SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-14162
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 94-3211970
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real,
Suite 1100 San Mateo, California
(415) 343-9300 94402-1708
(Address of principal executive offices (Zip Code)
and telephone number)
Securities registered under Section 12(b) of the Act:
Name of Exchange
Title of each class: on which registered:
Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of November 8, 1996, 9,636,709 shares of Common Stock ($.001 par value) were
outstanding.
1 of 135
<PAGE>
INDEX
GLENBOROUGH REALTY TRUST INCORPORATED
Page No.
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of Glenborough Realty Trust
Incorporated and Combined Financial Statements of GRTI Predecessor
Entities (Unaudited except for the Consolidated Balance Sheet at
December 31, 1995):
Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 4
Consolidated and Combined Statements of Operations for the
nine months ended September 30, 1996 and 1995 5
Consolidated and Combined Statements of Operations for the
three months ended September 30, 1996 and 1995 6
Consolidated and Combined Statements of Stockholders' Equity for
the nine months ended September 30, 1996 and 1995 7
Consolidated and Combined Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 8-9
Notes to Consolidated Financial Statements 10-15
Consolidated Financial Statements of Glenborough Hotel Group
(Unaudited):
Consolidated Balance Sheet at September 30, 1996 16
Consolidated Statements of Income for the three and nine
months ended September 30, 1996 17
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1996 18
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1996 19
Notes to Consolidated Financial Statements 20-23
2 of 135
<PAGE>
INDEX
GLENBOROUGH REALTY TRUST INCORPORATED
Page No.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Glenborough Realty Trust Incorporated 24-31
Glenborough Hotel Group 32-33
PART II OTHER INFORMATION
Item 1. Legal Proceedings 34-35
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURES 37
EXHIBIT INDEX 38
3 of 135
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Rental property, net of accumulated depreciation of
$26,959 and $24,877 in 1996 and 1995, respectively $ 99,165 $ 77,574
Investments in Associated Companies and Glenborough
Partners 6,189 5,763
Investments in management contracts and other, net 355 484
Mortgage loans receivable, net of provision for loss of
$863 in 1996 and 1995 7,213 7,465
Cash and cash equivalents 610 4,587
Prepaid consolidation costs --- 6,082
Prepaid litigation costs --- 1,155
Other assets 5,673 2,630
------------- -------------
TOTAL ASSETS $ 119,205 $ 105,740
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans $ 29,542 $ 23,685
Secured bank line 29,002 10,000
Investor notes payable --- 2,483
Other liabilities 3,541 5,982
------------- -------------
Total liabilities 62,085 42,150
------------- -------------
Minority interest 8,285 7,962
Stockholders' Equity:
Common stock, 5,788,709 and 5,753,709 shares issued
and outstanding at September 30, 1996, and
December 31, 1995, respectively 6 6
Additional paid-in capital 56,147 55,622
Deferred compensation (446) ---
Retained earnings (deficit) (6,872) ---
------------- -------------
Total stockholders' equity 48,835 55,628
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 119,205 $ 105,740
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
4 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 1996 and 1995
(in thousands, except per share amounts)
(Unaudited)
Glenborough GRTI
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
September 30, 1996 September 30, 1995
<S> <C> <C>
REVENUE
Rental revenue $ 11,281 $ 11,712
Fees and reimbursements, including $199
and $2,909 from affiliates in 1996 and 1995 199 10,838
Interest and other income 623 2,228
Equity in earnings of Associated Companies 1,363 ---
Gain on sale of rental property 321 ---
------------- -------------
Total revenue 13,787 24,778
------------- -------------
EXPENSES
Property operating expenses 3,244 4,556
General and administrative 977 10,899
Depreciation and amortization 2,694 3,562
Interest expense 2,546 1,466
------------- -------------
Total expenses 9,461 20,483
------------- -------------
Income from operations before provision for
income taxes, minority interest and extraordinary items 4,326 4,295
Provision for income taxes --- (300)
Minority interest (312) ---
------------- -------------
Net income before extraordinary items 4,014 3,995
Loss on debt refinancing (186) ---
Consolidation costs (6,082) ---
Litigation costs (1,155) ---
------------- -------------
Net income (loss) $ (3,409) $ 3,995
============= =============
Net income per share before extraordinary items $ 0.70
=============
Net loss per share $ (0.60)
=============
Weighted average shares outstanding 5,763,742
=============
</TABLE>
See accompanying notes to consolidated financial statements
5 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
For the three months ended September 30, 1996 and 1995
(in thousands, except per share amounts)
(Unaudited)
Glenborough GRTI
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
September 30, 1996 September 30, 1995
<S> <C> <C>
REVENUE
Rental revenue $ 4,242 $ 3,748
Fees and reimbursements, including $66
and $642 from affiliates in 1996 and 1995 66 3,665
Interest and other income 253 416
Equity in earnings of Associated Companies 394 ---
Gain on sale of rental property --- ---
------------- -------------
Total revenue 4,955 7,829
------------- -------------
EXPENSES
Property operating expenses 1,335 1,516
General and administrative 302 3,669
Depreciation and amortization 935 1,203
Interest expense 1,125 383
------------- -------------
Total expenses 3,697 6,771
------------- -------------
Income from operations before provision for
income taxes, minority interest and extraordinary items
1,258 1,058
Provision for income taxes --- (13)
Minority interest (69) ---
------------- -------------
Net income before extraordinary item 1,189 1,045
Loss on debt refinancing (186) ---
------------- -------------
Net income $ 1,003 $ 1,045
============= =============
Net income per share $ 0.17
=============
Weighted average shares outstanding 5,778,545
=============
</TABLE>
See accompanying notes to consolidated financial statements
6 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1996 and 1995
(in thousands)
(Unaudited)
GRTI Predecessor Entities Combined
Receivable
Additional from Retained
General Limited Common Paid-in Stock- Earnings
Partner Partners Stock Capital holder (Deficit) Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (1,730) $ 85,337 $ 5 $ 6,613 $ (8,763) $ (904) $ 80,558
Distributions (93) (9,375) --- --- --- --- (9,468)
Redemption of shares --- --- (2) (6,613) --- (4,002) (10,617)
Repayment of Stockholder
advances, net --- --- --- --- 8,763 --- 8,763
Net income 25 2,362 --- --- --- 1,608 3,995
-------------------------- ----------------------------------------------------------------------
Balance, September 30, 1995 $ (1,798) $ 78,324 $ 3 $ --- $ --- $ (3,298) $ 73,231
========================== ======================================================================
</TABLE>
<TABLE>
<CAPTION>
Glenborough Realty Trust Incorporated
Common Stock Additional Deferred Retained
Par Paid-in Compen- Earnings
Shares Value Capital sation (Deficit) Total
------------- ------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 5,754 $ 6 $ 55,622 $ --- $ --- $ 55,628
Issuance of stock to
directors and officers 35 --- 525 (446) --- 79
Dividends --- --- --- --- (3,463) (3,463)
Net loss --- --- --- --- (3,409) (3,409)
-----------------------------------------------------------------------------------
Balance, September 30, 1996 5,789 $ 6 $ 56,147 $ (446) $ (6,872) $ 48,835
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
7 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(in thousands, except per share amounts)
(Unaudited)
Glenborough GRTI
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
September 30, 1996 September 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,409) $ 3,995
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Depreciation and amortization 2,694 3,562
Amortization of loan fees, included in
interest expense 141 69
Gain on sale of rental property (321) ---
Minority interest in income from operations 312 ---
Equity in earnings of Associated
Companies (1,363) ---
Loss on debt refinancing 186 ---
Consolidation costs 6,082 ---
Litigation costs 1,155 ---
Changes in certain assets and liabilities, net (5,475) (17,064)
--------------- ---------------
Net cash provided by (used for) operating
activities 2 (9,438)
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale of rental property 2,882 ---
Additions to rental property (26,631) (3,189)
Principal receipts on mortgage loans receivable 252 12,184
Investments in Associated Companies (389) ---
Dividends from Associated Companies 1,326 ---
--------------- ---------------
Net cash provided by (used for) investing
activities (22,560) 8,995
--------------- ---------------
</TABLE>
continued
See accompanying notes to consolidated financial statements
8 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - continued
For the nine months ended September 30, 1996 and 1995
(in thousands, except per share amounts)
(Unaudited)
Glenborough GRTI
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
September 30, 1996 September 30, 1995
<S> <C> <C>
Cash flows from financing activities:
Proceeds from borrowings $ 35,122 $ ---
Repayment of borrowings (10,263) (5,981)
Payment of investor notes (2,483) ---
Distributions to minority partners (332) ---
Repayments from Stockholder, net --- 8,763
Dividends and distributions (3,463) (9,468)
Redemption of shares --- (10,617)
--------------- --------------
Net cash provided by (used for) financing
activities 18,581 (17,303)
--------------- --------------
Net decrease in cash and cash equivalents (3,977) (17,746)
Cash and cash equivalents at beginning of period 4,587 23,929
--------------- --------------
Cash and cash equivalents at end of period $ 610 $ 6,183
=============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,070 $ 1,397
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
9 of 135
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Glenborough Realty Trust Incorporated (the "Company" and/or "GLB") was organized
in the State of Maryland on August 26, 1994. It is the intent of the Company to
qualify as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"). The Company completed a consolidation
with certain public California limited partnerships and other entities (the
"Consolidation") engaged in real estate activities (the "GRTI Predecessor
Entities") through an exchange of assets of the GRTI Predecessor Entities for
5,753,709 shares of Common Stock of the Company. The Consolidation occurred on
December 31, 1995, and the Company commenced operations on January 1, 1996.
To maintain the Company's qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Charter provides for certain restrictions on the
transfer of the Common Stock to prevent further concentration of stock
ownership.
The Company, through several subsidiaries, is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner interest and an
84.31% limited partner interest, is Glenborough Properties, L.P. (the "Operating
Partnership"). As of September 30, 1996, the Operating Partnership, directly and
indirectly through various subsidiaries in which it and the Company own 100% of
the ownership interests, controls a total of 37 real estate projects and two
notes receivable. The remaining limited partnership interests in the Operating
Partnership are owned 14.37% by GPA, Ltd., an affiliated partnership ("GPA")
which exchanged certain of its assets for an interest in the Operating
Partnership, and 0.32% by Robert Batinovich (Chairman, President and Chief
Executive Officer of the Company).
