were equally and ratably collateralized by
the same collateral as the Senior Term Loan. If the Company achieves investment
grade credit ratings from the applicable rating agencies, the stock and
partnership interest collateral will be released. The proceeds of the Senior
Term Loan were used to prepay the $250 million term loan, which was to mature on
December 31, 1999 and initially to reduce borrowings under the Company's Line of
Credit.
8
<PAGE> 9
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DEBT (CONTINUED)
On April 1, 1999, the Company also closed a 10-year, $100 million
mortgage loan (the "April 1999 First Mortgage Term Loan"). The April 1999 First
Mortgage Term Loan is non-recourse (with certain exceptions), is collateralized
by seven Embassy Suites hotels, carries a fixed rate coupon of 7.54%, matures in
April 2009 and amortizes over 25 years. The proceeds from this loan were used
initially to reduce outstanding borrowings under the Company's Line of Credit.
On May 13, 1999, the Company closed a 10-year, $75 million mortgage
loan (the "May 1999 First Mortgage Term Loan"). This loan is non-recourse (with
certain exceptions), is collateralized by six Embassy Suites hotels, carries a
fixed rate coupon of 7.55%, matures in June 2009 and amortizes over 25 years.
The proceeds from this loan were used initially to reduce outstanding borrowings
under the Company's Line of Credit
Debt at June 30, 1999 and December 31, 1998 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
OUTSTANDING BALANCE
-------------------
INTEREST RATE MATURITY DATE JUNE 30, 1999 DECEMBER 31, 1998
------------- ------------- ------------- -----------------
FLOATING RATE DEBT:
- -------------------
<S> <C> <C> <C> <C>
Line of Credit LIBOR + 150bps June 2001 $ 347,000 $ 411,000
Term Loan LIBOR + 150bps December 1999 250,000
Senior Term Loan LIBOR + 250bps March 2004 250,000
Mortgage debt LIBOR + 200bps February 2003 62,851
Other Up to LIBOR + 200bps Various 24,400 34,750
---------- ----------
Total floating rate debt 684,251 695,750
---------- ----------
FIXED RATE DEBT:
- ----------------
Line of credit - swapped 7.24% June 2001 200,000 325,000
Publicly-traded term notes 7.38% October 2004 174,313 174,249
Publicly-traded term notes 7.63% October 2007 124,172 124,122
Mortgage debt 7.24% November 2007 143,675 145,062
Senior Term Loan - swapped 8.30% March 2004 125,000
Mortgage debt 6.97% December 2002 43,836
Mortgage debt 7.54% April 2009 99,773
Mortgage debt 7.55% June 2009 75,000
Other 6.96% - 7.23% 2000 - 2005 86,356 86,715
---------- ----------
Total fixed rate debt 1,028,289 898,984
---------- ----------
Total Consolidated Debt $1,712,540 $1,594,734
========== ==========
</TABLE>
A portion of the Company's Line of Credit and Senior Term Loan is
matched with interest rate swap agreements which effectively convert the
variable rate on the Line of Credit and Senior Term Loan to a fixed rate.
The Line of Credit and the Senior Term Loan contain various affirmative
and negative covenants including limitations on total indebtedness, total
secured indebtedness, and cash distributions, as well as the obligation to
maintain certain minimum tangible net worth and certain minimum interest and
debt service coverage ratios. At June 30, 1999, the Company was in compliance
with all such covenants.
9
<PAGE> 10
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DEBT (CONTINUED)
The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the Line of
Credit and Senior Term Loan. Most of the mortgage debt is nonrecourse to the
Company (with certain exceptions) and contains provisions allowing for the
substitution of collateral upon satisfaction of certain conditions. Most of the
mortgage debt is prepayable; subject, however, to various prepayment penalties,
yield maintenance, or defeasance obligations.
Future scheduled debt principal payments at June 30, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1999 $ 8,514
2000 31,979
2001 566,629
2002 9,590
2003 91,212
2004 and thereafter 1,006,131
------------
1,714,055
Discount accretion over term (1,515)
------------
$ 1,712,540
============
</TABLE>
4. TAXES, INSURANCE, AND OTHER
Taxes, insurance, and other is comprised of the following for the six
months ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Real estate and personal property taxes .................... $ 13,603 $ 6,456 $ 28,623 $ 13,023
Property insurance ......................................... 875 293 1,728 545
Land lease expense ......................................... 4,479 579 8,485 805
State franchise taxes and Canadian income tax .............. 947 240 2,021 465
---------- ---------- ---------- ----------
Total taxes, insurance, and other ................. $ 19,904 $ 7,568 $ 40,857 $ 14,838
========== ========== ========== ==========
</TABLE>
5. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company is to receive rental income from the Lessees under the
Percentage Leases which expire in 2002 (six hotels), 2003 (three hotels), 2004
(12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54
hotels), and thereafter (15 hotels). The rental income under the Percentage
Leases between 14 of the unconsolidated entities, of which the Company owns 50%,
is payable by the Lessee to the respective entities and is not included in the
schedule of future lease commitments to the Company. Minimum future rental
income (i.e., base rents) payable to the Company under these noncancellable
operating leases at June 30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
DJONT BRISTOL TOTAL
----- ------- -----
<S> <C> <C> <C>
Remainder of 1999 .............................. $ 69,594 $ 77,787 $ 147,381
2000 ........................................... 140,749 180,055 320,804
2001 ........................................... 144,123 180,076 324,199
2002 ........................................... 144,480 180,049 324,529
2003 ........................................... 130,445 177,302 307,747
2004 and thereafter ............................ 519,383 820,168 1,339,551
---------- ---------- ----------
$1,148,774 $1,615,437 $2,764,211
========== ========== ==========
</TABLE>
10
<PAGE> 11
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. COMMITMENTS AND RELATED PARTY TRANSACTIONS (CONTINUED)
Certain entities owning interests in DJONT and managers for certain
hotels have agreed to make loans to DJONT of up to an aggregate of approximately
$17.3 million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of 34
of the Hotels. No loans were outstanding under such agreements at June 30, 1999.
DJONT engages third-party managers to operate the Hotels leased by it
and generally pays such managers a base management fee based on a percentage of
room and suite revenue and an incentive management fee based on DJONT's income
before overhead expenses for each hotel. In certain instances, the hotel
managers have subordinated fees and committed to make subordinated loans to
DJONT, if needed, to meet its rental and other obligations under the Percentage
Leases.
Bristol serves as both the lessee and manager of 100 Hotels leased to
it by the Company at June 30, 1999 and, as such, is compensated for both roles
through the profitability of the Hotels, after meeting their operating expenses
and rental obligations under the Percentage Leases.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases. As an additional
credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter
of Credit") for the benefit of the Company in the original amount of $20 million
that is required to be maintained until July 27, 1999. This Letter of Credit is
subject to periodic reductions upon satisfaction of certain conditions and at
June 30, 1999, was in the amount of $9.1 million. According to Bristol's
financial statements filed with the SEC, for the three and six months ending
June 30, 1999 Bristol had net income of $4.5 million and $5.6 million,
respectively, and at June 30, 1999 had stockholders' equity of $41.2 million.
Bristol is a public company whose common stock is listed on the New
York Stock Exchange under the symbol BH and that files its financial statements
with the SEC in accordance with the Securities and Exchange Act of 1934.
The Company has a Renovation and Redevelopment Program for the Hotels
and presently expects approximately $160 million to be invested during 1999
under this program, which may be funded from cash on hand or borrowings under
its Line of Credit. Through the six months ending June 30, 1999 the Company has
spent approximately $129 million under the Renovation and Redevelopment program.
6. SUPPLEMENTAL CASH FLOW INFORMATION
During the first six months of 1999, the Company purchased the land
related to three hotels which were previously leased under long term land leases
for an aggregate purchase price of $19.8 million as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired .................................. $ 19,776
Debt assumed ..................................... (7,800)
Operating Partnership units issued ............... (1,174)
--------
Net cash paid by the Company ................ $ 10,802
========
</TABLE>
The debt assumed was paid off immediately after the purchase.
11
<PAGE> 12
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Segment Information
The Company has determined that its reportable segments are those that
are consistent with the Company's method of internal reporting, which segments
its business by Lessee. The Company's Lessees at June 30, 1999 were DJONT and
Bristol. Prior to July 28, 1998 (the date of the Bristol Merger) the Company had
only one Lessee, DJONT. Accordingly, segment information is not disclosed for
the six months ended June 30, 1998.
The following table presents information for the reportable segments
for the six months ended June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
---------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Statements of Operations Information:
Revenues:
Percentage lease revenue ...................... $ 143,496 $ 113,386 $ 256,882 $ 256,882
Equity in income from unconsolidated
entities ..................................... 3,302 535 3,837 3,837
Other revenue ................................. 103 831 934 $ 451 1,385
---------- ---------- ---------- ---------- ----------
Total revenues ...................... 146,901 114,752 261,653 451 262,104
---------- ---------- ---------- ---------- ----------
Expenses:
General and administrative .................... 4,753 4,753
Depreciation .................................. 39,983 34,179 74,162 74,162
Taxes, insurance, and other ................... 18,079 22,778 40,857 40,857
Interest expense .............................. 59,172 59,172
Minority interest in Operating
Partnership ................................ 2,839 2,839
Minority interest in other partnerships ....... 1,639 1,639 1,639
---------- ---------- ---------- ---------- ----------
Total expenses ...................... 59,701 56,957 116,658 66,764 183,422
---------- ---------- ---------- ---------- ----------
Income before extraordinary charge ............... $ 87,200 $ 57,795 $ 144,995 $ (66,313) $ 78,682
========== ========== ========== ========== ==========
Funds From Operations:
Income before extraordinary charge ............... $ 87,200 $ 57,795 $ 144,995 $ (66,313) $ 78,682
Series B preferred dividends ..................... (6,469) (6,469)
Depreciation ..................................... 39,983 34,179 74,162 74,162
Depreciation for unconsolidated entities ......... 4,644 374 5,018 5,018
Minority interest in Operating Partnership ....... 2,839 2,839
---------- ---------- ---------- ---------- ----------
Funds from operations ............................ $ 131,827 $ 92,348 $ 224,175 $ (69,943) $ 154,232
========== ========== ========== ========== ==========
Weighted average common shares and
units outstanding (1) ......................... 76,008
</TABLE>
(1) Weighted average common shares and units outstanding are computed
including dilutive options, unvested stock grants, and assuming conversion
of Series A Preferred Stock to Common Stock.
12
<PAGE> 13
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 35,700 $ 28,538
Accounts receivable, net ....................................................... 33,247 27,561
Inventories .................................................................... 4,157 4,381
Prepaid expenses ............................................................... 3,221 471
Other assets ................................................................... 4,635 3,021
Investment in real estate, net of accumulated depreciation of $289 in 1999 ..... 11,677
--------- ---------
Total assets ......................................................... $ 92,637 $ 63,972
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade ........................................................ $ 7,142 $ 6,514
Accounts payable, other ........................................................ 10,133 6,994
Due to FelCor Lodging Trust Incorporated ....................................... 34,864 16,875
Accrued expenses and other liabilities ......................................... 40,836 41,820
Minority interest .............................................................. 6,390
Debt ........................................................................... 7,766
--------- ---------
Total liabilities .................................................... 107,131 72,203
--------- ---------
Commitments and contingencies (Note 2)
Shareholders' equity (deficit):
Capital ........................................................................ 1 1
Accumulated deficit ............................................................ (14,495) (8,232)
--------- ---------
Total shareholders' deficit .......................................... (14,494) (8,231)
--------- ---------
Total liabilities and shareholders' equity ........................... $ 92,637 $ 63,972
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
13
<PAGE> 14
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Room and suite revenue ...................... $ 167,109 $ 160,993 $ 334,840 $ 304,278
Food and beverage revenue ................... 22,280 19,847 43,467 35,111
Food and beverage rent ...................... 1,349 1,297 2,614 2,470
Other revenue ............................... 14,618 13,023 28,630 24,391
---------- ---------- ---------- ----------
Total revenues ......................... 205,356 195,160 409,551 366,250
---------- ---------- ---------- ----------
Expenses:
Property operating costs .................... 49,110 43,148 95,338 81,753
General and administrative .................. 15,784 14,223 30,730 26,481
Advertising and promotion ................... 13,823 12,676 27,730 24,462
Repair and maintenance ...................... 9,548 8,943 19,106 16,930
Utilities ................................... 6,969 7,058 14,122 13,155
Management and incentive fees ............... 5,573 6,184 11,966 11,779
Franchise fees .............................. 4,929 4,780 9,847 8,921
Food and beverage expenses .................. 16,600 16,823 32,125 30,335
Percentage lease expenses ................... 83,714 77,021 169,558 145,459
Lessee overhead expenses .................... 301 482 567 842
Liability insurance ......................... 589 300 1,154 569
Interest expense ............................ 156 372
Depreciation ................................ 289 289
Minority interests in partnership ........... 157 157
Other ....................................... 1,310 1,370 2,752 2,637
---------- ---------- ---------- ----------
Total expenses ......................... 208,852 193,008 415,813 363,323
---------- ---------- ---------- ----------
Net income (loss) ................................ $ (3,496) $ 2,152 $ (6,262) $ 2,927
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE> 15
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................................... $ (6,262) $ 2,927
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ........................................ 289
Minority interest in partnership income .............................. 157
Changes in assets and liabilities:
Accounts receivable .................................................. (5,686) (9,533)
Inventories .......................................................... 224 (454)
Prepaid expenses ..................................................... (2,750) 561
Other assets ......................................................... (1,903) 1,213
Due to FelCor Lodging Trust Incorporated ............................. 17,989 13,793
Accounts payable, accrued expenses and other liabilities ............. 5,104 7,433
---------- ----------
Net cash flow provided by operating activities .................. 7,162 15,940
---------- ----------
Net change in cash and cash equivalents ........................................ 7,162 15,940
Cash and cash equivalents at beginning of periods .............................. 28,538 25,684
---------- ----------
Cash and cash equivalents at end of periods .................................... $ 35,700 $ 41,624
========== ==========
</TABLE>
The accompany notes are an integral part of these consolidated
financial statements.
15
<PAGE> 16
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Thomas J. Corcoran, Jr, the President, Chief Executive Officer and a
Director of FelCor Lodging Trust Incorporated ("FelCor"), and Hervey A. Feldman,
Chairman Emeritus of FelCor, beneficially own a 50% voting common equity
interest in DJONT Operations, L.L.C., a Delaware limited liability company. The
remaining 50% nonvoting common equity interest is beneficially owned by the
children of Charles N. Mathewson, a Director of FelCor.
Eighty-six of the hotels in which FelCor Lodging Limited Partnership
(the "Operating Partnership") had an ownership interest at June 30, 1999 (the
"DJONT Hotels"), are leased to DJONT Operations L.L.C. or a consolidated
subsidiary thereof ("DJONT") pursuant to percentage leases ("Percentage
Leases"). Certain entities owning interests in DJONT and the managers of certain
DJONT Hotels have agreed to make loans to DJONT of up to an aggregate of
approximately $17.3 million to the extent necessary to enable DJONT to pay rent
and other obligations due under the respective Percentage Leases relating to a
total of 34 of the DJONT Hotels. No loans were outstanding under such agreements
at June 30, 1999.
Fifty-eight of the DJONT Hotels are operated as Embassy Suites(R)
hotels, 16 are operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, 9
are operated as Sheraton(R) or Sheraton Suites(R) hotels, one is operated as a
Westin(R) hotel, one is operated as a Hilton Suites(R) hotel, and one is
operated as an independent hotel. Seventy-three of the DJONT Hotels are managed
by subsidiaries of Promus Hotel Corporation ("Promus"). Promus is the largest
operator of all-suite, full-service hotels in the United States. Of the
remaining DJONT Hotels, 10 are managed by a subsidiary of Starwood Hotels and
Resorts Worldwide, Inc. ("Starwood") and three are managed by two independent
management companies.
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS
DJONT has future lease commitments under the Percentage Leases which
expire in 2002 (six hotels), 2004 (seven hotels), 2005 (12 hotels) 2006 (18
hotels), 2007 (23 hotels), 2008 (12 hotels) and 2012 (eight hotels). Minimum
future rental payments (i.e., base rents) under these noncancellable operating
leases at June 30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
Remainder of 1999 ...................... $ 83,194
2000 ................................... 167,949
2001 ................................... 171,324
2002 ................................... 171,681
2003 ................................... 157,646
2004 and thereafter .................... 599,173
----------
$1,350,967
==========
</TABLE>
3. INVESTMENT IN REAL ESTATE
At June 30, 1999, DJONT owned thirty shares of the Class A Voting
Common Stock, $0.01 par value per share of Kingston Plantation Development
Corporation ("KPDC") which represents 3% of the equity and 100% of the voting
interest in that entity. The investment is recorded on a consolidated basis in
DJONT's financial statements.
16
<PAGE> 17
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN REAL ESTATE - (CONTINUED)
KPDC is to receive rental income from a lease agreement which expires
in November, 2008 between a wholly owned subsidiary of KPDC, as lessor, and
FelCor Lodging Limited Partnership, as lessee. The future monthly rental
payments under this lease at June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
Remainder of 1999 ................................ $ 296
2000 ............................................. 593
2001 ............................................. 593
2002 ............................................. 593
2003 ............................................. 593
2004 and thereafter .............................. 2,914
----------
$ 5,582
==========
</TABLE>
KPDC owns a 50% interest in an entity developing a parcel of land. This
entity is accounted under the equity method of accounting and KPDC's equity
investment of $2.1 million is reflected in other assets on DJONT's balance
sheet. This unconsolidated entity had no operating income or expense for the six
months ended June 30, 1999. The unconsolidated entity's balance sheet consists
of land, construction in progress and $5.8 million of construction loans at June
30, 1999.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
For background information relating to the Company and the definitions
of certain capitalized terms used herein, reference is made to Note 1 of Notes
to Consolidated Financial Statements of FelCor Lodging Trust Incorporated
appearing elsewhere herein.
SECOND QUARTER HIGHLIGHTS:
FINANCIAL PERFORMANCE:
o Revenues increased 101%
o EBITDA increased 87% and EBITDA per share increased 10%
o Funds From Operations ("FFO") per share and unit increased 5.0%
o Total portfolio (184 hotels) revenue per available room
("RevPAR") increased 1.3% and comparable hotels (134 hotels)
RevPAR increased 0.3%
o Crowne Plaza(R) non-comparable hotels (10 hotels) RevPAR
increased 22.6%
o Holiday-branded comparable hotels (37 hotels) RevPAR increased
1.8%
o Doubletree-branded comparable hotels (15 hotels) RevPAR
increased 3.2%
o Sold two non-strategic hotels for an aggregate sales price of
$5.4 million
HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING:
o Completed renovations at 20 hotels totaling $123.6 million
o Ten additional hotels were undergoing renovation
o Capital expenditures to the hotel portfolio totaled $67 million
o Approximately 2.5% of room nights were out-of-service
o Six hotels were rebranded:
<TABLE>
<CAPTION>
NEW BRAND PRIOR BRAND LOCATION
--------- ----------- --------
<S> <C> <C>
Embassy Suites(R) Doubletree Guest Suites(R) Dallas, Texas
Beaver Creek Lodge Embassy Suites Beaver Creek, Colorado
Crowne Plaza Holiday Inn Select(R) Irvine, California
Crowne Plaza Holiday Inn(R) San Jose, California
Crowne Plaza Independent Chicago, Illinois
Doubletree(R) Radisson(R) Wilmington, Delaware
</TABLE>
CAPITALIZATION:
o Raised $550 million of new long term debt (five and ten year),
paid off its $250 million term loan maturing December 31, 1999,
and reduced outstanding borrowings under Company's Line of
Credit. An extraordinary charge of $1.1 million was recognized
for the early extinguishment of the $250 million term loan.
o Declared second quarter dividends of $0.55 per share on its
Common Stock, $0.4875 per share for its $1.95 Series A
Cumulative Convertible Preferred Stock and $0.5625 per
depositary share relating to the 9% Series B Cumulative
Redeemable Preferred Stock. The current annual dividend on
Common Stock of $2.20 results in a current FFO payout ratio of
approximately 54% and a dividend yield of approximately 13%,
based on the August 9, 1999, closing price for FelCor Common
Stock on the NYSE.
18
<PAGE> 19
RESULTS OF OPERATIONS
The Company
Six Months Ended June 30, 1999 and 1998
For the six months ended June 30, 1999 and 1998, the Company had
revenues of $262.1 million and $124.9 million, respectively, consisting
primarily of Percentage Lease revenues of $256.9 million and $118.9 million,
respectively. The increase in total revenue is primarily attributable to the
Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of
interests in more than 100 additional hotels since June 30, 1998, including 101
hotels (net of hotels subsequently sold) that were acquired through the Bristol
Merger on July 28, 1998. Additionally, those hotels owned at both June 30, 1999
and 1998 recorded an increase in Percentage Lease revenues of $2.0 million or
1.4%.
The Company generally seeks to improve those of its hotels that
management believes can achieve increases in room and suite revenue and RevPAR
as a result of renovation, redevelopment and rebranding. However, during the
course of such improvements hotel revenue performance is often adversely
affected by such temporary factors as rooms and suites out of service and
disruptions of hotel operations. (A more detailed discussion of hotel room and
suite revenue is contained in "The Hotels" section of this Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Total expenses increased $104.9 million in the six months ended June
30, 1999, from $78.5 million to $183.4 million, compared to the same period in
1998. This increase resulted primarily from the additional hotels acquired in
1998 through the Bristol Merger. Total expenses as a percentage of total revenue
increased to 70.0% for the six months ended June 30, 1999, from 62.9% in the
same period of 1998.
The major components of the increase in expenses, as a percentage of
total revenue, are: depreciation; taxes, insurance, and other; and interest
expense.
Depreciation increased as a percentage of total revenue to 28.3% in the
six months ended June 30, 1999, from 26.7% in the six months ended June 30,
1998. The relative increase in depreciation expense is primarily attributed to
capital improvements made under the Company's renovation, redevelopment and
rebranding program. Renovations totaling $147.4 million were completed at 26
hotels that were placed back into full service during the six months.
Taxes, insurance, and other increased $26.0 million primarily as a
result of the increased number of hotels owned. As a percentage of total
revenue, taxes, insurance, and other increased from 11.9% to 15.6%. The majority
of the increase, as a percentage of total revenue, is attributed to land lease
expenses, which represent 3.2% of total revenue in 1999 but only 0.6% in 1998.
Land lease expenses, as a percentage of total revenue, increased because of the
greater number of hotels subject to land leases acquired through the Bristol
Merger. The remaining increase in taxes, insurance, and other, as a percentage
of total revenue, is related primarily to increased property taxes resulting
from property tax reassessments.
Interest expense increased, as a percentage of total revenue, to 22.6%
in the six months ended June 30, 1999, from 18.8% in the six months ended June
30, 1998. This increase in interest expense is attributed to the increased use
of debt to finance acquisitions and renovations and the assumption of debt
related to the more highly leveraged Bristol assets. Debt, as a percentage of
total assets, increased from 36% at June 30, 1998 to 40% at June 30, 1999.
Three Months Ended June 30, 1999 and 1998
For the three months ended June 30, 1999 and 1998, the Company had
revenues of $135.2 million and $67.4 million, respectively, consisting primarily
of Percentage Lease revenues of $131.9 million and $62.8 million,
19
<PAGE> 20
respectively. The increase in total revenue is primarily attributed to the
Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of
interests in more than 100 additional hotels since June 30, 1998, including 101
hotels (net of hotels subsequently sold) that were acquired through the Bristol
Merger on July 28, 1998. Those hotels owned at both June 30, 1999 and 1998,
recorded a slight increase in Percentage Lease revenues of $28,000 for the three
months ended June 30, 1999 versus 1998.
Total expenses increased $50.7 million in the three months ended June
30, 1999, from $42.5 million to $93.3 million, compared to the same period in
1998. This increase resulted primarily from the additional hotels acquired in
1998 through the Bristol Merger. Total expenses as a percentage of total revenue
increased to 69.0% for the three months ended June 30, 1999, from 63.1% in the
same period of 1998.
The major components of the increase in expenses, as a percentage of
total revenue are: depreciation; taxes, insurance, and other; and interest
expense.
Depreciation increased as a percentage of total revenue to 27.9% in the
three months ended June 30, 1999, from 25.9% in the three months ended June 30,
1998. The relative increase in depreciation expense is primarily attributed to
capital improvements made under the Company's renovation, redevelopment and
rebranding program. Renovations totaling $123.6 million were completed at 20
hotels that were placed back into full service during the quarter.
Taxes, insurance, and other, as a percentage of total revenue,
increased from 11.2% to 14.7% in the three months ended June 30, 1999, as
compared to the same quarterly period in 1998. The majority of the increase, as
a percentage of total revenue, is attributed to land lease expenses, which
represented 3.3% of total revenue in 1999, but only 0.9% in 1998. Land lease
expenses as a percentage of total revenue, increased because of the greater
number of hotels subject to land leases that were acquired through the Bristol
Merger. The remaining increase in taxes, insurance, and other, as a percentage
of total revenue, is related primarily to increased property taxes resulting
from property tax reassessments.
Interest expense increased, as a percentage of total revenue, to 22.7%
in the three months ended June 30, 1999, from 20.5% in the three months ended
June 30, 1998. This increase is attributed to the increased use of debt to
finance acquisitions and renovations and the assumption of debt related to the
more highly leveraged Bristol assets. Debt, as a percentage of total assets,
increased from 36% at June 30, 1998 to 40% at June 30, 1999.
Funds From Operations
The Company considers Funds From Operations to be a key measure of a
REIT's performance and should be considered along with, but not as an
alternative to, net income and cash flow as a measure of the Company's operating
performance and liquidity.
The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales of properties, plus real estate related depreciation and amortization,
after comparable adjustments for the Company's portion of these items related to
unconsolidated entities and joint ventures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures, to pay dividends and to fund other cash needs. The Company
computes Funds From Operations in accordance with standards established by
NAREIT which may not be comparable to Funds From Operations reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. Funds From Operations does not represent cash generated from operating
activities as determined by GAAP, and should not be considered as an alternative
to net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
20
<PAGE> 21
(determined in accordance with GAAP) as a measure of the Company 's liquidity,
nor does it necessarily reflect the funds available to fund the Company's cash
needs, including its ability to make cash distributions. Funds From Operations
may include funds that may not be available for management's discretionary use
due to functional requirements to conserve funds for capital expenditures and
property acquisitions, and other commitments and uncertainties.
The following table details the computation of Funds From Operations
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS (FFO):
Net income ............................................ $ 40,822 $ 24,881 $ 77,569 $ 45,825
Series B preferred dividends ....................... (3,234) (1,905) (6,469) (1,905)
Extraordinary charge from write off
of deferred financing fees .................... 1,113 1,113 556
Depreciation ....................................... 37,737 17,429 74,162 33,316
Depreciation for unconsolidated entities ........... 2,426 2,555 5,018 5,103
Minority interest in Operating Partnership ......... 1,519 2,063 2,839 3,813
---------- ---------- ---------- ----------
FFO ................................................... $ 80,383 $ 45,023 $ 154,232 $ 86,708
========== ========== ========== ==========
Weighted average common shares and units
outstanding ................................... 76,029 44,572 76,008 44,573
========== ========== ========== ==========
</TABLE>
Included in the FFO computed above is the Company's share of FFO from
its interests in separate entities owning 15 hotels, a condominium management
company and an entity that develops condominiums for sale and owns a hotel
annex. The FFO contribution from these unconsolidated entities is derived as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS INFORMATION:
Percentage lease revenue .................................. $ 14,399 $ 14,222 $ 26,970 $ 26,569
Other income .............................................. 2,738 954 4,327 1,114
---------- ---------- ---------- ----------
Total revenue ..................................... 17,137 15,176 31,297 27,683
---------- ---------- ---------- ----------
Expenses:
Depreciation ......................................... 4,629 4,278 9,508 8,543
Taxes, insurance, and other .......................... 2,682 1,594 5,024 3,160
Interest expense ..................................... 3,468 3,095 6,687 6,354
---------- ---------- ---------- ----------
Total expenses .................................... 10,779 8,967 21,219 18,057
---------- ---------- ---------- ----------
Net income ................................................ $ 6,358 $ 6,209 $ 10,078 $ 9,626
========== ========== ========== ==========
Percentage of net income attributable to the Company ...... $ 3,127 $ 3,105 $ 4,908 $ 4,813
Amortization of cost in excess of book value .............. (536) (416) (1,071) (831)
---------- ---------- ---------- ----------
Equity in income from unconsolidated entities ............. 2,591 2,689 3,837 3,982
Depreciation .............................................. 2,372 2,139 4,890 4,271
Amortization of cost in excess of book value .............. 536 416 1,071 831
---------- ---------- ---------- ----------
FFO from unconsolidated entities .......................... $ 5,497 $ 5,244 $ 9,798 $ 9,084
========== ========== ========== ==========
</TABLE>
21
<PAGE> 22
The Hotels
Upscale and full service hotels, like Embassy Suites, Crowne Plaza,
Holiday Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites,
Sheraton(R) and Sheraton Suites(R), and Westin(R), are expected to account for
approximately 97% of Percentage Lease revenue in 1999. The following tables set
forth historical occupancy, average daily rate ("ADR") and RevPAR at June 30,
1999 and 1998, and the percentage changes therein between the years presented
for the Hotels in which the Company had an ownership interest at June 30, 1999.
This information is presented regardless of the date of acquisition.
COMPARABLE HOTELS (A)
<TABLE>
<CAPTION>
SECOND QUARTER 1999 YEAR TO DATE 1999
---------------------------------- ---------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Original 75.3% $115.41 $86.89 72.9% $117.36 $85.51
CSS Hotels 75.1 123.09 92.48 75.5 129.52 97.84
1996 Acquisitions 75.4 129.99 98.07 73.7 130.67 96.36
1997 Acquisitions 74.8 114.37 85.56 73.7 119.37 88.01
1998 Acquisitions 68.7 96.74 66.43 73.9 102.74 75.95
Total DJONT Comparable Hotels 74.9 119.00 89.13 74.1 124.01 91.93
Total Bristol Comparable Hotels 70.7 83.90 59.33 67.4 81.00 54.56
Total Comparable Hotels 72.9% $102.81 $74.96 70.9% $104.64 $74.21
</TABLE>
<TABLE>
<CAPTION>
SECOND QUARTER 1998 YEAR TO DATE 1998
---------------------------------- ---------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Original Hotels 76.9% $115.35 $88.72 75.0% $116.01 $86.99
CSS Hotels 75.6 123.71 93.46 75.2 128.27 96.45
1996 Acquisitions 77.4 127.31 98.48 74.7 127.91 95.58
1997 Acquisitions 75.0 111.55 83.63 73.7 117.63 86.28
1998 Acquisitions 69.9 93.52 65.41 66.3 100.15 66.39
Total DJONT Comparable Hotels 75.7 117.61 89.01 74.4 122.16 90.94
Total Bristol Comparable Hotels 72.4 81.63 59.08 69.3 79.12 54.85
Total Comparable Hotels 74.1% $100.85 $74.74 72.0% $102.46 $73.78
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR PERIOD
2ND QTR. 1999 VS. 2ND QTR. 1998 1999 vs. 1998 Year to Date
---------------------------------- --------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Original Hotels (1.6) pts 0.1% (2.1)% (2.1) pts 1.2% (1.7)%
CSS Hotels (0.5) (0.5) (1.1) 0.3 1.0 1.4
1996 Acquisitions (2.0) 2.1 (0.4) (1.0) 2.2 0.8
1997 Acquisitions (0.2) 2.5 2.3 1.9 2.0
1998 Acquisitions (1.2) 3.4 1.6 7.6 2.6 14.4
Total DJONT Comparable Hotels (0.8) 1.2 0.1 (0.3) 1.5 1.1
Total Bristol Comparable Hotels (1.7) 2.8 0.4 (1.9) 2.4 (0.5)
Total Comparable Hotels (1.2) pts 1.9% 0.3% (1.1) pts 2.1% 0.6%
</TABLE>
(A) DJONT Comparable Hotels includes 71 and 64 hotels, and Bristol Comparable
Hotels includes 63 and 57 hotels, in the second quarter and year to date,
respectively, which were not undergoing redevelopment in either the 1999 or
1998 periods reported.
22
<PAGE> 23
NON-COMPARABLE HOTELS (B)
<TABLE>
<CAPTION>
SECOND QUARTER 1999 YEAR TO DATE 1999
-------------------------------- ---------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
DJONT Non-comparable Hotels 67.2% $ 108.30 $ 72.77 67.5% $ 108.16 $ 73.02
Bristol Non-comparable Hotels 67.6% $ 91.60 $ 61.93 66.1% $ 93.73 $ 62.00
Total Non-comparable Hotels 67.5% $ 96.17 $ 64.91 66.6% $ 98.54 $ 65.62
</TABLE>
<TABLE>
<CAPTION>
SECOND QUARTER 1998 YEAR TO DATE 1998
-------------------------------- ---------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
DJONT Non-comparable Hotels 73.4% $ 105.66 $ 77.54 72.3% $ 105.39 $ 76.24
Bristol Non-comparable Hotels 68.8% $ 82.60 $ 56.82 68.1% $ 84.57 $ 57.58
Total Non-comparable Hotels 70.1% $ 89.21 $ 62.49 69.5% $ 91.65 $ 63.68
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR PERIOD
2ND QTR. 1999 VS. 2ND QTR. 1998 1999 VS. 1998 YEAR TO DATE
---------------------------------- --------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR RevPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
DJONT Non-comparable Hotels (6.2)pts 2.5% (6.2)% (4.8)pts 2.6% (4.2)%
Bristol Non-comparable Hotels (1.2)pts 10.9% 9.0% (2.0)pts 10.8% 7.7%
Total Non-comparable Hotels (2.6)pts 7.8% 3.9% (2.9)pts 7.5% 3.1%
</TABLE>
(B) DJONT Non-comparable Hotels includes 15 and 22 hotels and Bristol
Non-comparable Hotels includes 35 and 40 hotels, in the second quarter
and year to date, respectively, undergoing redevelopment in either the
1999 or 1998 periods reported. The Bristol Non-comparable Hotels
excludes two and three hotels closed during renovation in the second
quarter and year to date, respectively, and one hotel that was
targeted for sale during both the periods reported.
ALL HOTELS (C)
<TABLE>
<CAPTION>
SECOND QUARTER 1999 YEAR TO DATE 1999
--------------------------------- ---------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Comparable Hotels 72.9% $ 102.81 $ 74.96 70.9% $ 104.64 $ 74.21
Non-comparable Hotels 67.5% $ 96.17 $ 64.91 66.6% $ 98.54 $ 65.62
Total Hotels 71.2% $ 100.82 $ 71.78 69.2% $ 102.36 $ 70.88
</TABLE>
<TABLE>
<CAPTION>
SECOND QUARTER 1999 YEAR TO DATE 1999
--------------------------------- ---------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Comparable Hotels 74.1% $ 100.85 $ 74.74 72.0% $ 102.46 $ 73.78
Non-comparable Hotels 70.1% $ 89.21 $ 62.49 69.5% $ 91.65 $ 63.68
Total Hotels 72.8% $ 97.31 $ 70.87 71.0% $ 98.36 $ 69.86
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR PERIOD
2ND QTR. 1999 VS. 2ND QTR. 1998 1999 VS. 1998 YEAR TO DATE
----------------------------------- --------------------------------
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Comparable Hotels (1.2)pts 1.9% 0.3% (1.1) pts 2.1% 0.6%
Non-comparable Hotels (2.6)pts 7.8% 3.9% (2.9) pts 7.5% 3.1%
Total Hotels (1.6)pts 3.6% 1.3% (1.8) pts 4.1% 1.5%
</TABLE>
(C) Excludes two and three hotels closed during renovation in the
second quarter and year to date, respectively, and one hotel that
was targeted for sale during both the periods reported.
23
<PAGE> 24
Comparison of The Hotels' Operating Statistics for the Three and Six Months
Ended June 30, 1999 and 1998
For the six months ended June 30, 1999, the Company's Hotels had an
average increase in RevPAR of 1.5% over the same period last year. The
components of this increase were a 4.1% increase in ADR partially offset by a
decrease in occupancy of 1.8 percentage points.
The Comparable Hotels' RevPAR increased 0.6% for the six months ended
June 30, 1999, as compared to the same period in 1998. This was comprised of a
2.1% increase in ADR, which was largely offset by a decrease in occupancy of 1.1
percentage points. In the first quarter of 1999 increases in RevPAR, over the
same periods in 1998, were greater for each successive month, however, the
second quarter did not maintain this trend. In the second quarter, the rate of
RevPAR growth decreased each successive month and for the three months ended
June 30, 1999, RevPAR increased only 0.3% over the same period in 1998.
Hotels in California, Texas, Florida and Georgia accounted for
approximately 54% of the Comparable Hotels' room revenues for the three months
ended June 30, 1999. RevPAR changes and the percentage of the total Comparable
Hotels' room revenues for the three months ended June 30, 1999, as compared to
the same period in 1998, from these four states were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPARABLE
REVPAR HOTELS' ROOM
CHANGE REVENUES
------ ------------
<S> <C> <C> <C>
California (15 hotels) 2.4 % 17.3%
Texas (28 hotels) (3.3)% 17.0%
Florida (11 hotels) 1.1 % 10.2%
Georgia (12 hotels) 0.6 % 9.3%
</TABLE>
The Company attributes the RevPAR decrease for the Texas hotels, and
the moderate RevPAR growth in other markets, to the addition of new hotel rooms
throughout many markets. However, nationally, hotel construction starts dropped
13% in the fourth quarter of 1998 and 10% in the first six months of 1999. If
these declines in supply growth continue, along with a continuation of current
demand levels, stronger RevPAR growth should be seen, beginning by the end of
1999 or during 2000.
The Non-comparable Hotels' RevPAR increased 3.1% for the six months
ended June 30, 1999, versus the same period in 1998, and increased 3.9% for the
three months ended June 30, 1999 compared to 1998.
Included in the Non-comparable Hotels for the quarter are 25 hotels
which completed renovation programs in 1998 and 25 hotels undergoing renovation
in 1999. RevPAR increased 16.5% in the quarter for those hotels that completed
their renovation program in 1998 and RevPAR decreased 18.2% in the quarter for
those hotels undergoing renovation in 1999.
There are 12 hotels that were rebranded to Crowne Plaza hotels included
in the Non-comparable Hotels for the six months ended June 30, 1999. The RevPAR
for these hotels increased 19.5%, which was derived from a 12.7% increase in ADR
and a 3.9 percentage point increase in occupancy.
DJONT
The Six Months Ended June 30, 1999 and 1998
Total revenues increased to $409.6 million in the first six months of
1999 from $366.3 million in the first six months of 1998, an increase of 11.8%.
Total revenues consisted primarily of room and suite revenue of $334.8 million
and $304.3 million in the first six months of 1999 and 1998, respectively.
24
<PAGE> 25
The increase in total revenues is primarily a result of the increase in
the number of hotels leased for the entire six month period to 86 hotels at June
30, 1999 from 73 hotels at June 30, 1998. Room and suite revenues from the 64
DJONT Comparable Hotels, for the six months ended June 30, 1999 over 1998,
increased 1.7% or $4.2 million. The increase in revenues at these hotels is due
primarily to an improvement in ADR to $124.01 for the six months ended June 30,
1999, from $122.16 for the six months ended June 30, 1998. The 22 DJONT
Non-comparable Hotels were undergoing renovation or rebranding during at least a
portion of the last six months, which resulted in a decrease in their combined
occupancy and RevPAR to 67.5% and $73.02, respectively, for the six months ended
June 30, 1999, as compared to 72.3% and $76.24, respectively, for the six months
ended June 30, 1998.
DJONT's income before Percentage Lease rent decreased as a percentage
of total revenues from 40.5% in the six months ended June 30, 1998 to 39.9% in
the six months ended June 30, 1999. This is largely due to increased property
operating costs resulting from higher labor costs and related payroll benefits.
For the first six months of 1999, DJONT incurred losses of $6.3
million, however, management currently expects DJONT to be profitable for the
year.
The Three Months Ended June 30, 1999 and 1998
Total revenues increased to $205.4 million in the second quarter of
1999 from $195.2 million in the second quarter of 1998, an increase of 5.2%.
Total revenues consisted primarily of room and suite revenue of $167.1 million
and $161.0 million in the second quarter of 1999 and 1998, respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased for the entire quarter to 86 hotels at June 30, 1999
from 73 hotels at June 30, 1998. Room and suite revenues from the 71 DJONT
Comparable Hotels for the three months ended June 30, 1999 over 1998 increased
0.7% or $909,000. The increase in revenues at these hotels is due primarily to
the improvement in ADR to $119.00 for the three months ended June 30, 1999, as
compared to $117.61 for the three months ended June 30, 1998. The 15 DJONT
Non-comparable Hotels were undergoing renovation or rebranding during at least a
portion of the last three months, which resulted in a decrease in their RevPAR
to $72.77 for the three months ended June 30, 1999, from $77.54 for the three
months ended June 30, 1998.
DJONT's income before Percentage Lease rent decreased as a percentage
of total revenues from 40.6% in the quarter ended June 30, 1998 to 39.1% in the
quarter ended June 30, 1999. This is largely due to increased property operating
costs resulting from higher labor costs and related payroll benefits.
For the three months ended June 30, 1999, DJONT incurred losses of $3.5
million, however management currently expects DJONT to be profitable for the
year.
Bristol
Bristol is a public company whose common stock is listed on the New
York Stock Exchange under the symbol BH. Bristol files financial statements in
accordance with the Securities and Exchange Act of 1934.
RENOVATION, REDEVELOPMENT, AND REBRANDING
Through June 30, 1999, FelCor had spent $129 million (of a planned $160
million) on its 1999 program for the renovation, redevelopment, or rebranding of
over 50 hotels. An additional $20 million of capital expenditures were made
during the same period to maintain the remaining hotels in a competitive
condition. In the second quarter of 1999, approximately $56 million was spent on
the 1999 renovation program and $11 million was spent on other routine capital
improvements. The renovation and redevelopment program for 1999 was
approximately 80% complete as of the end of the second quarter. Approximately
$50 million of renovations were completed at the Allerton Crowne Plaza hotel in
Chicago, Illinois, which was closed during most of the first half
25
<PAGE> 26
of 1999. The remaining 1999 renovation expenditures will be used to complete the
10 projects in process at the end of the second quarter and to complete 10
additional smaller renovation projects. In 2000, FelCor currently expects to
spend approximately $40 million on the renovation, redevelopment and rebranding
of its existing hotels.
Thirty hotels (18 of which are Bristol-operated hotels) were undergoing
renovation, redevelopment, or rebranding during the quarter, which resulted in
approximately 113,000 room nights out-of-service, or approximately 2.5% of
available room nights. This included 15 Holiday Inn or Holiday Inn Select, six
Embassy Suites, three Doubletree, three Sheraton, and three Crowne Plaza hotels.
Approximately 3.0% of available rooms were out-of-service for the first six
months of 1999. Many of these projects also include renovations to the hotel's
exterior, public areas, meeting spaces and restaurants, which typically have a
negative impact on hotel revenues.
Included in the 30 hotels undergoing renovation during the quarter were
20 hotels, containing approximately 5,800 rooms, where renovations were
completed during the quarter. Many of these renovation projects commenced during
1998. The renovation and redevelopment expenditures on these 20 hotels totaled
$123.6 million.
FELCOR LODGING TRUST INCORPORATED
RENOVATION PROJECTS COMPLETED IN SECOND QUARTER 1999
<TABLE>
<CAPTION>
TOTAL
HOTEL RENOVATION COST LOCATION
----- --------------- --------
(IN MILLIONS)
<S> <C> <C>
443-room Allerton Crowne Plaza* $50.0 Chicago, Illinois
335-room Crowne Plaza* 2.9 Irvine, California
305-room Crowne Plaza* 7.5 San Jose, California
248-room Doubletree 2.6 Denver, Colorado
138-room Doubletree Guest Suites 0.9 Dayton, Ohio
233-room Embassy Suites 2.2 Atlanta (Airport), Georgia
308-room Embassy Suites* 3.8 Dallas (Airport), Texas
198-room Embassy Suites 4.1 Palm Desert, California
247-room Holiday Inn 2.9 Amarillo, Texas
190-room Holiday Inn 2.6 Beaumont, Texas
139-room Holiday Inn 2.0 Cambridge, Ontario, Canada
500-room Holiday Inn 12.8 Cocoa Beach, Florida
223-room Holiday Inn 2.9 Columbus, Georgia
530-room Holiday Inn 7.8 Orlando, Florida
155-room Holiday Inn 1.1 Peterborough, Ontario, Canada
364-room Holiday Inn 7.1 Philadelphia, Pennsylvania
210-room Holiday Inn 1.7 Texarkana, Texas
382-room Holiday Inn Select 3.1 Nashville, Tennessee
251-room Holiday Inn Select 3.1 Pittsburgh, Pennsylvania
397-room Holiday Inn Select 2.5 San Antonio (Airport), Texas
- ------ ------
5,796 rooms $123.6
====== ======
</TABLE>
* Denotes those hotels which were also rebranded.
26
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders and repayments of indebtedness, is its
share of the Operating Partnership's cash flow from the Percentage Leases. For
the six months ended June 30, 1999, cash flow provided by operating activities,
consisting primarily of Percentage Lease revenue, was $150.0 million and Funds
From Operations was $154.2 million.
The Lessees' obligations under the Percentage Leases are largely
unsecured. The Lessees have limited capital resources, and, accordingly, their
ability to make lease payments under the Percentage Leases is substantially
dependent on the ability of the Lessees to generate sufficient cash flow from
the operation of the Hotels.
At June 30, 1999, DJONT had a cumulative shareholders' deficit of $14.5
million. The shareholders' deficit results primarily from losses incurred as a
consequence of the one-time costs of the renovation, redevelopment and
rebranding programs at the Hotels and the substantial number of room and suite
nights lost due to renovation. Currently, management expects DJONT to be
profitable for the year and it is anticipated that a substantial portion of any
future profits of DJONT will be retained until a positive shareholders' equity
is restored. It is anticipated that DJONT's future earnings will be sufficient
to enable it to continue to make its lease payments under the Percentage Leases.
Certain entities owning interests in DJONT and the managers of certain
hotels have agreed to make loans to DJONT of up to an aggregate of approximately
$17.3 million to the extent necessary to enable DJONT to pay rent and other
obligations when due under the respective Percentage Leases relating to a total
of 34 of the Hotels.
No loans were outstanding under such agreements at June 30, 1999.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases. As an additional
credit enhancement, the Bristol Lessees obtained a letter of credit for the
benefit of the Company in the original amount of $20 million that is required to
be maintained until July 27, 1999. This letter of credit is subject to periodic
reductions upon satisfaction of certain conditions and, at June 30, 1999, was in
the amount of $9.1 million. According to Bristol's financial statements filed
with the SEC, for the three and six months ended June 30, 1999, Bristol had net
income of $4.5 and $5.6 million, respectively, and at June 30, 1999, had
stockholders' equity of $41.2 million.
The Company may incur indebtedness to make property acquisitions, to
purchase shares of its capital stock, or to meet distribution requirements
imposed on a REIT under the Internal Revenue Code, to the extent that working
capital and cash flow from the Company's investments are insufficient for such
purposes. Management is currently evaluating a number of potential opportunities
to enhancing shareholder value, which have been created by the depressed price
at which FelCor's capital stock is currently trading.
During the second quarter, FelCor completed $550 million of long-term
debt financings. The proceeds from these loans were used to prepay FelCor's $250
million unsecured term loan, which was to mature on December 31, 1999, and to
reduce outstanding borrowings under its existing $850 million Line of Credit.
These debt financings consisted of:
o A five-year, $375 million Senior Term Loan (LIBOR + 250 bps)
o A ten-year, $100 million Mortgage debt (7.54% Fixed)
o A ten-year, $75 million Mortgage debt (7.55% Fixed)
The Line of Credit and the Senior Term Loan contain various affirmative
and negative covenants, including limitations on total indebtedness, total
secured indebtedness, and cash distributions, as well as the obligation to
maintain certain minimum tangible net worth and certain minimum interest and
debt service coverage ratios. At June 30, 1999, the Company was in compliance
with all such covenants.
27
<PAGE> 28
The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the Line of
Credit and Senior Term Loan. Most of the mortgage debt is nonrecourse to the
Company (with certain exceptions) and contains provisions allowing for the
substitution of collateral upon satisfaction of certain conditions. Most of the
mortgage debt is prepayable; subject, however, to various prepayment penalties,
yield maintenance, or defeasance obligations.
At June 30, 1999, the Company had $50.6 million of cash and cash
equivalents and had utilized $547 million of the $850 million available under
the Line of Credit. Certain significant credit and debt statistics at June 30,
1999 are as follows:
o Interest coverage ratio of 3.5x
o Total debt to annualized EBITDA of 4.2x
o Borrowing capacity of $303 million under the Line of Credit
o Consolidated debt equal to 38% of investment in hotels at cost
o Fixed interest rate debt equal to 62% of total debt
o Weighted average maturity of fixed interest rate debt of
approximately six years
o Mortgage debt to total assets of 11%
o Debt of less than $9 million and $32 million maturing in the
remainder of 1999 and 2000, respectively.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with six
financial institutions. These interest rate swap agreements modify a portion of
the interest characteristics of the Company's outstanding debt under its Line of
Credit and Senior Term Loan without an exchange of the underlying principal
amount, and effectively convert variable rate debt to a fixed rate. The fixed
rates to be paid, the effective fixed rate, and the variable rate to be received
by the Company at June 30, 1999, are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 6/30/99 MATURITY
--------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
$ 50 million 6.111% 7.611% 5.000% October 1999
$ 25 million 5.955% 7.455% 5.000% November 1999
$ 25 million 5.558% 7.058% 4.930% July 2001
$ 25 million 5.548% 7.048% 4.930% July 2001
$ 75 million 5.555% 7.055% 4.930% July 2001
$100 million 5.796% 8.296% 4.930% July 2003
$ 25 million 5.826% 8.326% 4.930% July 2003
------------
$325 million
============
</TABLE>
The differences to be paid or received by the Company under the terms
of the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which are limited to major banks and financial institutions, and it does not
anticipate nonperformance by the counterparties.
To provide for additional financing flexibility, the Company has
approximately $946 million of common stock, preferred stock, debt securities,
and/or common stock warrants available for offerings under shelf registration
statements previously declared effective.
28
<PAGE> 29
INFLATION
Operators of hotels, in general, possess the ability to adjust room
rates daily to reflect the effects of inflation. Competitive pressures may,
however, limit the Lessees' ability to raise room rates.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent that cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize cash on hand or
borrowings under the Line of Credit to make distributions to its equity holders.
YEAR 2000
The Year 2000 issue relates to computer programs that were written
using two digits, rather than four, to define the applicable year. In those
programs the year 2000 may be incorrectly identified as the year 1900, which
could result in a system failure or miscalculation causing a disruption of
operations, including a temporary inability to process transactions, prepare
financial statements, or engage in other normal business activities.
The Company believes that its efforts to identify and resolve the Year
2000 issues will avoid a major disruption of its business. The Company has
assessed its internal computer systems and believe that they will properly
utilize dates beyond December 31, 1999.
The Company and its managers have completed the assessment of both
computer and noninformation technology systems to determine if the Hotels are
Year 2000 compliant. This assessment included embedded systems that operate
elevators, phone systems, energy maintenance systems, security systems, and
other systems. Most of the upgrades to make a hotel Year 2000 compliant had been
anticipated as part of the renovation, redevelopment, and rebranding program
that the Company generally undertakes upon acquisition of a hotel.
The Company has spent approximately $6 million through the second
quarter of 1999 to remediate Year 2000 issues and anticipates spending an
additional $ 4 million to remediate all Year 2000 issues, which amount is
included in the Company's 1999 capital plans. The majority of the unspent funds
relate to the acquisition and systematic implementation of Year 2000 compliant
computer hardware and software for the Hotels.
The Company has requested and received assurances from the managers of
the Hotels, the franchisors of the Hotels and the Lessees, that they have
implemented appropriate steps to insure that they will avoid a major disruption
of business due to Year 2000 issues. However, the Company cannot assure that
such third parties will successfully avoid a disruption due to Year 2000 issues,
and such disruptions could have an adverse effect upon the Company's business,
financial condition or results of operations.
Concurrent with the assessment of the Year 2000 issue, the Company and
its hotel managers and Lessees are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
Year 2000 issues, and are developing cost estimates for such plans. Once
developed, contingency plans and related cost estimates will be continually
refined as additional information becomes available.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Quarterly Report on Form 10-Q include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Important factors that could
cause actual results to differ materially from the
29
<PAGE> 30
Company's current expectations are disclosed herein and in the Company's other
filings under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, (collectively, "Cautionary Disclosures"). The
forward looking statements included herein, and all subsequent written and oral
forward looking statements attributable to the Company or persons acting on its
behalf, are expressly qualified in their entirety by the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information and disclosures regarding market risks applicable to FelCor
is incorporated herein by reference to the discussion under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" contained elsewhere in this
Quarterly Report on Form 10-Q for the three and six months ended June 30, 1999.
30
<PAGE> 31
PART II. -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the second quarter of 1999, the Company issued 1,245 shares of
its common stock in redemption of a like number of outstanding units of limited
partner interest in the Operating Partnership. Neither the units, nor the
common stock issued in redemption thereof, were registered under the 1933 Act
in reliance upon certain exemptions from the registration requirements thereof,
including the exemption provided by Section 4(2) of that act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
FelCor held its 1999 Annual Meeting of Stockholders on May 6, 1999
(the "Annual Meeting"). At the Annual Meeting, the stockholders of FelCor
elected Thomas J. Corcoran, Jr., Thomas A. McChristy, Donald J. McNamara and
Richard C. North to serve, as Class II directors, until the Annual Meeting of
Stockholders to be held in 2002. No other matters were voted upon at the
meeting.
The total number of shares entitled to vote at the Annual Meeting was
68,062,887 shares of Common Stock. A total of 50,930,102 shares of Common Stock
were represented in person or by proxy at the Annual Meeting. The following
table sets forth, with respect to each of the directors elected, the number of
votes cast for, and the number of votes withheld, with respect to his election:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
- ------- --------- --------------
<S> <C> <C>
Thomas J. Corcoran, Jr. 50,810,872 119,230
Thomas A. McChristy 50,801,944 128,158
Donald J. McNamara 50,812,822 117,280
Richard C. North 50,799,314 130,788
</TABLE>
ITEM 5. OTHER INFORMATION.
For information relating to asset acquisitions and certain other
transactions by the Company through June 30, 1999, see Note 1 of Notes to
Consolidated Financial Statements of FelCor Lodging Trust Incorporated
contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such
information is incorporated herein by reference.
31
<PAGE> 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
10.23.1 Promissory Note dated April 1, 1999, in the
original principal amount of $100,000,000
made by Felcor/CSS Holdings, L.P., payable
to the order of The Prudential Insurance
Company of America.
10.23.2 Form of Mortgage, Security Agreement and
Fixture Filing by and between FelCor/CSS
Holdings, L. P., as Mortgagor, and The
Prudential Insurance Company of America, as
Mortgagee (incorporated by reference to
Exhibit 10.23 to the Registrant's Form 10-Q
Quarterly Report for the quarter ending
March 31, 1999).
10.23.3 Mortgage Loan Agreement dated as of April 1,
1999, by and between The Prudential
Insurance Company of America, as Lender, and
FelCor/CSS Holdings, L.P., as Borrower.
10.24.1 Form of six separate Promissory Notes each
dated May 12, 1999, made by FelCor/MM
Holdings, L.P. payable to the order of
Massachusetts Mutual Life Insurance Company
in the respective original principal amounts
of $12,500,000 (Embassy Suites-Dallas Market
Center), $14,000,000 (Embassy Suites-Dallas
Love Field), $12,450,000 (Embassy
Suites-Tempe), $11,550,000 (Embassy
Suites-Anaheim), $8,900,000 (Embassy
Suites-Palm Desert), $15,600,000 (Embassy
Suites-Deerfield Beach).
10.24.2 Form of Deed of Trust, Security Agreement
and Fixture Filing, each dated as of May 12,
1999, from FelCor/MM Holdings, L.P., as
Borrower, in favor of Fidelity National
Title Insurance Company, as Trustee, and
Massachusetts Mutual Life Insurance Company,
as Beneficiary, each covering a separate
hotel and securing one of the separate
Promissory Notes described in Exhibit
10.24.1, also executed by FelCor/CSS
Holdings, L.P. with respect to the Embassy
Suites-Anaheim and Embassy Suites- Deerfield
Beach, and by FelCor Lodging Limited
Partnership with respect to the Embassy
Suites-Palm Desert.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
Registrant did not file any reports on Form 8-K during the
second quarter of 1999.
32
<PAGE> 33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1999
FELCOR LODGING TRUST INCORPORATED
By: /s/ Randall L. Churchey
------------------------------------------------
Randall L. Churchey
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
10.23.1 Promissory Note dated April 1, 1999, in the
original principal amount of $100,000,000
made by Felcor/CSS Holdings, L.P., payable
to the order of The Prudential Insurance
Company of America.
10.23.2 Form of Mortgage, Security Agreement and
Fixture Filing by and between FelCor/CSS
Holdings, L. P., as Mortgagor, and The
Prudential Insurance Company of America, as
Mortgagee (incorporated by reference to
Exhibit 10.23 to the Registrant's Form 10-Q
Quarterly Report for the quarter ending
March 31, 1999).
10.23.3 Mortgage Loan Agreement dated as of April 1,
1999, by and between The Prudential
Insurance Company of America, as Lender, and
FelCor/CSS Holdings, L.P., as Borrower.
10.24.1 Form of six separate Promissory Notes each
dated May 12, 1999, made by FelCor/MM
Holdings, L.P. payable to the order of
Massachusetts Mutual Life Insurance Company
in the respective original principal amounts
of $12,500,000 (Embassy Suites-Dallas Market
Center), $14,000,000 (Embassy Suites-Dallas
Love Field), $12,450,000 (Embassy
Suites-Tempe), $11,550,000 (Embassy
Suites-Anaheim), $8,900,000 (Embassy
Suites-Palm Desert), $15,600,000 (Embassy
Suites-Deerfield Beach).
10.24.2 Form of Deed of Trust, Security Agreement
and Fixture Filing, each dated as of May 12,
1999, from FelCor/MM Holdings, L.P., as
Borrower, in favor of Fidelity National
Title Insurance Company, as Trustee, and
Massachusetts Mutual Life Insurance Company,
as Beneficiary, each covering a separate
hotel and securing one of the separate
Promissory Notes described in Exhibit
10.24.1, also executed by FelCor/CSS
Holdings, L.P. with respect to the Embassy
Suites-Anaheim and Embassy Suites- Deerfield
Beach, and by FelCor Lodging Limited
Partnership with respect to the Embassy
Suites-Palm Desert.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.23.1
LOAN NO.: 6-103-269
PROMISSORY NOTE
$100,000,000 April 1, 1999
Loan No. 6-103-269
FOR VALUE RECEIVED, FelCor/CSS Holdings, L.P. a Delaware limited
partnership ("BORROWER") promises to pay to the order of THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("LENDER", which shall
also mean successors and assigns who become holders of this Note), at 751 Broad
Street, Newark, New Jersey 07102-3777, or at such other place as may from time
to time be designated by Lender, the principal sum of One Hundred Million and
No/100 U.S. Dollars ($100,000,00.00) with interest on the unpaid balance
("BALANCE") at the rate of Seven and Five Hundred Thirty-Six Thousandths
(7.536%) per annum ("NOTE RATE") from the date of the first disbursement of the
proceeds of the loan ("LOAN") evidenced by this Note ("FUNDING DATE") until
Maturity (defined below). Capitalized terms used without definition shall have
the meanings ascribed to them in the Instruments (defined below).
1. REGULAR PAYMENTS. Principal and interest shall be payable as
follows:
(a) Interest accrued from the Funding Date in the amount
of $293,066.67 shall be due and payable on April 15, 1999. The first
installment payment is an adjusted payment.
(b) Principal and interest shall be paid in One Hundred
Nineteen (119) installments of Seven Hundred Forty-One Thousand
Three Hundred Thirty-Four and 42/100 Dollars ($741,334.42) each,
commencing on May 15, 1999, and continuing on the fifteenth (15th)
day of each succeeding month to and including March 15, 2009. Each
payment due date is referred to as a "DUE DATE".
(c) The balance of all of the Obligations (as defined in
the Instruments) under each of the Instruments shall be due and
payable on April 1, 2009 ("MATURITY DATE"). "Maturity" shall mean
the Maturity Date or earlier date that the Obligations may be due
and payable by acceleration by Lender as provided in the Loan
Documents (as defined in the Instruments).
(d) Interest on the Balance for any full month shall be
calculated on the basis of a three hundred sixty (360) day year
consisting of twelve (12) months of thirty (30) days each. For any
partial month, interest shall be due in an amount equal to (i) the
Note Rate divided by 360 multiplied by (ii) the number of days any
Balance is outstanding through and including the day of payment.
<PAGE> 2
2. LATE PAYMENT AND DEFAULT INTEREST.
(a) LATE CHARGE. If any payment due under the Loan
Documents is not fully paid by its due date, a late charge of $500
per day (the "DAILY CHARGE") shall be assessed for each day that
elapses until payment in full is made (including the date payment is
made); provided, however, that if any such payments, together with
all accrued Daily Charges, are not fully paid by the fourteenth day
following their due date, a late charge equal to four percent (4%)
of such payments (the "LATE CHARGE") shall be assessed and be
immediately due and payable. The Late Charge shall be payable in
lieu of Daily Charges that shall have accrued. The Late Charge may
be assessed only once on each overdue payment. These charges shall
be paid to defray the expenses incurred by Lender in handling and
processing such delinquent payment(s) and to compensate Lender for
the loss of the use of such funds. The Daily Charge and Late Charge
shall be secured by the Loan Documents. The imposition of the Daily
Charge, Late Charge, and/or requirement that interest be paid at the
Default Rate (defined below) shall not be construed in any way to
(i) excuse Borrower from its obligation to make each payment under
this Note promptly when due or (ii) preclude Lender from exercising
any rights or remedies available under the Loan Documents upon an
Event of Default (as defined in the Instruments).
(b) ACCELERATION. Upon an Event of Default, including a
breach of Section 7.01 of the Instrument, Lender may declare the
Balance, unpaid accrued interest, the Prepayment Premium (defined
below) and all other Obligations immediately due and payable in
full.
(c) DEFAULT RATE. Upon an Event of Default or at
Maturity, whether by acceleration (due to a voluntary or involuntary
default) or otherwise, the entire Obligations (excluding accrued but
unpaid interest if prohibited by law) shall bear interest at the
Default Rate. The "DEFAULT RATE" shall be the lesser of (i) the
maximum rate allowed by the law or (ii) the greater of (A) the Note
Rate plus five percent (5%) or (B) five percent (5%) plus the prime
rate (for corporate loans at large United States money center
commercial banks) published in the Wall Street Journal on the date
the applicable default occurs. The term "BUSINESS DAY" shall mean a
day which commercial banks are not authorized or required by law to
close in the Property State or in the State where payments made by
Borrower are received.
3. APPLICATION OF PAYMENTS. Before an Event of Default, all payments
received under this Note shall be applied in the following order: (a) to unpaid
Daily Charges, Late Charges and costs of collection; (b) to any prepayment
premium due; (c) to interest on the Balance; and (d) then to the Balance. After
an Event of Default, all payments shall be applied in any order determined by
Lender in its sole discretion.
-2-
<PAGE> 3
4. PREPAYMENT. This Note may be prepaid, in whole or in part, upon at
least thirty (30) days' prior written notice to Lender and upon payment of all
accrued interest (and other Obligations due under the Loan Documents) and a
prepayment premium ("PREPAYMENT PREMIUM") equal to the greater of (a) one
percent (1%) of the principal amount being prepaid multiplied by the quotient of
the number of full months remaining until the Maturity Date divided by the
number of full months comprising the term of this Note, or (b) the Present Value
of the Loan (defined below) less the amount of principal and accrued interest
(if any) being prepaid, calculated as of the prepayment date. The Prepayment
Premium shall be due and payable, except as provided in the Instrument or as
limited by law, upon any prepayment of this Note, whether voluntary or
involuntary, and Lender shall not be obligated to accept any prepayment of the
Note unless it is accompanied by the Prepayment Premium, all accrued interest
and all other Obligations due under the Loan Documents. Unless prepayment occurs
on a Due Date, the actual number of days until the next Due Date will be used to
discount during that partial month. Lender shall notify Borrower of the amount
and calculation of the Prepayment Premium. Borrower agrees that (a) Lender shall
not be obligated to actually reinvest the amount prepaid in any Treasury
obligation and (b) the Prepayment Premium is directly related to the damages
that Lender will suffer as a result of the prepayment. The "PRESENT VALUE OF THE
LOAN" shall be determined by discounting all scheduled payments remaining to the
Maturity Date attributable to the amount being prepaid at the Discount Rate
(defined below). The "DISCOUNT RATE" is the rate which, when compounded monthly,
is equivalent to the Treasury Rate (defined below), when compounded
semi-annually. The "TREASURY RATE" is the semi-annual yield on the Treasury
Constant Maturity Series with maturity equal to the remaining weighted average
life of the Loan (defined below), for the week prior to the prepayment date, as
reported in Federal Reserve Statistical Release H.15 - Selected Interest Rates,
conclusively determined by Lender (absent a clear mathematical calculation
error) on the prepayment date. The rate will be determined by linear
interpolation between the yields reported in Release H.15, if necessary. If
Release H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate. Notwithstanding the foregoing, no
Prepayment Premium shall be due if the Note is prepaid during the last thirty
(30) days prior to the Maturity Date.
5. NO USURY. Under no circumstances shall the aggregate amount paid or
to be paid as interest under this Note exceed the highest lawful rate permitted
under applicable usury law ("MAXIMUM RATE"). If under any circumstances the
aggregate amounts paid on this Note shall include interest payments which would
exceed the Maximum Rate, Borrower stipulates that payment and collection of
interest in excess of the Maximum Rate ("EXCESS AMOUNT") shall be deemed the
result of a mistake by both Borrower and Lender and Lender shall promptly credit
the Excess Amount against the Balance or refund to Borrower any portion of the
Excess Amount which cannot be so credited.
-3-
<PAGE> 4
6. SECURITY AND OTHER LOAN DOCUMENTS INCORPORATED. This Note is the
Note referred to and secured by, among other things, those certain first
mortgages or first deeds of trust of even date herewith between Borrower and
Lender (individually, an "INSTRUMENT" and collectively, the "INSTRUMENTS") on
the properties described in the Instruments (individually, the "PROPERTY", and
collectively, the "PROPERTIES"). Borrower shall observe and perform all of the
terms and conditions in the Loan Documents. The Loan Documents are incorporated
into this Note as if fully set forth in this Note.
7. TREATMENT OF PAYMENTS. Prior to the occurrence of an Event of
Default, all payments under this Note shall be made, without offset or
deduction, (a) in lawful money of the United States of America by wire transfer
to an account specified by Lender from time to time or at the place (and in the
manner) Lender may specify by written notice to Borrower, (b) in immediately
available federal funds, and (c) if received by Lender prior to 2:00 p.m. local
time at such place, shall be credited on that day or else, at Lender's option,
shall be credited on the next Business Day. Following an Event of Default, all
payments due under this Note shall be paid by electronic funds transfer from a
bank account established for this purpose. In such case, Borrower agrees to
maintain an account with a bank satisfactory to Lender, in Lender's good faith
judgment, and to direct the bank in writing to transfer these payments on their
respective Due Date to Lender's designated account. Lender's approval and
designation of the bank (or banks) shall be confirmed in writing; it being
understood that Lender hereby approves NationsBank and Chase Manhattan Bank.
Lender shall have the right, after thirty days written notice, to require
Borrower to use a different bank or to select a different bank for Lender's
account. All costs of establishing and maintaining these accounts and all costs
of these electronic funds transfers shall be paid by Borrower. If any Due Date
falls on a day which is not a Business Day, then the payment shall be deemed to
have fallen on the next succeeding Business Day.
8. LIMITED RECOURSE LIABILITY. Except to the extent set forth in this
Paragraph 8 and Paragraph 9 of this Note, none of Borrower, the general partner
of Borrower or FelCor Lodging Limited Partnership (singularly or collectively,
the "EXCULPATED PARTIES") shall have any personal liability for the Obligations.
Notwithstanding the preceding sentence, Lender may bring a foreclosure action or
other appropriate action to enforce the Loan Documents or realize upon and
protect all or any number of the Properties (including, without limitation,
naming the Exculpated Parties in the actions) and in addition THE EXCULPATED
PARTIES, JOINTLY AND SEVERALLY, SHALL HAVE PERSONAL LIABILITY FOR THE FOLLOWING:
(a) any separate indemnity agreement, guaranty, or similar
instrument furnished in connection with the Loan (including, without
limitation, the Environmental Indemnity and the ERISA Certificate and
Indemnification Agreement);
(b) any Assessments (accrued and/or payable) with respect to
the Properties, whether payable by Borrower or DJONT Operations, L.L.C.
("LESSEE");
-4-
<PAGE> 5
(c) any security deposits of tenants or subtenants whether
held by Borrower or Lessee (other than a Successor Lessee) (i) not
turned over to Lender upon foreclosure, sale (pursuant to power of
sale), or conveyance in lieu thereof, or (ii) not turned over to a
receiver or trustee for the Properties after appointment;
(d) any insurance proceeds or condemnation awards neither
turned over to Lender nor used in compliance with the Loan Documents
whether held by Borrower or Lessee (other than a Successor Lessee);
(e) if any of the Exculpated Parties or Lessee (other than a
Successor Lessee) executes an amendment or termination of any lease in
violation of any provision of the Loan Documents (other than any
Primary Lease [as defined in the Instruments] which is addressed in
Paragraph 9(d) below) without Lender's prior written consent (and
Lender's consent was required under the Loan Documents), the Exculpated
Parties shall have personal liability for the greater of:
(i) the present value (calculated at the Discount
Rate) of the aggregate total dollar amount (if any) by which
(A) rental income and/or other tenant obligations prior to the
amendment of such lease exceeds (B) rental income and/or other
tenant obligations after the amendment of such lease; or
(ii) any termination fee or other consideration paid;
(f) intentional waste of all or any portion of any Property;
(g) any rents or other income from any Property received by
any of the Exculpated Parties or Lessee (other than a Successor Lessee)
after a default under the Loan Documents and not otherwise applied by
Lessee to the rent payable under the Primary Lessee, or by Borrower to
the Obligations or to the current (not deferred) operating expenses of
such Property; PROVIDED, HOWEVER, THAT THE EXCULPATED PARTIES SHALL
HAVE PERSONAL LIABILITY for amounts paid as expenses to a person or
entity related to or affiliated with any of the Exculpated Parties
unless the payments are expressly permitted in the Loan Documents; and
further provided, that for purposes of this Paragraph 8(g) Promus
Hotels, Inc. or any of its subsidiaries, as Manager and Licensor (as
defined in the Loan Agreement by and between Borrower and Lender of
even date herewith), shall not be deemed affiliated with the Borrower;
(h) Borrower's failure to maintain a letter or letters of
credit, (if any), required under the Loan Documents;
(i) any payments required to be made by Lessee to Borrower
under any Primary Lease that is withheld, set off, or otherwise not
made by Lessee when due, in any case in which Borrower shall have
approved or consented to the same;
-5-
<PAGE> 6
(j) Borrower's or Lessee's failure to cause funds to be paid
into the FF&E Account (as defined in the Loan Agreement) or the failure
by either of them to use or apply funds disbursed from the FF&E Account
in accordance with the provisions of Section 3 of the Loan Agreement;
or
(k) all legal fees (excluding the allocated costs of Lender's
staff attorneys) and other expenses incurred by Lender in enforcing the
Loan Documents if Borrower contests, delays, or otherwise hinders or
opposes (including, without limitation, the filing of a bankruptcy) any
of Lender's enforcement actions, other than in the event that Borrower
finally prevails in establishing that Borrower was not in default and
Lender was not entitled to exercise its remedies under the Loan
Documents.
9. FULL RECOURSE LIABILITY. Notwithstanding the provisions of Paragraph
8 of this Note, the EXCULPATED PARTIES SHALL HAVE PERSONAL LIABILITY for the
Obligations if:
(a) there is a Transfer (as defined in the Instruments) or
Indirect Transfer (as defined in the Instruments) (other than a
Permitted Indirect Transfer (as defined in the Instruments)) without
Lender's consent;
(b) there shall be any fraud or material misrepresentation by
any of the Exculpated Parties or Lessee in connection with any
Property, the Loan Documents, the Loan Application by and between
Borrower, FelCor Lodging Limited Partnership, FelCor/CSS Hotels,
L.L.C., and Lender dated February 22, 1999, any instruments, reports,
evidence, estoppels, subordination agreements, environmental reports,
architectural reports, life safety reports, engineering reports,
leases, papers, information and other documents and agreements required
to be obtained by Borrower under the Loan Application or Loan Documents
or required or subject to Lender's approval at any time or delivered to
Lender with respect to the Loan or any other aspect of the Loan; or
(c) any Property or any part thereof (including either the
interests of Borrower or the interests of Lessee) shall become an asset
in (i) a voluntary bankruptcy or insolvency proceeding filed by
Borrower or Lessee or (ii) an involuntary bankruptcy or insolvency
proceeding filed against Borrower or Lessee which is not dismissed
within ninety (90) days of filing; provided, however, that this
Paragraph 9(c) shall not apply if: (x) an involuntary bankruptcy is
filed by Lender (y) any voluntary bankruptcy proceeding is filed by a
Successor Lessee (as defined in the Loan Agreement) or (z) an
involuntary bankruptcy proceeding is filed against a Successor Lessee
(other than a proceeding filed by, or with the express consent of, the
Borrower); and provided further, that if:
(A) after ninety (90) days following the
filing of any involuntary bankruptcy proceeding described in
clause (ii) above, such proceeding is dismissed
-6-
<PAGE> 7
with prejudice and without adversely affecting the
enforceability or priority of any of the Loan Documents;
(B) such dismissal occurs prior to the
occurrence of any of the following: (v) the entry of any order
that adversely affects the enforceability or priority of any
of the Loan Documents (other than solely by reason of the
automatic stay), (w) the entry of any order granting any
person relief from the automatic stay to foreclose against,
enforce any lien or security interest in, levy upon, or
repossess any material assets of Borrower or Lessee that
constitute a part of, or that relate to, the Properties, or to
terminate any of the Management Agreements (as defined in the
Loan Agreement), License Agreements (as defined in the Loan
Agreement), or leases of restaurant space (the "MATERIAL
LEASES"), (x) the liquidation of any material assets of
Borrower or Lessee (other than a Successor Lessee) that
constitute a part of, or that relate to, the Properties, (y)
the entry of any order approving the rejection or termination
of any Primary Lease, any Management Agreement, any License
Agreement, or any Material Lease, or (z) the entry of any
order approving any plan of reorganization for Borrower or
Lessee (other than a Successor Lessee); and
(C) throughout the period following the
filing of such bankruptcy proceeding, Borrower or one or more
of the Exculpated Parties shall have continued to make regular
payments of debt service on a timely basis in accordance with
the provisions of the Loan Documents;
then, the Exculpated Parties shall be personally liable only for the
actual damages, losses, costs and expenses (including attorneys' fees)
incurred by Lender (expressly including any diminution, loss or damage
to the Properties and/or any other property or rights which are
security for the loan evidenced by this Note) as a result of such
bankruptcy filing;
(d) any of the Exculpated Parties or Lessee executes an
amendment or termination of any Primary Lease, or any of the Exculpated
Parties or Lessee (other than a Successor Lessee) executes or
authorizes any amendment of or terminates any Management Agreement or
License Agreement, without Lender's prior written consent (and Lender's
consent was required under the Loan Documents) or other than in
accordance with the provisions of Section 8 of the Loan Agreement; or
(e) there shall be an Event of Default pursuant to Section
8(a) and/or 8(b) of the Loan Agreement.
Notwithstanding the foregoing, following the occurrence of an event
described in Paragraphs 9(a), 9(b) and 9(d) above, if Borrower (1) establishes
that the same was inadvertent, (2) promptly gives Lender written notice of such
event, and (3) cures the same to the reasonable
-7-
<PAGE> 8
satisfaction of Lender within thirty (30) days after any senior officer of
Borrower, FelCor Lodging Limited Partnership, or FelCor Lodging Trust
Incorporated first had actual knowledge thereof (regardless of whether Lender
shall have given any notice of default or other notice on account thereof), the
Exculpated Parties shall be personally liable only for any actual damages,
losses, costs and expenses incurred by Lender (including reasonable attorneys'
fees) incurred by Lender as a result of the foregoing events.