The Company also holds 100% of the non-voting preferred stock of three
associated companies (the "Associated Companies"):
Glenborough Corporation (formerly known as Glenborough Realty Corporation)
("GC") is the general partner of six partnerships and provides asset and
property management services for these six partnerships and one partnership for
which an affiliate serves as general partner (the "Controlled Partnerships"). It
also provides property management services for a limited portfolio of property
owned by unaffiliated third parties.
10 of 135
<PAGE>
Glenborough Inland Realty Corporation ("GIRC") provides partnership
administration, asset management, property management and development services
under a long term contract to an additional group of unaffiliated partnerships
which include seven public partnerships.
Glenborough Hotel Group ("GHG") leases the four Country Suites By Carlson hotels
owned by the Company and operates them for its own account. It also operates
three Country Suites By Carlson hotels, owned by the Controlled Partnerships,
and two resort condominium hotels.
The Company's investments in the Associated Companies are accounted for using
the equity method.
Basis of Presentation - The accompanying financial statements present the
consolidated financial position of the Company as of September 30, 1996 and
December 31, 1995, the consolidated statements of operations and cash flows of
the Company for the nine months ended September 30, 1996 and the combined
statements of operations and cash flows of the GRTI Predecessor Entities for the
nine months ended September 30, 1995, as the Consolidation was not effective
until December 31, 1995. All intercompany transactions, receivables and payables
have been eliminated in consolidation and combination.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals) necessary to
present fairly the financial position and results of operations of the Company
as of September 30, 1996 and for the period then ended.
Reclassification - Certain 1995 balances have been reclassified to conform with
the current year presentation.
Note 2. REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1995 audited financial statements.
Note 3. INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH
PARTNERS
The Company's investments in the Associated Companies are accounted for on the
equity method as the Company has significant ownership interests through its
100% preferred stock ownership but does not own any voting interests. The
Company records earnings on its investments in the Associated Companies equal to
its cash flow preference, to the extent of earnings, plus its pro rata share of
remaining earnings, based on cash flow allocation percentages. Dividends
11 of 135
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
received from the Associated Companies are recorded as a reduction of the
Company's investments. The Company's investment in Glenborough Partners ("GP")
is accounted for on the cost method as the Company holds only a 3.9% limited
partnership interest.
As of September 30, 1996 and December 31, 1995 the Company had the following
investments in the Associated Companies and GP (in thousands):
<TABLE>
<CAPTION>
GC GIRC GHG GP Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment at December 31, 1995 $ (109) $ 3,919 $ 1,368 $ 585 $ 5,763
Cash contributions 94 95 200 --- 389
Dividends (454) (806) (66) --- (1,326)
Equity in earnings 391 870 102 --- 1,363
------------ ----------- ----------- ----------- -----------
Investment at September 30, 1996 $ (78) $ 4,078 $ 1,604 $ 585 $ 6,189
============ =========== =========== =========== ===========
</TABLE>
On October 22, 1996 and November 7, 1996, the boards of directors of the
Associated Companies declared the following respective dividends to be paid in
the fourth quarter (in thousands):
<TABLE>
<CAPTION>
GC GIRC GHG Total
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Preferred dividends to the Company $ 4 $ 4 $ 7 $ 15
Additional dividends to the Company 143 399 17 559
-------------- -------------- -------------- --------------
Total dividends to the Company 147 403 24 574
Dividends to others 8 21 6 35
-------------- -------------- -------------- --------------
Total dividends $ 155 $ 424 $ 30 $ 609
============== ============== ============== ==============
</TABLE>
Financial statements and notes thereto of Glenborough Hotel Group follow Note 8
of the Company's Notes to Consolidated Financial Statements.
12 of 135
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 4. STOCK COMPENSATION PLAN
In May 1996, the Company adopted an employee stock incentive plan (the "Plan")
to provide incentives to attract and retain high quality executive officers and
key employees. The number of shares of Common Stock reserved for issuance under
the Plan is 680,000. As of September 30, 1996, options to purchase approximately
35,000 shares of Common Stock at an average exercise price of $15.00 per share
have been granted under the Plan. The market value of the shares subject to
options on the date of grant have been recorded as deferred compensation in the
accompanying financial statements and will be charged to earnings ratably over
the vesting periods. To date, no options have been exercised.
Note 5. LITIGATION SETTLEMENT
Prior to the completion of the Consolidation, two lawsuits were filed in 1995
contesting the fairness of the Consolidation, one in California State court and
one in federal court. The complaints in both actions alleged, among other
things, breaches by the defendants of fiduciary duties and inadequate
disclosures. The State court action was settled, and the settlement was approved
by the State court despite objections by certain members of the class, who
subsequently filed an appeal. Pursuant to the terms of the settlement in the
State court action, pending the appeal the Company has paid one-third of the
$855,000 settlement amount and the remaining two-thirds is being held in escrow.
In the federal action, the court in December of 1995 deferred all further
proceedings pending a ruling in the State court action. Following the State
court decision approving the settlement, the defendants filed a motion to
dismiss the federal court action. Given the inherent uncertainties of
litigation, there can be no assurance that the ultimate outcomes of these
actions will be favorable to the Company.
Note 6. WELLS FARGO SECURED DEBT
On July 15, 1996, the Company entered into two new financing agreements with
Wells Fargo Bank, N.A. ("Wells Fargo"). The first financing agreement (the
"Facility") is a $50,000,000 secured revolving line of credit. The Facility is
secured by first mortgages on selected Company properties with full recourse to
the Company and availability is limited to the borrowing base provided by these
properties. The Facility has a term of two years, subject to annual extensions.
At the Company's option, the Facility will bear interest at LIBOR plus 2.375% or
at a base rate. The base rate is based on the higher of Wells Fargo's prime rate
plus 0.5% or the Federal Funds Rate plus 1.0%. The second financing arrangement
(the "Term Loan") is a two-year term loan in the amount of $6,100,000 that bears
interest at the same rate as the Facility and is secured by first mortgage liens
on 10 "QuikTrip" facilities owned by the Company. The initial fundings under the
Facility and the Term Loan totaled $28,400,000, of which the Company applied
$18,300,000 towards the acquisition of the UCT Property, $9,200,000 for the
13 of 135
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
repayment of the outstanding amount under the then existing line-of-credit with
Imperial Bank, and the balance to loan fees and closing costs. Initial funding
under the Facility and full disbursement of the Term Loan occurred on July 15,
1996. Through September 30, 1996, the Company drew an additional $6,700,000
under the Facility to finance the acquisitions of the San Antonio Hotel, the
shopping center expansion and the Bond Street Property. In October 1996, stock
offering proceeds (see Note 9 for further discussion) were used to paydown
$24,000,000 of the Facility, leaving an outstanding balance of $4,600,000.
Note 7. DECLARATION OF DIVIDENDS
On April 24, 1996, the Company's Board of Directors declared a dividend for the
first quarter of $0.30 per share or $1,726,000 which was paid on May 13, 1996 to
Stockholders of record at the close of business on May 6, 1996. Such dividend
was made from the Company's cash reserves at March 31, 1996 combined with the
first quarter dividends received from the Associated Companies.
On July 24, 1996, the Company's Board of Directors declared a dividend for the
second quarter of $0.30 per share or $1,731,000 payable on August 14, 1996 to
Stockholders of record at the close of business on August 5, 1996. Such dividend
was made from the Company's cash reserves at September 30, 1996 combined with
the second quarter dividends received from the Associated Companies.
On October 23, 1996, the Company's Board of Directors declared a dividend for
the third quarter of $0.30 per share or $3,084,000 payable on November 13, 1996
to Stockholders of record at the close of business on November 4, 1996. Such
dividend will be made from the Company's cash reserves at September 30, 1996
combined with the third quarter dividends received from the Associated Companies
and funding under the Wells Fargo Facility.
Note 8. SUBSEQUENT EVENTS
In October 1996, the Company completed an offering of 3,666,000 shares of common
stock (the "October 1996 Offering"). The 3,666,000 shares were sold at a per
share price of $13.875 for total proceeds of $47,814,000 (net of 6% underwriting
fee of $3,052,000). This additional capital was used to acquire the TRP
Properties, and to repay most of the outstanding balance under the Company's
Facility with Wells Fargo which is now available to fund future acquisitions. In
addition, approximately $1,100,000 in other costs were incurred in connection
with the offering.
On October 17, 1996, the Company's Operating Partnership acquired a portfolio of
twelve properties (the "TRP Properties") located in six states. Included are six
industrial, three office, one retail and two multifamily properties comprising
1,250,000 square feet. The total purchase price was $41,300,000, which comprised
14 of 135
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRTI PREDECESSOR ENTITIES
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
the cash payoff of $23,001,000 of mortgage debt, the assumption of $16,300,000
of mortgage debt, issuance of 52,386 Operating Partnership Units which are
redeemable for, at the Company's option, cash or stock based on a per Unit value
equal to the market value of the Company's common stock, and issuance of 85,448
shares of the Company's common stock. The acquisition was financed in part with
proceeds from the October 1996 Offering. This transaction was structured as a
contribution of the twelve properties and the mortgage debt on such properties
by Trust Realty Partners ("TRP") to the Operating Partnership in exchange for
the above noted Operating Partnership units and Company common stock. In
addition, Trust Realty Advisors ("TRA"), the then manager of the TRP Properties,
transferred to the Company all of TRA's rights, title and interest in and to the
Management Agreement and the Leasing Agreement for the TRP Properties in
exchange for 96,552 shares of the Company's common stock.
On October 22, 1996, the Company entered into a letter of intent to acquire
approximately $25,000,000 of real estate from a California-based real estate
firm. The real estate portfolio includes office, industrial and retail
properties encompassing nearly 400,000 square feet of net rentable area, located
in California, Arizona and Utah. This acquisition will be financed through a
combination of assumption of debt, issuance of Operating Partnership Units or
Company common stock and cash. The Company has completed its due diligence and
expects to execute definitive documentation and close the transaction by
mid-November. However, there can be no assurance that these properties will
ultimately be acquired by the Company.