10. JOINT AND SEVERAL LIABILITY. Subject to Paragraph 8 of this Note,
this Note shall be the joint and several obligation of all makers (including the
Exculpated Parties), endorsers, guarantors and sureties, and shall be binding
upon them and their respective successors and assigns and shall inure to the
benefit of Lender and its successors and assigns.
11. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM FILED BY EITHER PARTY, WHETHER IN CONTRACT, TORT OR
OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE LOAN DOCUMENTS, OR
ANY ACTS OR OMISSIONS OF LENDER OR BORROWER IN CONNECTION THEREWITH.
IN WITNESS WHEREOF, this Note has been executed by Borrower as of the
date first set forth above.
BORROWER:
FELCOR/CSS HOLDINGS, L.P.,
a Delaware limited partnership
By: FelCor/CSS Hotels, L.L.C., a Delaware
limited liability company,
its general partner
By: /s/ JOEL M. EASTMAN
---------------------------------
Name: Joel M. Eastman
Title: VP
-8-
<PAGE> 1
EXHIBIT 10.23.3
MORTGAGE LOAN AGREEMENT
THIS MORTGAGE LOAN AGREEMENT ("Agreement") is made as of the 1st day of
April, 1999, by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New
Jersey corporation ("Lender") and FELCOR/CSS HOLDINGS, L.P., a Delaware limited
partnership ("Borrower").
Recitals
A. Borrower has applied to Lender for a first mortgage loan in the
principal amount of One Hundred Million Dollars ($100,000,000) (the "Loan"), and
Lender has agreed to make the Loan, on the terms provided for in that certain
First Mortgage Loan Application dated February 22, 1999, under Application No.:
6-103-269 (the "Application").
B. The Loan is secured by, among other things, those certain first
mortgages or first deeds of trust being executed concurrently with this
Agreement (collectively, the "Mortgages") on the properties identified on
Exhibit A attached hereto and made a part hereof and more particularly described
in each of the Mortgages (collectively, the "Properties" and individually, a
"Property").
C. Certain provisions pertaining to the Loan, as set forth in the
Application, are intended to pertain generally to all Properties and/or are
matters that the parties do not want placed of record; therefore, Lender and
Borrower are entering into this Agreement to set forth and govern such matters.
Agreement
NOW, THEREFORE, in consideration of the making of the Loan, the mutual
undertakings and agreements of the parties set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower do hereby agree as follows:
1. RELATION TO MORTGAGES. The provisions of this Agreement shall have
the same force and effect as if the same were set forth in each of the
Mortgages, and this Agreement shall constitute one of the "Loan Documents" as
such term is defined and used in each of the Mortgages. Terms appearing in this
Agreement as initially capitalized terms and not otherwise expressly defined
herein shall have the respective meanings given them in the Mortgages. Any
breach or violation of the terms of this Agreement by Borrower shall constitute
a default under the Mortgages, and any Event of Default under any of the
Mortgages shall be deemed an Event of Default under this Agreement. The
provisions of the Mortgages relating to notices of default, time for cure, and
exercise of remedies by Lender shall be applicable to any default or violation
of this Agreement, and the same are hereby incorporated herein by this
reference.
2. DEFINITIONS. Whenever used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Allocated Loan Amount" shall mean a portion of the Loan
allocated to the each Property for certain purposes, which amounts are
set forth on Exhibit B attached hereto and made a part hereof.
<PAGE> 2
(b) "Business Day" or "business day" shall mean any day that
is not a Saturday or Sunday and on which banks are not generally
authorized or permitted to close in the states in which the loan
administration office of Lender then responsible for administering the
Loan is located, in which the principal office of the Borrower is
located, or in which any of the Properties are located.
(c) "Debt Service Coverage Ratio" shall have the meaning given
such term in the Mortgages.
(d) "Fair Market Value" shall mean, with respect to any
Property, the amount that a willing buyer under no compulsion to buy
would pay, and a willing seller under no compulsion to sell would
accept, for the purchase and sale of such Property, in an arms-length,
all-cash sale with customary closing pro-rations and adjustments and
based on the current state of title to the Property, but free and clear
of the Mortgages, the Primary Leases, and the Management Agreements and
License Agreements (it being agreed that any termination fee or similar
payment required to terminate any of the Management Agreements and/or
License Agreements prior to expiration of their respective terms shall
be taken into account and shall constitute deductions in determining
Fair Market Value).
(e) "FelCor" shall mean FelCor Lodging Limited Partnership, a
Delaware limited partnership, which, as of the date of this Agreement,
is the holder of all of the limited partnership interests in Borrower
and of all of the membership interests in Borrower's general partner.
(f) "Hotels" shall mean any or all of the hotels constituting
the principal improvements located on each of the Properties.
(g) "Lessee" shall mean DJONT Operations, L.L.C., a Delaware
limited liability company.
(h) "License Agreements" shall mean any or all of the existing
License Agreements with the Licensor as of the date of this Agreement,
as the same may be amended from time to time (subject to obtaining
Lender's consent to any such amendment), or any extension, renewal, or
replacement thereof entered into in accordance with the provisions of
Section 7 hereof.
(i) "Licensor" shall mean Promus Hotels, Inc., a Delaware
corporation, or in the event Borrower shall enter into a replacement
license agreement in accordance with the provisions of Section 8
hereof, the licensor under such replacement license agreement.
(j) "Loan to Value Ratio" shall mean the ratio, as of the time
at which such ratio is to be determined hereunder, of (i) the aggregate
principal balance of all encumbrances against the Properties to (ii)
the aggregate Fair Market Values of the Properties (or certain of the
Properties, where expressly provided herein). In any case in which the
Loan-to-Value Ratio is to be determined, Lender shall promptly make a
determination, based on its standard property valuation methods being
utilized at the time, of the Fair Market Values of the applicable
Properties and shall notify Borrower in writing of Lender's
determination. If, within ten (10) business days after Borrower's
receipt of Lender's determination, the parties are unable to reach
agreement on the Fair Market Value
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<PAGE> 3
of the applicable Properties, then such Fair Market Value shall be
determined by appraisal as provided in Section 9 hereof.
(k) "Management Agreements" shall mean any or all of the
existing management agreements with the Manager as of the date of this
Agreement, as the same may be amended from time to time (subject to
obtaining Lender's consent to any such amendment), or any extension,
renewal, or replacement thereof entered into in accordance with the
provisions of Section 8 hereof.
(l) "Manager" shall mean, collectively, Promus Hotels, Inc., a
Delaware corporation, with respect to the Properties not located in
Florida, and Promus Hotels Florida, Inc., a Florida corporation, with
respect to the Properties located in Florida, or in the event Borrower
shall enter into a replacement management agreement in accordance with
the provisions of Section 8 hereof, the manager under such replacement
management agreement.
(m) "NOI" shall mean the total, for all Properties (or all
relevant Properties as may be specified in connection with the
provisions hereof for which NOI or Debt Service Coverage is being
determined) of the aggregate rental payments made under the Primary
Leases for the applicable twelve (12) month period, less all expenses
and obligations payable by Borrower under the Primary Leases or with
respect to Borrower's ownership and operation of the Properties for
that twelve (12) month period, including, without limitation, payments
(if any) for ground rent, reserves for replacements of FF&E and other
capital expenditures in the amounts required from time to time pursuant
to Section 3 hereof, real estate and other taxes and assessments and
insurance, but excluding deductions for federal, state and other income
taxes, debt service expense, depreciation or amortization of capital
expenditures and other similar non-cash items. For purposes of
calculating NOI, (i) rental income shall not be anticipated for any
greater time period than that approved by generally accepted accounting
principles, and (ii) expense items shall not be prepaid. Documentation
of NOI and expenses shall be certified by an officer of Borrower with
detail reasonably satisfactory to Lender.
(n) "Primary Leases" shall mean those certain Lease Agreements
pursuant to which each of the Properties has been leased by Borrower to
Lessee, as the same may be amended from time to time (subject to
obtaining Lender's consent to any such amendment), or any extension,
renewal, or replacement thereof entered into in accordance with the
provisions of Section 8 hereof.
(o) "Qualified Appraiser" shall mean, with respect to any
Property, an experienced, professional hotel valuation consultant (or
firm of such consultants) of regional or national standing in the
hospitality industry and with substantial experience in appraising full
service hotel properties in the metropolitan area in which a Property
is located. The hospitality consulting division of
PricewaterhouseCoopers and the firm of Pannel Kerr & Forster would, as
of the date of this Agreement, constitute professional hotel valuation
consulting firms of national standing.
(p) "Successor Lessee" shall mean the tenant under the Primary
Leases in the event of a sale of all of the assets of Lessee or all of
the membership interests of Lessee permitted under Section 7.3 of the
Mortgages or, in the event Borrower shall enter into a
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<PAGE> 4
replacement of the Primary Lease in accordance with the provisions of
Section 8 hereof, the tenant under such replacement Primary Lease.
3. CAPITAL RESERVES. Borrower shall maintain reserves for each Property
for FF&E and other capital expenditures for the Properties, which shall be
funded on a monthly basis, in amounts equal to 4% of the suite revenues of each
Property received during the immediately preceding calendar month. Borrower has
advised Lender that (A) such reserve amounts currently are retained by the
Lessee and netted against the rental payments required to be made each month
under the Primary Leases, (B) the Manager pays for capital items each month from
Property revenues, in accordance with the annual capital budgets approved by
Lessee and otherwise in accordance with the Management Agreements, (C) to the
extent expenditures on capital items during any month are less than 4% of suite
revenues in such month, the amount of such difference is paid into a reserve
account in the name of FelCor REIT, but administered by the Manager (the
"Combined Reserve Account"), which account contains reserve funds for all
properties managed by Manager for Lessee, including hotel properties other than
the Properties (but the Manager keeps separate records of the reserve amounts
and expenditures from such amounts with respect to each Property and each other
hotel property), (D) to the extent expenditures during any month are greater
than 4% of suite revenues for such month, funds that have been accumulated in
the Combined Reserve Account with respect to such Property are applied for such
purpose. The following provisions shall govern the deposit, reservation, and use
of funds reserved for FF&E and capital expenditures:
(a) A separate bank account (with separate sub-accounts
designated for each Property) located in the State of Illinois, at a
banking institution reasonably acceptable to Lender, shall be
established at Closing and maintained in the name of Lender or
otherwise established in a form and manner sufficient to create and
maintain in Lender a first priority, perfected security interest
therein (the "FF&E Account"). So long as no Event of Default shall have
occurred and the Debt Service Coverage Ratio for all Properties in the
aggregate is at least equal to 1.50 (as shown by Borrower's most recent
annual financial statements), Borrower shall not be required to deposit
funds in the FF&E Account on a continual basis, but shall be entitled
to continue its existing arrangement with the Manager (as described
above). Instead, at the end of each calendar year, Borrower shall
provide to Lender, within ten (10) business days after receipt by
Borrower or Lessee of the annual operating statements for the
Properties prepared by the Manager, a reconciliation (certified to
Lender by Borrower as being true and correct) showing (i) the total
amount required to have been reserved for such year (i.e., 4% of suite
revenues for such year, or any greater amount required at such time
under paragraph (e) of this Section) for each Property, (ii) the total
amount actually expended or incurred in such year for capital items
payable from such reserve amounts for each Property, (iii) the
resulting accumulated balance (or deficit) with respect to each
Property as of the end of such year, and (iv) a comparison of the
amounts expended or incurred to the annual FF&E/capital budget for such
year. In the event that, for any Property, the amount in clause (i)
above shall exceed the amount in clause (ii) above (such excess being
herein called "Excess Reserve Funds"), the amount of Excess Reserve
Funds for each Property shall be deposited into the FF&E Account (and
to the designated sub-accounts for each such Property), concurrently
with the delivery of the reconciliation statement to Lender, and the
funds on deposit therein from time to time shall constitute additional
collateral for the Loan. For purposes of determining whether there are
Excess Reserve Funds for
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<PAGE> 5
calendar year 1999, Borrower hereby certifies to Lender that the amount
of funds accumulated in the Combined Reserve Account with respect to
each Property (or any deficit amounts if expenditures for any Property
have exceeded the reserve amounts) as of December 31, 1998 are as set
forth on Exhibit C attached hereto and made a part hereof. The amount
of any such accumulated funds shall be added to (and the amount of any
such deficit shall be subtracted from) the amount under clause (i)
above for purposes of determining whether there are any Excess Reserve
Funds with respect to calendar year 1999.
(b) So long as no Event of Default shall have occurred and the
Debt Service Coverage Ratio for all Properties in the aggregate is at
least equal to 1.50 (as shown by Borrower's most recent annual
financial statements), the amounts so paid into the FF&E Account shall
be paid out by Lender (to the extent of the amount of Excess Reserve
Funds for the applicable Property), upon Lender's receipt from Borrower
of a written request for such payment and a certification from a senior
financial officer of Borrower that the requested funds are being
applied exclusively for capital expenditures for a specified Property
for which the reserve amounts for such Property for the current year
are not sufficient (which certification shall include supporting
calculations of reserve amounts available and expended and a
reconciliation thereof to the current annual FF&E/capital budget).
Lender shall not be required to release Excess Reserve Funds reserved
with respect to any Property if such funds are to be applied (in whole
or in part) to any other Property. The right to have funds paid out of
the FF&E Account and applied as provided above shall be conditioned
upon Borrower providing to Lender, (i) on an annual basis, a copy of
each annual FFE/capital budget for each Property, and (ii) any changes
in such budget that may be made from time to time during any year.
(c) In the event that either (A) the Debt Service Coverage
Ratio shall become less than 1.50 (as shown by Borrower's most recent
annual financial statements), or (B) an Event of Default shall have
occurred, then (i) the Lessee shall no longer offset the reserve
amounts against the monthly rental payments under the Primary Leases,
and Borrower shall cause the amount required to be reserved (i.e., 4%
of suite revenues, or any greater amount required at such time under
paragraph (d) of this Section) for each Property to be deposited into
the FF&E Account on a monthly basis, (ii) the FF&E/capital budgets for
each Property and any changes therein shall be subject to Lender's
prior, written approval, and (iii) Lender shall retain all reserve
funds in the FF&E Account and shall authorize payment out of the FF&E
Account of only such amounts as are necessary from time to time to pay
for items provided for under the FF&E/capital budgets for each Property
approved by Lender (including amounts incurred under FF&E/capital
budgets applicable for the preceding year for work not completed and/or
paid for in the prior year) or for other capital expenditures approved
by Lender on a case-by-case basis, subject to Lender receiving copies
of invoices, receipts, contracts, and other evidence satisfactory to
Lender of the amounts and purposes of such payments, and subject to
such procedures as Lender reasonably may require to ensure proper use
and application of any funds disbursed by Lender. Lender shall not be
required to make disbursements of funds from the FF&E Account more
frequently than monthly. Upon the occurrence of an Event of Default,
Lender shall have no further obligation to release or apply funds in
the FF&E Account, and the same shall constitute additional collateral
for the Loan and may be applied to the indebtedness under the Loan
Documents or to the
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<PAGE> 6
Properties or any obligations relating to the Properties as Lender
shall determine in its sole discretion.
(d) In addition to the reserve amounts required above, in the
event that (i) the Licensor determines that any one or more of the
Properties requires substantial replacements, upgrades, or improvements
in order to enable such Property or Properties to continue to meet the
standards and requirements imposed by the applicable License
Agreement(s), and (ii) Lender determines in good faith that the amounts
being reserved for FF&E and capital expenditures for any such Property
will not be adequate to enable Borrower to meet the standards and
requirements of such License Agreement(s) and otherwise maintain such
Properties as required by the Primary Leases, Management Agreements and
Loan Documents, Lender reserves the right to increase the reserves
required to be maintained by Borrower to levels that are sufficient for
such purpose. Any such increased reserves shall be paid to Lender by
Borrower on a monthly basis and shall be held by Lender in the FF&E
Account, for application in the manner provided in paragraphs (b) or
(c) above (as applicable).
(e) The provisions of paragraphs (a) and (b) above shall be
applicable only so long as Promus Hotels, Inc. and Promus Hotels
Florida, Inc. are managing the Properties and only so long as there has
been no default (after notice and expiration of any cure period, if
applicable to such default) under the Management Agreements. If
paragraphs (a) and (b) become inapplicable under the terms of the
preceding sentence, paragraph (c) of this Section shall thereupon and
thereafter govern the handling of reserves for FF&E and capital
expenditures (without regard to the Debt Service Coverage Ratio at the
time). If a party other than the aforesaid Manager becomes the manager
of the Hotels in accordance with the provisions of Section 8 hereof,
Lender will give good faith consideration to a request by Borrower to
accommodate the reserve funding mechanisms that Borrower, Lessee, and
such new manager may wish to implement, but Lender shall not be
obligated to accept any mechanism other than that provided for in said
paragraph (d).
4. RELEASES OF PROPERTIES. Borrower may sell one or more of the
individual Properties included in the Collateral to a third party in an arm's
length sale transaction and obtain a release of such Property from the lien of
the applicable Mortgage, subject to satisfaction of the following conditions:
(a) Requests for releases shall be made in writing and may be
made on not more than three (3) occasions during the term of the Loan
and further, any such partial release must occur prior to the last 24
months of the end of the term of the Loan;
(b) Following each release, at least four (4) Properties
located in at least three (3) different states must remain subject to
the Mortgages;
(c) Borrower shall pay to Lender 115% of the Allocated Loan
Amount for the released Property, together with any applicable
Prepayment Premium on the total principal amount so paid;
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<PAGE> 7
(d) The aggregate Debt Service Coverage Ratio for all of the
Properties remaining after such release (calculated for the most recent
full twelve month period prior to the effective date of such release)
is the greater of (i) 2.50 to 1.00 and (ii) the current Debt Service
Coverage Ratio for all Properties at the time of release (it being
agreed that Borrower will provide financial information for the
applicable 12-month period, in such form and detail as Lender
reasonably may require, to permit Lender to calculate the Debt Service
Coverage Ratio for such period);
(e) The Loan to Value Ratio (determined as of a date within
sixty (60) days prior to the effective date of the release) does not
exceed fifty percent (50%), and, upon completion of the release, the
Loan to Value Ratio will not be higher than the Loan to Value Ratio
prior to the release (it being agreed that Borrower will provide such
financial and other information for the Properties, in such form and
detail as Lender reasonably may require, to permit Lender to calculate
the Loan to Value Ratios of the Properties at such time, both before
and after such release);
(f) There shall have been no material deterioration of the
physical quality of any of the Properties that remain part of the
Collateral, relative to their condition as of the Closing Date (it
being agreed that Lender's representatives and/or a third party
engineering consultant retained by Lender, at Borrower's expense, shall
be entitled to inspect the Properties to verify whether such
deterioration has occurred);
(g) Borrower shall pay all reasonable costs and expenses
incurred by Lender (including attorneys' fees and costs, costs of
obtaining appraisals, engineering consultants, and other third-party
costs, but excluding travel and other internal costs of Lender), and
shall pay a $15,000 servicing fee, of which one-half shall be paid at
the time of the request for release and the other half of which shall
be paid if (and only if) the release is approved by Lender; and
(h) There exists no Event of Default.
Requests for releases shall be submitted by Borrower in writing at least sixty
(60) days prior to the proposed release date, and Borrower shall include in such
request the anticipated date of the closing of the sale, the name of the
proposed buyer, a copy of the applicable terms of sale, and a calculation by
Borrower of what it believes the Debt Service Coverage Ratio of the Properties
has been over the most recent 12-month period (with supporting financial
information showing NOI on a Property-by-Property basis over such period).
5. SUBSTITUTION OF PROPERTIES. Borrower shall have the right to request
that Lender accept additional, substitute real estate and related personal
property collateral for one or more of the Properties included in the security
for the Loan. Lender agrees to approve such request if (and only if) the
following conditions and requirements are satisfied:
(a) Requests for substitution may be made on not more than
three (3) occasions during the term of the Loan, and any such
substitution must occur prior to the last 24 months of the term of the
Loan;
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<PAGE> 8
(b) The substitute property is a full-service hotel property
comparable (or better) in class and market position to the Properties
and located within the continental United States in a comparable (or
better) market area as the Property for which it is being substituted,
with acceptable license and management agreements as determined by
Lender in its reasonable judgment;
(c) Following the substitution, the real estate collateral
securing the Loan shall be located in at least four (4) different
states;
(d) The substitute property must comply with the requirements
of the Application in all respects, including, without limitation,
those relating to Loan Documents, title, survey, compliance with
zoning, building, environmental and land use laws, management and
license agreement requirements, construction and engineering,
insurance, leases, licenses, real estate taxes, legal opinions,
estoppel certificates, and all other terms and conditions of the
Application;
(e) The NOI from the substitute Property for the twelve (12)
month period preceding the substitution shall equal or exceed the NOI
from the Property being replaced;
(f) The physical condition of the collateral being considered
for substitution must not be of lesser quality, as determined by Lender
in its reasonable judgment (it being agreed that Lender's
representatives and/or a third party engineering consultant retained by
Lender, at Borrower's expense, shall be entitled to inspect the
substitute property verify its physical condition); and the Fair Market
Value of such property must not be materially less than that of the
Property being replaced (Fair Market Value to be determined in the
manner described in this Agreement);
(g) The Debt Service Coverage Ratio calculated with respect to
the Properties (including the substitute property, but excluding the
Property being replaced and all other Properties previously released
from the lien of the Mortgages) is equal to or greater than 2.50 to
1.00 for the most recent full twelve (12) month period prior to the
date of the proposed substitution;
(h) The Loan to Value Ratio (determined as of a date within
sixty (60) days prior to the effective date of the release), calculated
with respect to the Properties, including the substitute property but
excluding the Property being replaced and all other parcels previously
released from the lien of the Mortgage, does not exceed fifty percent
(50%);
(i) Borrower shall pay all reasonable costs and expenses
incurred by Lender (including attorneys' fees and costs, costs of
obtaining appraisals, engineering consultants, and other third-party
costs, but excluding travel and other internal costs of Lender), and
shall pay a $40,000 servicing fee, of which one-half shall be paid at
the time of such request for release and the other half of which shall
be paid if (and only if) the release is approved by Lender; and
(j) There exists no Event of Default.
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<PAGE> 9
Requests for substitution shall be submitted by Borrower in writing at least
sixty (60) days prior to the proposed substitution date, and Borrower shall
include in such request all financial and other descriptive information provided
to Lender with respect to the Properties in connection with the Application and
a calculation by Borrower of what it believes the Debt Service Coverage Ratio of
the Properties has been over the most recent 12-month period (with supporting
financial information showing NOI on a Property-by-Property basis over such
period).
6. POSSIBLE POST-CLOSING RELEASE OF PORTIONS OF PROPERTIES.
A. Minneapolis Property. The Minneapolis Property includes an
unimproved parcel of land referred to as "Outlot A" and located as shown on
Exhibit C-1 attached hereto and made a part hereof (the "Outlot A"), a portion
of which provides a part of the parking required to assure compliance by the
Property with applicable zoning. Borrower has advised Lender that after Closing
Borrower intends to seek to have Outlot A (or a portion thereof) released from
the lien of the Mortgage encumbering the Minneapolis Property in connection with
the sale or development of Outlot A (or such portion thereof), reserving
easement rights for parking and access over Outlot A (or the portion thereof
being sold or developed) as may be necessary to provide parking required to
assure compliance by the remainder of the Minneapolis Property with applicable
zoning requirements and the reasonable needs of the Hotel thereon. Lender shall
permit the release of Outlot A (or such portion thereof) without payment of any
prepayment premium or release payment, subject to satisfaction of the following
conditions:
(a) Borrower shall provide Lender evidence satisfactory to
Lender, in its good faith judgment, that (w) the intended use of Outlot
A is reasonably compatible with the Hotel (it being agreed that use as
a convenience store or restaurant would be a compatible use), (x) the
remainder of the Minneapolis Property following the release of Outlot A
(or the portion thereof being sold or developed), together with the
easement rights for parking reserved over Outlot A or such portion
(which easement rights shall be subject to the lien of the Mortgage),
satisfies all applicable zoning requirements, including those
applicable to parking, and that reasonable amounts of parking shall
remain available to the Hotel (and Borrower expressly agrees that the
currently unimproved portions of Outlot A that are not used for
building and for required landscaping and buffer areas will be paved to
provide additional parking), (y) any subdivision or other governmental
approvals that may be required to permit the separation of ownership of
Outlot A (or such portion thereof) from the Property has been completed
in accordance with applicable laws and (z) Outlot A (or the portion
thereof being sold or separately developed) is a separate tax parcel,
which evidence of the foregoing shall include, but not be limited to,
an affirmative title insurance endorsement, an opinion of counsel or a
letter from the applicable governmental agency;
(b) No Event of Default has occurred, nor is there any default
which, with notice, the passage of time, or both, would constitute an
Event of Default under the Loan Documents;
(c) The Lender shall have the right to approve the form and
content of any easements or covenants between Borrower and the owners
from time to time of Outlot A
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<PAGE> 10
(or the portion thereof being sold or separately developed), whether
benefiting or encumbering the portion of the Minneapolis Property
remaining subject to the Mortgage;
(d) The applicable Mortgage shall be amended to contain such
other provisions as Lender shall reasonably deem necessary or
appropriate to protect its security interest in, and the value of, the
Minneapolis Property; and
(e) The Borrower will pay all reasonable costs and expenses
required to (i) satisfy such conditions, including costs of title
coverages and endorsements and attorneys' fees and costs incurred by
Lender in determining whether the foregoing conditions have been
satisfied and (ii) effect the release of Outlot A (or the portion
thereof being sold or separately developed) from the lien of the
applicable Mortgage.
B. Ft. Lauderdale Property. The Ft. Lauderdale Property includes land
currently devoted to parking and located as shown on Exhibit C-3 attached hereto
and made a part hereof (the "Excess Parking Parcel"). Borrower believes that the
parking provided on the Excess Parking Parcel is in excess of that required to
meet zoning requirements applicable to the Hotel and in excess of the reasonable
needs of the Hotel. In addition, there is an unpaved area between the Hotel and
the Excess Parking Parcel (the "Unpaved Area") that could be paved to provide
additional parking. Borrower has advised Lender that it currently intends to
seek to have the Excess Parking Parcel released from the lien of the Mortgage
encumbering the Ft. Lauderdale Property in connection with the sale or
development of the Excess Parking Parcel, reserving easement rights for parking
and access over the Excess Parking Parcel so as to provide parking required to
assure compliance by the remainder of the Ft. Lauderdale Property with
applicable zoning requirements and the reasonable needs of the Hotel on such
Property. Lender shall permit the release of the Excess Parking Parcel without
payment of any prepayment premium or release payment, subject to satisfaction of
the following conditions:
(a) Borrower shall provide Lender evidence satisfactory to
Lender, in its good faith judgment, that (w) the intended use of the
Excess Parking Parcel is reasonably compatible with the Hotel (it being
agreed that use as a four-story commercial office building would be a
compatible use), (x) the remainder of the Ft. Lauderdale Property
following the release of Excess Parking Parcel, together with the
easement rights for parking reserved over the Excess Parking Parcel
(which easement rights shall be subject to the lien of the Mortgage),
satisfies all applicable zoning requirements, including those
applicable to parking, and that reasonable amounts of parking shall
remain available to the Hotel (and Borrower expressly agrees that the
Unpaved Area will be paved to provide approximately 50 spaces of
additional parking for the Hotel), (y) any subdivision or other
governmental approvals that may be required to permit the separation of
ownership of the Excess Parking Parcel from the Ft. Lauderdale Property
has been completed in accordance with applicable laws and (z) the
Excess Parking Parcel is a separate tax parcel, which evidence of the
foregoing shall include, but not be limited to, an affirmative title
insurance endorsement, an opinion of counsel or a letter from the
applicable governmental agency;
(b) No Event of Default has occurred, nor is there any default
which, with notice, the passage of time, or both, would constitute an
Event of Default under the Loan Documents;
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<PAGE> 11
(c) The Lender shall have the right to approve the form and
content of any easements or covenants between Borrower and the owners
from time to time of the Excess Parking Parcel, whether benefiting or
encumbering the portion of the Ft. Lauderdale Property remaining
subject to the Mortgage;
(d) The applicable Mortgage shall be amended to contain such
other provisions as Lender shall reasonably deem necessary or
appropriate to protect its security interest in, and the value of, the
Ft. Lauderdale Property; and
(e) The Borrower will pay all reasonable costs and expenses
required to (i) satisfy such conditions, including costs of title
coverages and endorsements and attorneys' fees and costs incurred by
Lender in determining whether the foregoing conditions have been
satisfied and (ii) effect the release of the Excess Parking Parcel from
the lien of the applicable Mortgage.
C. Requests for Release. Any request for a release of any of the
parcels described above (individually, a "Release Parcel" and collectively, the
"Release Parcel") shall be submitted by Borrower in writing at least sixty (60)
days prior to the proposed release date, and Borrower shall include in such
request (i) the anticipated date for such release, (ii) the name of any proposed
buyer of the applicable Release Parcel, (iii) its intended use of the Release
Parcel, (iv) a copy of the applicable terms of sale, (v) an exact legal
description of the Release Parcel (which description shall delineate a parcel
that substantially conforms to the size, location and configuration of the
respective parcels shown on Exhibits C-1, C-2, and C-3 hereto), (vi) a
calculation of the acreage thereof, and (vii) a site plan showing the
anticipated configuration of the Property after the release of the Release
Parcel (including parking for the applicable Hotel after the sale of the Release
Parcel, and the size, location, and use of the proposed improvements that will
be constructed on the Release Parcel and any access rights and parking that will
be provided for the Release Parcel). If any changes to information or
documentation arise between the date of initial submission to Lender and the
date for release, Borrower shall promptly provide the same to Lender, with any
changes expressly identified or visually highlighted; provided, that Lender
shall have a reasonable time (which shall in no event be less than ten (10)
business days) written notice of such changes prior to being required to execute
a release of the Release Parcel; and provided further, that such changes do not
substantially change the nature of the request or result in a failure to meet
the conditions for release under this Section. In the event that any request for
release is submitted to Lender later than eighteen (18) months following the
date of this Agreement, Lender shall be entitled to charge an administrative fee
for the processing of such release request, in the amount of $10,000, of which
$5,000 shall be payable at the time of such request and the balance of such
$5,000 to be payable at the time Lender is to deliver such release (and Lender's
receipt of such fee shall be a condition to Lender's obligation to provide such
release).
7. PROPOSED DEVELOPMENT OF AN ADDITION TO THE MILPITAS PROPERTY.
Borrower has advised Lender that it may construct an addition to the Milpitas
Property (the "Addition"). The nature of such Addition, the manner in which it
will be funded and constructed, and the impact such Addition will have on the
Collateral and the Loan shall be matters that will be subject to Lender's
approval, and Lender will be entitled to impose such conditions and
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<PAGE> 12
requirements in connection with the Addition as Lender reasonably shall deem
necessary or appropriate to protect the Collateral and its interests under the
Loan Documents.
8. RENEWAL OR REPLACEMENT OF PRIMARY LEASES, MANAGEMENT AND LICENSE
AGREEMENTS. The parties acknowledge that each of the Primary Leases and each of
the Management Agreements and License Agreements for each Property expire prior
to the maturity date of the Loan. These documents constitute a critical basis
for Lender's approval of the Loan and are, in Lender's judgment, important to
maintaining the value of the Collateral. Therefore, Borrower agrees as follows:
(a) As of the expiration date of any of the Primary Leases,
unless (i) such Leases shall have been extended or renewed with the
Lessee (including any Successor Lessee), or (ii) Borrower shall have
entered into replacement operating leases with a new lessee (and the
provisions of paragraphs (i) through (iv) and paragraph (viii) of
Section 7.3 of each of the Mortgages are satisfied with respect to such
new lessee), and (iii) in the case of either (i) or (ii) above, such
extension, renewal, or replacement of the Primary Lease (x) shall have
a term that expires no earlier than 18 months following the maturity
date of the Loan, (y) shall provide for a rental rate equivalent to the
rates generally being paid under the Primary Leases or in the market
for similar operating leases with hotel REIT's (as demonstrated by
Borrower to the reasonable satisfaction of Lender), and (z) shall
otherwise be in substantially the same form as the Primary Leases (or
with only such variations from such form as are reasonably acceptable
to Lender), then the expiration of the Primary Leases (or any of them)
shall constitute ---- an Event of Default, AND THE EXCULPATED PARTIES
SHALL BE LIABLE, JOINTLY AND SEVERALLY, ON A FULL RECOURSE BASIS, FOR
ALL PRINCIPAL, INTEREST, AND OTHER SUMS PAYABLE BY BORROWER UNDER THE
LOAN DOCUMENTS.
(b) As of the expiration date of any of the Management
Agreements or License Agreements, unless (i) such agreements shall have
been extended or renewed with the existing Manager or Licensor, or (ii)
the Lessee shall have entered into replacement management and license
agreements with a new management company and/or franchisor (as
applicable), which must be a nationally-recognized manager or
franchisor (as applicable) of hotel properties of equivalent (or
better) class as the Properties and whose financial condition and
business reputation are reasonably acceptable to Lender, and (iii) in
the case of either (i) or (ii) above, such extensions, renewals, or
replacements of the Management Agreements and License Agreements (x)
shall have a term that expires no later than 18 months following the
maturity date of the Loan, (y) shall contain economic terms equivalent
to those in the Management Agreements or License Agreements, as
applicable, or generally applicable in the market at the time for
similar agreements (as demonstrated by Borrower to the reasonable
satisfaction of Lender), and (z) shall otherwise be in form and content
reasonably acceptable to Lender, then the expiration of the Management
Agreements or License Agreements (or any of them) shall constitute an
Event of Default, AND THE EXCULPATED PARTIES SHALL BE LIABLE, JOINTLY
AND SEVERALLY, ON A FULL RECOURSE BASIS, FOR ALL PRINCIPAL, INTEREST,
AND OTHER SUMS PAYABLE BY BORROWER UNDER THE LOAN DOCUMENTS.
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<PAGE> 13
(c) Borrower agrees to provide to Lender a copy of the forms
of the documents by which the Primary Leases, Management Agreements, or
License Agreements are to be extended, renewed, or replaced, together
with the identity of the proposed lessee, manager, or licensor and (in
the case of any new lessee, manager, or licensor) supporting
information sufficient to enable Lender to determine the experience,
reputation, and financial condition of each such entity, at least
ninety (90) days prior to the expiration dates of the existing
agreements and to execution of any such agreements or otherwise granted
rights by the Borrower or Lessee. To the extent that the Lessee,
Manager, or Licensor have entered into agreements for the benefit of
Lender in connection with the Loan, any extension, renewal, or
replacement of the Primary Leases, Management Agreements, and License
Agreements shall be subject to the same agreements, and each of (i) the
Lessee or any Successor Lessee (as the case may be) and (ii) the
Manager and Licensor or any successor manager or licensor (as the case
may be) shall enter into documents that expressly confirm that the
terms of such agreements with Lender apply to the extensions, renewals,
or replacements of the Primary Leases, Management Agreements and
License Agreements, which documents shall be satisfactory in form and
substance to Lender. Upon execution of any extension, renewal, or
replacement of any Primary Lease, Management Agreement, or License
Agreement and related documents in accordance with the requirements of
this Section, all references in the Loan Documents to the Primary
Leases, Management Agreements, or License Agreements shall be deemed to
mean and refer to such extension, renewal or replacement thereof. In
any case in which the Lessee is replaced by a new lessee, all
references in the Loan Documents to the Lessee shall be deemed to mean
and refer to such new lessee (and such new lessee shall also be deemed
a "Successor Lessee" where such term is applicable under the Loan
Documents), and in any case in which the Manager or Licensor is
replaced by a new manager or licensor, all references in the Loan
Documents to the Manager or Licensor shall be deemed to mean and refer
to such new manager or licensor.
(d) Borrower shall pay all reasonable costs and expenses
incurred by Lender (including attorneys' fees and costs and other
third-party costs, but excluding travel and other internal costs of
Lender) in connection with the review and evaluation of the matters
described above. In addition, on account of such review and evaluation
by Lender, Borrower shall pay a servicing fee, which shall be $15,000
if the Primary Leases, Management Agreements, and License Agreements
are extended or renewed with the existing Lessee, Manager, and
Licensor, as the case may be, and shall be $60,000 if a new lessee, new
manager, or new licensor as the case may be, are retained.
(e) The provisions of this Section 8 shall also apply to any
case in which the Borrower shall terminate any Primary Lease on account
of a default by the Lessee thereunder (so long as such default has not
resulted in an Event of Default under the Loan Documents), and to any
case in which the Lessee shall terminate any Management Agreement or
License Agreement on account of a default by the Manager or Licensor
thereunder. In each such case, any Primary Lease or any Management
Agreement or License Agreement so terminated must be replaced by a
management agreement or license agreement meeting the foregoing
requirements of this Section; provided, that (i) the Exculpated Parties
shall not have recourse liability on account of any such termination,
except to the extent of the actual damages, losses, costs and expenses
(including reasonable attorneys' fees) incurred by Lender (expressly
including any
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<PAGE> 14
diminution, loss or damage to the Collateral) as a result of the
failure to enter into replacement agreements within thirty (30) days
after such termination, and (ii) Borrower shall not be required to pay
a servicing fee with respect to Lender's review and evaluation of any
new lessee, manager, or licensor.
9. DETERMINATION OF FAIR MARKET VALUE. In any case in which (i) the
Loan to Value Ratio is to be determined under this Agreement and (ii) Lender and
Borrower have not reached agreement on the Fair Market Value of the applicable
Properties for purposes of determining such Loan to Value Ratio within ten (10)
business days after Lender has advised Borrower in writing of Lender's
determination of such Fair Market Value based on Lender's standard property
valuation methods, the Fair Market Value of the applicable properties shall be
determined in accordance with the following provisions of this Section:
(a) At any time following expiration of such ten business day
period, either party may notify the other that it desires to determine
the Fair Market Value of the Properties by appraisal pursuant to the
terms of this Section (such notice being referred to herein as an
"Appraisal Notice"). Within seven (7) business days following delivery
or receipt of an Appraisal Notice, Lender shall notify Borrower in
writing (a "Lender Selection Notice") of a Qualified Appraiser with
respect to each Property that Lender will appoint to determine the Fair
Market Value of each of the Properties. Any Appraisal Notice given by
Borrower to Lender shall expressly state, IN BOLD AND UNDERLINED TYPE,
that Lender must designate a Qualified Appraiser for each Property
within seven (7) business days after receipt of the Appraisal Notice,
or Lender may lose the right to appoint one or more Qualified
Appraisers. If Lender shall fail to designate a Qualified Appraiser for
any Property within such seven business day period, and if such failure
shall continue for an additional three (3) business days after written
notice of such failure by Borrower to Lender (which second notice shall
expressly state, IN BOLD AND UNDERLINED TYPE, that Lender's failure to
respond within such three (3) business day period will waive Lender's
right to appoint one or more Qualified Appraiser), then, as to each and
every Property as to which Lender shall have failed to designate a
Qualified Appraiser, the Borrower shall be entitled to appoint the
Qualified Appraiser and the Qualified Appraiser(s) so appointed by
Borrower shall proceed alone to determine the Fair Market Values of the
Properties as described below.
(b) Within seven (7) business days after Borrower's receipt of
a Lender Selection Notice, Borrower shall either (i) agree to Lender's
selection of the Qualified Appraisers for each Property (in which case
such Qualified Appraisers alone shall proceed to determine the Fair
Market Values of the Properties as described below) or (ii) designate a
second Qualified Appraiser for any one or more of the Properties, by
giving to Lender written notice of such designation. If Borrower shall
fail to designate a Qualified Appraiser for any one or more Properties
within such seven (7) business day period, and if such failure shall
continue for an additional three (3) business days after written notice
of such failure by Lender to Borrower (which second notice shall
expressly state, IN BOLD AND UNDERLINED TYPE, that Borrower's failure
to respond within such three (3) business day period will waive
Borrower's right to appoint Qualified Appraisers), then, as to each and
every Property as to which Borrower shall have failed to designate a
second Qualified Appraiser, the Qualified Appraiser selected by Lender
shall proceed alone to determine the Fair Market Values of the
Properties as described below.
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<PAGE> 15
(c) In any case in which both Lender and Borrower shall have
timely selected different Qualified Appraisers for any Property, the
Qualified Appraisers selected by Lender and Borrower for each such
Property shall select a third Qualified Appraiser for each such
Property by their mutual agreement (without input or influence by
either Lender or Borrower) within seven (7) business days after both
such Qualified Appraisers have been appointed. Should the Qualified
Appraisers be unable to reach agreement on a third Qualified Appraiser
within such period, then, at the end of such seven business day period,
each of them shall name two (2) potential, qualified candidates they
would choose to serve as the third Qualified Appraiser, and the third
Qualified Appraiser shall be selected randomly from among the four
candidates.
(d) The Qualified Appraiser(s) for each Property shall be
directed to perform an independent appraisal of such Property, using
both an income approach and a comparable sale approach to valuation
and, on the basis of both approaches, to state in a written report its
analysis and opinion of the Fair Market Value of each Property.
Borrower shall provide (and shall cause Lessee to provide pursuant to
the Primary Lease) each Qualified Appraiser with reasonable access to
the applicable Property, all books and records relating to such
Property, and such other information as is customarily required in
order to allow each Qualified Appraiser to perform its appraisal (and
shall afford each of the Qualified Appraisers the same quality and
quantity of information on each Property). Each Qualified Appraiser
shall be provided with the definition of "Fair Market Value" and the
methods of appraisal provided under this Agreement, but neither party
shall otherwise direct any Qualified Appraiser regarding the
assumptions to be used in determining Fair Market Value. Each Qualified
Appraiser shall be treated as having been selected and appointed
jointly by Lender and Borrower and shall be expected to conduct itself
accordingly, without regard to which party initially selected such
Qualified Appraiser or to which party is responsible for its fees and
expenses. The parties shall direct each Qualified Appraiser to furnish
to Borrower and Lender simultaneously a draft copy of its report within
thirty (30) days of being retained. Borrower and Lender may comment in
writing on the report or reports of the Qualified Appraisers during a
period of five (5) business days after receipt of the draft report
(which comments may include, without limitation, disagreements with the
assumptions used, though no Qualified Appraiser shall be bound by the
views of either party on such assumptions), and within ten (10)
business days after delivery of the draft report, each Qualified
Appraiser shall deliver its final report (the "Final Appraisal
Report"), which shall be addressed to both Borrower and Lender.
(e) If, as to any Property, only one Qualified Appraiser shall
have been selected to determine Fair Market Value, the Fair Market
Value of such Property shall be as set forth in the Final Appraisal
Report of such Qualified Appraiser. If, as to any Property, three
Qualified Appraisers have been selected to determine Fair Market Value,
then (i) the values reflected in the Final Appraisal Reports shall be
compared to determine the two that are closest together arithmetically,
(ii) the third value shall be discarded, and (iii) the two closest
values shall be averaged by simple arithmetic average, and such average
shall be the Fair Market Value of such Property. For example, if the
three Final Appraisal Reports indicate a "Fair Market Value" of a
Property to be $10,200,000, $11,200,000, and $12,000,000, respectively,
the $10,200,000 amount would
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<PAGE> 16
be discarded, and the $11,200,000 and $12,000,000 amounts would be
averaged, to yield a Fair Market Value of $11,600,000.
(f) All costs and expenses of retaining the Qualified
Appraisers and obtaining their reports shall be paid by Borrower. If,
at any point during the appraisal process, the parties shall reach
agreement on the Fair Market Value of one or more Properties (and shall
reflect such agreement in writing), the appraisal process as to such
Property or Properties shall be discontinued, and the parties shall
endeavor to include provisions in any retention letter or similar
agreement permitting termination of such retention at any time.
9. WAIVER OF JURY TRIAL. EACH OF BORROWER AND LENDER WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER THIS AGREEMENT OR RELATING THERETO OR ARISING FROM THE LENDING
RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
10. MISCELLANEOUS.
(a) The captions and headings of various Sections of this
Agreement and Exhibits pertaining hereto are for convenience only and
are not to be considered as defining or limiting, in any way, the scope
or intent of the provisions hereof. The Recitals to this Agreement and
all exhibits or schedules attached hereto are hereby incorporated into
and shall be deemed a part of this Agreement. Use of the terms
"herein", "hereof", "hereto" and similar terms shall be deemed to refer
to this Agreement generally and not to any particular provision of this
Agreement, unless otherwise expressly stated in such reference. The
terms "including" or "include" shall be deemed to mean including or
include by way of example and not limitation.
(b) Notices under this Agreement shall be given in the manner
and to the persons and addresses provided under the Mortgages.
(c) No modification, waiver, amendment, discharge or change of
this Agreement shall be valid unless the same is in writing and signed
by the party against which the enforcement of such modification,
waiver, amendment, discharge or change is sought. No waiver of any
breach or default hereunder shall constitute or be construed as a
waiver by Lender of any subsequent breach or default or of any breach
or default of any other provision of this Agreement.
(d) THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND
GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS.
(e) Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
(f) This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be
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<PAGE> 17
deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(g) Each of Borrower and Lender have been represented by
counsel in connection with the Loan, who have been actively involved in
the negotiation of this Agreement. Accordingly, the Agreement shall be
interpreted without reference to the party who drafted (or whose
counsel drafted) this Agreement.
(h) Subject to the limitations on Transfers contained in the
Mortgages, this Agreement shall inure to the benefit of and shall be
binding on the parties hereto and their respective successors and
assigns.
[BALANCE OF PAGE IS INTENTIONALLY BLANK]
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<PAGE> 18
(i) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, insofar as the laws of such
jurisdiction are applicable to this Agreement, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(j) The obligations of the Borrower under this Agreement are
subject to the recourse limitations contained in the Note and
Mortgages, which provisions are hereby incorporated herein by this
reference as if fully set forth at length herein.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as
of the day and year first set forth above.
BORROWER: FELCOR/CSS HOLDINGS, L.P., a Delaware
limited partnership
By: FelCor/CSS Hotels, LLC, a Delaware
limited liability company, its
General Partner
By: /s/ JOEL EASTMAN
---------------------------------
Its: VP
--------------------------------
LENDER: THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation
By: /s/ MOLLY ARPIN
-------------------------------------
Vice President
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<PAGE> 19
EXHIBIT A
LIST OF PROPERTIES
The following Embassy Suites Hotels:
Minneapolis Airport, MN (310 rooms)
Ft. Lauderdale, FL (359 rooms)
Miami, FL (316 rooms)
Napa, CA (205 rooms)
Baton Rouge, LA (224 rooms)
Milpitas, CA (266 rooms)
Birmingham, AL (242 rooms)
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<PAGE> 20
EXHIBIT B
SCHEDULE OF ALLOCABLE LOAN AMOUNTS
<TABLE>
<S> <C>
Minneapolis Airport, MN $16,000,000
Ft. Lauderdale, FL $16,700,000
Miami, FL $13,500,000
Napa, CA $11,400,000
Baton Rouge, LA $ 8,100,000
Milpitas, CA $21,700,000
Birmingham, AL $12,600,000
</TABLE>
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<PAGE> 1
EXHIBIT 10.24.1
Embassy Suites - ____________
Mortgage Loan No ______________ _____________________________
PROMISSORY NOTE
$________________ May 12, 1999
FOR VALUE RECEIVED, the undersigned ("Borrower"), promise(s) to pay to the order
of MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY ("Lender"), at its home office in
Springfield, Massachusetts, or at such other place as Lender may direct, in
lawful money of the United States of America, without grace or offset, the
principal sum of ____________________________________ AND NO/DOLLARS
($_________), with interest thereon at the rate of seven and fifty five one
hundredths percent (7.55%) per annum (the "Contract Rate") to be paid as
provided hereinbelow.
This Promissory Note is secured by a (i) Deed of Trust and Security Agreement of
even date herewith (the "Mortgage"), covering real property and other property
described in the Mortgage, and located in the City of _________, County of
________, State of __________, (ii) [the Dallas Love Field Mortgage, (iii) the
Dallas Market Center Mortgage, (iv) the Deerfield Beach Mortgage, (v) the Palm
Desert Mortgage and (vi) the Tempe Mortgage.] [Revised as necessary for each
state]
1. PAYMENT TERMS
Payments shall be made on this Promissory Note as follows:
A. On the date the loan evidenced hereby is made, a payment of interest only
shall be due and payable for the period from such date to the first day of the
next calendar month.
B. Successive monthly installments of principal and interest (in arrears), shall
be made on the first day of July, 1999 and on the first day of each calendar
month thereafter up to and including the first day of May, 2009.
C. Each monthly installment shall be in the constant amount _________________
AND NO/100 DOLLARS ($____________).
D. A final installment equal to the entire principal balance then remaining
unpaid, with accrued interest thereon, shall be due and payable on June 1, 2009
(the "Maturity Date");
Unless otherwise directed by Lender in writing, all payments shall be made by
wire transfer of immediate federal funds or equivalent to Lender's bank and bank
account. Borrower acknowledges that, since the term of the loan evidenced hereby
is shorter than the amortization period, a substantial portion of the principal
balance will be due on the Maturity Date. Whenever
1
Borrower's
Initials: ____
<PAGE> 2
any payment to be made under this Promissory Note is stated to be due on a date
which is not a Business Day (defined hereinbelow), the due date shall be
extended to the next succeeding Business Day and interest shall continue to
accrue and be payable at the applicable rate during such extension.
2. INTEREST
The monthly payments of combined principal and interest of this Promissory
Note are based upon a twenty-five (25) year amortization period, and all
interest accruing hereunder shall be calculated on the basis of a 360-day year
consisting of twelve (12) months of thirty (30) days each; provided, however,
that for any partial monthly payment, interest shall be calculated on the basis
of a 365-day year.
3. DEFAULT INTEREST
If the entire unpaid principal balance of this Promissory Note, together with
accrued and unpaid interest thereon, is not paid when due, whether on the
Maturity Date or any earlier date as a result of acceleration of this Promissory
Note after an Event of Default (hereinafter defined), then the amount unpaid
shall bear interest from the Maturity Date or such earlier date, as the case may
be, at the per annum interest rate (the "Default Rate") equal to the lesser of
(i) the highest rate permitted by law to be charged on a promissory note
secured by a commercial mortgage, or
(ii) the sum of three percent (3%) plus the greater of
(x) the Contract Rate; or
(y) the rate published in the Wall Street Journal as the average prime
rate in its Money Rates section as of the Maturity Date or such
earlier date. If the Wall Street Journal is not in publication on
the applicable date, or ceases to publish such average rates, then
any other publication acceptable to Lender quoting daily market
average prime rates will be used.
The Default Rate shall continue until the first occurring of the following:
(i) payment in full of any sums due hereunder and under the Loan Documents
(hereinafter defined) or
(ii) reinstatement of the loan evidenced hereby pursuant to statutory
provisions requiring such reinstatement, but only after the curing of
all defaults and payments of all sums due hereunder.
2
Borrower's
Initials: ____
<PAGE> 3
4. LATE CHARGE
If any regular monthly installment of principal or interest due hereunder, or
any monthly deposit for taxes, ground rent, insurance, replacements and other
sums if required under any Loan Document, shall not be paid as required under
this Promissory Note or Loan Document, as the case may be, by the tenth (10th)
day of the month in which the same shall be due, Borrower shall pay to Lender a
late charge (the "Late Charge") of four cents ($0.04) for each dollar so overdue
to order to compensate Lender for its loss of the timely use of the money and
frustration of Lender in the meeting of its financial commitments and to defray
part of Lender's incurred cost of collection occasioned by such late payment.
Any Late Charge incurred shall be immediately due and payable. If, however,
during any consecutive twelve (12) month period Borrower on more than three (3)
occasions shall pay any such installments or deposits after the due dates
thereof (whether prior to or after the time that the Late Charge is payable as
above), then the time period after which a Late Charge will be charged and paid
shall thereafter be reduced from ten (10) days to two (2) days after a due date.
Nothing herein contained shall be deemed to constitute a waiver or modification
of the due date for such installments or deposits or the requirement that
Borrower make all payment of installments and deposits as and when the same are
due and payable. Lender agrees to comply with Section 2954.5 of the California
Civil Code (or any successor provision), as now or hereafter in affect, with
respect to the giving of notice prior to imposing a Late Charge.
5. APPLICATION OF PAYMENTS
Each payment received by Lender shall be applied in the following order:
A. First, to the interest due on any advances made by Lender under any
instrument which is a Loan Document;
B. Next, to the principal amount of any advances made by Lender under any
instrument which is a Loan Document;
C. Next, to Late Charges, attorney's fees or any other amount due hereunder or
under a Loan Document save for the amounts described in (D) and (E) immediately
below;
D. Next, to accrued interest due hereunder; and
E. Finally, to the principal balance hereof.
Notwithstanding the foregoing, in the event that Borrower does not pay the
outstanding principal balance and accrued interest due under this Promissory
Note, when due, whether on the Maturity Date or on any earlier date as a result
of acceleration of this Promissory Note, the Lender at its option shall apply
any payments it then receives in such order as Lender deems appropriate in its
sole discretion.
3
Borrower's
Initials: ____
<PAGE> 4
6. MONETARY AND NONMONETARY EVENTS OF DEFAULT AND ACCELERATION
A. (i) The failure to make any payment required under this Promissory Note, as
and when due; (ii) the failure to pay on the Maturity Date the outstanding
principal balance, accrued interest, and other payments due under this
Promissory Note, or the Loan Documents; (iii) the failure to have or keep in
force insurance as required under any of the Loan Documents; (iv) the
insolvency or bankruptcy of Borrower or Guarantor; (v) a sale, transfer, or
encumbrance of the Mortgaged Property (except as expressly permitted in the
Mortgage), without the required approval of Lender; or (vi) the failure of
Borrower to be a Single-Purpose Entity at all times during the term of the
Loan, shall each be and constitute a monetary event of default ("Monetary
Event of Default") hereunder, without any action required to be taken by or
on behalf of Lender.
B. Upon the occurrence of a Monetary Event of Default, Lender may, at any time
thereafter, together or singly,
(i) declare the outstanding principal balance due hereunder, together with
all accrued and unpaid interest thereon, to be immediately due and
payable, thereby accelerating this Promissory Note;
(ii) exercise immediately and without notice any and all other rights and
remedies available under the Loan Documents, and/or at law or in equity;
except that the acceleration of this Promissory Note for the Monetary Event
of Default set forth in (i) above shall be subject to the terms of Section 7 of
this Promissory Note.
The failure to comply with any term, covenant, or condition of the Loan
Documents, other than as set forth in Section A (i) through (vi) above shall be
a non-monetary event of default ("Non-Monetary Event of Default"); provided that
declaration of a Non-Monetary Event of Default shall be in accordance with the
provisions of Section 7 of this Promissory Note.
7. NOTICE AND CURE PRIOR TO ACCELERATION
A. If the Monetary Event of Default is one set forth in (i) of Section 6A above,
Lender shall give Borrower notice specifying the Monetary Event of Default, and
ten (10) days opportunity to cure and eliminate the Monetary Event of Default,
prior to exercising its rights under Section 6B (i) or (ii).
B. If the Monetary Event of Default is one set forth in (ii) through (vi) of
Section 6A above, Lender shall not be obligated to give notice of any kind,
prior to exercising its rights under Section 6B (i) or (ii).
4
Borrower's
Initials: ____
<PAGE> 5
C. Prior to declaring a Non-Monetary Event of Default, Lender shall give
Borrower notice specifying the potential Non-Monetary Event of Default, and
thirty (30) days opportunity to cure the potential Non-Monetary Event of
Default. If Borrower has not cured the potential Non-Monetary Event of Default,
by the end of said thirty (30) day period, unless additional time to cure is
specifically permitted under any other Loan Document with respect to such
Non-Monetary Event of Default, then Lender may declare a Non-Monetary Event of
Default by a notice declaring such Non-Monetary Event of Default. From and after
such notice declaring the Non-Monetary Event of Default, Lender may exercise its
rights under Section 6B (i) or (ii) together or singly, without further notice,
at any time thereafter.
D. The Lender's agreement to give notice and time to cure are on the further
conditions that:
(i) the failure of Lender to give any notice(s) required shall not result
in the imposition of any liabilities or penalties upon Lender;
(ii) the agreement to give notice and time to cure is personal to Borrower,
and does not extend to or vest any such rights in any other person or
entity; and
(iii) nothing contained in this Section 7 shall prevent the imposition of
Late Charges.
8. DEFINITIONS
Any terms used in this Promissory Note requiring a definition shall have the
definition given in this Section, unless elsewhere defined in this Promissory
Note. Any and all instruments securing or executed in connection with this
Promissory Note, including, without limitation, this Promissory Note, the
Mortgage, guarantees, indemnities, pledges, security agreements and assignments
of leases and rents are herein collectively referred to as the "Loan Documents."
Any instrument included within the term "Loan Documents" is herein referred to
in the singular as a "Loan Document." The terms, "Agreement Concerning Primary
Lease Agreement", "Anaheim Mortgage", "Application", "Collateral", "Dallas Love
Field Mortgage", "Dallas Market Center Mortgage", "Deerfield Beach Mortgage",
"DJONT Operations", "Equipment", "Guarantor", "Indebtedness", "License
Agreement", "Loan", "Losses", "Management Agreement", "Material Lease",
"Mortgaged Property", "Mortgaged Properties", "Palm Desert Mortgage",
"Premises", "Primary Lease", "Proceeds", "Property Income", "Single-Purpose
Entity" and "Tempe Mortgage" shall have the meaning set forth in the Mortgage.
The term "Event of Default" shall have the meaning given in Section 6 hereof.
The term "Prepayment Premium" shall have the meaning given in Section 9 hereof.
The term "Business Day" as used herein shall mean any day other than a Saturday,
Sunday or other day on which national banks in the State of California are not
open for business.
9. PREPAYMENT
A. During the period commencing ninety (90) days prior to the Maturity Date,
Borrower may prepay the Loan in full, but not in part, without any Prepayment
Premium.
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Except as expressly set forth in the Loan Documents, Borrower shall have no
right to prepay in full or in part the principal amount due under this
Promissory Note.
B. If the maturity of this Promissory Note is accelerated by the Lender because
of the occurrence of an Event of Default, the resulting acceleration shall be
deemed to be an election on the part of Borrower to prepay the loan evidenced
hereby. Accordingly, there shall be added to the amount due after an Event of
Default and resulting acceleration, a Prepayment Premium, calculated as set
forth below and using as the prepayment date the date on which any tender of
payment is made, and Borrower agrees to pay the same. Any tender of payment made
after acceleration by or on behalf of Borrower (including, without limitation,
payment by any guarantor or purchaser at a foreclosure sale), shall include the
Prepayment Premium computed as provided herein.
C. For purposes hereof, the Prepayment Premium shall be equal to the greater of
(x) or (y), where
(x) is equal to the amount to be prepaid multiplied by 1%; and
(y) is equal to the product (discounted as hereinafter provided) obtained by
multiplying the amount to be prepaid by the "Prepayment Premium Rate". The
"Prepayment Premium Rate" shall be the percentage obtained by multiplying the
excess, if any, of the Contract Rate over the market yield of U.S. Treasury
issues which have the closest maturity (month and year) to the Maturity Date, as
quoted in The Wall Street Journal published on the scheduled prepayment date, by
a fraction, the numerator of which is equal to the number of days remaining from
and including the scheduled prepayment date to and including the Maturity Date,
and the denominator of which is 365. Should more than one U.S. Treasury issue be
quoted as maturing on the date closest to the Maturity Date, then the issue
having the market yield which differs least from the Contract Rate will be used
in the calculations. If The Wall Street Journal is not in publication on the
applicable date, or ceases to publish such U.S. Treasury issue yield, then any
other publication acceptable to Lender quoting daily market yields for U.S.
Treasury issues will be used. The product obtained from the foregoing shall then
be discounted, on a semi-annual basis over the remaining term of this Promissory
Note, as of the date of prepayment to its then present value, using the U.S.
Treasury yield, referred to in this subparagraph (y).
D. No Prepayment Premium shall be required to be paid on or after or in
connection with payment of fire, casualty, or condemnation proceeds to the
Lender in accordance with the provisions of the Mortgage.
E. There will be due with such principal, all accrued and unpaid interest
thereon, in addition to all other amounts due under this Promissory Note.
F. The Prepayment Premium herein provided for represents the reasonable estimate
of Lender and Borrower of a fair average compensation for the loss that will be
sustained by Lender
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<PAGE> 7
resulting from the payment of the outstanding principal
balance of the loan evidenced hereby prior to the Maturity Date. The Prepayment
Premium shall be paid without prejudice to the right of Lender to collect any
other amounts provided to be paid under this Promissory Note, or under the other
Loan Documents, or pursuant to the provisions of law.
BORROWER BY ITS SIGNATURE BELOW HEREBY EXPRESSLY (A) WAIVES ANY RIGHTS IT MAY
HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS PROMISSORY NOTE,
IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY DATE,
AND (B) EXCEPT AS OTHERWISE PROVIDED IN THIS PROMISSORY NOTE OR ANY OTHER LOAN
DOCUMENT, AGREES THAT IF, FOR ANY REASON, A PREPAYMENT OF ALL OR ANY PORTION OF
THE PRINCIPAL AMOUNT OF THIS PROMISSORY NOTE IS MADE UPON OR FOLLOWING ANY
ACCELERATION OF THE MATURITY DATE BY LENDER ON ACCOUNT OF ANY DEFAULT BY
BORROWER, INCLUDING, WITHOUT LIMITATION, ANY TRANSFER, DISPOSITION OR FURTHER
ENCUMBRANCE PROHIBITED OR RESTRICTED BY ANY DEED OF TRUST SECURING THIS
PROMISSORY NOTE, THEN BORROWER SHALL BE OBLIGATED TO PAY, CONCURRENTLY WITH SUCH
PREPAYMENT, THE PREPAYMENT PREMIUM SPECIFIED IN THE FOREGOING PARAGRAPHS. BY
SIGNING THIS PROVISION IN THE SPACE PROVIDED BELOW, BORROWER HEREBY DECLARES
THAT LENDER'S AGREEMENT TO MAKE THE LOAN EVIDENCED BY THIS PROMISSORY NOTE
CONSTITUTES ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY BORROWER, FOR
THIS WAIVER AND AGREEMENT.
Borrower's Signature:
-----------------------------
10. WAIVERS AND EXTENSIONS
Borrower and all endorsers and guarantors and any and all others who may at
any time be or become liable for payment of all or any part of the loan
evidenced hereby severally waive presentment for payment, demand, notice of
dishonor or nonpayment, protest and notice of protest, notice of acceleration
and of intention to accelerate the Maturity Date (except as provided above in
the clause entitled "Notice and Cure Prior to Acceleration") and any and all
lack of diligence or delays in collection or enforcement hereof, and agree that
Lender from time to time may extend the time for payment of any sums due under
this Promissory Note and grant releases to all endorsers and guarantors hereof,
and may release all or any portion of the Mortgaged Property, without in any way
affecting the liability of such parties hereunder.
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<PAGE> 8
11. LIMITATIONS ON LIABILITY
A. In any action or proceeding brought on this Promissory Note or on the
Mortgage or on any of the Loan Documents in which a money judgment is sought
(subject to paragraphs B, C, and D below), Lender will look solely to the
Mortgaged Property described in the Loan Documents (including, without
limitation, the Collateral) for payment of the Indebtedness and, specifically
and without limitation, Lender agrees to waive any right to seek or obtain a
deficiency judgment against Borrower.
B. The provisions of this Section 11 shall not
(i) constitute a waiver, release or impairment of any obligation evidenced
or secured by this Promissory Note, the Mortgage or any other Loan
Document to the extent of the Mortgaged Property securing such
obligation;
(ii) be deemed to be a waiver of any right which Lender may have under
Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S.
Bankruptcy Code to file a claim for the full amount of the Indebtedness
secured by the Mortgage or to require that all Collateral shall
continue to secure all of the Indebtedness owing to the Lender in
accordance with the Promissory Note, the Mortgage and the other Loan
Documents;
(iii) impair the right of Lender to name Borrower or any principals of
Borrower, or any guarantor of this Promissory Note, as a party or
parties defendant in any action or suit for judicial foreclosure and
sale under the Mortgage;
(iv) affect the validity or enforceability of, or limit recovery under, any
separate indemnity agreement (including, without limitation, any
environmental indemnity set forth in any separate environmental
indemnity agreement, however designated) or separate guaranty, if any,
made in connection with this Promissory Note, the Mortgage, or the Loan
Documents;
(v) impair the right of Lender to obtain the appointment of a receiver; or
(vi) impair the enforcement of an assignment of leases or an assignment of
rents contained in the Mortgage or any separate Assignment of Leases
and Rents executed in connection herewith.
C. Notwithstanding any provisions of this Section 11 to the contrary, nothing
herein shall be deemed to prejudice the right of Lender (which right is
specifically reserved) to pursue or obtain personal recourse liability against
the Borrower and Guarantor to recover Losses incurred by Lender, arising out of,
or resulting from:
(i) obligations and liabilities under any separate guaranty or separate
indemnity agreement;
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<PAGE> 9
(ii) fraud or material misrepresentation in connection with the Application
or the making of the Loan;
(iii) insurance and/or condemnation proceeds received but not paid over or
applied in accordance with the Loan Documents;
(iv) misappropriation of any security deposits, advances or prepaid rents,
cancellation or termination payments or other similar sums received by
Borrower from any tenants or other occupants of the Premises;
(v) personal property covered by Lender's security interest obtained in
connection with the Loan which is taken from the Mortgaged Property by
or on behalf of Borrower and not replaced in the ordinary course of
business with personal property of the same utility and of the same or
greater value;
(vi) any act of arson, malicious destruction or material waste by Borrower,
any principal, affiliate, member or general or limited partner of
Borrower, or by Guarantor under any of the Loan Documents given to
Lender in connection with the making of the Loan;
(vii) revenues of the Mortgaged Property which are not applied to payments
due under the Loan or to operating expenses of the Mortgaged Property
(including, without limitation, any reserves or escrows required by
any Loan Document) thereby resulting in, or contributing materially
to, a default under the Loan Documents. Lender, however, shall have no
right to recover distributions from the revenues of the Mortgaged
Property to Borrower or Guarantor or any principal of Borrower or
Guarantor made in good faith (after determining the sufficiency of
revenues to cover the payments on the Loan and the foregoing operating
and capital expenses) more than ninety (90) days prior to a default
occurring under any Loan Document;
(viii) DJONT Operations' pledge in violation of the Loan Documents of the
revenues or operating accounts relating to the Mortgaged Property,
Lessee's Personal Property (as defined in the Primary Lease) or any
other rights of DJONT Operations under the Primary Lease or DJONT
Operations' failure to keep all of the foregoing lien free in
violation of the Loan Documents;
(ix) Borrower's failure to (i) extend the term of the Primary Lease in
accordance with Section 2.25 of the Mortgage, or (ii) enter into a new
Primary Lease in accordance with Section 2.25 of the Mortgage;
(x) DJONT Operations' failure to (i) extend the term of the Management
Agreement in accordance with Section 2.09 of the Agreement Concerning
Primary Lease Agreement, or (ii) enter into a new Management Agreement
in accordance with Section 2.09 of the Agreement Concerning Primary
Lease Agreement;
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(xi) DJONT Operations' failure to (i) extend the term of the License
Agreement in accordance with Section 2.10 of the Agreement Concerning
Primary Lease Agreement, or (ii) enter into a new License Agreement in
accordance with Section 2.10 of the Agreement Concerning Primary Lease
Agreement;
(xii) any fraudulent conveyance or transfer (or claim of any fraudulent
conveyance or transfer) of any of the Mortgaged Properties (or any
interest therein) to Borrower;
(xiii) the bankruptcy or insolvency of any fee owner of any of the Mortgaged
Properties other than Borrower;
(xiv) the bankruptcy or insolvency of any Adjoining Condominium Unit Owner
(as defined in the Dallas Love Field Mortgage); or
(xv) any transfer or mortgage tax (or claim of any transfer or mortgage
tax) arising from the transfer to Borrower or mortgage by the fee
owner or Borrower of any of the Mortgaged Properties or any interest
therein.
D. Notwithstanding the foregoing and subject to the last sentence of this
paragraph, the agreement of Lender not to pursue personal recourse liability as
set forth in this Section 11 above SHALL AUTOMATICALLY BECOME NULL AND VOID and
shall be of no further force and effect in the event (i) Borrower, any general
partner or member of Borrower, or any guarantor of the Note, files, or consents
to the filing of, any petition under the U.S. Bankruptcy Code respecting its or
their debts or (ii) any such petition shall have been filed against the
Borrower, any general partner of the Borrower, or any guarantor of this
Promissory Note, and the same is not dismissed within ninety (90) days of such
filing; except for an involuntary bankruptcy filed by Lender and provided
further, that if: (1) after ninety (90) days following the filing of an
involuntary bankruptcy proceeding, such proceeding is dismissed with prejudice
and without adversely affecting the enforceability or priority of any of the
Loan Documents; and (2) such dismissal occurs prior to the occurrence of any of
the following: (v) the entry of any order that adversely affects the
enforceability or priority of any of the Loan Documents (other than solely by
reason of the automatic stay), (w) the entry of any order granting any person
relief from the automatic stay to foreclose against, enforce any lien or
security interest, levy upon, or repossess any material assets of Borrower that
constitute a part of, or that relate to the Mortgaged Properties, or to
terminate any Management Agreement, License Agreement or Primary Lease, (x) the
liquidation of any material assets of Borrower that constitute a part of, or
that relate to, the Mortgaged Properties, (y) the entry of any order approving
the rejection or termination of any Primary Lease, any Management Agreement or
any License Agreement, or (z) the entry of any order approving any plan of
reorganization for Borrower; and (3) throughout the period following the filing
of such bankruptcy proceeding, Borrower or one or more of Borrower and persons
or entities having an interest in Borrower have continued to make regular
payments of debt service on a timely basis in accordance with the provisions of
the Loan Documents. Borrower or one or more of Borrower and Guarantor shall be
personally liable only for the actual damages, losses,
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<PAGE> 11
costs, and expenses (including attorneys' fees) incurred by Lender (expressly
including any diminution, loss or damage to the Collateral) as a result of any
such bankruptcy filing.
12. USURY
No amounts under this Promissory Note or the Loan Documents shall be
charged, paid or collected from Borrower if the result of such charge payment or
collection would be to cause the loan evidenced hereby to be usurious under
applicable law. If, however, an amount is paid or collected which would
otherwise cause the loan to be usurious, such excess causing the Loan to be
usurious shall be deemed a payment of principal and shall be applied against and
shall reduce the then outstanding principal balance of the loan by a
corresponding amount, and no Prepayment Premium shall be charged on any such
excess amount applied to principal.
13. TRANSFERS
Upon the transfer of this Promissory Note, Borrower hereby waiving advance
notice of any such transfer, Lender may assign all of its rights in, under and
to the Loan Documents, Proceeds, Property Income or Collateral, or any part
hereof, to the transferee who shall thereupon become vested with all rights
herein, or under applicable law, given to Lender with respect thereto, and
Lender shall thereafter forever be relieved and fully discharged from any
liability or responsibility under or with respect to this Promissory Note, and
the Loan Documents, Proceeds, Property Income and Collateral so transferred; but
Lender shall retain all rights hereby given to it with respect to any
obligations of the Borrower and the Loan Documents, Proceeds, Property Income or
Collateral not so transferred. Upon any such transfer, the term "Lender" as used
herein shall mean such transferee.
14. SEVERABILITY
In the event any one or more of the provisions contained in this Promissory
Note or the Loan Documents shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Promissory Note or of the Loan
Documents, but this Promissory Note and the Loan Documents shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein or therein.
15. WAIVER OF TRIAL BY JURY
BORROWER AND LENDER, BY ACCEPTANCE OF THIS PROMISSORY NOTE, HEREBY WAIVE
TRIAL BY JURY IN ANY COURT ACTION, PROCEEDING OR COUNTERCLAIM WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THIS
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<PAGE> 12
PROMISSORY NOTE, ANY APPLICATION FOR THE LOAN EVIDENCED BY THIS PROMISSORY NOTE,
THIS PROMISSORY NOTE, THE MORTGAGE OR THE LOAN DOCUMENTS OR ANY ACTS OR
OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION
THEREWITH.
16. JOINT AND SEVERAL LIABILITY
If there shall be more than one (1) Borrower named in this Promissory Note,
then the obligations and liabilities of such parties as Borrower shall be joint
and several.
17. REMEDIES CUMULATIVE
The rights, powers and remedies of Lender permitted by law, equity or
contract or as set forth herein or in the Loan Documents shall be cumulative and
concurrent, and may be pursued singly, successively or together against Borrower
or the Mortgaged Property, the Collateral or the Property Income, at the sole
discretion of the Lender, and to the fullest extent permitted by law. Such
rights, powers and remedies shall not be exhausted by any exercise thereof but
may be exercised as often as occasion therefor shall occur. The failure to
exercise any such right, power or remedy shall in no event be construed as a
waiver or release of the same. Lender shall not by any act of omission or
commission be deemed to have waived any of its rights, powers or remedies under
this Promissory Note or the Loan Documents unless such waiver be in writing and
signed by Lender, and then only to the extent specifically set forth therein. A
waiver of a right in one event shall not be construed as continuing or as a bar,
or as a waiver of such right on a subsequent event.
18. FEES AND COSTS
Borrower further promises to pay upon demand all reasonable attorney's fees
and costs (including, without limitation, court costs and appraisal fees)
incurred by Lender in connection with any Event of Default under this Promissory
Note and in any proceeding, including all appeals, brought to enforce any of the
provisions of this Promissory Note or of the Loan Documents.
19. TIME OF THE ESSENCE
Time shall be of the essence in performance of all obligations of Borrower
under this Promissory Note and the Loan Documents including, without limitation,
the time periods provided for the curing of defaults.
20. HEADINGS FOR CONVENIENCE
Headings and captions used in this Promissory Note are inserted for
convenience of reference only and neither constitute a part of this Promissory
Note nor are to be used to construe or interpret any of the provisions hereof.
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<PAGE> 13
21. NOTICES: HOW GIVEN
Any notice required or permitted under this Promissory Note or under any
Loan Document shall be given in writing and shall be effective for all purposes
if hand delivered to the party designated below, or if sent by (a) certified or
registered United States mail, postage prepaid; or (b) expedited prepaid
delivery service, commercial or United States Postal Service, with proof of
attempted delivery, addressed in either case as follows:
To Borrower: To Lender:
FelCor/MM Holdings, L.P. Massachusetts Mutual Life Insurance
c/o FelCor Lodging Trust Incorporated Company
545 E. John Carpenter Freeway Real Estate Investment Group K161
Suite 1300 1295 State Street
Irving, TX 75062-3933 Springfield, MA 01111-0001
Attention: Andrew J. Welch or Attention: Senior Managing Director
Joel M. Eastman
with a copy to:
Jenkens & Gilchrist, P.C. Stutzman & Bromberg,
Fountain Place A Professional Corporation
1445 Ross Avenue 2323 Bryan Street
Suite 3200 Suite 2200
Dallas, Texas 75202-2799 Dallas, TX 75231
Attn: Robert W. Dockery Attention: John E. Bromberg
or to such other address and person as shall be designated from time to time by
Lender or Borrower, as the case may be, in a written notice to the other given
in the manner provided for in this paragraph.
The notice shall be deemed to have been given at the time of delivery if
hand delivered, or in the case of registered or certified mail, three (3)
Business Days after deposit in the United States mail, or if by expedited
prepaid delivery, upon first attempted delivery on a Business Day.
A party receiving a notice which does not comply with the technical
requirements for notice under this paragraph may elect to waive any deficiencies
and treat the notice as having been properly given.
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<PAGE> 14
22. NO ORAL CHANGE
This Promissory Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to act on the
part of the Borrower or Lender, but only by an agreement in writing , intended
for that specific purpose and signed by the party against whom enforcement of
any modification, amendment, waiver, extension, change, discharge or termination
is sought.
23. APPLICABLE STATE LAW
This Promissory Note shall be governed, construed, applied and enforced in
accordance with the laws of the State of California.
24. SECTION 2822 WAIVER
In the event that, at any time, any surety exists that is liable upon only a
portion of Borrower's obligations under the Loan Documents and Borrower provides
partial satisfaction of any such obligation(s), Borrower hereby waives any right
it would otherwise have, under Section 2822 of the California Civil Code, to
designate the portion of the obligation to be satisfied. The designation of the
portion of the obligation to be satisfied shall, to the extent not expressly
made by the terms of the Loan Documents, be made by Lender rather than Borrower.