15 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED BALANCE SHEET
As of September 30, 1996
(in thousands, except share amounts)
(Unaudited)
ASSETS
<S> <C>
Rental property and equipment, net of
accumulated depreciation of $106 $ 175
Investments in management contracts, net 449
Cash and cash equivalents 449
Investment in Atlantic Pacific Assurance
Company Limited 755
Other assets 522
------------
TOTAL ASSETS $ 2,350
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loan $ 67
Accrued lease expense 223
Other liabilities 427
------------
Total liabilities 717
------------
Stockholders' Equity:
Common stock, 1,000 shares 20
Non-Voting preferred stock, 50 shares ---
Additional paid-in capital 1,568
Retained earnings 45
------------
Total stockholders' equity 1,633
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,350
============
</TABLE>
See accompanying notes to consolidated financial statements
16 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
------------------ ------------------
REVENUE
<S> <C> <C>
Room revenue $ 1,948 $ 5,532
Fees and reimbursement 280 1,463
Other 206 445
------------- -------------
Total revenue 2,434 7,440
------------- -------------
EXPENSES
Leased Hotel Properties:
Room expenses 476 1,468
Lease payments to an affiliate 575 1,843
Sales and marketing to an affiliate 190 571
Property general and administrative expenses 228 597
Other operating expenses 303 751
Managed Hotel Properties:
Salaries and benefits 385 1,222
Other Expenses:
General and administrative 240 706
Depreciation and amortization 25 74
Interest expense 1 4
------------- -------------
Total expenses 2,423 7,236
------------- -------------
Income from operations before provision
for income taxes 11 204
Provision for income taxes --- (76)
------------- -------------
Net income ` $ 11 $ 128
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
17 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1996
(in thousands, except shares)
(Unaudited)
Addi-tional
Preferred Stock Common Stock Retained
Par Par Paid-in Earnings
Shares Value Shares Value Capital (Deficit) Total
----------- ---------- ---------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 195 50 $ --- 1,000 $ 20 $ 1,368 $ --- $ 1,388
Additional paid-in capital --- --- --- --- 200 --- 200
Dividends --- --- --- --- --- (83) (83)
Net income --- --- --- --- --- 128 128
----------- ---------- ---------- ----------- ------------ ------------- -----------
Balance, September 30, 1996 50 $ --- 1,000 $ 20 $ 1,568 $ 45 $ 1,633
=========== ========== ========== =========== ============ ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
18 of 135
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1996
(in thousands)
(Unaudited)
Cash flows from operating activities:
<S> <C>
Net income $ 128
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 74
Changes in certain assets and liabilities 123
-------------
Net cash provided by operating activities 325
-------------
Cash flows from investing activities:
Additions to equipment (7)
-------------
Net cash used for investing activities (7)
-------------
Cash flows from financing activities:
Capital contributions 200
Dividends (83)
Repayment of borrowings (19)
-------------
Net cash provided by financing activities 98
-------------
Net increase in cash 416
Cash and cash equivalents at beginning of period 33
-------------
Cash and cash equivalents at end of period $ 449
=============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4
=============
</TABLE>
See accompanying notes to consolidated financial statements
19 of 135
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 1. ORGANIZATION
Glenborough Hotel Group ("GHG") was organized in the State of Nevada on
September 23, 1991. GHG currently operates hotel properties owned by Glenborough
Realty Trust Incorporated ("GLB") under four separate percentage leases and
manages three hotel properties owned by two partnerships whose managing general
partner is Glenborough Corporation. GLB owns 100% of the 50 shares of non-voting
preferred stock of GHG and three individuals, including one executive officer of
GLB, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six units at one of the properties.
GHG receives 100% of the earnings of RGI and consolidates its operations with
its own.
GHG also owns 94% of the outstanding common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic Pacific Assurance
Company, Limited ("APAC"), a Bermuda corporation formed to underwrite certain
insurable risks of certain of GLB's predecessor partnerships and related
entities. APAC no longer underwrites any business and it is expected that it may
be liquidated in 1997. GHG accounts for its investment in APAC using the cost
method due to its anticipated liquidation.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements present the
consolidated financial position of GHG and RGI as of September 30, 1996 and the
consolidated results of operations and cash flows of GHG and RGI for the nine
months ended September 30, 1996. All intercompany transactions, receivables and
payables have been eliminated in the consolidation.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal accruals) necessary to
present fairly, the consolidated financial position and consolidated results of
operations of GHG as of September 30, 1996 and for the period then ended.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the results of operations during the reporting
period. Actual results could differ from those estimates.
20 of 135
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Rental Property - Rental properties are stated at cost unless circumstances
indicate that cost cannot be recovered, in which case, the carrying value of the
property is reduced to estimated fair value.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Investments in Management Contracts - Investments in management contracts are
recorded at cost and are amortized on a straight-line basis over the term of the
contracts.
Cash Equivalents - The Company considers short-term investments (including
certificates of deposit) with a maturity of three months or less at the time of
investment to be cash equivalents.
Note 3. RENTAL PROPERTY
Rental property and equipment of $281,000, net of accumulated depreciation of
$106,000 at September 30, 1996 represents the six condominium hotel units owned
by RGI as well as furniture and fixtures in GHG's corporate offices. The six
units owned by RGI participate in a resort rental program on an "at will" basis,
whereby there is no fixed term of participation. Such participation generated
approximately $17,000 of cash flow after deductions for capital reserves for the
nine months ended September 30, 1996.
Note 4. INVESTMENTS IN MANAGEMENT CONTRACTS
Investments in management contracts reflects the unamortized portion of the
management contracts RGI holds with the two beachfront resort condominium hotel
properties for management of the homeowners associations and the rental pool
programs.
Note 5. MORTGAGE LOAN
Mortgage loan of $67,000 represents the debt secured by the six condominium
hotel units owned by RGI. Such debt bears interest at 7%, payable in monthly
installments of principal and interest totaling $2,304 and matures June 30,
1999.
Note 6. THE PERCENTAGE LEASES
GHG is leasing the four hotels owned by GLB for a term of five years pursuant to
percentage leases ("Percentage Leases") which provide for rent equal to the
greater of the Base Rent (as defined in the lease) or a specified percentage of
rent (the "Percentage Rent"). Each hotel is separately leased to GHG (the
"lessee"). The lessee's ability to make rent payments will, to a large degree,
depend on its ability to generate cash flow from the operations of the hotels.
Each Percentage Lease contains the provisions described below.
21 of 135
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.
During the term of each Percentage Lease, the lessee is obligated to pay the
greater of Base Rent or Percentage Rent. Base Rent is required to be paid
monthly in advance. Percentage Rent is calculated by multiplying fixed
percentages by room revenues for each of the four hotels; the applicable
percentage changes when revenue exceeds a specified threshold, and the threshold
may be adjusted annually in accordance with changes in the applicable CPI.
Percentage Rent is due quarterly.
The table below sets forth the annual Base Rent and the Percentage Rent formulas
for each of the four hotels.
<TABLE>
<CAPTION>
Hotel Lease Rent Provision
Rent Incurred
For the Nine months ended
Initial Annual Base Rent September 30, 1996 Annual Percentage
Hotel Rent Formulas
- ---------------------------- ------------------------- --------------------------- -----------------------------------
<S> <C> <C> <C>
Ontario, CA $ 240,000 $ 297,000 24% of the first $1,575,000 of
room revenue plus 40% of room
revenue above $1,575,000 and 5%
of other revenue
Arlington, TX 360,000 558,000 27% of the first $1,600,000 of
room revenue plus 42% of room
revenue above $1,600,000 and 5%
of other revenue
</TABLE>
22 of 135
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Hotel Lease Rent Provision (continued)
Rent Incurred
For the Nine months ended
Initial Annual Base Rent September 30, 1996 Annual Percentage
Hotel Rent Formulas
- ---------------------------- ------------------------- --------------------------- -----------------------------------
<S> <C> <C> <C>
Tucson, AZ 600,000 936,000 40% of the first $1,350,000 of
room revenue plus 46% of room
revenue above $1,350,000 and 5%
of other revenue
San Antonio, TX 312,000 52,000 33% of the first $1,200,000 of
room revenue plus 40% of room
revenue above $1,200,000 and 5%
of other revenue
</TABLE>
Other than real estate and personal property taxes, casualty insurance, a fixed
capital improvement allowance and maintenance of underground utilities and
structural elements, which are the responsibility of GLB, the Percentage Leases
require the Lessees to pay rent, insurance, salaries, utilities and all other
operating costs incurred in the operation of the hotels.
Note 7. DECLARATION OF DIVIDENDS
On April 23, 1996, the board of directors of GHG declared dividends for the
first quarter of $50,000 of which $39,400 was made to GLB as the preferred
stockholder and the balance to the holders of GHG's common stock.
On July 23, 1996, the board of directors of GHG declared dividends for the
second quarter of $33,000 of which $27,000 was made to GLB as the preferred
stockholder and the balance to the holders of GHG's common stock.
On October 22, 1996, the board of directors of GHG declared dividends for the
third quarter of $30,000 of which $24,000 was made to GLB as the preferred
stockholder and the balance to the holders of GHG's common stock.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GLENBOROUGH REALTY TRUST INCORPORATED AND GRTI PREDECESSOR ENTITIES
Statements contained in this Item 2, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," and elsewhere in this Quarterly
Report on Form 10-Q which are not historical facts may be forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected, including,
but not limited to, those risks and special considerations set forth in the
Company's other Securities and Exchange Commission filings. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revision to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Background
The Company is a REIT engaged primarily in the ownership, operation, management,
leasing and acquisition of various types of income-producing properties. As of
September 30, 1996, the Company owned and operated 37 income-producing
properties (the "Properties," and each a "Property") and held two mortgage
receivables. In October 1996, the Company acquired 12 properties (the TRP
Properties, discussed below), which brings the total owned by the Company to 49
properties, located in 17 states. The following indicates the number of
properties, by type, owned by the Company as of September 30, 1996, and upon the
acquisition of the TRP Properties:
Upon
As of Acquisition
September 30, of TRP
1996 Properties
------------------ -------------------
Retail 19 20
Industrial 8 14
Office 4 7
MultiFamily 1 3
Hotel 5 5
------------------ -------------------
37 49
================== ===================
The Company was incorporated in the State of Maryland on August 26, 1994. On
December 31, 1995, the Company completed the Consolidation in which GC and eight
public limited partnerships (the "Partnerships") collectively, the "GRTI
Predecessor Entities," merged with and into the Company. The Company (i) issued
shares (the "Shares") of the $.001 par value Common Stock of the Company to the
Partnerships in exchange for the net assets of the Partnerships; (ii) merged
with GC, with the Company being the surviving entity; (iii) acquired an interest
in three Associated Companies that provide asset and property management
24 of 135
<PAGE>
services, as well as other services; and (iv) through the Operating Partnership,
acquired interests in certain warehouse distribution facilities from GPA. A
portion of the Company's operations are conducted through the Operating
Partnership, of which the Company is the sole general partner and in which the
limited partner interests not held by the Company at September 30, 1996, are
held by GPA and Robert Batinovich. The Company operates the assets acquired in
the Consolidation and intends to invest in income-producing property directly
and through joint ventures. In addition, the Associated Companies may acquire
general partner interests in other real estate limited partnerships. The Company
intends to qualify as a REIT under the Internal Revenue Code of 1986, as
amended. The Common Stock of the Company is listed on the New York Stock
Exchange under the trading symbol "GLB."
The Company's principal business objectives are to achieve a stable and
increasing source of cash flow available for distribution to Stockholders. By
achieving these objectives, the Company will seek to raise Stockholder value
over time.
Liquidity and Capital Resources
General
Historically for the Partnerships, the principal sources of funding for the
acquisition of properties was the sale of limited partnership interests in the
Partnerships and permanent financing. The Company intends to rely upon cash
generated by operations, permanent debt financing, public debt and equity as its
funding sources for acquisition, expansion and renovation of Properties.
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and cash generated by operations. As of
September 30, 1996, the Company had no material commitments for capital
improvements other than certain expansion-related improvements estimated at
approximately $1,760,000 at the existing shopping center in Tampa, Florida.
Other planned capital improvements consist only of tenant improvements and other
expenditures necessary to lease and maintain the Properties and furniture
fixtures and building improvements at the Hotel Properties. The Company believes
that its cash generated by operations has been and will continue to be adequate
to meet both operating requirements and dividends in accordance with REIT
requirements in both the short-term and the long-term. However, there can be no
assurance that the Company's results of operations will not fluctuate in the
future and at times negatively affect its ability to meet its operating
requirements and to declare dividends on a regular basis.
The Company expects to meet certain of its long-term liquidity requirements,
such as scheduled debt maturities and possible acquisitions, through a
combination of cash generated by operations, long-term secured and unsecured
borrowings and the issuance of debt and equity securities of the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of" in the fourth quarter of 1995. The adoption of SFAS No. 121 did not
have a material effect on the recorded amounts of the Company's long-lived
assets, its financial position or results of operations.
25 of 135
<PAGE>
In April, July, October and November 1996, the boards of directors of the
Associated Companies declared and paid dividends in the cumulative amounts of
$633,000, $1,272,000 and $113,000 by GC, GIRC and GHG, respectively. Of such
dividends, the cumulative amounts received by the Company were $601,000,
$1,209,000 and $90,000 from GC, GIRC and GHG, respectively.
On April 24, 1996, the Company's Board of Directors declared a dividend for the
first quarter of $0.30 per share or $1,726,000 which was paid on May 13, 1996 to
Stockholders of record at the close of business on May 6, 1996. Such dividend
was made from the Company's cash reserves at March 31, 1996 combined with the
first quarter dividends received from the Associated Companies discussed above.
On July 24, 1996, the Company's Board of Directors declared a dividend for the
second quarter of $0.30 per share or $1,731,000 payable on August 14, 1996 to
Stockholders of record at the close of business on August 5, 1996. Such dividend
was made from the Company's cash reserves at June 30, 1996 combined with the
second quarter dividends received from the Associated Companies discussed above.
On October 23, 1996, the Company's Board of Directors declared a dividend for
the third quarter of $0.30 per share or $3,084,000 payable on November 13, 1996
to Stockholders of record at the close of business on November 4, 1996. Such
dividend will be made from the Company's cash reserves at September 30, 1996,
combined with the third quarter dividends received from the Associated Companies
discussed above and from funding under the Company's Wells Fargo Facility.
On June 4, 1996, the Company sold the two self-storage facilities held in its
industrial portfolio. The sales price for these two facilities was $2,900,000.
The sales generated a gain of $321,000 and cash proceeds of $2,882,000. From
these proceeds, $790,000 was paid down on the Company's secured bank line.
On July 15, 1996, the Company acquired the 99% limited partner interest, and GRT
Corporation, a subsidiary of the Company, acquired the 1% general partner
interest, in UCT Associates, a limited partnership in which Robert Batinovich
held a 1% general partner interest and a 53% limited partner interest, Andrew
Batinovich held a 1% general partner interest and GPA held a 45% limited partner
interest. UCT Associates owns a 23-story, 275,469 square foot office building
known as University Club Tower (the "UCT Property") in St. Louis, Missouri. The
Operating Partnership issued 23,333 units of partnership interests in the
Operating Partnership ("Units") having an initial redemption value of
approximately $350,000 (based on a $15 per Unit value) and repaid approximately
$18,250,000 of indebtedness secured by the property, resulting in a total
acquisition value of $18,600,000. The $18,250,000 of debt was paid off with
funds drawn from the Facility with Wells Fargo.
On August 1, 1996, the Company acquired a 64-room limited
service hotel (the "San Antonio Hotel") in San Antonio, Texas, for $2,700,000.
GHG assumed management of the hotel and operates it under a lease agreement with
the Company. The lease is for a term of five years, commencing August 1, 1996,
at a base annual rent of $312,000. In addition to base rent, the lessee is
obligated to pay percentage rent when revenue exceeds specified thresholds.
26 of 135
<PAGE>
On August 2, 1996, the Company expanded an existing shopping
center in Tampa, Florida through a sale/leaseback with the center's anchor
tenant, Kash n' Karry Grocery Store, for a purchase price of $1,540,000. The
Company is committed to investing an additional $1,760,000 in the property upon
completion of certain expansion-related improvements anticipated in mid-1997.
This acquisition, along with the acquisition of the San Antonio hotel, was
financed with $3,800,000 drawn from the Facility with Wells Fargo.
On September 24, 1996, the Company acquired the 99% limited partnership
interest, and GRT Corporation acquired the 1% general partner interest in GPA
Bond, L.P., a limited partnership in which GC held a 1% general partner interest
and GPA held a 99% limited partner interest. GPA Bond, L.P. owns a two-story,
40,595 square foot suburban office building, referred to as the Bond Street
Property, in Farmington Hills, Michigan. The Operating Partnership issued 26,067
Units having an initial redemption value of approximately $400,000 (based on a
$15 per unit value) in exchange for the interests in GPA Bond, L.P., and repaid
approximately $2,800,000 of indebtedness secured by the property, resulting in a
total acquisition value of $3,200,000. The $2,800,000 of debt was paid off with
funds drawn from the Facility with Wells Fargo Bank.
On July 15, 1996, the Company entered into the Facility and the Term Loan with
Wells Fargo. The Facility is a $50,000,000 secured revolving line of credit. The
Facility is secured by first mortgages on selected Company properties with full
recourse to the Company and availability is limited to the borrowing base
provided by these properties. The Facility has a term of two years, subject to
annual extensions. At the Company's option, the Facility will bear interest at
LIBOR plus 2.375% or at a base rate. The base rate is based on the higher of
Wells Fargo's prime rate plus 0.5% or the Federal Funds Rate plus 1.0%. The Term
Loan is a two-year term loan in the amount of $6,100,000 that bears interest at
the same rate as the Facility and is secured by first mortgage liens on 10
"QuikTrip" facilities owned by the Company. The initial fundings under the
Facility and the Term Loan totaled $28,400,000, of which the Company applied
$18,300,000 towards the acquisition of the UCT Property, $9,200,000 for the
repayment of the outstanding amount under the then existing line-of-credit with
Imperial Bank, and the balance to loan fees and closing costs. Initial funding
under the Facility and full disbursement of the Term Loan occurred on July 15,
1996. Through September 30, 1996, the Company drew an additional $6,700,000
under the Facility to finance the acquisitions of the San Antonio Hotel, the
shopping center expansion and the Bond Street Property. In October 1996, stock
offering proceeds (see below for further discussion) were used to paydown
$24,000,000 of the Facility, leaving an outstanding balance of $4,600,000.
In October 1996, the Company completed the October 1996 Offering of 3,666,000
shares of Common Stock. The 3,666,000 shares were sold at a per share price of
$13.875 for total proceeds of $47,814,000 (net of 6% underwriting fee of
$3,052,000). This additional capital was used to acquire the TRP Properties and
to repay most of the outstanding balance under the Company's Facility with Wells
Fargo which is now available to fund future acquisitions. In addition,
approximately $1,100,000 in other costs were incurred in connection with the
offering.
On October 17, 1996, the Company's Operating Partnership acquired a portfolio of
twelve properties (the "TRP Properties") located in six states. Included are six
industrial, three office, one retail and two multifamily properties comprising
1,250,000 square feet. The total purchase price was $41,300,000, which comprised
27 of 135
<PAGE>
the cash payoff of $23,001,000 of mortgage debt, the assumption of $16,300,000
of mortgage debt, issuance of 52,386 Operating Partnership Units which are
redeemable for, at the Company's option, cash or stock based on a per Unit value
equal to the market value of the Company's common stock, and issuance of 85,448
shares of the Company's common stock. The acquisition was financed in part with
proceeds from the October 1996 Offering. This transaction was structured as a
contribution of the twelve properties and the mortgage debt on such properties
by Trust Realty Partners ("TRP") to the Operating Partnership in exchange for
the above noted Operating Partnership units and Company common stock. In
addition, Trust Realty Advisors ("TRA"), the then manager of the TRP Properties,
transferred to the Company all of TRA's rights, title and interest in and to the
Management Agreement and the Leasing Agreement for the TRP Properties in
exchange for 96,552 shares of the Company's common stock.