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<PAGE> 15
Federal Taxpayer I.D. No. Borrower:
75-2817553 FELCOR/MM HOLDINGS, L.P., a Delaware
limited partnership
By: FelCor/MM Hotels, L.L.C., a Delaware
limited liability company, its
general partner
By:
---------------------------------
Joel M. Eastman,
Vice President
15
<PAGE> 1
EXHIBIT 10.24.2
Re: Loan No.: ______________
Embassy Suites - _______
________________________
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
John E. Bromberg, Esq.
Stutzman & Bromberg
A Professional Corporation
2323 Bryan Street, Suite 2200
Dallas, Texas 75201
DEED OF TRUST AND SECURITY AGREEMENT
AND FIXTURE FILING
Cover Sheet
Dated as of May 12, 1999
Trustor: FELCOR/MM HOLDINGS, L.P., a Delaware limited
partnership (Hereinafter sometimes "Borrower") and
[FELCOR/CSS HOLDINGS, L.P., a Delaware limited
partnership or FELCOR LODGING LIMITED PARTNERSHIP,
a Delaware limited partnership (Hereinafter
sometimes "Ground Owner")]
Trustor's c/o FelCor Lodging Trust Incorporated
Notice Address: 545 E. John Carpenter Freeway, Suite 1300
Irving, Texas 75062
Attention: Andrew J. Welch or Joel M. Eastman
Trustee: Fidelity National Title Insurance Company
Trustee's ________________________________
Notice Address: ________________________________
Beneficiary: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,
a Massachusetts corporation (Hereinafter sometimes
"Lender")
Beneficiary's 1295 State Street
Notice Address: Springfield, Massachusetts 01111-0001
Attention: Senior Managing Director
Mortgage Portfolio Department
Real Estate Investment Group
Note Amount: $_____________________
Maturity Date: June 1, 2009
State: _____________________
Record Owner of the Land [FELCOR/MM HOLDINGS, L.P., a Delaware limited
(as defined herein): partnership or FELCOR/CSS HOLDINGS, L.P., a
Delaware limited partnership]
<PAGE> 2
DEED OF TRUST AND SECURITY AGREEMENT
AND FIXTURE FILING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GRANTING CLAUSES ....................................................... 1
ARTICLE I - Definition of Terms ........................................ 3
ARTICLE II - Covenants of Borrower ..................................... 14
Section 2.01. - Payment of the Indebtedness ............................ 14
Section 2.02. - Title to the Mortgaged Property ........................ 14
Section 2.03. - Maintenance of the Mortgaged Property .................. 14
Section 2.04. - Insurance; Restoration ................................. 15
Section 2.05. - Condemnation ........................................... 20
Section 2.06. - Impositions ............................................ 20
Section 2.07. - Deposits ............................................... 21
Section 2.08. - Mortgage Taxes ......................................... 22
Section 2.09. - Loan Documents Authorized .............................. 22
Section 2.10. - Maintenance of Existence ............................... 22
Section 2.11. - Payment of Liens ....................................... 23
Section 2.12. - Costs of Defending and Upholding the Lien .............. 23
Section 2.13. - Costs of Enforcement ................................... 24
Section 2.14. - Interest on Advances and Expenses ...................... 24
Section 2.15. - Indemnification ........................................ 24
Section 2.16. - Financial Statements; Records .......................... 24
Section 2.17. - Prohibition Against Conveyances and Encumbrances ....... 25
Section 2.18. - Estoppel Certificates .................................. 27
Section 2.19. - Assignment of Leases and Property Income ............... 27
Section 2.20. - Environmental Matters; Warranties; Notice; Indemnity ... 29
Section 2.21. - Environmental Matters; Remedial Work ................... 31
Section 2.22. - Environmental Matters; Inspection ...................... 31
Section 2.23. - Management ............................................. 32
Section 2.24. - ERISA .................................................. 32
Section 2.25. - Operating Agreements ................................... 32
Section 2.26 - Ground Lease ........................................... 33
Section 2.27. - Additional Bankruptcy Protections ...................... 34
Section 2.28. - Single-Purpose Entity .................................. 34
ARTICLE III - Security Agreement ..................................... 34
Section 3.01. - Warranties, Representations and Covenants of Trustor ... 34
Section 3.02. - Financing Statements ................................... 36
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 3.03. - Addresses .............................................. 36
ARTICLE IV - Default and Remedies ...................................... 36
Section 4.01. - Events of Default ...................................... 36
Section 4.02. - Remedies ............................................... 38
Section 4.03. - General Provisions Regarding Remedies .................. 39
ARTICLE V - Trustee .................................................... 46
Section 5.01. - Certain Actions of Trustee ............................. 46
Section 5.02. - Reconveyance ........................................... 46
Section 5.03. - Trustee's Covenants and Compensation ................... 46
Section 5.04. - Substitution of Trustee ................................ 47
Section 5.05. - Resignation of Trustee ................................. 47
Section 5.06. - Ratification of Acts of Trustee ........................ 47
ARTICLE VI - Miscellaneous ............................................. 47
Section 6.01. - Notices ................................................ 47
Section 6.02. - Binding Obligations; Joint and Several ................. 47
Section 6.03. - Captions ............................................... 48
Section 6.04. - Further Assurances ..................................... 48
Section 6.05. - Severability ........................................... 48
Section 6.06. - Borrower's Obligations Absolute ........................ 48
Section 6.07. - Amendments ............................................. 48
Section 6.08. - Other Loan Documents and Schedules ..................... 48
Section 6.09. - Legal Construction ..................................... 49
Section 6.10. - Merger ................................................. 49
Section 6.11. - Time of the Essence .................................... 49
Section 6.12. - Transfer of Loan ....................................... 49
Section 6.13. - Satisfaction ........................................... 50
Section 6.14. - Defeasance Requirements ................................ 50
Section 6.15. - Partial Release ........................................ 51
Section 6.16. - Substitution of Collateral ............................. 52
Section 6.17. - FF&E Escrow Deposits ................................... 54
Signature Page ......................................................... 55
</TABLE>
Schedule A - Description of Interest in Land
Schedule B - Permitted Encumbrances
Rider - Applicable State Law Provisions
Exhibit A - Example for Debt Service Coverage Ratio - Mortgaged Properties
Exhibit B - Example for Debt Service Coverage Ratio - Remaining Properties
ii
<PAGE> 4
DEED OF TRUST AND SECURITY AGREEMENT
AND FIXTURE FILING
THIS DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING (this "Deed of
Trust") is made as of May 12, 1999, by and between FELCOR/MM HOLDINGS, L.P., a
Delaware limited partnership ("Borrower"), and [FELCOR/CSS HOLDINGS, L.P., OR
FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership ("Ground
Owner")] (Borrower and Ground Owner are hereinafter collectively, "Trustor"),
each having an office at c/o FelCor Lodging Trust Incorporated, 545 E. John
Carpenter Freeway, Suite 1300, Irving, Texas 75062, in favor of Fidelity
National Title Insurance Company, having an office at ________________________
("Trustee"), for the use and benefit of MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation having an office at 1295 State Street,
Springfield, Massachusetts 01111-0001 ("Beneficiary" and "Lender").
GRANTING CLAUSES
For good and valuable consideration and to secure the payment of an indebtedness
in the principal sum of ___________________________________________ AND NO/100
DOLLARS ($____________) lawful money of the United States, to be paid according
to that certain Promissory Note of even date herewith from Borrower to Lender in
said principal sum and by this reference made a part hereof (said Promissory
Note, as the same may hereafter be amended, modified, consolidated or extended,
the "Note"), together with all other obligations and liabilities due or becoming
due to Lender pursuant to the Loan Documents (hereinafter defined) and the
Related Loan Documents (hereinafter defined), all amounts, sums and expenses
paid hereunder by or payable to Lender according to the terms hereof, and all
other covenants, obligations and liabilities of Borrower under the Note, this
Deed of Trust, the Assignment (hereinafter defined) and any other instrument
evidencing, securing or executed in connection with the loan evidenced by the
Note (all of the foregoing instruments, collectively, the "Loan Documents") and
any other instrument evidencing, securing or executed in connection with the
loans evidenced by the Related Notes (all of the foregoing instruments,
collectively, the "Related Loan Documents"), and together with all interest on
said indebtedness, obligations, liabilities, amounts, sums, Advances (as
hereinafter defined) and expenses (all of the foregoing, collectively, the
"Indebtedness"), Trustor has created in favor of Lender a security interest in
and mortgaged, warranted, granted, bargained, sold, conveyed, assigned, pledged,
transferred and set over, and does by these presents create a security interest
in and MORTGAGE, WARRANT, GRANT, BARGAIN, SELL, CONVEY, ASSIGN, PLEDGE, TRANSFER
AND SET OVER unto Trustee, as trustee for the benefit of Lender, to its
successors in the trust created by this Deed of Trust, and to its or their
respective assigns forever, in trust, with all POWERS OF SALE and RIGHTS OF
ENTRY AND POSSESSION and all STATUTORY RIGHTS AND COVENANTS in the State
(hereinafter defined), the following property:
The parcel or parcels of, and interests in, land described in Schedule A
attached hereto and by this reference made a part hereof (the "Land");
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<PAGE> 5
TOGETHER with the buildings, foundations, structures and improvements (including
fixtures) now or hereafter located on or in the Land (collectively, the
"Improvements");
TOGETHER with all right, title and interest, if any, of Trustor in and to the
streets and roads, opened or proposed, abutting the Land, all strips and gores
within or adjoining the Land, the air space and right to use the air space above
the Land, all rights of ingress and egress to and from the Land, all easements,
rights of way, reversions, remainders, estates, rights, titles, interests,
privileges, servitudes, tenements, hereditaments, and appurtenances now or
hereafter affecting the Land or the Improvements, all royalties and rights and
privileges appertaining to the use and enjoyment of the Land or the
Improvements, including all air, lateral support, streets, alleys, passages,
vaults, drainage, water, oil, gas and mineral rights, development rights, all
options to purchase or lease, and all other interests, estates or claims, in law
or in equity, which Trustor now has or hereafter may acquire in or with respect
to the Land or the Improvements (collectively, the "Appurtenances");
The Land, the Improvements and the Appurtenances are hereinafter sometimes
collectively referred to as the "Premises";
TOGETHER with all of Trustor's possessory or title interest in and to all
equipment, fittings, furniture, furnishings, appliances, apparatus, and
machinery now or hereafter installed in or located upon the Premises and all
building materials, supplies and equipment now or hereafter delivered to the
Premises and intended to be installed therein or located thereon; all of
Trustor's possessory or title interest in and to all fixtures, other goods and
personal property of whatever kind and nature now contained on or in or
hereafter placed on or in the Premises and used or to be used in connection with
the letting or operation thereof (but specifically excluding inventory and other
personal property owned by any lessee under a Lease) and all renewals or
replacements of any of the foregoing property or articles in substitution
thereof (collectively, the "Equipment");
TOGETHER with all right, title and interest of Trustor in and under all present
or future accounts, (including trade accounts, accounts receivables, credit card
receivables, and rights to payments for goods and services, including food,
beverages and other items sold or leased, whether or not earned by performance),
escrows, documents, instruments, chattel paper, and general intangibles, as the
foregoing terms are defined in the Code (hereinafter defined), and all contract
rights, including, without limitation, casualty insurance policies and liability
insurance policies (irrespective of whether such policies are required to be
obtained or maintained in force pursuant to this Deed of Trust or other Loan
Documents), trade names, trademarks, servicemarks, logos, copyrights, goodwill,
franchises, books, records, plans, specifications, permits, licenses, approvals,
actions and causes of action which now or hereafter relate to, are derived from
or are used in connection with the Premises or the use, operation, maintenance,
occupancy or enjoyment thereof or the conduct of any business or activities
thereon (collectively, the "Intangibles");
TOGETHER with all right, title and interest of Trustor in and under all leases,
lettings, tenancies, franchises and licenses of the Premises or any part thereof
now or hereafter entered into and all amendments, extensions, renewals and
guaranties thereof, all security therefor, and all moneys payable thereunder
(collectively, the "Leases");
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<PAGE> 6
TOGETHER with all room rentals and charges of room rentals, room deposits,
rents, income, accounts, receivables, issues, profits, security deposits and
other benefits to which Trustor may now or hereafter be entitled from the
Premises, the Equipment or the Intangibles or under or in connection with the
Leases (collectively, the "Property Income"); and
TOGETHER with all proceeds, judgments, claims, compensation, awards of damages
and settlements pertaining to or resulting from or in lieu of any condemnation
or taking of the Premises by eminent domain or any casualty loss or damage to
any of the Premises, the Equipment, the Intangibles, the Leases or the Property
Income, and including also, without limitation, the right to assert, prosecute
and settle claims arising out of or pertaining to such condemnation or taking or
such casualty loss under insurance policies constituting an Intangible and to
apply for and receive payments of proceeds under such insurance policies and in
any condemnation or taking, the right to apply for and receive all refunds with
respect to the payment of property taxes and assessments and all other proceeds
from the conversion, voluntary or involuntary, of the Premises, the Equipment,
the Intangibles, the Leases or the Property Income, or any part thereof, into
cash or liquidated claims. Collectively, all of the foregoing, are herein
referred to as the "Proceeds."
The Equipment, the Intangibles, the Leases, the Property Income and the Proceeds
are hereinafter sometimes collectively referred to as the "Collateral." The
Premises and the Collateral are hereinafter sometimes collectively referred to
as the "Mortgaged Property."
TO HAVE AND TO HOLD the Mortgaged Property, with all the privileges and
appurtenances to the same belonging, and with the possession and right of
possession thereof, unto Trustee, as trustee for the benefit of Lender as
beneficiary, to its successors in the trust created by this Deed of Trust, and
to its or their successors and assigns forever, in trust, upon the terms and
conditions set forth herein.
TRUSTOR AGREES THAT THE LOAN EVIDENCED BY THE NOTE IS CROSS-DEFAULTED AND
CROSS-COLLATERALIZED WITH THE LOANS EVIDENCED BY THE RELATED NOTES. IN THAT
RESPECT, ANY DEFAULT UNDER THE RELATED LOAN DOCUMENTS SHALL CONSTITUTE A DEFAULT
HEREUNDER.
ARTICLE I
Definition of Terms
As used in this Deed of Trust, the terms set forth below shall have the
following meanings:
"Advances" - All sums, amounts or expenses advanced or paid and all
costs reasonable incurred by Lender, as provided in this Deed of Trust or in any
other Loan Document, upon failure of Borrower to pay or perform any obligation
or covenant contained herein or in such other Loan Document.
"Agreement Concerning Primary Lease Agreement" - means that certain
Agreement Concerning Primary Lease Agreement of even date herewith between DJONT
Operations and Lender and consented to by Borrower.
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<PAGE> 7
"Allocated Loan Amount" - means the loan amount allocated to each of
the Mortgaged Properties as follows:
<TABLE>
<CAPTION>
Property Loan Amount
-------- -----------
<S> <C>
Anaheim $11,550,000.00
Dallas Market Center $12,500,000.00
Dallas Love Field $14,000,000.00
Deerfield Beach $15,600,000.00
Palm Desert $ 8,900,000.00
Tempe $12,450,000.00
</TABLE>
"Anaheim Loan Documents" - means the Anaheim Note, the Anaheim Mortgage
and any other instrument evidencing, securing or executed in connection with the
loan evidenced by the Anaheim Note.
"Anaheim Mortgage" - means that certain Deed of Trust and Security
Agreement of even date herewith securing the Anaheim Note, executed by Borrower
and FelCor/CSS for the benefit of Beneficiary.
"Anaheim Note" - means that certain promissory note of even date
herewith in the original principal amount of $11,550,000.00 executed by Borrower
and payable to the order of Beneficiary.
"Annual Debt Service" - means all principal, interest and other
payments due under the Note and any Related Note for any calendar year.
"Application" - means that certain MassMutual Application for Real
Estate Loan dated February, 1999 executed by Andrew J. Welch.
"Appurtenances" - See Granting Clauses.
"Assignment" - means, collectively (i) the Assignment of Leases and
Rents from Borrower to Lender of even date herewith and (ii) the Assignment of
Lease and Rents from Ground Owner to Lender of even date herewith.
"Bank"- has the meaning provided in Section 6.17.
"Bankruptcy Proceeding" - Any proceeding, action, petition or filing
under the Federal Bankruptcy Code or any similar state or federal law now or
hereafter in effect relating to bankruptcy, reorganization or insolvency, or the
arrangement or adjustment of debts.
"Beneficiary" - Massachusetts Mutual Life Insurance Company, its
successors and assigns (including any other holders from time to time of the
Note), and also herein called "Lender."
"Borrower" - The party identified and defined as Borrower on the Cover
Sheet and in the preamble of this Deed of Trust, any subsequent owner of the
Mortgaged Property, and its successors and assigns.
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<PAGE> 8
"Business Day" - Any day other than a Saturday, Sunday or other day on
which national banks in the State are not open for business.
"Closing Date" - means the date of this Deed of Trust.
"Code" - The Uniform Commercial Code of the State.
"Collateral" - See Granting Clauses.
"Dallas Love Field Loan Documents" - means the Dallas Love Field Note,
the Dallas Love Field Mortgage and any other instrument evidencing, securing or
executed in connection with the loan evidenced by the Dallas Love Field Note.
"Dallas Love Field Mortgage" - means that certain Deed of Trust and
Security Agreement of even date herewith securing the Dallas Love Field Note,
executed by Borrower for the benefit of Beneficiary.
"Dallas Love Field Note" - means that certain promissory note of even
date herewith in the original principal amount of $14,000,000.00 executed by
Borrower and payable to the order of Beneficiary.
"Dallas Market Center Loan Documents" - means the Dallas Market Center
Note, the Dallas Market Center Mortgage and any other instrument evidencing,
securing or executed in connection with the loan evidenced by the Dallas Market
Center Note.
"Dallas Market Center Mortgage" - means that certain Deed of Trust and
Security Agreement of even date herewith securing the Dallas Market Center Note,
executed by Trustor for the benefit of Beneficiary.
"Dallas Market Center Note" - means that certain promissory note of
even date herewith in the original principal amount of $12,500,000.00 executed
by Borrower and payable to the order of Beneficiary.
"Debt Service Coverage Ratio - Mortgaged Properties" - means (i) the
amount of cash flow generated from the Mortgaged Properties available for
payment of principal, interest, escrow deposits and other amounts, if any, due
under the Note and each Related Note, after payment in cash of all other costs,
fees and expenses attributable on an annual basis to the ownership, operation
and maintenance of the Mortgaged Properties (including Impositions, insurance,
and an FF&E reserve equal to four percent (4%) of the aggregate room and suite
income), divided by (ii) the aggregate amount of principal, interest, escrow
deposits and other amounts, if any, due on an annual basis under the Note and
each Related Note; an example of the calculation of which is attached hereto as
Exhibit A.
"Debt Service Coverage Ratio - Remaining Properties" - means (i) the
amount of cash flow generated from the Remaining Properties available for
payment of principal, interest, escrow deposits and other amounts, if any, due
under each remaining Related Note, after payment in cash of all other
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<PAGE> 9
costs, fees and expenses attributable on an annual basis to the ownership,
operation and maintenance of the Remaining Properties (including Impositions,
insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room
and suite income), divided by (ii) the aggregate amount of principal, interest,
escrow deposits and other amounts, if any, due on an annual basis under each
remaining Related Note; an example of the calculation of which is attached
hereto as Exhibit B.
"Deerfield Beach Loan Documents" - means the Deerfield Beach Note, the
Deerfield Beach Mortgage and any other instrument evidencing, securing or
executed in connection with the loan evidenced by the Deerfield Note.
"Deerfield Beach Mortgage" - means that certain Mortgage and Security
Agreement of even date herewith securing the Deerfield Beach Note, executed by
Trustor for the benefit of Beneficiary.
"Deerfield Beach Note" - means that certain promissory note of even
date herewith in the original principal amount of $15,600,000.00 executed by
Borrower and payable to the order of Beneficiary.
"Default" - means the occurrence of any event which, but for the giving
of notice or the passage of time, or both, would be an Event of Default.
"Default Rate" - The per annum interest rate equal to the lesser of (i)
the highest rate permitted by applicable law as of the date hereof or the date
of any Advance hereunder, whichever is higher, to be charged on commercial
mortgage loans, or (ii) the sum of three percent (3%) plus the greater of either
the Contract Rate (as defined in the Note) or the rate published in the WALL
STREET JOURNAL as the average prime rate in its Money Rates section as of the
date of any Advance hereunder. If the WALL STREET JOURNAL is not in publication
on the applicable date, or ceases to publish such average rates, then any other
publication acceptable to Lender quoting daily market average prime rates will
be used.
"Defeasance Deposit" - means the amount that will be sufficient to
purchase U.S. Obligations (A) having maturity dates on or prior to, but as close
as possible to, successive scheduled Payment Dates (after the Defeasance Release
Date) upon which Payment Dates interest and principal payments would be required
under the Note and the Related Notes and (B) in amounts sufficient to pay all
scheduled principal and interest payments on the Note and the Related Notes.
"Defeasance Release Date" - has the meaning provided in Section
6.14(b).
"Defeasance Security Agreement" - has the meaning provided in Section
6.14(d).
"DJONT Operations" - means DJONT Operations, L.L.C., a Delaware limited
liability company.
"Entity" - means a (i) corporation, if Borrower is listed as a
corporation in the preamble to this Mortgage, (ii) limited partnership, if
Borrower is listed as a limited partnership in the preamble to this Mortgage or
(iii) limited liability company, if Borrower is listed as a limited liability
company in the preamble to this Mortgage.
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<PAGE> 10
"Environmental Law" - Any present or future federal, state or local
law, statute, regulation or ordinance, and any judicial or administrative order
or judgment thereunder, pertaining to health, industrial hygiene or the
environmental or ecological conditions on, under or about the Premises,
including, without limitation, each of the following as to date or hereafter
amended: the Comprehensive Environmental Response, Compensation and Liability
Act; the Resource Conservation and Recovery Act; the Toxic Substances Control
Act; the Federal Water Pollution Control Act (also known as the Clean Water
Act); the Clean Air Act; and the Hazardous Materials Transportation Act; the
Solid Waste Disposal Act; the Safe Drinking Water Act; the Occupational Safety
and Health Act; the Federal Water Pollution Control Act; the Emergency Planning
and Community Right-To-Know Act; the Federal Insecticide, Fungicide and
Rodenticide Act; the National Environmental Policy Act; and, the Rivers and
Harbors Appropriation Act.
"Equipment" - See Granting Clauses; provided, however, the term
"Equipment" shall not include the following personal property owned by DJONT
Operations: all inventories, supplies, and consumables, including without
limitation, food and beverage inventories, inventories of stationery, forms and
office supplies, cleaning and maintenance supplies, guest room supplies and
other operating supplies, and supplies of linens, terry, uniforms, chinaware,
glassware, silverware and serving utensils located at the Premises.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" - Any one or more of the events described in Section
4.01 and includes any one or more Monetary Events of Default and/or Non-Monetary
Events of Default.
"FF&E" - means furnishings, fixtures and equipment.
"FF&E Escrow Account" has the meaning provided in Section 6.17.
"FF&E Escrow Event" - means that point in time that Net Operating
Income for the preceding calendar year is less than 1.50 times the Annual Debt
Service for the same period. A FF&E Escrow Event shall be deemed continuing
until such time thereafter that Net Operating Income for any successive calendar
year is greater than two (2) times the Annual Debt Service for the same period.
"Fiscal Year" - The 12 month period commencing on January 1 and ending
on December 31 during each year of the term of this Deed of Trust, or such other
fiscal year of Borrower as Borrower may select from time to time with the prior
consent of Lender. During the first year of the term hereof, Borrower's Fiscal
Year shall be deemed to have commenced on the date of this Deed of Trust and
shall end on the regular Fiscal Year ending date as indicated in the immediately
preceding sentence.
"Ground Lease" means that certain Ground Lease as defined and more
particularly described on Schedule A attached hereto and made a part hereof.
"Ground Owner" - The party identified as such on the Cover Sheet and in
the preamble of this Deed of Trust, any subsequent record owner of the Land, and
its successors and assigns.
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<PAGE> 11
"Guarantor" - means FelCor Lodging Limited Partnership, a Delaware
limited partnership, formerly known as FelCor Suites Limited Partnership.
"Hazardous Substance" - Any material, waste or substances (other than
cleaning solvents and other materials used in the ordinary course of hotel
operations and present in normal quantities) which is:
(i) included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" in
or pursuant to any Environmental Law, or subject to regulation
under any Environmental Law;
(ii) listed in the United States Department of Transportation
Optional Hazardous Materials Table, 49 C.F.R. ss.172.101, as
to date or hereafter amended, or in the United States
Environmental Protection Agency List of Hazardous Substances
and Reportable Quantities, 40 C.F.R. Part 302, as to date or
hereafter amended; or
(iii) explosive, radioactive, asbestos, a polychlorinated biphenyl,
oil or a petroleum product.
"Impositions" - All taxes of every kind and nature, sewer rents,
charges for water, for setting or repairing meters and for all other utilities
serving the Premises, and assessments, levies, inspection and license fees and
all other charges imposed upon or assessed against the Mortgaged Property or any
portion thereof (including the Property Income), and any stamp or other taxes
which might be required to be paid, or with respect to any of the Loan
Documents, any of which might, if unpaid, affect the enforceability of any of
the remedies provided in this Deed of Trust or result in a lien on the Mortgaged
Property or any portion thereof, regardless of to whom assessed.
"Indebtedness" - See Granting Clauses.
"Intangibles" - See Granting Clauses.
"Interest Accrual Period" - means each calendar month, provided the
actual number of days elapsed in the calendar month in which the Closing Date
occurs shall also be an Interest Accrual Period.
"Land" - See Granting Clauses.
"Late Charge" - Any charge designated as such and payable by Borrower
for tardy performance by Borrower under the Note, this Deed of Trust or any
other Loan Document.
"Leases" - See Granting Clauses.
"Lender" - Massachusetts Mutual Life Insurance Company, the Beneficiary
and Lender identified as such on the Cover Sheet and in the preamble of this
Deed of Trust, and its successors and assigns (including any other holders from
time to time of the Note).
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<PAGE> 12
"License Agreement" - That certain License Agreement dated as of May
15, 1996, by and between Promus, as licensor and DJONT Operations, as licensee
and covering the Mortgaged Property.
"Lien" - means any mortgage, deed of trust, deed to secure debt, lien
(statutory or other), pledge, easement, restrictive covenant, hypothecation,
assignment, preference, priority, security interest, or any other encumbrance or
charge on or affecting the Mortgaged Property or any portion thereof or any
Collateral or Borrower, or any interest in any of the foregoing, including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement or similar instrument under the
UCC or comparable law of any other jurisdiction, domestic or foreign, and
mechanic's, materialman's and other similar liens and encumbrances.
"Loan" - means the loan from Lender to Borrower and evidenced by the
Note and the Loan Documents.
"Loan Documents" - See Granting Clauses.
"Losses" - claims, suits, liabilities (including without limitation,
strict liabilities), actions, proceedings, obligations, debts, damages, losses,
costs, fines, penalties, charges, fees, expenses, judgments, awards, amounts
paid in settlement, punitive damages, foreseeable and unforeseeable
consequential damages of whatever kind or nature (including but not limited to
reasonable attorneys' fees and other costs of defense).
"Management Agreement" - That certain Management Agreement dated as of
_____________ , by and between DJONT __________, as lessee and Promus, as
manager and covering the Mortgaged Property.
"Material Lease" - means that _________________________________________
_______________________________________________________________________
_______________________________________________________________________
"Monetary Event of Default" - has the meaning provided in Section 6 of
the Note.
"Mortgaged Property" - See Granting Clauses.
"Mortgaged Properties" - means collectively the Mortgaged Property and
the properties secured by the [Anaheim Mortgage, Dallas Love Field Mortgage, the
Dallas Market Center Mortgage, the Deerfield Beach Mortgage, the Palm Desert
Mortgage, the Tempe Mortgage] or any mortgage or deed of trust securing any
Substitute Property.
"Net Operating Income" - means (a) all payments made under the Primary
Lease and any Related Primary Lease less (b) all expenses payable by Borrower
under the Primary Lease and any Related Primary Lease or with respect to the
ownership and operation of the Mortgaged Properties (i) including Impositions,
insurance, and an FF&E reserve equal to four percent (4%) of the aggregate
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<PAGE> 13
room and suite income, but (ii) excluding deductions for federal, state and
other income taxes, debt service expense, depreciation and amortization and
other non-cash expenses.
"Non-Material Lease" - means any Lease other than the Primary Lease or
the Material Lease.
"Non-Monetary Event of Default" - has the meaning provided in Section 6
of the Note.
"Note" - See Granting Clauses.
"Operating Agreements" - means collectively, the Ground Lease, the
Primary Lease, the License Agreement, and the Management Agreement.
"Operating Period" - means each calendar quarter during the term of the
Loan.
"Palm Desert Loan Documents" - means the Palm Desert Note, the Palm
Desert Mortgage and any other instrument evidencing, securing or executed in
connection with the loan evidenced by the Palm Desert Note.
"Palm Desert Mortgage" - means that certain Deed of Trust and Security
Agreement of even date herewith securing the Palm Desert Note, executed by
Borrower and Guarantor for the benefit of Beneficiary.
"Palm Desert Note" - means that certain promissory note of even date
herewith in the original principal amount of $8,900,000.00 executed by Borrower
and payable to the order of Beneficiary.
"Permitted Encumbrances" - The liens and security interest created by
this Deed of Trust and the other Loan Documents and those exceptions to title
set forth in Schedule B to this Deed of Trust.
"Person" - means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization, and any other form of
entity, as the context may require.
"Premises" - See Granting Clauses.
"Primary Lease" - means that certain Lease Agreement dated ___________.
"Proceeds" - See Granting Clauses.
"Promus" - means Promus Hotels, Inc., a Delaware corporation.
"Property Income" - See Granting Clauses.
"Qualified Hotel Operator" - means any reputable Person domiciled in
the United States of America which has the greater of the financial strength,
qualifications and creditworthiness of DJONT Operations or in Beneficiary's sole
determination, a minimum net worth of $30,000,000.00 and liquid assets of not
less than $3,000,000.00, all as of a date which is 30 days prior to the date of
the transfer. Additionally, neither the proposed purchaser nor any principal of
the proposed purchaser, whether on
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<PAGE> 14
the date for the closing of the transfer of title to the Mortgaged Property or
at any time prior thereto, may be (i) in default on any indebtedness or loan
from Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in
any bankruptcy, reorganization or insolvency proceeding, (iii) the subject of
any criminal charges or proceedings, or (iv) an entity or individual who is or
has been involved in litigation which is in good faith deemed significant by
Beneficiary.
"Qualified Real Estate Investor" - means any reputable Person domiciled
in the United States of America which has equal the financial strength,
qualifications and creditworthiness of Borrower at the time of the disbursement
of the Note, evaluated as of a date which is 30 days prior to the date of the
proposed closing of the transfer of title to the Mortgaged Property and on the
day after the proposed closing of the transfer. Additionally, neither the
proposed purchaser nor any principal of the proposed purchaser, whether on the
date for the closing of the transfer of title to the Mortgaged Property or at
any time prior thereto, may be (i) in default on any indebtedness or loan from
Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in any
bankruptcy, reorganization or insolvency proceeding, (iii) the subject of any
criminal charges or proceeding, or (iv) an entity or individual who is or has
been involved in litigation which is in good faith deemed significant by Lender.
"Related Loan Documents" - See Granting Clauses.
"Related Loans" - means collectively the loans from Lender to Borrower
and evidenced by each Related Note and the Related Loan Documents.
"Related Mortgage" - means collectively the [Anaheim Mortgage, Dallas
Love Field Mortgage, the Dallas Market Center Mortgage, the Deerfield Beach
Mortgage, the Palm Desert Mortgage, the Tempe Mortgage] or any mortgage or deed
of trust securing any Substitute Property.
"Related Note" - means collectively the [Anaheim Note, Dallas Love
Field Note, the Dallas Market Center Note, the Deerfield Beach Note, the Palm
Desert Note, the Tempe Note] and any promissory note executed in connection with
any Substitute Property.
"Related Primary Lease" - means collectively any primary lease under
the Related Loan Documents.
"Release" - Release means and includes the following: the release,
deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting,
pumping, pouring, emptying, escaping, dumping, disposing or other movement of a
Hazardous Substance no matter how or by whom or what caused.
"Released Property" has the meaning provided in Section 6.16.
"Remaining Properties" - means the properties securing the [Anaheim
Note, Dallas Love Field Note, the Dallas Market Center Note, the Deerfield Beach
Note, the Palm Desert Note, the Tempe Note] or any promissory note executed in
connection with any Substitute Property.
"Remediation" - Remediation means and includes the following: any
response, remedial, removal or corrective action, any activity to cleanup,
detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance,
any actions to prevent, cure or mitigate any Release of a
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<PAGE> 15
Hazardous Substance, any action to comply with any Environmental Laws or with
any permits issued pursuant thereto, any inspection, investigation, study,
monitoring, assessment, audit, sampling and testing, laboratory or other
analysis, or evaluation relating to any Hazardous Substances and to anything
referred to in Section 2.20.
"Single-Purpose Entity" - means a corporation, limited partnership, or
limited liability company which, at all times since its formation and thereafter
(i) was and will be organized solely for the purpose of (x) owning the Mortgaged
Properties or (y) acting as the managing member of the limited liability company
or the general partner of a limited partnership which owns the Mortgaged
Properties, (ii) has not and will not engage in any business unrelated to the
(x) the ownership of the Mortgaged Properties or (y) acting as a member of a
limited liability company or general partner of a limited partnership which owns
the Mortgaged Properties, (iii) has not and will not have any assets other than
(x) those related to the Mortgaged Properties or (y) its member interest in the
limited liability company or its general partnership interest in the limited
partnership which owns the Mortgaged Properties, as applicable, (iv) has not and
will not engage in, seek or consent to any dissolution, winding up, liquidation,
consolidation or merger, and, except as otherwise expressly permitted by this
Deed of Trust, has not and will not engage in, seek or consent to any asset
sale, transfer of partnership or membership or shareholder interests, or
amendment of its limited partnership agreement, articles of incorporation,
articles of organization, certificate of formation or operating agreement (as
applicable), (v) if such entity is a limited partnership, has and will have as a
general partner, a general partner which is and will be a Single-Purpose Entity,
(vi) has not and will not fail to correct any known misunderstanding regarding
the separate identity of such entity, (vii) without the unanimous consent of all
of the partners, directors or members, as applicable, has not and will not with
respect to itself or to any other entity in which it has a direct or indirect
legal or beneficial ownership interest (a) file a bankruptcy, insolvency or
reorganization petition or otherwise institute insolvency proceedings or
otherwise seek any relief under any laws relating to the relief from debts or
the protection of debtors generally; (b) seek or consent to the appointment of a
receiver, liquidator, trustee, sequestrator, custodian or any similar official
for such entity or all or any portion of such entity's properties; (c) make any
assignment for the benefit of such entity's creditors; or (d) take any action
that might cause such entity to become insolvent, (x) has maintained and will
maintain its accounts, books and records separate from any other person or
entity, (xi) has maintained and will maintain its books, records, resolutions
and agreements as official records, (xii) has not commingled and will not
commingle its funds or assets with those of any other entity, (xiii) has held
and will hold its assets in its own name, (xiv) has conducted and will conduct
its business in its name, (xv) has maintained and will maintain its financial
statements, accounting records and other entity documents separate from any
other person or entity, (xvi) has paid and will pay its own liabilities out of
its own funds and assets, (xvii) has observed and will observe all partnership,
corporate or limited liability company formalities, as applicable, (xviii) has
maintained and will maintain an arms-length relationship with its affiliates
other than the leases transferred to Borrower and its general partner as part of
their initial capital contributions, (xix) (a) if such entity owns the Mortgaged
Properties, has and will have no indebtedness other than the Indebtedness,
equipment leases permitted by this Deed of Trust and unsecured trade payables in
the ordinary course of business relating to the ownership and operation of the
Mortgaged Properties which trade payables (1) do not exceed, at any time, a
maximum amount of one percent (1%) of the Loan Amount and (2) are paid within
thirty (30) days of the date incurred, or (b) if such entity
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acts as the general partner of a limited partnership or managing member of a
limited liability company which owns the Mortgaged Properties, has and will have
no indebtedness other than unsecured trade payables in the ordinary course of
business relating to acting as general partner or managing member which owns the
Mortgaged Properties which (1 ) do not exceed, at any time, Ten Thousand Dollars
($10,000.00) and (2) are paid within thirty (30) days of the date incurred, (xx)
has not and will not assume or guarantee or become obligated for the debts of
any other entity or hold out its credit as being available to satisfy the
obligations of any other entity except for the Indebtedness, (xxi) has not
acquired and will not acquire obligations or securities of its partners, members
or shareholders, (xxii) has allocated and will allocate fairly and reasonably
shared expenses, including, without limitation, shared office space and uses
separate stationery, invoices and checks, (xxiii) has not and will not pledge
its assets for the benefit of any other person or entity, (xxiv) has held and
identified itself and will hold itself out and identify itself as a separate and
distinct entity under its own name and not as a division or part of any other
person or entity, (xxv) has not made and will not make loans to any person or
entity, (xxvi) has not and will not identify its partners, members or
shareholders, or any affiliates of any of them as a division or part of it,
(xxvii) other than the leases transferred to Borrower and its general partner as
part of their initial capital contributions has not entered and will not enter
into or be a party to, any transaction with its partners, members, shareholders
or its affiliates except in the ordinary course of its business and on terms
which are intrinsically fair and are no less favorable to it than would be
obtained in a comparable arms-length transaction with an unrelated third party,
(xxviii) has paid and will pay the salaries of its own employees from its own
funds, (xix) has maintained and will maintain adequate capital in light of its
contemplated business operations and (xxx) if such entity is a limited liability
company or limited partnership, then such entity shall continue (and not
dissolve) for so long as a solvent managing member or general partner, as
applicable, exists and such entity's organizational documents shall contain such
provision.
"State" - The State or Commonwealth in which the Land is situated.
"Substitute Property" has the meaning provided in Section 6.16.
"Tax Escrow Event" - means that point in time that Net Operating Income
for the preceding calendar year is less than 1.50 times the Annual Debt Service
for the same period. A Tax Escrow Event shall be deemed continuing until such
time thereafter that Net Operating Income for any successive calendar year is
greater than two (2) times the Annual Debt Service for the same period.
"Tempe Loan Documents" - means the Tempe Note, the Tempe Mortgage and
any other instrument evidencing, securing or executed in connection with the
loan evidenced by the Tempe Note.