On October 22, 1996, the Company entered into a letter of intent to acquire
approximately $25,000,000 of real estate from a California-based real estate
firm. The real estate portfolio includes office, industrial and retail
properties encompassing nearly 400,000 square feet of net rentable area, located
in California, Arizona and Utah. This acquisition will be financed through a
combination of assumption of debt, issuance of Operating Partnership Units or
Company common stock and cash. The Company has completed its due diligence and
expects to execute definitive documentation and close the transaction by
mid-November. However, there can be no assurance that these properties will
ultimately be acquired by the Company.
Results of Operations
Certain components of the Company's results of operations are not comparable to
those of the GRTI Predecessor Entities. The primary reason for the difference is
the segregation in 1996 of the operations (management fees and reimbursements,
as well as related expenses) of the Associated Companies, all of which were
combined in the GRTI Predecessor Entities 1995 financial statements. Effective
January 1, 1996, the Company owns 100% of the preferred stock in each of the
Associated Companies and accounts for its interests under the equity method.
Also contributing to the comparability difference is the change in the
operational structure of the three (not including the San Antonio hotel which
was acquired in 1996) hotel properties (the "Hotels"). The Hotels were wholly
owned by the GRTI Predecessor Entities and thereby, the operations of the Hotels
were included in the financial statements of the GRTI Predecessor Entities.
Under the current structure, the Company owns the Hotels but leases them to GHG.
The Company includes only the related lease payments received from GHG in its
statement of operations. The decrease in fees and reimbursements of $10,639,000,
or 98%, from $10,838,000 in 1995 to $199,000 in 1996, the decrease in property
operating expenses of $1,312,000, or 29%, from $4,556,000 in 1995 to $3,244,000
in 1996, and the decrease of $9,922,000, or 91%, in general and administrative
expenses, including salaries, from $10,899,000 in 1995 to $977,000 in 1996 are
the primary components affected by these changes in structure.
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<PAGE>
Set forth below are the average occupancies at the Company's properties,
summarized by property type, at September 30:
1996 1995
-------------------- -----------------
Retail 93.8% 94.7%
Industrial 100.0% 99.4%
Office 91.7% 97.3%
Multifamily 92.0% 93.0%
Hotel 73.0% 69.4%
The 1995 office occupancy does not include the UCT and Bond Street Properties as
such properties were acquired in 1996. The UCT and Bond Street Properties had
average occupancies in 1996 of 88% and 95%, respectively.
Interest and other income decreased $1,605,000, or 72%, to $623,000 in the nine
months ended September 30, 1996 from $2,228,000 in 1995. This decrease resulted
primarily from the 1995 short-term investment of funds generated from the early
repayment of a note receivable in April of 1995 and the early repayment in
January and June of 1995 of three of the four notes received from the sale of
the Laurel Cranford buildings. Additionally, in 1996, cash balances have been
used to prepay the investor notes payable, pay declared dividends and pay costs
associated with the Consolidation.
Gain on sale of rental property of $321,000 during the nine months ended
September 30, 1996 resulted from the sale of the two self-storage facilities
held in the Company's industrial portfolio, as previously discussed.
Depreciation and amortization expense decreased $868,000, or 24%, to $2,694,000
at September 30, 1996, from $3,562,000 at September 30, 1995. The decrease was
due primarily to certain of the Company's fixed assets and deferred leasing
commissions becoming fully depreciated and amortized in 1995.
Interest expense increased $1,080,000, or 74%, in the nine months ended
September 30, 1996 to $2,546,000 from $1,466,000 during the nine months ended
September 30, 1995. The increase is primarily the result of an increase in
average borrowings during 1996 compared to 1995 which were used to finance the
1996 acquisitions previously discussed.
Extraordinary loss on debt refinancing of $186,000 during the nine months ended
September 30, 1996 resulted from the write-off of unamortized loan fees when the
$10,000,000 Imperial Bank line-of-credit was paid-off with proceeds from the new
Wells Fargo Facility.
Funds From Operations
The Company believes that Funds From Operations ("FFO") is a measure of cash
flow which, when considered in conjunction with other measures of operating
performance, affects the value of equity REITs such as the Company. FFO, as
defined by the National Association of Real Estate Investment Trusts ("NAREIT"),
means net income (computed in accordance with GAAP) excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures.
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<PAGE>
FFO is not necessarily indicative of cash flow available to fund cash needs and
is not the same as cash flow from operations as defined by GAAP, and should not
be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating, investing and financing activities as a measure of liquidity or
ability to make distributions. Management generally considers FFO to be a useful
financial performance measurement because it provides investors with an
additional basis to evaluate the performance of a REIT. FFO as disclosed by
other REITs may not be comparable to the Company's calculation of FFO.
In February 1995, NAREIT established new guidelines for calculating FFO that
clarify previous guidelines. The primary change from the old definition to the
new definition is the treatment of amortization of deferred financing fees.
Under the new definition, the amortization of deferred financing fees is no
longer added back to net income in calculating FFO. The new guidelines are
effective beginning in 1996.
Beginning with the first quarter of 1996, the Company calculates its FFO based
upon the new NAREIT definition and, accordingly, does not add back amortization
of deferred financing fees and costs. The change does not affect the Company's
Funds Available for Distribution ("FAD"). FAD represents FFO plus recurring
principal receipts from mortgage loans less reserves for lease commissions,
capital expenditures (excluding property acquisitions) and debt principal
amortization. FAD should not be considered an alternative to net income as a
measure of the Company's financial performance or to cash flow from operating
activities (computed in accordance with GAAP) as a measure of the Company's
liquidity, nor is it necessarily indicative of sufficient cash flow to fund all
of the Company's needs.
The following table sets forth the Company's calculation of FFO, based upon the
new NAREIT definition, and FAD for the three months ended March 31, June 30, and
September 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, June 30, September 30,
1996 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income before provisions for income taxes,
minority interest and extraordinary items $ 1,354 $ 1,714 $ 1,258
Depreciation and amortization 897 862 935
Gain on sale of rental property --- 321 ---
Adjustment to reflect FFO of Associated
Companies (1) 284 311(1) 251
------------- ------------- -------------
FFO $ 2,535 $ 2,566 $ 2,444
============= ============= =============
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
March 31, June 30, September 30,
1996 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
FFO (from above) $ 2,535 $ 2,566 $ 2,444
Amortization of deferred financing fees 36 36 69
Principal receipts on mortgage loans 14 5 3
Capital Reserve (185) (106) 229
Capital expenditures (54) (133 (477)
Principal amortization reserve (86) (125) (210)
------------- ------------- -------------
FAD $ 2,260 $ 2,243 $ 2,058
============= ============= =============
FFO per share $ 0.40 $ 0.41 $ 0.39
============= ============= =============
FAD per share $ 0.36 $ 0.36 $ 0.32
============= ============= =============
Dividends per share $ 0.30 $ 0.30 $ 0.30
============= ============= =============
Fully converted weighted average shares outstanding
6,296,042 6,303,542 6,342,206
============= ============= =============
<FN>
(1) Reflects the adjustments to FFO required to reflect the FFO of the
Associated Companies allocable to the Company. The Company's investments in the
Associated Companies are accounted for using the equity method of accounting.
</FN>
</TABLE>
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<PAGE>
GLENBOROUGH HOTEL GROUP
Background
Glenborough Hotel Group ("GHG") was organized in the State of Nevada on
September 23, 1991. GHG currently operates hotel properties owned by Glenborough
Realty Trust Incorporated ("GLB") under four separate percentage leases and
manages three hotel properties owned by two partnerships whose managing general
partner is Glenborough Corporation. GLB owns 100% of the 50 shares of non-voting
preferred stock of GHG and three individuals, including one executive officer of
GLB, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six rental units at one of the
properties. GHG receives 100% of the earnings of RGI and consolidates their
operations with its own.
GHG also owns 94% of the outstanding common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic Pacific Assurance
Company, Limited (APAC). APAC was formed to underwrite certain insurable risks,
however, it no longer underwrites any business and it is expected that it may be
liquidated in 1997. GHG accounts for its investment in APAC using the cost
method due to its anticipated liquidation.
Liquidity and Capital Resources
GHG's primary source of funding is the cash generated by the operations of the
four hotels leased from GLB and fees received for (i) managing three hotels
owned by two partnerships and (ii) managing the homeowners associations and
rental pools for the resort condominium hotel properties as discussed above.
As of September 30, 1996, GHG has no plans for major capital improvements. Any
capital expenditures associated with the six condominium units owned by RGI
would be performed by the rental pool and be deducted from the rental checks
received monthly.
On April 23, 1996, the board of directors of GHG declared dividends for the
first quarter of $50,000 of which $39,400 was made to GLB as the preferred
stockholder and the balance to the holders of GHG's common stock.
On July 23, 1996, the board of directors of GHG declared dividends for the
second quarter of $33,000 of which $27,000 was made to GLB as the preferred
stockholder and the balance to the holders of GHG's common stock.
On October 22, 1996, the board of directors of GHG declared dividends for the
third quarter of $22,000 of which $18,000 was made to GLB as the preferred
stockholder and the balance to the holders of GHG's common stock.
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<PAGE>
Results of Operations
Room revenue of $1,948,000 and $5,532,000 for the three and nine months ended
September 30, 1996, respectively, represents the revenue earned on the four
hotels leased from GLB.
Fee revenue of $280,000 and $1,463,000 for the three and nine months ended
September 30, 1996, respectively, represents the fees earned for managing three
hotels and two resort condominium hotels.
The primary expenses associated with the leased hotels are room expense of
$476,000 and $1,468,000, respectively, lease payments of $575,000 and
$1,843,000, respectively, sales and marketing of $190,000 and $571,000,
respectively and other operating expenses of $303,000 and $751,000,
respectively, for the three and nine months ended September 30, 1996.
The only direct expenses incurred in connection with the management of the three
hotels and two resort condominium hotel properties are salaries and benefits of
$385,000 and $1,222,000, respectively, for the three and nine months ended
September 30, 1996.
General and administrative costs of $240,000 and $706,000 for the three and nine
months ended September 30, 1996, respectively, represent the overhead costs
associated with administering the business of GHG.