"Tempe Mortgage" - means that certain Deed of Trust and Security
Agreement and Fixture Filing With Assignment of Leases and Rents of even date
herewith securing the Tempe Note, executed by Borrower of the benefit of
Beneficiary.
"Tempe Note" - means that certain promissory note of even date herewith
in the original principal amount of $12,450,000,00 executed by Borrower and
payable to the order of Beneficiary.
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"Trustee" - The party or parties identified and defined as Trustee on
the Cover Sheet and in the preamble of this Deed of Trust, and its or their
respective successors in the trust created by this Deed of Trust, and its or
their respective assigns.
"Trustor" - means collectively Borrower and Ground Owner and their
respective successors and assigns.
"U.S. Obligations" - means obligations or securities not subject to
prepayment, call or early redemption which are direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States of
America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America.
ARTICLE II
Covenants of Borrower
Trustor covenants, warrants, represents and agrees with and to Trustee
and Lender as follows:
Section 2.01. Payment of the Indebtedness. Borrower shall punctually
pay the Indebtedness at the times and in the manner provided in the Note and the
other Loan Documents, all in lawful money of the United States of America.
Section 2.02. Title to the Mortgaged Property.
(a) Ground Owner has fee simple title (or such lesser estate therein as may
be specified in Schedule A) to the Premises and good indefeasible title
to the balance of the Mortgaged Property, free and clear of liens and
encumbrances except Permitted Encumbrances. Borrower has leasehold
title pursuant to the Ground Lease to the Premises and good and
indefeasible title to the balance of the Mortgaged Property, free and
clear of liens and encumbrances except Permitted Exceptions.
(b) Trustor has full power and lawful authority to encumber the Mortgaged
Property in the manner and form herein set forth.
(c) This Deed of Trust is and will remain a valid and enforceable lien on
and security interest in the Mortgaged Property.
(d) Trustor will preserve such title and will forever warrant and defend
the same and the validity and priority of the lien hereof to Trustee
and Lender against all claims whatsoever.
(e) The Mortgaged Property is in material compliance with all provisions of
all zoning, subdivision, land use, environmental, traffic, fire,
building, and occupational safety and health rules, regulations, codes,
acts and statutes to which it is subject.
Section 2.03. Maintenance of the Mortgaged Property. Borrower shall (or
shall enforce its rights under the Primary Lease to cause DJONT Operations to)
maintain the Mortgaged Property in
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good and safe condition, working order and repair, and comply with all existing
and future federal, state and local laws, ordinances, rules and regulations and
court orders affecting or which may be interpreted as affecting the Mortgaged
Property. Trustor shall permit Lender to enter upon and inspect the Mortgaged
Property (without prior notice in the event of an emergency) at all reasonable
hours; provided, Lender makes an appointment through the general manager of the
hotel after reasonable notice and in a manner that does not affect normal
business operations. Trustor shall not, without the prior consent of Lender, (a)
change the use of the Premises or cause or permit the use or occupancy of any
part of the Premises to be discontinued if such discontinuance would violate any
zoning or other law, ordinance or regulation; (b) consent to any zoning
reclassification, modification or restriction affecting the Premises; (c)
threaten, commit or permit any waste, structural or material alteration,
demolition or removal of the Mortgaged Property or any portion thereof (provided
that the Equipment included within the Collateral may be removed if replaced
with similar items of equal or greater value); or (d) take any steps whatsoever
to convert the Mortgaged Property, or any portion thereof, to a condominium or
cooperative form of ownership. No provision of this Section 2.03 shall prohibit
Trustor from undertaking and completing tenant improvement work authorized under
Leases previously approved by Lender or not requiring Lender's prior approval.
Notwithstanding the foregoing, Borrower shall enforce its rights under the
Primary Lease to cause DJONT Operations to operate the Mortgaged Property in a
first class manner and at all times during the term of the Loan as an "Embassy
Suites" hotel or under another flag acceptable to Lender.
Section 2.04. Insurance; Restoration.
(a) Borrower shall keep the Improvements and the Equipment insured against
damage by fire and the other hazards covered by a comprehensive all
risk coverage insurance policy in an amount equal to 100% of the full
insurable value thereof (which shall mean the full repair and actual
replacement value thereof providing for no deductible in excess of
$25,000.00, without reduction for depreciation or co-insurance) as
approved by Lender, and against loss of rents in an amount not less
than 12 months' rental income from all Leases. Borrower shall also
carry such other insurance, and in such amounts, as Lender may from
time to time reasonably require, against insurable risks which at the
time are commonly insured against in the case of premises similarly
situated, due regard being given to the availability of insurance and
to the type of construction, location, utilities, use and occupancy of
the Premises or any replacements or substitutions therefor. Such
additional insurance may include workers' compensation, boiler and
machinery, flood, earthquake, demolition and contingent liability from
the operation of "non-conforming" improvements on the Premises, and
shall be obtained within 20 days after demand by Lender.
Notwithstanding the foregoing, in the event Borrower obtains an
umbrella or a blanket insurance policy or a separate policy or any
other insurance policy affecting the Mortgaged Property hereunder,
Borrower shall notify Lender of the same and shall cause certified
copies of each insurance policy to be delivered as required under
Section 2.04(c) below. Any umbrella or blanket insurance policy shall
specifically allocate to the Mortgaged Property the amount of coverage
from time to time required hereunder and shall otherwise provide the
same protection as would a separate policy insuring only the Mortgage
Property in compliance with the provisions of Section 2.04(c), giving
Lender all of the rights set forth in this Section 2.04. The Proceeds
of insurance paid on account of any damage to or destruction of the
Premises or any portion thereof shall be paid over to Lender to be
applied as hereinafter provided.
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(b) Borrower shall also maintain or cause to be maintained by DJONT
Operations pursuant to the terms of the Primary Lease general liability
insurance with respect to the Premises against personal injury, death
and property damage, with limits of liability in amounts reasonably
satisfactory to Lender.
(c) All insurance policies and endorsements required pursuant to this Deed
of Trust shall (i) be endorsed to name Lender as an insured thereunder,
as its interest may appear, with loss payable to Lender, without
contribution, under a long-form, non-contributory mortgagee clause, or
otherwise endorsed as Lender may reasonably require; (ii) be fully paid
for and contain such provisions and expiration dates and be in such
form and issued by such insurance companies licensed to do business in
the State, with a rating of "A- VIII" or better as established by
Best's Rating Guide or an equivalent rating with such other publication
of a similar nature as shall be in current use, as shall be approved by
Lender; (iii) without limiting the foregoing, provide that such policy
or endorsement may not be canceled or materially changed except upon 30
days prior written notice of intention of non-renewal, cancellation or
material change to Lender, and that no act or thing done by Trustor or
Lender shall invalidate the policy as against Lender; and (iv) be in
form and content reasonably satisfactory to Lender. Borrower shall
deliver all original policies including all endorsements and renewals
thereof, or copies thereof certified by the insurance company or
authorized agent as being true copies, to Lender together with all
endorsements required hereunder, on the date of this Deed of Trust and
thereafter at least 10 days prior to the expiration date of such
policies. Borrower may request an extension of time not exceeding 120
days to deliver the foregoing policies, endorsements and renewals or
certified copies thereof if Borrower has done all things necessary to
obtain the issuance of the policies, endorsements and renewals
including, without limitation, the payment of all premiums therefor,
and Borrower has delivered to Lender within the above 10 day period an
insurance binder reasonably satisfactory to Lender issued by the
approved insurer showing all required coverage to be in full force and
effect for the succeeding 12 month period along with evidence
reasonably satisfactory to Lender of payment in full of all premiums.
If Borrower fails to maintain insurance in compliance with this Deed of
Trust, Lender may (but shall not be obligated to) obtain such insurance
and pay the premium therefor and Borrower shall reimburse Lender on
demand for all such Advances. Notwithstanding anything to the contrary
contained herein or in any provision of law, the Proceeds of insurance
policies coming into the possession of Lender shall not be deemed trust
funds and Lender shall be entitled to dispose of such Proceeds as
hereinafter provided.
(d) In the event of any damage to or destruction of the Premises and/or
Equipment, Borrower shall give prompt written notice to Lender and
shall promptly commence and diligently continue to completion the
repair, restoration and rebuilding of the Premises and/or Equipment so
damaged or destroyed in full compliance with all legal requirements and
with the provisions of Section 2.04(h)(i) below, and free and clear
from any and all liens and claims. Such repair, restoration and
rebuilding of the Premises are sometimes hereinafter collectively
referred to as the "Work." If any Event of Default is then existing or
if in Lender's reasonable judgment the cost of the Work is $1,000,000
or more, then Borrower shall not adjust, compromise or settle any claim
for insurance proceeds without the prior consent of Lender. Subject to
Section 2.04(g), Lender shall have the option in its sole discretion to
apply any insurance Proceeds it
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may receive pursuant to this Deed of Trust (less any cost to Lender of
recovering and paying out such Proceeds, including reasonable
attorneys' fees) to the payment of the Indebtedness or to allow all or
a portion of such Proceeds to be used for the Work. If any insurance
Proceeds are applied to reduce the Indebtedness, provided no Event of
Default shall have occurred and be continuing, Lender shall apply the
same, without any prepayment fee, in the following order:
(i) first, to the payment of interest due on any Advances;
(ii) next, to the principal amount of any Advances;
(iii) next, to any Late Charges, attorney's fees or any other amount
due hereunder or under a Loan Document save for the amounts
described in (iv) and (v) immediately below;
(iv) next, to accrued interest then due under the Note; and
(v) finally, to the unpaid principal balance of the Note (in the
inverse order of maturity of principal installments thereof).
If an Event of Default shall have occurred and be continuing, however,
Lender, at its option, may apply any insurance Proceeds to the
foregoing items in such order and priority as Lender deems appropriate
in its sole discretion.
(e) In the event of the foreclosure of this Deed of Trust or other transfer
of title to or assignment of the Mortgaged Property in extinguishment
of the Indebtedness in whole or in part, all right, title and interest
of Borrower in and to all policies of insurance required by this Deed
of Trust and any insurance Proceeds shall inure to the benefit of and
pass to Lender or any purchaser or transferee at the foreclosure sale
of the Mortgaged Property.
(f) Trustor hereby irrevocably appoints Lender its attorney-in-fact,
coupled with an interest, to apply and make claims for insurance
Proceeds under all insurance policies constituting Intangibles, to
prosecute and settle such claims and to endorse any checks, drafts or
other instruments representing any insurance Proceeds whether payable
by reason of loss thereunder or otherwise. Additionally, Lender may
notify any and all insurers under casualty and liability insurance
policies constituting part of the Intangibles that Lender has a
security interest pursuant to the provisions of this Deed of Trust in
and to such insurance policies and any proceeds thereof, and that any
payments under those insurance policies are to be made directly to
Lender. Lender's rights under this Section 2.04(f) may be exercised by
Lender or a court appointed receiver appointed upon the request of
Lender and irrespective of whether or not a default shall have occurred
under this Deed of Trust.
(g) Notwithstanding the provisions of Section 2.04(d) above, if in Lender's
reasonable judgment the cost of the Work shall not exceed 50 percent of
the then outstanding principal balance of the Note, then Lender shall,
upon request by Borrower, permit Borrower to use the Proceeds for the
Work (subject to the provisions of, and less Lender's costs described
in, Section 2.04(h) below), so long as:
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(i) no Event of Default shall then exist nor any matter(s) exist
which, after notice of default or passage of time or both,
would constitute an Event of Default;
(ii) the original Trustor named herein continues to be the owner of
the Mortgaged Property;
(iii) the Work can be completed within 12 months from the date of
the damage to or destruction of the Premises;
(iv) none of the Operating Agreements in effect immediately prior
to the damage or destruction shall have been canceled or
terminated and not replaced with substitute agreements
reasonably acceptable to Lender;
(v) all sums necessary to effect the Work over and above any
available Proceeds shall be at the sole cost and expense of
the Borrower and, at Lender's request, Borrower shall deposit
such additional amounts, as reasonably estimated by Lender,
with Lender prior to commencing any Work and at all times
thereafter;
(vi) at all times during any such Work Borrower shall maintain, at
its sole cost and expense, workers' compensation, builders
risk and public liability insurance in amounts reasonably
satisfactory to Lender and in accordance with the provisions
of this Section 2.04; and
(vii) any unexpended Proceeds, at the sole option of the Lender,
shall either be paid over to the Borrower or shall be applied
to the reduction of the Indebtedness. If the Proceeds are used
to reduce the Indebtedness, they shall be applied in the order
provided in Section 2.04(d), without any prepayment fee.
(h) If any insurance Proceeds are used for the Work, then such Proceeds
shall be held by Lender and shall be paid out from time to time to
Borrower as the Work progresses (less any cost to Lender of recovering
and paying out such Proceeds, including reasonable attorneys' fees and
costs allocable to inspecting the Work and the plans and specifications
therefor), subject to each of the following conditions:
(i) If the Work is structural or if the cost of the Work is
reasonably estimated to exceed Two Hundred Thousand Dollars
($200,000.00), the Work shall be conducted under the
supervision of a certified and registered architect or
engineer reasonably satisfactory to Lender. Before Borrower
commences any Work, other than temporary work to protect
persons or property or prevent interference with business,
Lender shall have approved the plans and specifications for
the Work, which approval shall not be unreasonably withheld or
delayed, it being nevertheless understood that such plans and
specifications shall provide for Work so that, upon completion
thereof, the Premises shall be at least equal in value and
general utility to the Premises immediately prior to the
damage or destruction.
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(ii) Each request for payment shall be made on not less than seven
Business Days prior notice to Lender and shall be accompanied
by a certificate of the architect or engineer in (i) above (or
a certificate given by Borrower if no architect or engineer is
so required) stating (A) that all of the Work completed has
been done in substantial compliance with the approved plans
and specifications, if required under (i) above, (B) that the
sum requested is justly required to reimburse the Borrower for
payments by Borrower, or is justly due to the contractor,
subcontractors, materialmen, laborers, engineers, architects
or other persons rendering services or materials for the Work
(giving a brief description of such services and materials),
and that when added to all sums previously paid out by Lender
does not exceed the value of the Work done to the date of such
certificate, (C) if the sum requested is to cover payment
relating to repair and restoration of Equipment required or
relating to the Premises, that title to the items of Equipment
covered by the request for payment is vested in Borrower, and
(D) that the amount of such Proceeds remaining in the hands of
Lender will be sufficient on completion of the Work to pay for
the same in full (giving in such reasonable detail as Lender
may require an estimate of the cost of such completion).
Additionally, each request for payment shall contain a
statement signed by Borrower approving both the Work done to
date and the Work covered by the request for payment in
question.
(iii) Each request for payment shall be accompanied by waivers of
lien satisfactory to Lender covering that part of the Work for
which payment or reimbursement is being requested and, if
required by Lender, a search prepared by a title company or
licensed abstractor, or by other evidence satisfactory to
Lender that there has not been filed with respect to the
Premises any mechanics' or other lien or instrument for the
retention of title relating to any part of the Work not
discharged of record. Additionally, as to any Equipment
covered by the request for payment, Lender shall be furnished
with evidence of payment therefor and such further evidence
satisfactory to assure Lender of its valid first lien on the
Equipment.
(iv) Lender shall have the right to inspect the Work at all
reasonable times and may condition any disbursement of
Proceeds upon the satisfactory completion, as determined in
Lender's reasonable discretion, of any portion of the Work for
which payment or reimbursement is being requested. Neither the
approval by Lender of the plans and specifications for the
Work nor the inspection by Lender of the Work shall make
Lender responsible for the preparation of such plans and
specifications or the compliance of such plans and
specifications, or of the Work, with any applicable law,
regulation, ordinance, covenant or agreement.
(v) Proceeds shall not be disbursed more frequently than every 30
days.
(vi) Any request for payment made after the Work has been completed
shall be accompanied by a copy or copies of any certificate or
certificates required by law to render occupancy and full
operation of the Premises legal.
(vii) Upon any failure on the part of Borrower to promptly commence
the Work or to proceed diligently and continuously to
completion of the Work, Lender may apply any
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such Proceeds it then or thereafter holds to the payment of
the Indebtedness; provided, however, that Lender, at its sole
option, shall be entitled to apply at any time all or any
portion of insurance Proceeds it then holds to the curing of
any Event of Default under this Deed of Trust, the Note or any
other Loan Document.
(i) Notwithstanding any other provision of this Section 2.04, if no Event
of Default shall exist or be continuing (nor any matters have occurred
which, after notice or passage of time or both, would constitute an
Event of Default) and in Lender's reasonable judgment the cost of the
Work is less than $1,000,000 and the Work can be completed in less than
180 days, then Lender shall have no rights to apply for or receive the
insurance Proceeds, provided that Borrower shall apply such insurance
Proceeds solely to the prompt and diligent commencement and completion
of such Work and notify Lender as to the foregoing.
Section 2.05. Condemnation. Borrower shall notify Lender immediately of
the actual or threatened commencement of any proceedings for the condemnation or
taking of the Premises or any portion thereof and shall deliver to Lender copies
of any and all papers served in connection with such proceedings. Lender may
participate in such proceedings and Trustor shall deliver to Lender all
instruments requested by Lender to permit such participation. Lender is hereby
irrevocably appointed as Trustor's attorney-in-fact, coupled with an interest,
with exclusive power to collect, receive and retain the Proceeds of any such
condemnation and to make any compromise or settlement in connection with such
proceedings, subject to the provisions of this Deed of Trust. Trustor shall not
adjust, compromise, settle or enter into any agreement with respect to such
proceedings without the prior consent of Lender. All Proceeds of any
condemnation, or purchase in lieu thereof, of the Premises or any portion
thereof are hereby assigned to and shall be paid to Lender. Trustor hereby
authorizes Lender to collect and receive such Proceeds, to give proper receipts
and acquittances therefor and, in Lender's sole discretion, to apply such
Proceeds (less any cost to Lender of recovering and paying out such Proceeds,
including reasonable attorneys' fees and costs allocable to inspecting any
repair, restoration or rebuilding work and the plans and specifications
therefor) toward the payment of the Indebtedness or to the repair, restoration
or rebuilding of the Premises in the manner and subject to the conditions set
forth in Section 2.04(h). If the Proceeds are used to reduce the Indebtedness,
they shall be applied in the order provided in Section 2.04(d), without any
prepayment fee. Trustor shall promptly execute and deliver all instruments
requested by Lender for the purpose of confirming the assignment of the
condemnation Proceeds to Lender.
Section 2.06. Impositions.
(a) Borrower shall pay and discharge all Impositions prior to delinquency
and shall furnish to Lender validated receipts or other evidence
satisfactory to Lender showing the payment of such Impositions within
15 days after the same would otherwise have become delinquent.
Borrower's obligation to pay Impositions pursuant to this Deed of Trust
shall include, to the extent permitted by applicable law, taxes
resulting from future changes in law which impose upon Trustee or
Lender an obligation to pay any property taxes or other Impositions or
which otherwise adversely affect Trustee's or Lender's interests.
Should Borrower default in the payment of any Impositions, Lender may
(but shall not be obligated to) pay such Impositions or any portion
thereof and Borrower shall reimburse Lender on demand for all such
Advances.
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(b) Borrower shall not be required to pay, discharge or remove any
Imposition so long as Borrower contests in good faith such Imposition
or the validity, applicability or amount thereof by an appropriate
legal proceeding which operates to prevent the collection of such
amounts and the sale of the Mortgaged Property or any portion thereof;
provided, however, that prior to the date on which such Imposition
would otherwise have become delinquent Borrower shall have (i) given
Lender prior notice of such contest and (ii) deposited with Lender, and
shall deposit such additional amounts as are necessary to keep on
deposit at all times, an amount equal to at least 110 per cent of the
total of (A) the balance of such Imposition then remaining unpaid and
(B) all interest, penalties, costs and charges accrued or accumulated
thereon. Any such contest shall be prosecuted with due diligence, and
Borrower shall promptly pay the amount of such Imposition as finally
determined, together with all interest and penalties payable in
connection therewith. Lender shall have full power and authority to
apply any amount deposited with Lender under this Section 2.06(b) to
the payment of any unpaid Imposition to prevent the sale or forfeiture
of the Mortgaged Property for non-payment thereof. Lender shall have no
liability, however, for failure to so apply any amount deposited unless
Borrower requests the application of such amount to the payment of the
particular Imposition for which such amount was deposited. Any surplus
retained by Lender after payment of the Imposition for which a deposit
was made shall be repaid to Borrower unless an Event of Default shall
have occurred under the provisions of this Deed of Trust, in which case
said surplus may be retained by Lender to be applied to the
Indebtedness. Notwithstanding any provision of this Section 2.06(b) to
the contrary, Borrower shall pay any Imposition which it might
otherwise be entitled to contest if, in the reasonable opinion of
Lender, the Mortgaged Property is in jeopardy or in danger of being
forfeited or foreclosed. If Borrower refuses to pay any such
Imposition, Lender may (but shall not be obligated to) make such
payment and Borrower shall reimburse Lender on demand for all such
Advances. Additionally, in such event, if Lender is prevented by law or
judicial or administrative order from paying such Imposition, then
Lender, at its option, may declare the entire Indebtedness immediately
due and payable.
Section 2.07. Deposits. After an Event of Default or Tax Escrow Event,
Borrower shall deposit with Lender, monthly, on the due date of each monthly
installment under the Note, 1/12th of the annual charges (as estimated by
Lender) for Impositions, and, if required by Lender, 1/12th of the annual
charges for rent (if Borrower is lessee of an interest in the Mortgaged
Property). If required by Lender, Borrower shall also deposit with Lender,
simultaneously with such monthly deposits and/or the execution of this Deed of
Trust, a sum of money which together with such monthly deposits will be
sufficient to make the payment of each such charge at least 30 days prior to the
date initially due. Should such charges not be ascertainable at the time any
deposit is required to be made, the deposit shall be made on the basis of the
charges for the prior year or payment period, as reasonably estimated by Lender.
When the charges are fixed for the then current year or period, Borrower shall
deposit any deficiency on demand. All funds deposited with Lender shall be held
without interest (unless the payment of interest thereon is required under
applicable law), may be commingled with Lender's other funds, and shall be
applied in payment of the foregoing charges when and as payable provided that no
Event of Default shall have occurred. Should an Event of Default occur, the
funds so deposited may be applied in payment of the charges for which such funds
shall have been deposited or to the payment of the Indebtedness or any other
charges affecting the Mortgaged Property, as Lender in its sole discretion may
determine, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Lender as herein provided.
Borrower shall furnish Lender with
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bills and all other documents necessary for the payment of the foregoing charges
at least 15 days prior to the date on which each payment thereof shall first
become due.
Section 2.08. Mortgage Taxes. Borrower shall pay any and all taxes,
charges, filing, registration and recording fees, excises and levies imposed
upon Lender by reason of its ownership of, or measured by amounts payable under,
the Note, this Deed of Trust or any other Loan Document (other than income,
franchise and doing business taxes), and shall pay all stamp taxes and other
taxes required to be paid on the Note or the other Loan Documents. If Borrower
fails to make such payment within five days after notice thereof from Lender,
Lender may (but shall not be obligated to) pay the amount due, and Borrower
shall reimburse Lender on demand for all such Advances. If applicable law
prohibits Borrower from paying such taxes, charges, filing, registration and
recording fees, excises, levies, stamp taxes or other taxes, then Lender may
declare the Indebtedness then unpaid to be immediately due and payable. In such
event, no prepayment fee shall be charged.
Section 2.09. Loan Documents Authorized.
(a) The execution and delivery of this Deed of Trust, the Note and the
other Loan Documents have been duly authorized and there is no
provision in Trustor 's organizational documents, as amended, requiring
further consent for such action by any other person or entity.
(b) Trustor is duly organized, validly existing and in good standing under
the laws of the state of its formation.
(c) Trustor has all necessary franchises, licenses, authorizations,
registrations, permits and approvals and full power and authority to
own and lease its properties, including the Mortgaged Property, and
carry on its business as now conducted in each jurisdiction where
Trustor conducts its business.
(d) The execution and delivery of and performance of its obligations under
the Loan Documents (i) will not result in Trustor being in default
under any provision of its organizational documents, as amended, any
court order, or any mortgage, deed of trust or other agreement to which
it is a party and (ii) do not require the consent of or any filing with
any governmental authority.
(e) All necessary and required actions have been duly taken by and on
behalf of Trustor to make and constitute the Loan Documents, and the
Loan Documents constitute, legal, valid and binding obligations
enforceable in accordance with their respective terms, subject only to
the application of bankruptcy and other laws affecting the rights of
creditors generally.
Section 2.10. Maintenance of Existence. So long as it owns the
Mortgaged Property, Borrower shall (or shall enforce its rights under the
Primary Lease to cause DJONT Operations to) do all things necessary to preserve
and keep in full force and effect its existence, franchises, licenses,
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authorizations, registrations, permits and approvals under the laws of the state
of its formation and the State, and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental authority or court
now or hereafter applicable to Trustor or, to the Mortgaged Property or any
portion thereof.
Section 2.11. Payment of Liens. Borrower shall pay when due all
payments and charges due under or in connection with any liens and encumbrances
on and security interests in the Mortgaged Property or any portion thereof, all
rents and charges under any ground leases and other leases forming a part of the
Mortgaged Property, and all claims and demands of mechanics, materialmen,
laborers and others which, if unpaid, might result in or permit the creation of
a lien on the Mortgaged Property or any portion thereof, and shall cause the
prompt (but in no event later than 30 days after imposition), full and
unconditional discharge of all liens imposed on or against the Mortgaged
Property or any portion thereof. Borrower shall do or cause to be done, at the
sole cost of Borrower, everything necessary to fully preserve the initial
priority of the lien of this Deed of Trust. If Borrower fails to make any such
payment or if a lien attaches to the Mortgaged Property or any portion thereof,
Lender may (but shall not be obligated to) make such payment or discharge such
lien and Borrower shall reimburse Lender on demand for all such Advances.
Notwithstanding the foregoing, Borrower shall not be in default for failure to
pay or discharge a mechanic's or materialman's lien asserted against the
Mortgaged Property if, and so long as, (a) Borrower shall have notified Lender
of same within five (5) days of obtaining actual knowledge thereof; (b) Borrower
shall diligently and in good faith contest the same by appropriate legal
proceedings which shall operate to prevent the enforcement or collection of the
same and the sale of the Mortgaged Property or any part thereof, to satisfy the
same; (c) Borrower shall have furnished to Lender a cash deposit, or an
indemnity bond satisfactory to Lender with a surety satisfactory to Lender, in
the amount of the mechanic's or materialman's lien claim, plus a reasonable
additional sum to pay all costs, interest and penalties that may be imposed or
incurred in connection therewith, to assure payment of the matters under contest
and to prevent any sale or forfeiture of the Mortgaged Property or any part
thereof; (d) Borrower shall promptly upon final determination thereof pay the
amount of any such claim so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the mechanic's or materialman's lien claim does not constitute a default under
any other deed of trust, mortgage or security interest covering or affecting any
part of the Mortgaged Property; and (f) notwithstanding the foregoing, Borrower
shall immediately upon request of Lender pay any such claim notwithstanding such
contest, if in the opinion of Lender, the Mortgaged Property or any part thereof
or interest therein may be in danger of being sold, forfeited, foreclosed,
terminated, canceled or lost.
Section 2.12. Costs of Defending and Upholding the Lien. Lender and, to
the extent authorized by Lender, Trustee may, after notice to Borrower, (a)
appear in and defend any action or proceeding, in the name and on behalf of
either Lender or Borrower, in which Trustee or Lender is named or which Lender
in its sole discretion determines may adversely affect the Mortgaged Property,
this Deed of Trust, the lien hereof or any other Loan Document; and (b)
institute any action or proceeding which Lender in its sole discretion
determines should be instituted to protect the interest or rights of Lender or
Trustee's interest in the Mortgaged Property or under this Deed of Trust or any
other Loan Document, including, without limitation, foreclosure proceedings.
Borrower agrees to bear and shall pay or reimburse Trustee and Lender on demand
for all Advances and expenses (including reasonable attorneys' fees) relating to
or incurred by Lender in connection with any such action or proceeding.
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Section 2.13. Costs of Enforcement. Borrower agrees to bear and shall
pay or reimburse Trustee and Lender on demand for all Advances and expenses
(including reasonable attorneys' and appraisers' fees and the expenses and
reasonable fees of any receiver or similar official) of or incidental to the
collection of the Indebtedness, any foreclosure of this Deed of Trust or any
other Loan Document, any enforcement, compromise or settlement of this Deed of
Trust, any other Loan Document or the Indebtedness, or any defense or assertion
of the rights or claims of Trustee or Lender in respect of any thereof, by
litigation or otherwise.
Section 2.14. Interest on Advances and Expenses. All Advances made and
any reasonable expenses incurred at any time by Trustee or Lender pursuant to
the provisions of this Deed of Trust or the other Loan Documents or under
applicable law shall be secured by this Deed of Trust as part of the
Indebtedness, with equal rank and priority. All such Advances and expenses shall
bear interest at the Default Rate from the date that each such Advance or
expenses is made or incurred to the date of repayment and all such Advances and
expenses with interest thereon shall be payable to Lender on demand.
Section 2.15. Indemnification. Borrower shall indemnify and hold
Trustee and Lender and their respective directors, officers, employees and
agents harmless from and against and reimburse them for all Losses which may be
imposed upon, asserted against, or incurred or paid by any of them (a) by reason
of, on account of or in connection with any act or occurrence relating to the
Mortgaged Property or any bodily injury, death, other personal injury or
property damage occurring in, upon or in the vicinity of the Premises from any
cause whatsoever, (b) as a result of the failure of Borrower to perform any of
its obligations under any of the Loan Documents, or (c) on account of any
transaction otherwise arising out of or in any way connected with the Mortgaged
Property, this Deed of Trust or the Indebtedness.
Section 2.16. Financial Statements; Records. Borrower shall keep
adequate books and records of account in accordance with generally accepted
accounting principles ("GAAP"), or in accordance with other methods acceptable
to Lender in its reasonable discretion, consistently applied, and shall furnish
to Lender:
(a) all annual operating statements of the Premises received from DJONT
Operations or Promus detailing the total revenues received, total
expenses incurred, total cost of all capital improvements, total debt
service and total cash flow, and certified by DJONT Operations or
Promus, as appropriate, in the form received by Borrower, or if
requested by Lender and to the extent available, an audited annual
operating statement prepared and certified by an independent certified
public accountant acceptable to Lender, within 120 days after the close
of each Fiscal Year of Borrower;
(b) an annual balance sheet and profit and loss statement of Borrower and
Guarantor, in a form reasonably approved by Lender, prepared and
certified by Borrower or Guarantor as applicable, and, such statements,
if requested by Lender and to the extent available, shall be audited
financial statements prepared and certified by an independent certified
public accountant acceptable to Lender. All statements shall be
delivered to Lender within 120 days after the close of each Fiscal Year
of Borrower;
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(c) annual operating budgets and management plans presented on a monthly
basis consistent with the annual operating statements described above
for the Premises, including cash flow projections for the upcoming
year, and all proposed capital replacements and improvements on or
before February 1 of each Fiscal Year;
(d) an annual occupancy and average daily rate statement detailing the
occupancy rates and average daily room rates to be prepared and
certified by Borrower in a form approved by Lender, within 120 days
after the end of each Fiscal Year of Borrower;
(e) an annual FF&E budget which will be approved by Lender, when available
but no later than on or before February 1 of each loan year. Approval
of the annual FF&E budget will not be unreasonably withheld and deemed
approved by Lender, if Lender does not respond within seven (7) days of
receipt by certified mail; and
(f) upon request from Lender, the following:
(i) such other financial or management information as may, from
time to time, be reasonably required by Lender and in form and
substance reasonably satisfactory to Lender; and,
(ii) Borrower's books and records regarding the Premises for
examination, review, copying and audit by Lender or its
auditors during normal business hours and convenient
facilities for such examination review, copying and audit of
Borrower's books and records of account.
(g) Borrower's agreements as set forth in this Section 2.16 constitute
material inducements to Lender in making the loan secured by this Deed
of Trust. Accordingly, in the event Borrower fails to furnish any
financial report or tax return required by this section as and when
required, time being of the essence, then, in addition to all other
remedies available to Lender under this Deed of Trust, Borrower agrees
to pay Lender a late charge of $100.00 for each day or part thereof
that any such financial report or tax return shall be overdue. The
foregoing late charges and the costs and expenses of the auditor shall
be due and payable to Lender upon demand and shall constitute a part of
the Indebtedness.
Section 2.17. Prohibition Against Conveyances and Encumbrances. Except
with the prior consent of Lender or as permitted by Section 3.01(b), Trustor
shall not and shall not permit others to convey, assign, sell, mortgage,
encumber, pledge, hypothecate, grant a security interest in, grant options with
respect to, or otherwise dispose of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Mortgaged Property (other than the
sale of goods used in the operation of a hotel business or replacement of
Equipment in the ordinary course of business) including the Leases; or (b) in
Borrower. All requests for Lender's consent under this Section 2.17 shall be on
a form previously approved by Lender and shall be accompanied by the payment of
Lender's standard processing fee for such transactions then in effect not to
exceed one percent (1%) of the then outstanding balance of the Loan. Lender's
consent to any of the foregoing
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actions, if given (in Lender's sole discretion), may be conditioned upon a
change in the interest rate, maturity date, amortization period or other terms
under the Note, the payment of a transfer fee not to exceed one percent (1%) of
the then outstanding balance of the Loan and/or any other requirements of
Lender. In addition to the standard processing fee and the transfer fee referred
to in this Section 2.17, Borrower agrees to bear and shall pay or reimburse
Lender on demand for all reasonable expenses (including reasonable attorneys'
fees, title search costs, and title insurance endorsement premiums) incurred by
Lender in connection with the review, approval and documentation of any such
transaction.
Notwithstanding the prohibition against conveyances and encumbrances
set forth in this Section 2.17, Lender will permit Trustor the right to a
one-time sale, transfer or assignment in whole (but not in part) of its interest
in the Mortgaged Property, without modification of the terms of the Loan,
provided each and every one of the following conditions is satisfied:
(a) At least thirty (30) days prior to such transfer, Borrower shall have
provided Lender with written notice of the proposed transfer along with
the name(s), address(es) and organizational documents of the proposed
purchaser and principals of the proposed purchaser. Additionally,
Borrower shall furnish to Lender along with such notice the following:
(i) detailed and complete financial statements of the proposed
purchaser and principals of proposed purchaser, (ii) information with
respect to the business and business experience of the proposed
purchaser and the proposed purchaser's principals' experience in the
ownership and operation of properties similar to the Mortgaged Property
and other commercial real estate, (iii) evidence that the Mortgaged
Property as of the proposed date of transfer of title and thereafter
will be managed by a hotel management company and under a hotel
management agreement meeting the requirements of Section 2.17(d) below,
(iv) the terms and conditions of the proposed sale and a copy of the
purchase and sales agreement, and (v) such other information as Lender
may request to permit it to determine the creditworthiness and
management abilities of the proposed transferee, its management plan
for the Mortgaged Property and the proposed transferee's status as a
"Qualified Real Estate Investor".
(b) The Loan must be current in all respects and may not be in default
either as of the date of the notice given Lender under subparagraph (a)
above or thereafter through the date of transfer of title to the
Mortgaged Property nor may any event have occurred which, after notice
or passage of time or both, would constitute an Event of Default under
the Loan.
(c) The purchaser is a "Qualified Real Estate Investor".
(d) The Mortgaged Property as of the date of transfer and thereafter must
be managed by Promus or another hotel management company reasonably
approved by Lender under the Management Agreement or another hotel
management agreement reasonably satisfactory to Lender. The flag under
which the Mortgaged Property is operated shall remain the same or, if
changed, be satisfactory to Lender.
(e) The proposed purchaser of the Mortgaged Property shall assume the Loan
under documents in form and substance satisfactory to Lender, subject
to the non-recourse provisions of the Loan Documents existing as of the
date of the closing of the sale of the Mortgaged Property.
Additionally, at the time of the assumption of the Loan, the proposed
purchaser shall furnish to
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Lender an environmental indemnity in form and substance satisfactory to
Lender from a financially responsible person or entity approved by the
Lender. Trustor and the proposed purchaser and any other person as
reasonably required by Lender's counsel shall also execute financing
statements and such other documents as Lender's counsel shall
reasonably require in order to effectuate the transaction as
contemplated by this Section 2.17 and shall furnish evidence of fire
and extended coverage insurance as required by the Loan Documents.
(f) Along with the notice of transfer under subparagraph (a) above,
Borrower shall pay to Lender a fee in the amount of one percent (1%) of
the then outstanding balance of the Loan in cash or certified funds.
Such fee shall be retained by Lender whether or not the transfer occurs
except in the situation described in the succeeding sentence and is
being paid in order to induce Lender to allow the proposed purchaser to
assume the obligations of the Trustor under the Loan Documents and to
release Trustor from liability thereunder for all periods from and
after the transfer in accordance with these provisions. Such fee shall
be returned to Borrower only if Lender disapproves of such transfer as
not meeting the requirements of this Section 2.17.
(g) The cash flow from the Mortgaged Property (i.e., gross rents received
less property taxes, insurance and a reserve for capital improvements
in the amount of four percent (4%) of gross suite revenues, but
excluding principal and interest payments on the Loan, depreciation and
other non-cash charges and proceeds from casualty policies) for the 12
month period ending on the last day of the month which is two months
prior to the month of the anticipated date of such transfer of title
shall be not less than 1.75X times the required payments of principal
and interest on the Loan for the same twelve month period as determined
by Lender in its reasonable discretion from financial statements for
the Mortgaged Property in form and substance satisfactory to Lender and
submitted to Lender.
(h) The unpaid principal balance of the Loan shall be not more than fifty
percent (50%) of the appraised value of the Mortgaged Property
according to a current appraisal furnished to and satisfactory to
Lender and prepared by an MAI appraiser acceptable to Lender.
(i) Borrower shall pay all of Lender's reasonable outside costs and
expenses incurred in connection with the proposed sale of the Mortgaged
Property whether or not the sale actually occurs including, without
limitations, attorneys fees, recording charges, title charges and any
endorsement to Lender's title policy that Lender's counsel may require.
Section 2.18. Estoppel Certificates. Within 10 Business Days of a
request by Lender, Borrower shall furnish to Lender a duly acknowledged written
statement confirming the amount of the outstanding Indebtedness, the terms of
payment and maturity date of the Note, the date to which interest has been paid,
and whether any offsets or defenses exist against the Indebtedness. If any such
offsets or defenses are alleged to exist, the nature thereof shall be set forth
in detail. Borrower shall also furnish to Lender within 30 days of its request
therefor tenant estoppel letters from such tenants of the Premises as Lender may
require, but such requests as to any one tenant shall not be made more often
than once in a calendar year period.