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<PAGE>
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
Blumberg. On February 21, 1995, a class action complaint was filed in the
Superior Court of the State of California in and for San Mateo County in
connection with the Consolidation. The plaintiff is Anthony E. Blumberg, an
Investor in Equitec B, on behalf of himself and all others (the "Blumberg
Action") similarly situated. The defendants are GC (formerly known as
Glenborough Realty Corporation), Glenborough Realty Corporation ("GRC"), Robert
Batinovich, the Partnerships and the Company.
The complaint alleged breaches by the defendants of their fiduciary duty and
duty of good faith and fair dealing to investors in the Partnerships. The
complaint sought injunctive relief and compensatory damages. The complaint
alleged that the valuation of GC was excessive and was done without appraisal of
GC's business or assets. The complaint further alleged that the interest rate
for the Notes to be issued to investors in lieu of shares of Common Stock, if
they so elected was too low for the risk involved and that the Notes would
likely sell, if at all, at a substantial discount from their face value (the
Company, as it had the option to, paid in full the amounts due plus interest in
lieu of issuing Notes).
On October 9, 1995 the parties entered into an agreement to settle the action.
The defendants, in entering into the settlement agreement, did not acknowledge
any fault, liability or wrongdoing of any kind and continue to deny all material
allegations asserted in the litigation. Pursuant to the settlement agreement,
the defendants will be released from all claims, known or unknown, that have
been, could have been, or in the future might be asserted, relating to, among
other things, the Consolidation, the acquisition of the Company's shares
pursuant to the Consolidation, any misrepresentation or omission in the
Registration Statement on Form S-4, filed by the Company on September 1, 1994,
as amended, or the prospectus contained therein ("Prospectus/Consent
Solicitation Statement"), or the subject matter of the lawsuit. In return, the
defendants agreed to the following: (a) the inclusion of additional or expanded
disclosure in the Prospectus/ Consent Solicitation Statement, and (b) the
placement of certain restrictions on the sale of the stock by certain insiders
and the granting of stock options to certain insiders following consummation of
the Consolidation. Plaintiff's counsel indicated that it would request that the
court award it $850,000 in attorneys' fees, costs and expenses. In addition,
plaintiffs' counsel indicated it would request the court for an award of $5,000
payable to Anthony E. Blumberg as the class representative. The defendants
agreed not to oppose such requests.
On October 11, 1995, the court certified the class for purposes of settlement,
and set a hearing on December 21, 1995, to determine whether it should approve
the settlement and class counsel's application for fees. A notice of the
proposed settlement was distributed to the members of the class on November 15,
1995. The notice specified that, in order to be heard at the hearing, any class
member objecting to the proposed settlement must, by December 15, 1995, file a
notice of intent to appear, and a detailed statement of the grounds for their
objection.
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<PAGE>
A number of objections were received from class members. The
objections reiterated the claims in the original Blumberg complaint, and
asserted that the settlement agreement did not adequately compensate the class
for releasing those claims. One of the objections was filed by the same law firm
that brought the BEJ Action described below.
The hearing originally scheduled for December 21, 1995 was continued to January
17, 1996. At the hearing on January 17, the court heard the arguments of the
objectors seeking to overturn the settlement, as well as the arguments of the
plaintiffs and the defendants in defense of the settlement. The court granted
all parties a period of time in which to file additional pleadings. On June 4,
1996, the court granted approval of the settlement, finding it fundamentally
fair, adequate and reasonable to the respective parties to the settlement.
However, the objectors have given notice that they intend to appeal the June 4
decision.
BEJ Equity Partners. On December 1, 1995, a second class action complaint
relating to the Consolidation was filed in Federal District Court for the
Northern District of California (the "BEJ Action"). The plaintiffs are BEJ
Equity Partners, J/B Investment Partners, Jesse B. Small and Sean O'Reilly as
custodian f/b/o Jordan K. O'Reilly, who as a group held limited partner
interests in the California limited partnerships known as Outlook Properties
Fund IV, Glenborough All Suites Hotels, L.P., Glenborough Pension Investors,
Equitec Income Real Estate Investors-Equity Fund 4, Equitec Income Real Estate
Investors C and Equitec Mortgage Investors Fund IV, on behalf of themselves and
all others similarly situated. The defendants are GRC, GC, the Company, GPA,
Ltd., Robert Batinovich and Andrew Batinovich. The Partnerships are named as
nominal defendants.
This action alleges the same disclosure violations and breaches of fiduciary
duty as were alleged in the Blumberg Action. The complaint sought injunctive
relief, which was denied at a hearing on December 22, 1995. At that hearing, the
court also deferred all further proceedings in this case until after the
scheduled January 17 hearing in the Blumberg Action. Following the trial court's
approval of the settlement and entry of judgment in the Blumberg Action, the
Company and the other defendants were required to file a responsive pleading in
the BEJ Action, and filed a motion to dismiss on July 1, 1996.
It is management's position that the BEJ Action, and the objections to the
settlement of the Blumberg Action, are without merit, and management intends to
pursue a vigorous defense in both matters. However, given the inherent
uncertainties of litigation, there can be no assurance that the ultimate outcome
in these two legal proceedings will be in the Company's favor.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated by
reference to this Item.
(b) Reports on Form 8-K:
On July 26, 1996, the Company filed a report on Form 8-K to
make available additional ownership and operation information
concerning the Company and the properties owned or managed by
it as of June 30, 1996, in the form of a Supplemental
Information package.
On July 30, 1996, and August 8, 1996, the Company filed
reports on Form 8-K and Form 8-K/A, respectively, to document
the acquisition of the UCT Property and the two new financing
agreements with Wells Fargo Bank.
On October 28, 1996, the Company filed a report on Form 8-K to
make available additional ownership and operation information
concerning the Company and the properties owned or managed by
it as of September 30, 1996, in the form of a Supplemental
Information package.
On November 1, 1996, the Company filed a report on Form 8-K to
document the acquisition of the TRP Properties.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated,
Date: January 17, 1997 /s/ Andrew Batinovich
---------------------
Andrew Batinovich
Director, Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial Officer)
Date: January 17, 1997 /s/ Terri Garnick
-----------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
Number Exhibit Title
- ------------------ -------------------------------------------------------------- -----------------
<S> <C> <C>
10.01 Agreement for Contribution of Partnership Interests related
to the acquisition of the Bond Street Property. 39
10.02 Second Amendment to First Amended and Restated Agreement of
Limited Partnership of Glenborough Properties, L.P.
69
10.03 Second Amendment to Agreement of Limited Partnership of GPA
Bond, a California Limited Partnership.
74
10.04 Lease Agreement between Glenborough Properties, L.P. and
Glenborough Hotel Group for Country Suites - San Antonio.
77
</TABLE>
38 of 135
<PAGE>
AGREEMENT FOR CONTRIBUTION OF PARTNERSHIP INTERESTS
THIS AGREEMENT FOR CONTRIBUTION OF PARTNERSHIP INTERESTS
("Agreement") is dated as of __________________, 1996, by and between
GLENBOROUGH CORPORATION, a California corporation ("Glenborough"), GPA, LTD., a
California limited partnership ("GPA"; GPA and Glenborough are collectively
referred to as the "Transferors" and individually as each or any "Transferor"),
GLENBOROUGH PROPERTIES, L.P., a California limited partnership ("GPLP"), and GRT
Corp., a Georgia corporation ("GRT").
RECITALS
A. GPLP is a California limited partnership whose general
partner is GLENBOROUGH REALTY TRUST INCORPORATED, a Maryland corporation
("GRTI"), whose stock is publicly traded on the New York Stock Exchange.
B. GPA owns a 99% limited partnership interest (the "LP
Interest") in GPA BOND, LP, a California limited partnership ("BOND").
Glenborough owns a 1% general partnership interest (the "GP Interest") in BOND.
The GP Interest and the LP Interest shall hereinafter be collectively referred
to as the "Partnership Interests".
C. Glenborough desires to transfer to GRT, and GRT desires to
acquire from Glenborough, the GP Interest, upon the terms and subject to the
conditions set forth in this Agreement. GPA desires to transfer to GPLP, and GPA
desires to acquire from GPA, the LP Interest, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants and agreements hereinafter contained, and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties hereto
hereby agree as follows:
1. Contribution of Partnership Interests . Subject to and
upon the terms and conditions hereinafter set forth and the representations and
warranties contained herein:
(a) Glenborough hereby agrees to contribute to GRT,
without consideration, the GP Interest, free and clear of
any and all liens, encumbrances, liabilities, claims,
charges, and restrictions of any kind or nature
whatsoever; and
(b) GPA hereby agrees to transfer to GPLP the LP Interest,
in exchange for the Units, as hereinafter defined, free
and clear of any and all liens, encumbrances, liabilities,
claims, charges, and restrictions of any kind or nature
whatsoever.
2. Issuance of Units. At the Closing (as defined in Paragraph
3 below), GPLP shall issue to GPA Twenty Nine Thousand Three Hundred Thirty
Three (29,333) Limited
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<PAGE>
Partnership Units, as that term is defined in that certain First Amended and
Restated Agreement of Limited Partnership of GPLP, dated as of December 31,
1995, as amended by that Amendment to First Amended and Restated Partnership
Agreement of Glenborough Properties, L.P., dated as of July 12, 1996 ("GPLP's
Partnership Agreement"). The Units shall include a redemption option as set
forth in GPLP's Partnership Agreement. If the Units are redeemed for GRTI Stock,
the Holder shall have certain registration rights for a period of one year as
well as certain other rights, all as more particularly described in the
Registration Rights Agreement attached hereto as Exhibit A (the "Registration
Rights Agreement"). On the Closing Date, GPA shall execute and deliver, and GPLP
shall cause GRTI, so to execute and deliver, the Registration Rights Agreement.
3. Title to the Partnership Interests. At the closing of the
transfer contemplated hereafter (the "Closing"), GPA shall convey the LP
Interest to GPLP by a duly executed assignment of partnership interests in the
form attached hereto as Exhibit B, and Glenborough shall convey to GRT Corp. the
GP Interest by a duly executed assignment of partnership interests in the form
attached hereto as Exhibit C (collectively, the "Assignments").