Section 2.19. Assignment of Leases and Property Income.
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(a) Trustor hereby absolutely and unconditionally assigns and transfers to
Lender the Leases and the Property Income. Trustor shall not otherwise
assign, transfer or encumber in any manner the Leases or the Property
Income or any portion thereof. Borrower shall have a license to collect
and use the Property Income as the same becomes due and payable,
revocable by Lender, so long as no Event of Default has occurred, but
may not collect any Property Income more than 30 days in advance of the
date the same becomes due. The assignment in this Section 2.19 shall
constitute an absolute and present assignment of the Leases and the
Property Income, and not an additional assignment for security, and the
existence or exercise of the Borrower's revocable license to collect
Property Income shall not operate to subordinate this assignment to any
subsequent assignment. The exercise by Lender of any of its rights or
remedies under this Section 2.19 shall not be deemed or construed to
make Lender a mortgagee-in-possession. The assignments contained in
this Section 2.19(a) shall automatically terminate and be null and void
ab initio upon the repayment of the Indebtedness or the release of this
Deed of Trust.
(b) Trustor shall furnish Lender with executed copies of all Leases within
10 days after execution thereof. All proposed Leases and renewals of
existing Leases shall be at rental rates and on terms comparable to
existing local market rates and terms and shall be arms-length
transactions with bona fide, independent third party tenants; provided,
however, that renewals of existing Leases may be made with the existing
parties thereto and upon substantially the same terms as such existing
Leases. All new Leases shall provide that they are subordinate to this
Deed of Trust and that the lessee agrees to attorn to Lender. All
proposed Leases and renewals of existing Leases (other than Leases
described in Subsection 2.19(d)) shall be subject to the prior review
and reasonable approval of Lender and its counsel, at Borrower's
expense.
(c) Trustor shall perform all obligations as lessor under all Leases and
shall enforce all of the terms, covenants and conditions contained in
upon the part of the lessee thereunder to be performed or observed.
Additionally, Trustor shall not take any action which would cause any
Lease to cease to be in full force and effect. Except with the prior
consent of Lender, not to be unreasonably withheld, Trustor shall not
(i) cancel, terminate (other than exercising Trustor's rights to
terminate any Lease upon a lessee's default thereunder and subject to
the terms of Section 2.25(d) hereof), surrender, sublet or assign any
Lease or consent to any cancellation, termination, surrender,
subletting or assignment thereof; (ii) amend, modify or subordinate any
Lease to any mortgage, deed of trust or other security interest that is
subordinate to this Deed of Trust; (iii) enter into any new Lease
(except as permitted in Section 2.19(d) below); (iv) waive any default
under or breach of any Lease; (v) consent to or accept any prepayment
or discount of rent or advance rent under any Lease; (vi) other than
exercising Trustor's rights to terminate any Lease upon a lessee's
default thereunder (and subject to the terms of Section 2.25(d)
hereof), take any other action in connection with any Lease which may
impair or jeopardize the validity of such Lease or the Lender's
interest therein; or (vii) alter, modify or change the terms of any
guaranty, letter of credit or other credit support with respect to any
of the Leases or cancel or terminate such guaranty, letter of credit or
other credit support without the prior written consent of Lender.
(d) Notwithstanding Section 2.19(b), Lender's prior consent shall not be
required for entering into any new Lease covering 1,000 square feet of
net rentable area or less, or renewals thereof,
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provided that (i) the Lease or renewal thereof represents an
arm's-length transaction and provides for the payment of market rents,
and (ii) neither the Lease nor renewal thereof nor the activity of the
lessee will violate any provision of any other Lease or restriction or
covenant affecting the Premises or this Deed of Trust or any other Loan
Document, including Section 2.20(b) hereof. Except for Leases to which
Lender's consent is not required, notice and copies of which shall be
furnished only upon request, Trustor shall give Lender notice of any
Lease or renewal thereof described in this Section 2.19(d), together
with a fully-executed and complete copy of such Lease, not later than
10 days after the execution thereof.
(e) In addition to the foregoing, Trustor shall comply with all terms and
provisions of the Assignment.
Section 2.20. Environmental Matters; Warranties; Notice; Indemnity.
(a) Trustor represents and warrants to Lender, based upon an environmental
assessment of the Premises and the Equipment and information that
Borrower knows, as follows:
(i) Trustor has not installed, used, generated, manufactured,
produced, stored, released, discharged or disposed of in, on,
under or about the Premises, or transported to or from any
portion of the Premises, any Hazardous Substance or allowed
any other person or entity to do so, except under conditions
permitted by applicable Environmental Laws;
(ii) there are no Hazardous Substances or underground storage tanks
in, on, or under or about the Premises, except those that are
both (A) in compliance with Environmental Laws and with
permits issued pursuant thereto, if necessary, and (B) fully
disclosed to Lender in writing pursuant to the written reports
resulting from environmental assessments of the Mortgaged
Property delivered to Lender (the "Environmental Report");
(iii) there are no past, present or threatened Releases of any
Hazardous Substance in, on, under or about the Premises except
as defined in the Environmental Report;
(iv) there is no condition known to Trustor which is expected to
result in any Release of Hazardous Substances migrating to the
Premises except as described in the Environmental Report;
(v) there is no past or present non-compliance with Environmental
Laws, or with permits issued pursuant thereto, in connection
with the Premises or the Equipment except as described in the
Environmental Report;
(vi) Trustor does not know of, and has not received, any written or
oral notice or other communication from any person or entity
(including, but not limited to, a governmental entity)
relating to Hazardous Substances or Remediation thereof, of
possible liability of any person or entity pursuant to any
Environmental Law, other environmental
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conditions in connection with the Premises or Equipment, or
any actual or potential administrative or judicial proceedings
in connection with any of the foregoing; and,
(vii) Trustor has truthfully and fully provided to Lender, in
writing, any and all information relating to any presence or
Release of Hazardous Materials in, on, under and about the
Premises that is known by Trustor and that is contained in
Trustor's files and records, including but not limited to any
reports relating to Hazardous Substances in, on, under or
about the Premises and/or to the environmental condition of
the Premises.
(b) Trustor shall not install, use, generate, manufacture, produce, store,
Release, discharge or dispose of on, under or about the Premises, or
transport to or from any portion of the Premises, any Hazardous
Substance or allow any other person or entity to do so, except under
conditions permitted by applicable Environmental Laws. Additionally,
except with the prior written consent of Lender, no portion of the
Premises shall be leased, used or occupied for dry cleaning operations
(except for drop off dry cleaning operations in the ordinary course of
business) or the storage of any chemicals used in the dry cleaning
process.
(c) Trustor shall keep and maintain the Premises in compliance with, and
shall not cause or permit the Premises to be in violation of,
applicable Environmental Laws.
(d) Trustor shall promptly provide notice to Lender of:
(i) any proceeding, investigation or inquiry commenced by any
governmental authority with respect to the presence of any
Hazardous Substance on, under or about the Premises or the
migration of any Hazardous Substance to or from adjoining
property to which Trustor has knowledge or has received
notice;
(ii) all claims made or threatened by any person or entity against
Trustor, or to Trustor's knowledge, any other party occupying
the Premises or any portion thereof, or the Premises, relating
to any loss or injury allegedly resulting from any Hazardous
Substance; and
(iii) the discovery of any occurrence or condition on the Premises
or on any real property adjoining or in the vicinity of the
Premises, of which Trustor becomes aware, which might cause
the Premises or any portion thereof to be in violation of any
Environmental Law or subject to any restriction on ownership,
occupancy, transferability or use under any Environmental Law
(collectively, an "Environmental Violation").
(e) Lender and, to the extent authorized by Lender, Trustee may join and
participate in, as a party if Lender so determines, any legal or
administrative proceeding or action concerning the Premises or
Equipment under any Environmental Law. Borrower agrees to bear and
shall pay or reimburse Lender on demand for all Advances and expenses
(including reasonable attorneys' fees) relating to or incurred by
Lender in connection with any such action or proceeding.
(f) Borrower shall indemnify and hold Trustee and Lender and their
respective directors, officers, employees and agents harmless from and
against any and all claims, demands, liabilities, losses,
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damages, judgments, penalties, costs and expenses (including reasonable
attorneys' fees) directly or indirectly arising out of or attributable
to a breach of any warranty, representation or other provision
contained in this Section 2.20 including, without limitation, (i) all
actual and consequential damages, (ii) the costs of any required
Remediation, and (iii) the costs of the preparation and implementation
of any plans for Remediation, closure or other required plans. This
indemnity shall survive the satisfaction, release or extinguishment of
the lien of this Deed of Trust including any extinguishment of such
lien by foreclosure or deed in lieu thereof.
Section 2.21. Environmental Matters; Remedial Work.
(a) If any investigation, site monitoring, containment, cleanup, removal,
restoration or other Remediation of any kind or nature (collectively,
the "Remedial Work") is required to be performed by Trustor under any
applicable Environmental Law because of or in connection with the
current or future presence, suspected presence, release or suspected
release of a Hazardous Substance into the air, soil, ground water,
surface water, or soil vapor on, under or about the Premises or any
portion thereof, Borrower shall promptly commence and diligently
prosecute to completion all such Remedial Work. In all events, such
Remedial Work shall be commenced within 45 days after any demand
therefor by Lender or such shorter period as may be required under any
applicable Environmental Law.
(b) All Remedial Work shall be performed by contractors, and under the
supervision of a consulting engineer, each approved in advance by
Lender. All costs and expenses of such Remedial Work and Lender's
monitoring or review of such Remedial Work (including reasonable
attorneys' fees) shall be paid by Borrower. If Borrower does not timely
commence and diligently prosecute to completion the Remedial Work,
Lender may (but shall not be obligated to) cause such Remedial Work to
be performed. Borrower agrees to bear and shall pay or reimburse Lender
on demand for all Advances and expenses (including reasonable
attorneys' fees) relating to or incurred by Lender in connection with
monitoring, reviewing or performing any Remedial Work.
(c) Except with Lender's prior consent (not to be unreasonably withheld),
Trustor shall not commence any Remedial Work or enter into any
settlement agreement, consent decree or other compromise relating to
any Hazardous Substances or Environmental Laws which might, in Lender's
sole judgment, impair the value of Lender's security hereunder.
Lender's prior consent shall not be required, however, if the presence
or threatened presence of Hazardous Substances on, under or about the
Premises poses an immediate threat to the health, safety or welfare of
any person or is of such a nature that an immediate remedial response
is necessary, and it is not possible to obtain Lender's prior consent.
In such event Trustor shall notify Lender as soon as practicable of any
action taken.
Section 2.22. Environmental Matters; Inspection.
(a) Lender shall have the right at all reasonable times to enter upon and
inspect all or any portion of the Premises, provided that Lender makes
an appointment through the general manager of the hotel after
reasonable notice and that such inspections shall not unreasonably
interfere with the normal business operations of the Premises. Lender
may select a consulting engineer to
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conduct and prepare reports of such inspections. The inspection rights
granted to Lender in this Section 2.22 shall be in addition to, and not
in limitation of, any other inspection rights granted to Lender in this
Deed of Trust, and shall expressly include the right to conduct
reasonable soil borings and other customary environmental tests,
assessments and audits, so long as Lender restores the Mortgaged
Property to its previous condition.
(b) Borrower agrees to bear and shall pay or reimburse Lender on demand for
all Advances and expenses (including reasonable attorneys' fees)
relating to or incurred by Lender in connection with the inspections
and reports described in this Section 2.22 in the following situations:
(i) If Lender has reasonable grounds to believe, at the time any
such inspection is ordered, that there exists an Environmental
Violation or that a Hazardous Substance is present on, under
or about the Premises or is migrating to or from adjoining
property, except under conditions permitted by applicable
Environmental Laws and not prohibited by any Loan Document;
(ii) if any such inspection reveals an Environmental Violation or
that a Hazardous Substance is present on, under or about the
Premises or is migrating to or from adjoining property, except
under conditions permitted by applicable Environmental Laws
and not prohibited by any Loan Document; or
(iii) if an Event of Default exists at the time any such inspection
is ordered.
Section 2.23. Management. At all times prior to the payment in full of
the Indebtedness, the Mortgaged Property shall be managed by Promus or another
management company satisfactory to Lender, and pursuant to the Management
Agreement or another management agreement reasonably satisfactory to Lender.
Such management agreement, and any leasing commissions agreement affecting the
Mortgaged Property, shall be subordinate to this Deed of Trust.
Section 2.24. ERISA. As of the date hereof and throughout the term of
this Deed of Trust, (i) Trustor is not and will not be an "employee benefit
plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA:
(ii) the assets of Trustor do not and will not constitute "plan assets" of one
or more such plans for purposes of Title I of ERISA: (iii) Trustor is not and
will not be a "governmental plan" within the meaning of Section 3(3) of ERISA;
(iv) transactions by or with Trustor are not and will not be subject to state
statutes applicable to Borrower regulating investments of fiduciaries with
respect to governmental plans; and (v) Trustor shall not engage in any
transaction which would cause any obligation, or action taken or to be taken,
hereunder (or the exercise by Lender of any of its rights under this Deed of
Trust, the Note, or the other Loan Documents) to be a non-exempt (under a
statutory or administrative class exemption) prohibited transaction under ERISA.
Trustor further agrees to deliver to Lender such certifications or other
evidence of compliance with the provisions of this Section 2.24 as Lender may
from time to time request.
Section 2.25. Operating Agreements. In connection with the Operating
Agreements, Trustor acknowledges and agrees as follows:
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(a) no Operating Agreement shall be amended, modified, supplemented,
restated or otherwise altered by Trustor, nor shall Trustor consent or
otherwise acquiesce in any of the foregoing, without in each instance
Beneficiary's prior written consent, which consent shall not be
unreasonably withheld;
(b) no Operating Agreement shall be terminated by Trustor unless such
terminated Operating Agreement is replaced with a similar agreement
upon terms and conditions, and with such third parties, as are
reasonably acceptable to Lender;
(c) Trustor will deliver to Beneficiary, at the same time received or sent
by Trustor, copies of all notices, demands or requests sent or
otherwise made by Trustor or any other Person under or pursuant to any
Operating Agreement;
(d) the term of any Operating Agreement shall not be extended or otherwise
renewed by Trustor (unless pursuant to a right currently afforded
Trustor thereunder) without in each instance Beneficiary's prior
written consent provided, however, Borrower hereby acknowledges that
the Primary Lease shall expire prior to the maturity date of the Note
and Borrower hereby agrees and covenants to extend the term of the
Primary Lease or enter into a new primary lease with a Qualified Hotel
Operator on or before one hundred twenty (120) days before the
expiration of the Primary Lease. So long as the extension of the
Primary Lease or the new primary lease with a Qualified Hotel Operator
provides for rental rates comparable to the Primary Lease or not less
than the rental rates generally being paid in the market for similar
operator leases with hotel real estate investment trusts, and is
otherwise substantially in the same form as the Primary Lease,
Beneficiary's approval shall not be required, but Beneficiary shall be
notified and furnished with a copy of the extended Primary Lease or the
new primary lease with a Qualified Hotel Operator. In all other
instances, Beneficiary's prior written approval with respect to the
extended Primary Lease or the new primary lease shall be required, such
approval not to be unreasonably withheld;
(e) Trustor agrees to observe, perform and discharge all obligations,
covenants and warranties required to be kept and performed by Trustor
under the Operating Agreements; and
(f) Borrower shall use best efforts to enforce or secure the performance of
each and every material obligation, term, covenant, condition and
agreement to be performed by any other party to any of the Operating
Agreements.
Section 2.26 Ground Lease. Trustor shall at the times fully and
promptly perform and comply with all obligations of Trustor as landlord or
tenant under the Ground Lease, without relying on any grace period provided
therein, and that Trustor will do or cause to be done all things necessary to
preserve and keep unimpaired the rights of tenant thereunder and to prevent
cancellation, forfeiture or impairment thereof, and that if Trustor shall fail
so to do Beneficiary may (but shall not be obligated to) take any such action,
without awaiting the expiration of any grace period, as Beneficiary deems
necessary or desirable to prevent or to cure any default by Trustor thereunder;
that upon receipt by Beneficiary from the landlord under the Ground Lease of any
written notice of default by tenant, Beneficiary may rely thereon and take any
such action even though the existence of such default or the nature thereof be
questioned or denied by or on behalf of Trustor; that Trustor hereby expressly
grants
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to Beneficiary and agrees that Beneficiary shall have, the absolute and
immediate right to enter in and upon the Mortgaged Property or any part thereof
to such extent and as often as Beneficiary, in its sole discretion, deems
necessary or desirable in order to prevent or to cure any such default by
Trustor; that Borrower shall pay to Beneficiary immediately pursuant to this
Section 2.26, with interest thereon from the date of each such payment at the
Default Rate; that all sums so paid and expended by Beneficiary, and the
interest thereon, shall be added to and be secured by the lien of this Deed of
Trust and Beneficiary shall be subrogated as to such payment to the rights of
Trustor; that Trustor shall not modify or voluntarily terminate or surrender the
Ground Lease without prior written consent of Beneficiary; that Trustor hereby
assigns and mortgages to Beneficiary all of Trustor's right and power to modify
or voluntarily terminate the Ground Lease, or to surrender the Ground Lease; and
that, subject to Section 4.03(l), Borrower shall indemnify and hold Beneficiary
harmless from and against any and all claim, loss, cost and expense (including
reasonable attorneys' fees) arising out of any modification or voluntary
termination or surrender of the Ground Lease, without prior written consent of
Beneficiary.
Section 2.27. Additional Bankruptcy Protections. Borrower hereby (a)
absolutely assigns to Lender all of Borrower's right to make any election under
Section 365 of Federal Bankruptcy Code following any rejection of the Ground
Lease by Ground Owner in any bankruptcy or similar proceeding filed by or
against Ground Owner; and (b) grants Lender a security interest in and first
lien on (i) any claims, damages and other rights available to Borrower in any
such proceeding filed by or against Ground Owner; and (ii) all rights of
Borrower to remain in possession of the Mortgaged Property under Section
365(h)(1)(A) of the Federal Bankruptcy Code following any such rejection. Ground
Owner acknowledges and agrees that the term "possession" under Section 365(h)(1)
of the Federal Bankruptcy Code must be construed broadly to cover and include
possession by any subtenants of the Mortgaged Property.
Section 2.28. Single-Purpose Entity. Borrower shall at all times be a
Single-Purpose Entity.
ARTICLE III
Security Agreement
Section 3.01. Warranties, Representations and Covenants of Trustor.
Trustor covenants, warrants, represents and agrees with and to Trustee and
Lender as follows:
(a) This Deed of Trust constitutes a security agreement under the Code and
serves as a fixture filing in accordance with the Code. This Deed of
Trust creates a security interest in favor of Lender as secured party
under the Code with respect to all property (specifically including the
Collateral) included in the Mortgaged Property which is covered by the
Code. The mention of any portion of the Mortgaged Property in a
financing statement filed in the records normally pertaining to
personal property shall not derogate from or impair in any manner the
intention of Trustor and Lender hereby declared that all items of
Collateral described in this Deed of Trust are part of the real
property encumbered hereby to the fullest extent permitted by law,
regardless of whether any such item is physically attached to the
Improvements or whether serial numbers are used for the better
identification of certain items. Specifically, the mention in any such
financing statement of (i) the rights in or the Proceeds of any policy
of insurance, (ii)
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any condemnation Proceeds, (iii) Trustor 's interest in any Leases or
Property Income, or (iv) any other item included in the Mortgaged
Property, shall not be construed to alter, impair or impugn any rights
of Lender as determined by this Deed of Trust or the priority of
Lender's lien upon and security interest in the Mortgaged Property. Any
such mention shall be for the protection of Lender in the event that
notice of Lender's priority of interest as to any portion of the
Mortgaged Property is required to be filed in accordance with the Code
to be effective against or take priority over the interest of any
particular class of persons, including the federal government or any
subdivision or instrumentality thereof.
(b) Except for the security interest granted by the Loan Documents, Trustor
is and, as to portions of the Collateral to be acquired after the date
hereof, will be the sole owner of the Collateral, free from any lien,
security interest, encumbrance or adverse claim thereon of any kind
whatsoever except Permitted Encumbrances. Trustor shall notify Lender
of, and shall defend the Collateral against, all claims and demands of
all persons at any time claiming the same or any interest therein.
Notwithstanding anything to the contrary contained in the Loan
Documents, Borrower shall have the right during the term of the Loan to
secure the purchase of up to $300,000 of Equipment for the Mortgaged
Property with secondary financing including equipment leases.
(c) Except as otherwise provided in this Deed of Trust, Trustor shall not
lease, sell, convey or in any manner transfer the Collateral without
the prior consent of Lender.
(d) The Collateral is not used or bought for personal, family or household
purposes.
(e) The Collateral shall be kept on or at the Premises, and Trustor shall
not remove the Collateral from the Premises without the prior consent
of Lender, except such portions or items of the Collateral as are
consumed or worn out in ordinary usage, all of which shall be promptly
replaced by Trustor with items of equal or greater value.
(f) In the event of any change in name, identity or structure of Trustor,
Trustor shall notify Lender thereof and promptly after request shall
execute, file and record such Code forms as are necessary to maintain
the priority of Lender's lien upon and security interest in the
Collateral, and shall pay all reasonable expenses and fees in
connection with the filing and recording thereof. If Lender shall
require the filing or recording of additional Code forms or
continuation statements, Trustor shall, promptly after request,
execute, file and record such Code forms or continuation statements as
Lender shall deem necessary (subject to Lender's right to sign such
statements on behalf of Trustor as provided in Subsection 3.01(g)), and
shall pay all reasonable expenses and fees in connection with the
filing and recording thereof. If Lender shall initially pay such
expenses, Borrower shall promptly reimburse Lender for the expenses.
(g) Trustor hereby irrevocably appoints Lender as its attorney-in-fact,
coupled with an interest, to execute in the name of and on behalf of
Trustor any and all financing statements and continuations thereof and
to file with the appropriate public office on its behalf and at its
expense any financing or other statements signed only by Lender, as
secured party, in connection with the Collateral covered by this Deed
of Trust.
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Section 3.02. Financing Statements. A CARBON, PHOTOGRAPHIC OR OTHER
REPRODUCTION OF THIS DEED OF TRUST OR ANY FINANCING STATEMENT RELATING TO THIS
DEED OF TRUST SHALL BE SUFFICIENT AS A FINANCING STATEMENT.
Section 3.03. Addresses. The mailing address of Trustor and the address
of Lender from which information concerning the security interest granted hereby
may be obtained are set forth on the Cover Sheet of this Deed of Trust. Trustor
maintains its sole place of business or its chief executive office at the
address shown on said Cover Sheet, and Trustor shall immediately notify Lender
in writing of any change in said place of business or chief executive office.
ARTICLE IV
Default and Remedies
Section 4.01. Events of Default. Each of the following shall, after the
expiration of any notice and cure period provided for in the Note, constitute an
Event of Default under this Deed of Trust, the Note and the other Loan
Documents:
(a) failure in the payment of any amount due as and when due under this
Deed of Trust, the Note or any other Loan Document;
(b) failure to pay any Imposition as and when due or to maintain insurance
as required by this Deed of Trust;
(c) default in the due observance or performance of any term, covenant or
condition contained in this Deed of Trust, the Note or any other Loan
Document;
(d) if any representation made herein or in any other Loan Document shall
prove to be untrue in any material respect;
(e) violation of any of the covenants set forth in Section 2.17 with
respect to conveyances, sales, encumbrances or other prohibited
dispositions of the Mortgaged Property or Trustor or any portion
thereof or any interest therein;
(f) violation of any of the covenants set forth in Section 2.19(a) with
respect to the further assignment, transfer or encumbrance by Trustor
of the Leases or the Property Income or any portion thereof;
(g) violation of any of the covenants set forth as items (i) through (vi)
of Section 2.19(c) with respect to certain actions concerning Leases
which shall not be taken by Trustor without the prior consent of
Lender;
(h) if Borrower, any general partner of Borrower or Guarantor consents to
the filing of, or commences or consents to the commencement of, any
Bankruptcy Proceeding with respect to Borrower or Guarantor;
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(i) if any Bankruptcy Proceeding shall have been filed against Borrower,
any general partner of Borrower or Guarantor and the same is not
withdrawn, dismissed, canceled or terminated within 90 days of such
filing;
(j) if Borrower, any general partner of Borrower or Guarantor is
adjudicated bankrupt or insolvent or a petition for reorganization of
Borrower or any such general partner or Guarantor is granted;
(k) if a receiver, liquidator or trustee of Borrower, any general partner
of Borrower or Guarantor or of any of the properties of Borrower or any
such general partner or Guarantor shall be appointed;
(l) if Borrower, any general partner of Borrower or Guarantor shall make an
assignment for the benefit of its creditors or shall admit in writing
the inability to pay its debts generally as they become due;
(m) except as otherwise permitted herein, if Borrower, any general partner
of Borrower, or Guarantor shall die or shall institute or cause to be
instituted any proceeding for the termination or dissolution of
Borrower or any such general partner or Guarantor;
(n) if a default or event of default shall occur under any mortgage, deed
of trust, encumbrance, lien or security agreement (except for equipment
leases) encumbering all or any portion of the Mortgaged Property which
is subordinate or superior to the lien of this Deed of Trust or if any
party under any such instrument shall commence a foreclosure or other
collection or enforcement action in connection therewith, provided,
however, that this provision shall not be deemed to be a waiver of the
provisions of Section 2.17 prohibiting further encumbrances or of any
other provision of this Deed of Trust, it being understood that it is
an event of default under this Deed of Trust to permit any further
mortgage, encumbrance, lien or security agreement to encumber all or
any portion of the Mortgaged Property except as expressly permitted
herein;
(o) except as permitted in this Deed of Trust, the actual or threatened
alteration, demolition or removal of any of the Improvements without
the prior consent of Lender, which shall not be unreasonably withheld;
(p) damage to any of the Mortgaged Property in any manner which is not
covered by insurance as a result of Borrower's failure to maintain
insurance required in accordance with this Deed of Trust;
(q) if a default shall occur under any of the Related Loan Documents;
(r) default by DJONT Operations in the due observance or performance of any
term, covenant or condition contained in any Operating Agreement or the
Agreement Concerning Primary Lease Agreement without Borrower timely
curing such default pursuant to its contractual rights to do so; or
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(s) default by Guarantor in the due observance or performance of any term,
covenant or condition contained in any separate guaranty or separate
indemnity agreement executed by Guarantor in connection with the Loan.
In the event of a conflict between the provisions of this Section
4.01., and the provisions of the Note, the provisions of the Note shall control.
Section 4.02. Remedies. Upon the occurrence of any Event of Default,
Lender may take such actions against Trustor and/or the Mortgaged Property or
any portion thereof as it deems advisable, subject to Section 11 of the Note, to
protect and enforce its rights against Trustor and in and to the Mortgaged
Property, without notice or demand except as set forth below. Any such actions
taken by Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its sole discretion, to the fullest extent
permitted by law, without impairing or otherwise affecting the other rights and
remedies of Lender permitted by law, equity or contract or as set forth herein
or in the other Loan Documents. All actions shall be subject to Section 11 of
the Note and may include the following:
(a) Subject to any applicable provisions of the Note, Lender may declare
the entire principal balance under the Note then unpaid, together with
all accrued and unpaid interest thereon, and all other unpaid
Indebtedness, to be immediately due and payable.
(b) Lender may enter into or upon the Mortgaged Property, personally or by
its agents, nominees or attorneys, and may dispossess Trustor and its
agents and servants therefrom, and thereupon Lender at its sole
discretion may: (i) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every portion of the
Mortgaged Property and conduct business thereon, in any case either in
the name of Lender or in such other name as Lender shall deem best;
(ii) complete any construction on the Mortgaged Property in such manner
and form as Lender deems advisable; (iii) make alterations, additions,
renewals, replacements and improvements to or on the Mortgaged
Property; (iv) exercise all rights and powers of Trustor with respect
to the Mortgaged Property, whether in the name of Trustor or otherwise,
including the right to make, cancel, enforce or modify Leases, obtain
and evict tenants, and demand, sue for, collect and receive all
Property Income; and (v) apply the receipts of Property Income to the
payment of the Indebtedness (including any prepayment fee payable under
the Note) in such order as Lender shall determine in its sole
discretion, after deducting therefrom all expenses (including
reasonable attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Impositions, insurance
and other charges in connection with the Mortgaged Property, as well as
just and reasonable compensation for the services of Lender, its
agents, nominees and attorneys.
(c) Subject to any applicable provisions of the Note, with or without
entry, personally or by its agents, nominees or attorneys, Lender may
require Trustee to sell all or any portion of the Mortgaged Property
and all or any portion of Trustor's estate, right, title, interest,
claim and demand therein and right of redemption thereof at one or more
private or public sales in the manner and to the extent permitted by
law, as an entirety or in parcels or portions, and Trustee shall have
any statutory power of sale as may be provided by law in the State.
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(d) Subject to any applicable provisions of the Note, Lender may institute
proceedings for the complete foreclosure of this Deed of Trust, in
which case the Mortgaged Property may be sold for cash or upon credit,
as an entirety or in parcels or portions.
(e) Intentionally Deleted.
(f) Lender may institute, or require Trustee to institute, an action, suit
or proceeding at law or in equity for the specific performance of any
covenant, condition or agreement contained herein or in the Note or any
other Loan Document, or in aid of the execution of any power granted
hereunder or for the enforcement of any other appropriate legal or
equitable remedy.
(g) Lender and Trustee shall have the rights and may take such actions as
are set forth, described or referred to in any rider entitled "Rider -
Applicable State Law Provisions" attached hereto and made a part
hereof, or as are permitted by the laws of the State.
(h) Subject to any applicable provisions of the Note, Lender may recover
judgment on the Note, either before, during or after any proceedings
for the foreclosure or enforcement of this Deed of Trust.
(i) Lender may secure the appointment of a receiver, trustee, liquidator or
similar official of the Mortgaged Property or any portion thereof, and
Trustor hereby consents and agrees to such appointment, without notice
to Trustor and without regard to the adequacy of the security for the
Indebtedness and without regard to the solvency of Trustor or any other
person, firm or entity liable for the payment of the Indebtedness, and
such receiver or other official shall have all rights and powers
permitted by applicable law and such other rights and powers as the
court making such appointment may confer, but the appointment of such
receiver or other official shall not impair or in any manner prejudice
the rights of Lender to receive the Property Income pursuant to this
Deed of Trust or the Assignment.
(j) Lender may exercise any or all of the remedies available to a secured
party under the Code, but any sale of the Equipment shall be subject to
any applicable provisions of the Note.
(k) Lender may pursue, or require Trustee to pursue, any other rights and
remedies of Lender permitted by law, equity or contract or as set forth
herein or in the other Loan Documents.
(l) Lender may apply any funds then on deposit with Lender for payment of
Impositions, ground rent or insurance premiums in the manner provided
for in Section 2.07.
(m) Lender in its sole discretion may surrender any insurance policies and
collect the unearned premiums and apply such sums against the
Indebtedness.
Section 4.03. General Provisions Regarding Remedies.
(a) Effect of Judgment. No recovery of any judgment by Lender or Trustee
and no levy of an execution under any judgment upon the Mortgaged
Property or upon any other property of
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Trustor shall affect in any manner or to any extent the lien of this
Deed of Trust upon the Mortgaged Property or any portion thereof, or
any rights, powers or remedies of Lender or Trustee hereunder. Such
lien, rights, powers and remedies of Lender and Trustee shall continue
unimpaired as before.
(b) Continuing Power of Sale. The power of sale conferred upon Lender in
this Deed of Trust shall not be exhausted by any one or more sales as
to any portion of the Mortgaged Property remaining unsold, but shall
continue unimpaired until all of the Mortgaged Property is sold or all
of the Indebtedness is paid.
(c) Right to Purchase. At any sale of the Mortgaged Property or any portion
thereof pursuant to the provisions of this Deed of Trust, Lender or
Trustee shall have the right to purchase the Mortgaged Property being
sold, and in such case shall have the right to credit against the
amount of the bid made therefor (to the extent necessary) all or any
portion of the Indebtedness then due.
(d) Right to Terminate Proceedings. Lender or Trustee may terminate or
rescind any proceeding or other action brought in connection with its
exercise of the remedies provided in Section 4.02 at any time before
the conclusion thereof, as determined in Lender's sole discretion and
without prejudice to Lender.
(e) No Waiver or Release. Lender may resort, or require Trustee to resort,
to any remedies and the security given by the Loan Documents, in whole
or in part, and in such portions and in such order as determined in
Lender's sole discretion. No such action shall in any way be considered
a waiver of any rights, benefits or remedies evidenced or provided by
the Loan Documents. The failure of Lender or Trustee to exercise any
right, remedy or option provided in the Loan Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or
obligation secured by the Loan Documents. No acceptance by Lender or
Trustee of any payment after the occurrence of an Event of Default and
no payment by Lender or Trustee of any Advance or obligation for which
Borrower is liable hereunder shall be deemed to waive or cure such
Event of Default or Borrower's liability to pay such obligation. No
sale of all or any portion of the Mortgaged Property, no forbearance on
the part of Lender or Trustee, and no extension of time for the payment
of the whole or any portion of the Indebtedness or any other indulgence
given by Lender or Trustee to Borrower or any other person or entity,
shall operate to release or in any manner affect Lender's or Trustee's
interest in the Mortgaged Property or the liability of Borrower to pay
the Indebtedness, except to the extent that such liability shall be
reduced by Proceeds of the sale of all or any portion of the Mortgaged
Property received by Lender. No waiver by Lender or Trustee shall be
effective unless it is in writing and then only to the extent
specifically stated.
(f) No Impairment; No Release. The interests and rights of Lender or
Trustee under the Loan Documents shall not be impaired by any
indulgence, including (i) any renewal, extension or modification which
Lender may grant with respect to any of the Indebtedness; (ii) any
surrender, compromise, release, renewal, extension, exchange or
substitution which Lender or Trustee may grant with respect to the
Mortgaged Property or any portion thereof; or (iii) any release or
indulgence granted to any maker, endorser, guarantor or surety of any
of the
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Indebtedness. Subject to Section 11 of the Note, if the Mortgaged
Property is sold and Lender enters into any agreement with the then
owner of the Mortgaged Property extending the time of payment of the
Indebtedness, or otherwise modifying the terms hereof or of any other
Loan Document, Borrower shall continue to be liable to pay the
Indebtedness according to the tenor of any such agreement unless
expressly released and discharged in writing by Lender.
(g) WAIVERS AND AGREEMENTS REGARDING REMEDIES. TO THE FULLEST EXTENT THAT
TRUSTOR MAY LEGALLY DO SO, TRUSTOR:
(i) AGREES THAT TRUSTOR WILL NOT AT ANY TIME INSIST UPON, PLEAD,
CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF ANY LAWS NOW OR
HEREAFTER IN FORCE PROVIDING FOR ANY APPRAISAL OR
APPRAISEMENT, VALUATION, STAY, EXTENSION OR REDEMPTION, AND
WAIVES AND RELEASES ALL RIGHTS OF REDEMPTION, VALUATION,
APPRAISAL OR APPRAISEMENT, STAY OF EXECUTION, EXTENSION AND
NOTICE OF ELECTION TO ACCELERATE OR DECLARE DUE THE WHOLE OF
THE INDEBTEDNESS;
(ii) WAIVES ALL RIGHTS TO A MARSHALLING OF THE ASSETS OF TRUSTOR,
TRUSTOR 'S PARTNERS, IF ANY, AND OTHERS WITH INTERESTS IN
TRUSTOR, INCLUDING THE MORTGAGED PROPERTY, OR TO A SALE IN
INVERSE ORDER OF ALIENATION IN THE EVENT OF FORECLOSURE OF THE
INTERESTS HEREBY CREATED, AND AGREES NOT TO ASSERT ANY RIGHT
UNDER ANY LAWS PERTAINING TO THE MARSHALLING OF ASSETS, THE
SALE IN INVERSE ORDER OF ALIENATION, HOMESTEAD EXEMPTION, THE
ADMINISTRATION OF ESTATES OF DECEDENTS, OR ANY OTHER MATTERS
WHATSOEVER TO DEFEAT, REDUCE OR AFFECT THE RIGHT OF LENDER
UNDER THE LOAN DOCUMENTS TO A SALE OF THE MORTGAGED PROPERTY
FOR THE COLLECTION OF THE INDEBTEDNESS WITHOUT ANY PRIOR OR
DIFFERENT RESORT FOR COLLECTION, OR THE RIGHT OF LENDER OR
TRUSTEE TO THE PAYMENT OF THE INDEBTEDNESS OUT OF THE PROCEEDS
OF SALE OF THE MORTGAGED PROPERTY IN PREFERENCE TO EVERY OTHER
CLAIMANT WHATSOEVER;
(iii) WAIVES ANY RIGHT TO BRING OR UTILIZE ANY DEFENSE, COUNTERCLAIM
OR SETOFF, OTHER THAN ONE IN GOOD FAITH, WHICH DENIES THE
EXISTENCE OR SUFFICIENCY OF THE FACTS UPON WHICH THE
FORECLOSURE ACTION IS GROUNDED OR WHICH IS BASED ON LENDER'S
OR TRUSTEE'S WRONGFUL ACTIONS. IF ANY DEFENSE, COUNTERCLAIM OR
SETOFF (OTHER THAN ONE PERMITTED BY THE PRECEDING SENTENCE) IS
RAISED BY TRUSTOR IN SUCH FORECLOSURE ACTION, SUCH DEFENSE,
COUNTERCLAIM OR SETOFF SHALL BE DISMISSED. IF SUCH DEFENSE,
COUNTERCLAIM OR SETOFF IS BASED ON A CLAIM WHICH COULD BE
TRIED IN AN ACTION FOR MONEY DAMAGES, THE FOREGOING WAIVER
SHALL NOT
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BAR A SEPARATE ACTION FOR SUCH DAMAGE (UNLESS SUCH CLAIM IS
REQUIRED BY LAW OR APPLICABLE RULES OF PROCEDURE TO BE PLEADED
IN OR CONSOLIDATED WITH THE ACTION INITIATED BY LENDER OR
TRUSTEE), BUT SUCH SEPARATE ACTION SHALL NOT THEREAFTER BE
CONSOLIDATED WITH LENDER'S OR TRUSTEE'S FORECLOSURE ACTION.
THE BRINGING OF SUCH SEPARATE ACTION FOR MONEY DAMAGES SHALL
NOT BE DEEMED TO AFFORD ANY GROUNDS FOR STAYING ANY SUCH
FORECLOSURE ACTION;
(iv) WAIVES AND RELINQUISHES ANY AND ALL RIGHTS AND REMEDIES WHICH
TRUSTOR MAY HAVE OR BE ABLE TO ASSERT BY REASON OF THE
PROVISIONS OF ANY LAWS PERTAINING TO THE RIGHTS AND REMEDIES
OF SURETIES;
(v) WAIVES THE DEFENSE OF LACHES AND ANY APPLICABLE STATUTES OF
LIMITATION; AND
(vi) WAIVES ANY RIGHT TO HAVE ANY TRIAL, ACTION OR PROCEEDING TRIED
BY A JURY.
(h) Lender's Discretion. Lender may exercise its rights, options and
remedies and may make all decisions, judgments and determinations under
this Deed of Trust and the other Loan Documents in its sole unfettered
discretion.
(i) Recitals of Facts. In the event of a sale or other disposition of the
Mortgaged Property pursuant to Section 4.02 and the execution of a deed
or other conveyance pursuant thereto, the recitals therein of facts
(such as default, the giving of notice of default and notice of sale,
demand that such sale should be made, postponement of sale, terms of
sale, purchase, payment of purchase money and other facts affecting the
regularity or validity of such sale or disposition) shall be prima
facie evidence against all persons as to such facts recited therein.
(j) Lender's Right to Waive, Consent or Release. Lender may at any time, in
writing, (i) waive compliance by Trustor with any covenant herein made
by Trustor to the extent and in the manner specified in such writing;
(ii) consent to Trustor's doing any act which Trustor is prohibited
hereunder from doing, or consent to Trustor's failing to do any act
which Trustor is required hereunder to do, to the extent and in the
manner specified in such writing; or (iii) release or require Trustee
to release any portion of the Mortgaged Property, or any interest
therein, from this Deed of Trust and the lien of the other Loan
Documents. No such act shall in any way impair the rights of Lender or
Trustee hereunder except to the extent specified by Lender in such
writing.
(k) Possession of the Mortgaged Property. Upon the occurrence of any Event
of Default hereunder and demand by Lender at its option, Trustor shall
immediately surrender or cause the surrender of possession of the
Premises to Lender subject to the Permitted Encumbrances. Except as
expressly provided in any separate written agreement between Lender and
any other
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occupant of the Premises, if Trustor or such occupant is permitted to
remain in possession, such possession shall be as tenant of Lender and
such occupant (i) shall on demand pay to Lender monthly, in advance,
reasonable use and occupancy charges for the space so occupied, and
(ii) in default thereof, may be dispossessed by the usual summary
proceedings. Upon demand, Trustor shall assemble the Collateral and
make it available at the Premises to allow Lender to take possession
and/or dispose of the Collateral. The covenants herein contained may be
enforced by a receiver of the Mortgaged Property or any portion
thereof. Nothing in this Section 4.03(k) shall be deemed a waiver of
the provisions of this Deed of Trust prohibiting the sale or other
disposition of the Mortgaged Property without Lender's consent except
as and to the extent expressly permitted in the Loan Documents.
(l) Limitations on Liability
(i) Notwithstanding anything to the contrary contained in any of
the Loan Documents or the Related Loan Documents but subject
to the provisions of this Section 4.03(l), in any action or
proceedings brought on this Deed of Trust, the Note or on any
of the Loan Documents in which a money judgment is sought,
Lender and Trustee will look solely to the Mortgaged Property
(including the Property Income) for payment of the
Indebtedness and, specifically and without limitation, Lender
and Trustee agree to waive any right to seek or obtain a
deficiency judgment against Trustor.
(ii) The provisions of Section 4.03(1)(i) shall not
(u) constitute a waiver, release or impairment of any
obligation evidenced or secured by this Deed of Trust, the
Note or any other Loan Document by either Lender or Trustee to
the extent of the Mortgaged Property securing such obligation;
(v) be deemed to be a waiver of any right which Lender or
Trustee may have under Sections 506(a), 506(b), 1111(b) or any
other provisions of the U.S. Bankruptcy Code to file a claim
for the full amount of the Indebtedness secured by this Deed
of Trust or to require that all Collateral shall continue to
secure all of the Indebtedness owing to Lender in accordance
with the Note, this Deed of Trust and the Loan Documents;
(w) impair the right of the Lender or Trustee to name the
Trustor or any principals of Trustor or any guarantor of the
Note as a party or parties defendant in any action or suit for
judicial foreclosure and sale under this Deed of Trust;
(x) affect the validity or enforceability of, or limit
recovery under, any separate indemnity agreement (including
the environmental indemnity set forth in any separate
environmental indemnity agreement, however designated), or
guaranty made in connection with this Deed of Trust, the Note
or the Loan Documents;
(y) impair the right of the Lender or Trustee to obtain the
appointment of a receiver; or,
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(z) impair Lender's or Trustee's rights and remedies under
Section 2.19 of this Deed of Trust regarding the assignment of
Leases and Property Income to Lender or under the Assignment.
(iii) Notwithstanding any provisions of this Subsection 4.03(l),
nothing herein shall be deemed to impair or prejudice in any
way the right of Lender or Trustee (which right is
specifically reserved) to pursue or obtain personal recourse
liability against Borrower, or Guarantor to recover Losses
incurred by Lender or Trustee arising out of or resulting
from:
(u) obligations and liabilities under any separate guaranty or
separate indemnity agreement;
(v) fraud or material misrepresentation in connection with the
Application or the making of the Loan;
(w) insurance and/or condemnation proceeds received but not
paid over or applied in accordance with the Loan Documents;
(x) misappropriation of any security deposits, advances or
prepaid rents, cancellation or termination payments or other
similar sums received by Borrower from any tenants or other
occupants of the Premises;
(y) personal property covered by Lender's security interest
obtained in connection with the Loan which is taken from the
Mortgaged Property by or on behalf of Borrower and not
replaced in the ordinary course of business with personal
property of the same utility and of the same or greater value;
(z) any act of arson, malicious destruction or material waste
by Borrower, any principal, affiliate, member or general or
limited partner of Borrower, or by any guarantor or indemnitor
under any of the Loan Documents given to Lender in connection
with the making of the Loan;
(aa) revenues of the Mortgaged Property which are not applied
to payments due under the Loan or to operating expenses of the
Mortgaged Property (including, without limitation, any
reserves or escrows required by any Loan Document) thereby
resulting in, or contributing materially to, a default under
the Loan Documents. Lender, however, shall have no right to
recover distributions from the revenues of the Mortgaged
Property to Trustor or Guarantor or any principal of Trustor
or Guarantor made in good faith (after determining the
sufficiency of revenues to cover the payments on the Loan and
the foregoing operating and capital expenses) more than ninety
(90) days prior to a default occurring under any Loan
Document;
(bb) DJONT Operations' pledge in violation of the Loan
Documents of the revenues or operating accounts relating to
the Mortgaged Property, Lessee's
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Personal Property (as defined in the Primary Lease) or any
other rights of DJONT Operations under the Primary Lease or
DJONT Operations' failure to keep all of the foregoing lien
free in violation of the Loan Documents;
(cc) Borrower's failure to (i) extend the term of the Primary
Lease in accordance with Section 2.25 of this Deed of Trust,
or (ii) enter into a new Primary Lease in accordance with
Section 2.25 of this Deed of Trust;
(dd) DJONT Operations' failure to (i) extend the term of the
Management Agreement in accordance with Section 2.09 of the
Agreement Concerning Primary Lease Agreement, or (ii) enter
into a new Management Agreement in accordance with Section
2.09 of the Agreement Concerning Primary Lease Agreement;
(ee) DJONT Operations' failure to (i) extend the term of the
License Agreement in accordance with Section 2.10 of the
Agreement Concerning Primary Lease Agreement, or (ii) enter
into a new License Agreement in accordance with Section 2.10
of the Agreement Concerning Primary Lease Agreement;
(ff) any fraudulent conveyance or transfer (or claim of any
fraudulent conveyance or transfer) of any of the Mortgaged
Properties (or any interest therein) to Borrower;
(gg) the bankruptcy or insolvency of any fee owner of any of
the Mortgaged Properties other than Borrower;
(hh) the bankruptcy or insolvency of any Adjoining Condominium
Unit Owner (as defined in the Dallas Love Field Mortgage); or
(ii) any transfer or mortgage tax (or claim of any transfer or
mortgage tax) arising from the transfer to Borrower or
mortgage by the fee owner or Borrower of any of the Mortgaged
Properties or any interest therein.
(iv) Notwithstanding the foregoing and subject to the last sentence
of this paragraph, the agreement of Lender and Trustee not to
pursue recourse liability as set forth in Section 4.03(l)(i)
above SHALL AUTOMATICALLY BECOME NULL AND VOID and be of no
further force and effect in the event (x) Borrower, any
general partner or member (if Borrower shall be a limited
liability company) of Borrower or any guarantor of the
Indebtedness files or consents to the filing of any petition
under the U.S. Bankruptcy Code respecting its or their debts,
or (y) any such petition shall have been filed against any of
the foregoing which is not dismissed within 90 days of such
filing; except for an involuntary bankruptcy filed by Lender
and provided further, that if: (1) after ninety (90) days
following the filing of an involuntary bankruptcy proceeding,
such proceeding is dismissed with prejudice and without
adversely affecting the enforceability or priority of any of
the Loan Documents; and (2) such dismissal occurs prior to the
occurrence of any of the following: (v) the entry of any order
that adversely affects the enforceability or priority of any
of the Loan
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Documents (other than solely by reason of the automatic stay),
(w) the entry of any order granting any person relief from the
automatic stay to foreclose against, enforce any lien or
security interest, levy upon, or repossess any material assets
of Borrower that constitute a part of, or that relate to the
Mortgaged Properties, or to terminate any Management
Agreement, License Agreement or Primary Lease, (x) the
liquidation of any material assets of Borrower that constitute
a part of, or that relate to, the Mortgaged Properties, (y)
the entry of any order approving the rejection or termination
of any Primary Lease or any Management Agreement, or (z) the
entry of any order approving any plan of reorganization for
Borrower; and (3) throughout the period following the filing
of such bankruptcy proceeding, Borrower or one or more of
Borrower and persons or entities having an interest in
Borrower have continued to make regular payments of debt
service on a timely basis in accordance with the provisions of
the Loan Documents. Borrower or one or more of Borrower and
Guarantor shall be personally liable only for the actual
damages, losses, costs, and expenses (including attorneys'
fees) incurred by Lender (expressly including any diminution,
loss or damage to the Collateral) as a result of such
bankruptcy filing.
(m) Subrogation. If all or any portion of the proceeds of the Note or any
Advance shall be used directly or indirectly to pay off, discharge or
satisfy, in whole or in part, any prior lien or encumbrance upon the
Mortgaged Property or any portion thereof, then Lender and Trustee
shall be subrogated to, and shall have the benefit of the priority of,
such other lien or encumbrance and any additional security held by the
holder thereof.
ARTICLE V
Trustee
Section 5.01. Certain Actions of Trustee. Upon the written request of
Lender, Trustee may at any time (a) reconvey all or any portion of the Mortgaged
Property, (b) consent to the making of any map or plat thereof, (c) join in
granting any easement thereon or in creating any covenants or conditions
restricting the use or occupancy thereof, or (d) join in any extension agreement
or in any agreement subordinating the lien or charge hereof. Any such action may
be taken by Trustee without notice, and shall not affect the personal liability
of any person for the payment of the Indebtedness or the lien of this Deed of
Trust upon the Mortgaged Property for the full amount of the Indebtedness.
Section 5.02. Reconveyance. Upon the written request of Lender stating
that all sums secured hereby have been paid, and upon payment of its fees,
Trustee shall reconvey without warranty the Mortgaged Property then held by
Trustee hereunder.
Section 5.03. Trustee's Covenants and Compensation. Trustee, by its
acceptance hereof, covenants faithfully to perform and fulfill the trust herein
created, being liable, however, only for negligence or willful misconduct.
Trustee hereby waives any statutory fee and shall be entitled to, and hereby
agrees to accept, reasonable compensation in lieu thereof for all services
rendered or expenses incurred in the administration or execution of the trust
hereby created. Borrower hereby agrees to pay such compensation subject to any
applicable legal limitations.
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Section 5.04. Substitution of Trustee. Lender at any time in its sole
discretion may select and appoint a successor or substitute Trustee hereunder by
instrument in writing in any manner now or hereafter provided by law. Such
writing, upon recordation in the county where the Land is located, shall be
conclusive proof of proper substitution of such successor or substitute Trustee
which shall thereupon and without conveyance from the predecessor Trustee
succeed to all its title, estate rights, powers and duties.
Section 5.05. Resignation of Trustee. Trustee may resign at any time
upon giving 30 days' notice to Borrower and to Lender.
Section 5.06. Ratification of Acts of Trustee. Trustor hereby ratifies
and confirms any and all acts which Trustee named herein or its successors or
assigns in this trust shall do lawfully by virtue hereof.
ARTICLE VI
Miscellaneous
Section 6.01. Notices.
(a) All notices, consents, approvals and requests required or permitted
hereunder or under any other Loan Document shall be given in writing
and shall be effective for all purposes if hand delivered or sent by
(i) certified or registered United States mail, postage prepaid, or
(ii) expedited prepaid delivery service, either commercial or United
States Postal Service, with proof of attempted delivery, addressed in
either case to any party hereto at its address as stated on the Cover
Sheet of this Deed of Trust, or at such other address and person as
shall be designated from time to time by Lender or Trustor, as the case
may be, in a written notice to the other party in the manner provided
for in this Section 6.01. A notice shall be deemed to have been given:
in the case of hand delivery, at the time of delivery; in the case of
registered or certified mail, three Business Days after deposit in the
United States mail; or in the case of expedited prepaid delivery, upon
the first attempted delivery on a Business Day. A party receiving a
notice which does not comply with the technical requirements for notice
under this Section 6.01 may elect to waive any deficiencies and treat
the notice as having been properly given.
(b) Trustor shall notify Lender promptly of the occurrence of any of the
following: (i) receipt of notice from any governmental authority of
material violations of applicable law relating to the Mortgaged
Property; (ii) receipt of any notice from the holder of any other lien
or security interest in the Mortgaged Property; or (iii) commencement
of any judicial or administrative proceedings by, against or otherwise
materially adversely affecting Borrower or Guarantor, the Mortgaged
Property, or any other action by any creditor thereof as a result of
any default under the terms of any loan.
Section 6.02. Binding Obligations; Joint and Several. The provisions
and covenants of this Deed of Trust shall run with the land, shall be binding
upon Trustor, its successors and assigns, and
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shall inure to the benefit of Lender and Trustee and their respective successors
and assigns. If there is more than one Borrower, all their obligations and
undertakings hereunder are and shall be joint and several. If there is more than
one Trustor, all their obligations and undertakings hereunder are and shall be
joint and several.
Section 6.03. Captions. The captions of the sections and subsections of
this Deed of Trust are for convenience only and are not intended to be a part of
this Deed of Trust and shall not be deemed to modify, explain, enlarge or
restrict any of the provisions hereof.
Section 6.04. Further Assurances. Trustor shall do, execute,
acknowledge and deliver, at its sole cost and expense, such further acts,
instruments or documentation, including additional title insurance policies or
endorsements, as Lender or Trustee may reasonably require from time to time to
better assure, transfer and confirm unto Lender the rights now or hereafter
intended to be granted to Lender and/or Trustee under this Deed of Trust or any
other Loan Document.
Section 6.05. Severability. If any one or more of the provisions
contained in this Deed of Trust shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Deed of Trust, but
this Deed of Trust shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
Section 6.06. Borrower's Obligations Absolute. Except as expressly
permitted by the Loan Documents, all sums payable by Borrower hereunder shall be
paid without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any condemnation or similar
taking of the Mortgaged Property or any portion thereof; (b) any restriction or
prevention of or interference with any use of the Mortgaged Property or any
portion thereof; (c) any title defect or encumbrance or any eviction from the
Premises or any portion thereof by title paramount or otherwise; (d) any
Bankruptcy Proceeding relating to Borrower, any general partner of Borrower, or
any guarantor or indemnitor, or any action taken with respect to this Deed of
Trust or any other Loan Document by any trustee or receiver of Borrower or any
such general partner, guarantor or indemnitor, or by any court, in any such
proceeding; (e) any claim presently known to Borrower which Borrower has or
might have against Lender or Trustee; (f) any default or failure on the part of
Lender or Trustee prior to the date hereof to perform or comply with any of the
terms hereof or of any other agreement with Borrower; or (g) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing. Except as
expressly provided herein, Borrower waives all rights now or hereafter conferred
by statute or otherwise to any abatement, suspension, deferment, diminution or
reduction of any sum secured hereby and payable by Borrower.
Section 6.07. Amendments. This Deed of Trust cannot be altered,
amended, modified or discharged orally and no executory agreement shall be
effective to modify or discharge it in whole or in part, unless in writing and
signed by the party against which enforcement is sought.
Section 6.08. Other Loan Documents and Schedules. All of the
agreements, conditions, covenants, provisions and stipulations contained in the
Note and the other Loan Documents, and each
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of them, which are to be kept and performed by Borrower are hereby made a part
of this Deed of Trust to the same extent and with the same force and effect as
if they were fully set forth in this Deed of Trust, and Borrower shall keep and
perform the same, or cause them to be kept and performed, strictly in accordance
with their respective terms. The Cover Sheet and each schedule and rider
attached to this Deed of Trust are integral parts of this Deed of Trust and are
incorporated herein by this reference. In the event of any conflict between the
provisions of any such schedule or rider and the remainder of this Deed of
Trust, the provisions of such schedule or rider shall prevail.
Section 6.09. Legal Construction.
(a) The enforcement of this Deed of Trust shall be governed by, and
construed and interpreted in accordance with, the laws of the State.
(b) All terms contained herein shall be construed, whenever the context of
this Deed of Trust so requires, so that the singular number shall
include the plural, and the plural the singular, and the use of any
gender shall include all genders.
(c) The terms "include" and "including" as used in this Deed of Trust shall
be construed as if followed by the phrase "without limitation".
(d) Any provision of this Deed of Trust permitting the recovery of
attorneys' fees and costs shall be deemed to include such fees and
costs incurred in all appellate proceedings.
(e) For purposes of Sections 6.15 and 6.16 of this Deed of Trust, the
reference to "Section 6.15 of each Related Mortgage" and "Section 6.16
of each Related Mortgage" with respect to the Deerfield Beach Mortgage
shall mean Section 5.15 of the Deerfield Beach Mortgage and Section
5.16 of the Deerfield Beach Mortgage, respectively.
Section 6.10. Merger. So long as any Indebtedness shall remain unpaid,
fee title to and any other estate in the Mortgaged Property shall not merge, but
shall be kept separate and distinct, notwithstanding the union of such estates
in any person or entity.
Section 6.11. Time of the Essence. Time shall be of the essence in the
performance of all obligations of Trustor under this Deed of Trust.
Section 6.12. Transfer of Loan. Lender, in the management of its
investments or for any other reason, may, at any time, sell, transfer or assign
the Note, the Deed of Trust and the other Loan Documents and the servicing
rights with respect thereto or grant participations therein or issue mortgage
pass-through certificates or other securities evidencing a beneficial interest
in the Note, Deed of Trust and other Loan Documents (collectively, a
"Transfer"). As part of a Transfer, Lender may forward to each transferee,
assignee, servicer, participant or investor all documents and information which
Lender now has or may hereafter acquire relating to the Indebtedness, the Loan
Documents and the Mortgaged Property. Trustor agrees to cooperate with Lender at
no cost to Trustor in connection with a Transfer including, without limitation,
the delivery of any estoppel certificates required under Section 2.18 and such
other documents as may be reasonably be requested by Lender.
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Section 6.13. Satisfaction. If all of the Indebtedness is paid in full
in accordance with the Note and the other Loan Documents, then in that event
only all rights of Lender and Trustee under this Deed of Trust and the other
Loan Documents shall terminate and the Mortgaged Property shall become wholly
clear of the liens, grants, security interests, conveyances and assignments
evidenced hereby and thereby, and Lender shall release or cause to be released
such liens, grants, assignments, conveyances and security interests in due form
at Borrower's cost (to the extent permitted by the law of the State), and this
Deed of Trust shall be void; provided, however, that no provision of this Deed
of Trust or any other Loan Document which, by its own terms, is intended to
survive such payment and release (nor the rights of Lender or Trustee under any
such provision) shall be affected in any manner thereby and such provision
shall, in fact, survive. Recitals of any matters or facts in any release
instrument executed by Lender or Trustee under this Section 6.13 shall be prima
facie evidence of the truthfulness thereof. To the extent permitted by law, such
an instrument may describe the grantee or releasee as "the person or persons
legally entitled thereto" and Lender and Trustee shall not have any duty to
determine the rights of persons claiming to be rightful grantees or releasees of
any of the Mortgaged Property. When this Deed of Trust has been fully released
or discharged by Lender and/or Trustee, the release or discharge hereof shall
operate as a release and discharge of the Assignment and as a reassignment of
all future Leases and Property Income with respect to the Mortgaged Property to
the person or persons legally entitled thereto, unless such release expressly
provides to the contrary.
Section 6.14. Defeasance Requirements.
(a) Two (2) years after the Closing Date, Borrower may voluntarily defease
all of the Loan and the Related Loans.
(b) Any defeasance of the Loan and the Related Loans by Borrower shall be
made on a Payment Date.
(c) Borrower shall not be permitted at any time to defease all or any part
of the Loan or the Related Loans except as expressly provided in this
Section 6.14.
(d) Subject to the terms and conditions of this Deed of Trust, Borrower may
defease the Loan and the Related Loans if Borrower: (i) has provided
not less than thirty (30) days prior written notice to Lender
specifying a Payment Date (the "Defeasance Release Date") on which the
payments provided in clauses (ii) and (iii) below are to be made and
the deposit provided in clause (iv) below is to be made, (ii) pays all
interest accrued and unpaid on the outstanding principal amount of the
Loan and the Related Loans to and including the Defeasance Release
Date, (iii) pays all other sums then due and payable under the Loan
Documents and the Related Loan Documents, (iv) deposits with Lender an
amount equal to the Defeasance Deposit, (v) delivers to Lender (A) a
security agreement, in form and substance satisfactory to Lender and
Borrower, creating a first priority perfected Lien on the deposits
required pursuant to this Section 6.14 and the U.S. Obligations
purchased on behalf of Borrower in accordance with this Section 6.14
(the "Defeasance Security Agreement"), (B) a release of the Mortgaged
Property from the lien of the Deed of Trust in a form appropriate for
the jurisdiction in which the Mortgaged Property is located, to be
executed by Lender, (C) an officer's certificate of Borrower certifying
that the requirements set forth in this Section 6.14 have been
satisfied, and (D) such other certificates, documents or instruments as
Lender may reasonably request, and
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(vi) assigns to such other entity or entities established or designated
by Lender (the "Successor Obligor") all of Trustor's rights, interests
and obligations under the Note, each Related Note, the other Loan
Documents and the other Related Loan Documents and the Defeasance
Security Agreement together with the pledged U.S. Obligations. The
Successor Obligor shall assume, in a writing or writings reasonably
satisfactory to Lender in Lender's discretion, all of Trustor's
obligations under the Note, each Related Note, the other Loan Documents
and the other Related Loan Documents and the Defeasance Security
Agreement and, upon such assignment Trustor and Guarantor shall, except
as set forth herein, be relieved of its obligation under all the Loan
Documents and all of the Related Loan Documents.
(e) The U.S. Obligations shall mature on or be redeemable, or provide for
payment thereon, on or prior to the Business Day immediately preceding
the date on which payments under the Note and each Related Note are due
and payable and the proceeds thereof shall be payable directly to
Lender. In connection with the foregoing, Borrower appoints Lender as
Borrower's agent for the purpose of applying the amounts delivered
pursuant to clause (d)(iv) above to purchase U.S. Obligations.
(f) If any notice of defeasance is given, Borrower shall be required to
defease the Loan and the Related Loans on the specified Payment Date
(unless such notice is revoked in writing by Borrower prior to the date
specified therein in which event Borrower shall immediately reimburse
Lender for any costs incurred by Lender in connection with Borrower's
giving of such notice and revocation).
(g) Upon defeasance of the Loan and the Related Loans in accordance with
the requirements of this Section 6.14, the Mortgaged Property shall be
released from the lien of the Deed of Trust and the Remaining
Properties shall be released from the liens of the Related Mortgages.
Notwithstanding the foregoing, Borrower acknowledges that Borrower only
has the right to simultaneously defease the Loan and the Related Loans
and shall have no right to defease any such loan in and of itself.
(h) Nothing in this Section 6.14 shall release Borrower from any liability
or obligation relating to any environmental matters arising under
Sections 2.20 through 2.22 hereof.
Section 6.15. Partial Release. Trustor shall be entitled at any time to
a release of the lien of this Deed of Trust (but not any other Related Mortgage)
only if each of the following conditions has been satisfied:
(a) A release under this Section 6.15 and Section 6.15 of each Related
Mortgage may not take place more than two (2) times (in the aggregate)
during the term of this Loan and the Related Loans;
(b) No more than a total of two (2) of the Mortgaged Properties may be
released under this Section 6.15 and Section 6.15 of each Related
Mortgage, and no more than a total of two (2) of the Mortgaged
Properties may be released under (i) this Section 6.15 and Section 6.15
of each Related Mortgage, and (ii) Section 6.16 of this Deed of Trust
and Section 6.16 of each Related Mortgage;
51
<PAGE> 55
(c) After the proposed release, the Debt Service Coverage Ratio - Remaining
Properties for the twelve (12) months prior to the release and
projected twelve (12) months following the release must be at least
equal to or greater than the greater of (x) 1.75, or (y) the current
Debt Service Coverage Ratio - Mortgaged Properties calculated for the
twelve (12) month period prior to the release;
(d) After the proposed release, the loan to value ratio of the remaining
Related Loans must be less than or equal to 50% as calculated
immediately prior to the release based upon appraisals furnished to
Lender in form and substance reasonably satisfactory to Lender and
prepared by an MAI appraiser approved by Lender at Borrower's cost or
as determined by Lender;
(e) Borrower shall pay Lender in reduction of the principal balance of the
Loan a sum equal to 115% of the original Allocated Loan Amount for the
Mortgaged Property, plus Borrower shall in addition pay to Lender a
"prepayment premium" applied to said sum and computed in the manner
specified in the Note;
(f) Neither the Loan nor the Related Loans shall be in Default at the time
such request for release is made through the completion of the release;
(g) Borrower must pay all of Lender's costs associated with the partial
release plus a fee of .5% of the original Allocated Loan Amount for the
Mortgaged Property to be released;
(h) The original Borrower named in the Loan Documents and the Related Loan
Documents continues to be the owner of the Remaining Mortgaged
Properties; and
(i) All documents relating to the release shall be in form and substance
satisfactory to Lender.
Section 6.16. Substitution of Collateral. Trustor shall be entitled to
substitute a property (being defined as releasing a property that then
constitutes security for the Loan (the "Released Property")) and substituting
another property owned in fee by Trustor (the "Substitute Property") in its
place on the following terms and conditions:
(a) A substitution may not take place more than two (2) times during the
term of the Loan and the Related Loans;
(b) No more than two (2) properties (in the aggregate) may be released
under this Section 6.16 and Section 6.16 of each Related Mortgage, and
no more than a total of two (2) of the Mortgaged Properties may be
released under (i) Section 6.15 above and Section 6.15 of each Related
Mortgage, and (ii) this Section 6.16 and Section 6.16 of each Related
Mortgage;
(c) After the proposed substitution, the Debt Service Coverage Ratio -
Remaining Properties for the twelve (12) months prior to the
substitution and projected twelve (12) months following the
substitution must be at least equal to or greater than the greater of
(i) 1.75, or (ii) the current Debt Service Coverage Ratio - Mortgaged
Properties calculated for the twelve (12) month period prior to the
substitution;
52
<PAGE> 56
(d) After the proposed substitution, the loan to value ratio of the
remaining Related Loans must be less than or equal to the lesser of (i)
50%, or (ii) the current loan to value ratio of the existing Loan and
Related Loans calculated immediately prior to the substitution based
upon appraisals furnished to Lender in form and substance reasonably
satisfactory to Lender and prepared by an MAI appraiser approved by
Lender at Borrower's cost;
(e) The net operating income and/or RevPas (as reported by Smith Travel) of
the Substitute Property must not show a downward trend for any of the
three (3) years prior to the substitution;
(f) The appraised value (based upon appraisals furnished to Lender in form
and substance reasonably satisfactory to Lender and prepared by an MAI
appraiser approved by Lender at Borrower's cost), the net operating
income and current debt service coverage ratio of the Substitute
Property must be 120% greater than the appraised value, net operating
income and the debt service coverage ratio of the Released Property;
(g) Lender may at its sole discretion reject any property substitution that
in Lender's sole determination would not be in compliance with the
terms and provisions of the Loan Application, would be detrimental to
the overall quality and/or value of the Mortgaged Properties, or would
not be in compliance with Lender's then existing underwriting standards
and criteria;
(h) The Substitute Property must be franchised as an "Embassy Suites", or
other franchise reasonably acceptable to Lender, and managed by the
manager under the Management Agreement or another a nationally
recognized hotel management company with a franchise and hotel
agreement similar to the Management Agreement and License Agreement or
otherwise reasonably acceptable to Lender;
(i) Borrower must pay (i) all of Lender's costs (all of which must be paid,
whether or not such substitution is actually approved or completed)
associated with the substitution including but not limited to legal
fees, appraised fees, market studies and expenses, title insurance
premiums on the new property, engineering fees and expenses, recording
fees and transfer taxes, and (ii) a fee of 1% of the original Allocated
Loan Amount for the Released Property;
(j) The Loan and any Related Loan shall not be in Default at the time such
request for substitution is made through the completion of the
substitution;
(k) The original Borrower named in the Loan Documents and Related Loan
Documents continues to be the owner of the Remaining Mortgaged
Properties; and
(l) In order to substitute one property for another as security for the
Loan or any Related Loan, Borrower acknowledges that such substitute
property shall be subject to all of Lender's underwriting and due
diligence requirements and criteria, including, without limitation,
environmental assessment, review of leases, receipt of tenant
subordination letters, title policy endorsements, etc. Borrower agrees
that the Substitute Property shall be subject to all the terms and
conditions of the Loan Application.
53
<PAGE> 57
Section 6.17. FF&E Escrow Deposits. After an FF&E Escrow Event,
Borrower shall make a deposit into an escrow account (the "FF&E Escrow Account")
for the Loan and each Related Loan for each Operating Period in the amount of
four percent (4%) of gross suite revenues from the operation of the Mortgaged
Properties for that Operating Period. In the event the total of all such
deposits into the FF&E Escrow Account and/or funds expended for renovations made
during any calendar year is less than $2,000,000 cumulatively, on a year to year
basis commencing with 1999, then Borrower will immediately deposit the amount of
the shortfall into the FF&E Escrow Account. In addition, any monies that
Borrower has accumulated for FF&E and have not been spent shall be deposited
into the FF&E Escrow Account. The FF&E Escrow Account shall be governed by a
FF&E escrow agreement satisfactory, in form and substance, to Lender and shall
provide, among other things, that (i) the funds in the FF&E Escrow Account shall
be used solely for "qualifying expenditures" for the repair and replacement of
FF&E for the Mortgaged Properties; (ii) "qualifying expenditures" shall be those
made pursuant to an FF&E budget which has been approved by Lender, which
approval shall not be unreasonably withheld; (iii) Borrower shall submit to
Lender within thirty (30) days of the end of each Operating Period a list of all
expenditures from the FF&E Escrow Account during such Operating Period; (iv) any
expenditure from the FF&E Escrow Account which is reasonably disapproved by
Lender as not being a "qualifying expenditure" shall be redeposited by Borrower
into the FF&E Escrow Account within fifteen (15) days after the receipt of
written notice of such disapproval from Lender; (v) the FF&E Escrow Account
shall be maintained, at Borrower's sole cost and expense, in a commercial
financial institution ("Bank") satisfactory to Lender; (vi) Bank will join in
the FF&E Escrow Agreement; (vii) payments will be made by Borrower directly to
Bank by the 20th day after each Operating Period during the term of the Loan;
(viii) Bank shall be authorized to disburse funds only upon Manager's written
direction unless the Loan or any Related Loan is in Default, in which case no
funds shall be disbursed from the FF&E Escrow Account without Lender's written
consent; (ix) Lender shall have a first and prior security interest in the FF&E
Escrow Account; (x) Borrower shall provide Lender with copies of quarterly
statements showing the deposits, withdrawals, and the balance in the FF&E Escrow
Account; (xi) after an Event of Default under the Loan or any Related Loan,
Lender shall be entitled to withdraw and apply the balance of the funds in the
FF&E Escrow Account against the then outstanding principal balance of the Loan
and any Related Loan or to pay any sums due under the Loan or any Related Loan;
(xii) Lender shall have no claim on any funds remaining in the FF&E Escrow
Account after payment in full of the Loan and each Related Loan and cancellation
of the documents evidencing and securing the Loan and each Related Loan; and
(xiii) during an FF&E Escrow Event, the annual FF&E budget shall include $2,500
to cover the costs (including reasonable travel, meals and lodging) of
inspections of the Mortgaged Properties in the period covered by the budget by
Lender's engineer relating to the maintenance of the Mortgaged Properties
including FF&E and Borrower shall reimburse Lender promptly upon request from
the FF&E budget for such engineer's actual out-of-pocket expenses incurred in
connection with their inspections.
[SEE FOLLOWING PAGE FOR SIGNATURES]
54
<PAGE> 58
IN WITNESS WHEREOF, this Deed of Trust has been duly executed and delivered as
of the day and year first above written.
BORROWER
FELCOR/MM HOLDINGS, L.P., a Delaware
limited partnership
By: FelCor/MM Hotels, L.L.C., a Delaware
limited liability company, its
general partner
By:
---------------------------------
Joel M. Eastman,
Vice President
GROUND OWNER
[FELCOR/CSS HOLDINGS, L.P.,
a Delaware limited partnership
By: FelCor/CSS Hotels, L.L.C.,
a Delaware limited liability company,
its general partner
By:
---------------------------------
Joel M. Eastman,
Vice President]
[Felcor Lodging Limited Partnership,
a Delaware limited partnership
By: FelCor Lodging Trust Incorporated,
a Maryland corporation,
its general partner
By:
---------------------------------
Joel M. Eastman,
Vice President]
55
<PAGE> 59
ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this _____ day of May,
1999, by Joel M. Eastman, as Vice President of FelCor/MM Hotels, L.L.C., a
Delaware limited liability company, which is the general partner of FelCor/MM
Holdings, L.P., a Delaware limited partnership, on behalf of said entities.
My Commission expires:
-------------------------------------------
- ---------------------- Notary Public in and for the State of Texas
-------------------------------------------
Printed/Typed Name of Notary
[STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this _____ day of May,
1999, by Joel M. Eastman, as Vice President of [FelCor/CSS Hotels, L.L.C., a
Delaware limited liability company or Felcor Lodging Trust Incorporated, a
Maryland Corporation] which is the general partner of [FelCor/CSS Holdings, L.P.
or Felcor Lodging Limited Partnership], a Delaware limited partnership, on
behalf of said entities.
My Commission expires:
-------------------------------------------
- ---------------------- Notary Public in and for the State of Texas
-------------------------------------------
Printed/Typed Name of Notary]
56
<PAGE> 60
SCHEDULE A
DESCRIPTION OF LAND
[LEGAL DESCRIPTION FOR HOTEL COVERED BY PARTICULAR DEED OF TRUST]
SCHEDULE A - Page 1 of 1
<PAGE> 61
SCHEDULE B
PERMITTED ENCUMBRANCES
[PERMITTED ENCUMBRANCES FOR THE PARTICULAR HOTEL COVERED BY THE DEED OF TRUST]
SCHEDULE B - Page 1 of 2
<PAGE> 62
RIDER
APPLICABLE STATE LAW PROVISIONS
Re: Loan ______
Embassy Suites - _________
__________________________
RIDER ATTACHED TO
DEED OF TRUST AND SECURITY
AGREEMENT DATED MAY ____, 1999
FROM FELCOR/MM HOLDINGS, L.P. [AND FELCOR/CSS
HOLDINGS, L.P. or FELCOR LODGING LIMITED PARTNERSHIP]
(COLLECTIVELY, "TRUSTOR") SECURING
(1) A LOAN IN THE ORIGINAL PRINCIPAL
AMOUNT OF $__________ MADE BY
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY ("BENEFICIARY"), AND
(2) OTHER LOANS DESCRIBED THEREIN
APPLICABLE STATE LAW PROVISIONS [STATE NAME]
Pursuant to the terms of Section 6.08 of the captioned Deed of Trust,
this Rider and the following provisions shall be deemed incorporated into the
Deed of Trust and made a part thereof for all purposes. In the event of any
conflict between the terms set forth in this Rider and those set forth in the
Deed of Trust, the terms set forth in this Rider will control for all purposes.
[This rider contained state-specific provisions regarding foreclosure, fixture
filings, prepayment provisions, suretyship provisions, future advances, trustee
duties and liabilities, interest limitations, notices, indemnities, and/or
miscellaneous provisions that varied from Deed of Trust to Deed of Trust
depending on the applicable state law.]
LAW RIDER - Page 1 of 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH JUNE 30, 1999 10-Q OF FELCOR LODGING TRUST INCORPORATED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 50,569
<SECURITIES> 0
<RECEIVABLES> 32,324
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82,893
<PP&E> 4,289,883
<DEPRECIATION> 251,924
<TOTAL-ASSETS> 4,280,626
<CURRENT-LIABILITIES> 121,302
<BONDS> 1,712,540
0
295,000
<COMMON> 693
<OTHER-SE> 2,011,161
<TOTAL-LIABILITY-AND-EQUITY> 4,280,626
<SALES> 0
<TOTAL-REVENUES> 262,104
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,172
<INCOME-PRETAX> 78,682
<INCOME-TAX> 0
<INCOME-CONTINUING> 78,682
<DISCONTINUED> 0
<EXTRAORDINARY> 1,113
<CHANGES> 0
<NET-INCOME> 77,569
<EPS-BASIC> 0.96
<EPS-DILUTED> 0.95
</TABLE>