4. Conditions to Closing. The following conditions are
precedent to GPLP's obligation to issue the Units (the "Conditions Precedent"):
(a) The representations and warranties of Transferors
contained herein shall be true and correct as of the Closing Date as though made
at and as of the Closing Date, and Transferors' covenants under this Agreement
shall be satisfied as of the Closing Date (to the extent such covenants are to
be satisfied as of the Closing Date), and GPLP shall have received at the
Closing a certificate dated as of the Closing Date and executed on behalf of
Transferors by executive officers of Transferors or of the respective general
partners of Transferors, as applicable, certifying as to the fulfillment of the
conditions set forth in this Subparagraph 4(a).
(b) At the Closing, Transferors shall transfer to GPLP the
Partnership Interests free and clear of any defects, liens, encumbrances or
claims of any kind.
(c) Security Union Title Insurance Company ("Title Company")
shall be committed to issue at Closing for the Real Property (as defined in
Subparagraph 6(h)(i) below) endorsements (i) dating down the Title Policy, as
hereinafter defined, to the Closing, (ii) permitting the continuance of the
policy coverage issued to the original partnership (a "Fairways Endorsement")
and (iii) such other endorsements reasonably requested by GPLP (the
"Endorsements") to BOND's extended coverage American Land Title Association
Policy of Owner's Title Insurance , attached hereto in the form of Exhibit D
(the "Title Policy"), showing title to the Real Property vested in BOND, subject
only to (i) the lien of a first mortgage to be given by BOND to Wells Fargo Bank
contemporaneously with the Closing securing GPLP's obligations under certain
promissory notes (the "Wells Fargo Loan"), and (ii) exception Nos. 9-13 and 16
("Permitted Exceptions") on the Title Policy.
(d) The physical condition of the Real Property and
Improvements (as such terms are defined in Subparagraph 6(h)(i) below) shall be
substantially the same on the
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<PAGE>
day of Closing as on the Effective Date, reasonable wear and tear and loss by
casualty excepted (subject to the provisions of Paragraph 9 below).
The Conditions Precedent contained in Subparagraphs 4(a)
through (e) are intended solely for the benefit of GPLP. If any of the
Conditions Precedent is not satisfied, GPLP shall have the right in its sole
discretion either to waive in writing the Condition Precedent and proceed with
the purchase or terminate this Agreement.
5. Closing.
(a) The Closing hereunder shall be held and delivery of all
items to be made at the Closing shall be made at the offices of GPLP on or
before _________________, 1996 (the "Closing Date"). In the event the Closing
does not occur on or before the Closing Date, each party shall return to the
other party all items which were provided hereunder. Any such return shall not,
however, relieve either party of any liability it may have for its wrongful
failure to close.
(b) At or before the Closing, Transferors shall deliver to
GPLP the following:
(i) a duly executed Registration Rights Agreement;
(ii) the duly executed Assignments;
(iii) originals of the Leases (as defined in
Subparagraph 6(k)(i) below);
(iv)originals of the building permits and certificates
of occupancy for the Improvements and all tenant-occupied space
included within the Improvements not previously delivered to
GPLP;
(v)an original, duly executed Assignment and Consent
Regarding Transfer of Partnership Interests in the form of
Exhibit E hereto;
(vi)an original, duly executed Second Amendment to
Limited Partnership Agreement of GPA BOND, LP, a California
limited partnership in the form of Exhibit F herein;
(vii)closing statement in form and content satisfactory
to GPLP and Transferors;
(viii)any other instruments, records or correspondence
called for hereunder which have not previously been delivered.
GPLP may waive compliance on Transferor's part under any of the foregoing items
by an instrument in writing.
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<PAGE>
(c) At or before the Closing, GPLP shall deliver to
Transferors the following:
(i)a closing statement in form and content satisfactory
to GPLP and Transferors; and
(ii) a duly executed Registration Rights Agreement.
(d) Transferors and GPLP shall each provide such other
instruments as are reasonably required to close and consummate the transactions
described herein in accordance with the terms hereof.
(e) With respect to the Property the following adjustments
shall be made, and the following procedures shall be followed:
(i) the amount by which the outstanding principal
balance plus accrued but unpaid interest on any loans encumbering
the Property is greater or less than $2,710,000 at Closing shall
be reflected by a decrease or increase, as the case may be, in
the number of Units issued to GPA, at an agreed upon value of
Fifteen Dollars ($15) per unit.
(ii)GPLP shall have the right to collect and keep all
rents or other amounts payable under the Leases that were
delinquent as of the Closing Date and that relate to a period
prior to the Closing without payment thereof to Transferor.
(iii)All costs associated with the transaction shall be
charged against the GPLP (except for Transferors' legal,
accounting or other professional fees), including all title
insurance premiums, all escrow charges, any transfer taxes, all
costs of GPLP's engineering and environmental analyses, and all
survey costs.
(iv)The obligations of Transferors and GPLP under this
Paragraph 5 shall survive the Closing.
6. Transferor's Representations and Warranties.Each of the
Transferors, jointly and severally, represents and warrants to GPLP as follows:
(a)Organization and Standing. GPA is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of California. BOND is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California with
full power and authority to own, lease and operate its properties and assets and
to carry on its business and activities as currently conducted (the "Business").
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<PAGE>
(b) Capacity and Authority. Each Transferor has full power
and authority to execute and deliver this Agreement and to perform all of the
terms and conditions hereof to be performed by the Transferor, and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Transferors and is the legal, valid and binding
obligation of each of the Transferors and is enforceable against each of the
Transferors in accordance with its terms, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and by general
equitable principles (whether or not such enforceability is considered in a
proceeding at law or in equity). None of the Transferors or BOND is presently
subject to any bankruptcy, insolvency, reorganization, moratorium, or similar
proceeding.
(c) No Violation. Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement,
nor the compliance with the terms and conditions hereof will (i) violate or
conflict, in any material respect, with any provision of BOND's Partnership
Agreement or any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restrictions of any government, governmental agency or
court to which either of the Transferors and/or BOND is subject, or (ii) result
in any material breach or the termination of any lease, agreement or other
instrument or obligation to which either of the Transferors or BOND is a party
or by which any of the properties or assets of the Transferors or BOND may be
subject, or cause a lien or other encumbrance to attach to any of BOND's
properties. Neither the Transferors nor BOND is a party to any contract or
subject to any other legal restriction that would prevent or restrict complete
fulfillment by the Transferors of all of the terms and conditions of this
Agreement or compliance with any of the obligations under it.
(d) Title to Partnership Interests. All of the Partnership
Interests are currently owned and as of the Closing will be owned beneficially
by the Transferors as set forth in Recital B hereto. The Transferors own the
Partnership Interests free and clear of all liens, charges, encumbrances,
claims, rights of others, mortgages, pledges or security interests, and the
Partnership Interests are not subject to any agreements or understandings among
any persons with respect to the voting or transfer thereof. The Transferors each
have full legal right to sell, assign, and transfer the Partnership Interests
and, upon delivery of the Assignment pursuant to the terms hereof, good and
marketable title to the Partnership Interests free and clear of any liens,
charges, encumbrances, pledges, security interests, taxes, claims or rights of
others of any nature whatsoever shall vest in GPLP.
(e) Subsidiaries and Affiliates. BOND does not own, control
or hold with the power to vote, directly or indirectly, any shares or capital
stock or beneficial interest in any corporation, partnership, limited liability
company, association, joint venture or other entity.
(f) Required Consents. All material consents required from
any governmental authority or third party in connection with the execution and
delivery of this Agreement by the applicable Transferor or the consummation by
the applicable Transferor of the transactions contemplated hereby have been made
or obtained or shall have been made or obtained by the Closing Date. Complete
and correct copies of all such consents shall be delivered to GPLP.
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<PAGE>
(g) Absence of Undisclosed Liabilities. Except for the
liabilities (i) the "Lease and Contract Liabilities" (as hereinafter defined),
and (ii) the liabilities incurred since the date of BOND's latest financial
statements in the ordinary course of business (the items described in (i) and
(ii) are collectively referred to as the "Closing Date Liabilities"), as of the
date hereof BOND has, and as of the Closing Date BOND will have, no known
liabilities, obligations, debts, contracts or other commitments of any kind or
nature whatsoever, whether accrued, fixed, absolute, conditional, determined or
determinable, and whether or not required under generally accepted accounting
principles to be accrued or disclosed in a balance sheet of BOND, existing as of
the date hereof or on the Closing Date or arising out of, or resulting from any
transaction entered into prior to or at the Closing Date. As of the date hereof
there is, and as of the Closing Date there will be, no existing fact, condition,
situation or circumstance known to Transferors that would result in any material
liability or obligation of BOND other than the Closing Date Liabilities. For
purposes of this Agreement, the term "Lease and Contract Liabilities" shall mean
the liabilities and obligations of BOND under the Leases and Contracts (as such
terms are hereinafter defined), but only to the extent such liabilities and
obligations are required to be performed and satisfied after the Closing Date
and excluding (y) liabilities and obligations arising as a result of any breach
of, or default or failure to perform under, any Lease or Contract by BOND prior
to the Closing Date, and (z) liabilities and obligations arising as a result of
any breach of, or default or failure to perform under any Lease or Contract by
BOND on or after the Closing Date, which breach, default or failure is the
result of Transferors' failure to perform any of its obligations under this
Agreement.
(h) Real Property.
(i) BOND has, and at the Closing Date will have, good
and indefeasible fee simple title to the real property described on
Schedule (6)(h)(i) attached hereto (the "Real Property"), subject only
to the Permitted Exceptions. The Real Property, together with all
buildings, improvements and fixtures owned by BOND and located or to be
located thereon (the "Improvements") are referred to collectively as
the "Property."
(ii) There are no adverse or other parties in
possession of the Property, or any part thereof, except BOND and
tenants under the Leases. No party has been granted any license, lease,
or other right relating to the use or possession of the Property or any
part thereof, except tenants under the Leases.
(iii) Except as disclosed to GPLP, there are no
material defects with respect to the Real Property, including, without
limitation, no material defects in the structural and load-bearing
components of the Property, the roof(s), the parking lot(s), the
plumbing, heating, air conditioning and electrical and life safety
systems, and all such items are in good operating condition and repair.
For the purpose of this Subparagraph 6(h)(iii), the term "material
defects" shall mean defects which in the aggregate for the Property
would cost more than $50,000 to repair.
(iv)Except as disclosed to GPLP, to the best of
Transferors' knowledge, the use and operation of the Property is in
compliance with all applicable restrictive covenants, building codes,
environmental, zoning and land use laws, and other applicable
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<PAGE>
local, state and federal laws and regulations (collectively, "Laws").
(v) Except as disclosed to GPLP, there are no
condemnation, environmental, zoning or other land-use regulation
proceedings, either instituted or, to the best of Transferors'
knowledge, planned to be instituted, which would detrimentally affect
the use, operation or value of any of the Property, nor has either
Transferor or Company received notice of any special assessment
proceedings affecting any of the Property. Transferors shall notify
GPLP promptly of any such proceedings of which either Transferor
becomes aware.
(vi) All water, sewer, gas, electric, telephone, and
drainage facilities and all other utilities required by law or by the
normal use and operation of the Property are installed to the property
lines of the Property, and are connected pursuant to valid permits, and
are adequate to service the Property and to permit compliance with all
Laws.
(vii) Company has obtained all licenses, permits,
variances, approvals, authorizations, easements and rights of way,
including proof of dedication, required from all governmental
authorities having jurisdiction over the Property or from private
parties for the intended use, operation and occupancy of the Property
and to insure vehicular and pedestrian ingress to and egress from the
Property.
(viii)Except as disclosed to GPLP, there is no
litigation pending or, to the best of Transferors' knowledge,
threatened, against either Transferor or any basis therefor that arises
out of the ownership of the Property or that might detrimentally affect
the value or the use or operation of any of the Property for its
intended purpose or the ability of Transferors to perform their
obligations under this Agreement. Transferors shall notify GPLP
promptly of any such litigation of which either Transferor becomes
aware.
(ix)Except as disclosed to GPLP, at the time of Closing
there will be no outstanding written or oral contracts made by Company
for any improvements to the Property which have not been fully paid for
and Transferors shall cause to be discharged all mechanics' and
materialmen's liens arising from any labor or materials furnished to
the Property prior to the time of Closing.
(x) As of the Closing Date, Company has completed (i)
all original building construction on the Real Property, (ii) all
punch-list items with respect to any tenant improvements constructed by
Company as landlord under the Leases, and (iii) all on- and off-site
development obligations of BOND in connection with any of the Real
Property.
(xi)Transferors know of no facts nor have Transferors
failed to disclose any fact which would prevent BOND from using and
operating the Property after Closing in the manner in which the
Property is intended to be operated.
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(xii) Other than the rights of Tenants, as tenants
only, under the Leases, there are no purchase contracts, options or
other agreements of any kind, written or oral, recorded or unrecorded,
whereby any person or entity other than BOND will have acquired or will
have any basis to assert any right, title or interest, or right to
possession, use, enjoyment or proceeds of all or any portion of the
Property. None of the Leases contain any rights of first offer, first
refusal or purchase options.
(i) Leased Personal Property. Transferors will make, or
cause to be made available to GPLP true, correct and complete copies of all
leases and subleases for each item of personal property leased or subleased to
BOND (the "Leased Personal Property"). All such Leased Personal Property is in
BOND's actual possession and is in such condition that, upon return of such
property in its present condition to its owner, BOND will not be liable in any
amount to such owner on account of the condition of such Leased Personal
Property.
(j) Title to and Condition of Assets. BOND has good and
indefeasible title to the Property, including, without limitation, the Real
Property and the Improvements, any personal property owned by Company ("Personal
Property") and all other assets and properties, whether real or personal,
tangible or intangible, which it owns (collectively referred to as the
"Assets"). All Assets are owned free and clear of all mortgages, liens, pledges,
claims, charges, restrictions, easements, encumbrances or security interests of
any kind or nature whatsoever (collectively, the "Liens"), other than the Loans.
Except in connection with the Loans, no financing statement under the Uniform
Commercial Code or similar law naming BOND as debtor has been filed in any
jurisdiction and is still in effect, and BOND is not a party to or bound by any
agreement or arrangement authorizing any party to file any such financing
statement. Upon the Closing, BOND will have good, valid, complete and marketable
title to the Assets free and clear of all Liens except for the Loans.
(k) Leases.
(i) Attached hereto as Exhibit G is a list (the "Rent
Roll") of each lease or agreement for the use or occupancy of the
Property (collectively, the "Leases") as of the date of this Agreement.
Said Rent Roll is complete in all material respects and all information
therein is accurate as of its date, and there are no Leases or
tenancies with respect to the Property or any part thereof except as
therein set forth. Except as disclosed on the Rent Roll, no rental
under any Lease has been collected in advance of the current month.
BOND is the owner of the entire lessor's interest in and to each of the
Leases and none of the Leases or the rentals or other sums payable
thereunder has been assigned or otherwise encumbered, except in
connection with the Loans.
(ii) Each of the Leases, including, without limitation,
any guaranties thereof, is an enforceable Lease and is in full force
and effect according to the terms set forth therein, except as the
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
rights of creditors generally, and by general equitable principles.
Except as disclosed to GPLP, (i) no Tenant under any of the Leases is
greater than forty-five (45) days delinquent in the
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payment of its rental and other sums due, (ii) no Tenant has abandoned
or otherwise vacated the Property in violation of any Lease, (iii) no
Tenant or guarantor has filed a voluntary petition in bankruptcy,
insolvency or similar proceedings, has been the subject of an
involuntary bankruptcy petition, or otherwise been adjudged bankrupt or
insolvent in any proceedings filed against such tenant or guarantor;
(iv) no trustee or receiver has been appointed for any Tenant; (v) no
written notice has been provided to any tenant notifying the Tenant
that it is in default under the Lease which default has not been
remedied by such Tenant; and (vi) no Tenant, to Transferors' knowledge,
is otherwise in default under any of the Leases. Except as otherwise
provided in the Lease, each Tenant is legally required to pay all sums
and perform all obligations set forth in its respective Lease, without
concessions, abatements, offsets or other basis for relief or
adjustment, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of
creditors generally, and by general equitable principles.
(iii) To the best of Transferors' knowledge, no
material event of default on behalf of BOND, as lessor, exists under
any Lease and no event or condition exists that, upon the giving of
notice or lapse of time, or both, would constitute a default by BOND
under any Lease. No Tenant has given notice to BOND of any offsets,
defenses or claims available against rent or other charges payable by
such Tenant or other performance or obligations otherwise due from it
under any Lease, except as specifically set forth in the Rent Roll.
(iv) No guarantor of any Lease has been released or
discharged, voluntarily or involuntarily, from any obligation under or
in connection with any Lease or any transaction related thereto.
(v)No Tenant or any other party has given notice of any
claim (other than for customary refund at the expiration of a Lease) to
all or any part of any security deposit. The Rent Roll sets forth all
security deposits held by BOND.
(vi)Except as shown on the Rent Roll, Company has paid
in full any of landlord's leasing costs or obligations, including,
without limitation, any costs incurred by Company in connection with
any tenant improvements.
(vii)No Tenant has indicated to Company either orally
or in writing its intent to terminate its Leases prior to expiration of
the term of such Lease.
(viii) Except as disclosed to GPLP, (A) no brokerage or
similar fee is due or unpaid by Company with respect to the Leases, and
(B) no brokerage or similar fee shall be due or payable after the
Closing in connection with the Leases pursuant to any agreement entered
into by Company or either Transferor or of which either Transferor or
Company has knowledge.
(l) Permits and Licenses. BOND owns or has rights under all
material government and non-government licenses and permits required for the
lawful conduct of the Business and BOND's use and ownership of the Property
(collectively, the "Licenses").
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BOND owns or has rights under all Licenses. At the Closing Date, BOND will have
all such Licenses and the Licenses shall, in all material respects, be in full
force and effect. The consummation of the transactions contemplated hereby will
not result in any revocation, cancellation or suspension of any of the Licenses.
No actions or proceedings to revoke any Licenses are pending or, to the
knowledge of the Transferors, threatened. BOND has not taken any action or
knowingly failed to take any action which would materially impair, limit or in
any way affect any of BOND's right to conduct its Business and operate the
Property. To the best of Transferors' knowledge, there is no basis for any
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand which would have the result of challenging the legality, validity or
enforceability of any of the Licenses. BOND is, in all material respects, in
compliance with all of the Licenses. No registration, filing, application,
notice, transfer, consent, approval, order, qualification, waiver or other
action of any kind will be required as a result of the transactions contemplated
herein to avoid (i) the loss of any License, (ii) a violation, breach or default
under or the termination of any License, or (iii) the creation of any Lien on
any Asset pursuant to the terms of any License and/or any law, regulation, order
or other requirement or any contract or agreement binding upon BOND or to which
any Asset may be subject.
(m) Taxes. BOND has timely filed or caused to be timely
filed all federal, state and local tax returns and informational filings for
taxes, and all such tax returns and informational filings are, in all material
respects, proper, complete and accurate. Copies of all available tax returns and
informational filings of BOND existing as of the Effective Date have been
provided to GPLP and any subsequent tax returns and informational filings shall
be delivered to GPLP as they become available. BOND has withheld and/or paid all
taxes which have become due pursuant to BOND's tax returns and all other taxes,
assessments and other governmental charges which have become due and are imposed
by law upon BOND or any of its Assets which are due on or after the Closing
Date, which relate to periods prior to the Closing Date. Neither of the
Transferors nor BOND have received and neither of the Transferors have any
knowledge of any notice of deficiency or assessment with respect to BOND and its
Assets or any basis for any of the foregoing, from any taxing authorities. There
is no litigation, governmental or other proceeding (formal or informal) or
investigation pending or, to the best of Transferors' knowledge, threatened with
respect to any such federal, state or local income or other taxes, tax returns
or informational filings of BOND. There are not in effect any waivers or
extensions of statutes of limitations with respect to taxes payable by BOND.
(n) BOND Loans. Except for such loans and advances that will
be paid in full on or before the Closing Date and the Wells Fargo Loan, BOND has
no outstanding loans or other advances to any other party. Neither BOND nor
either Transferor has defaulted on any loan or other obligation entered into in
connection with the Property or the Business.
(o) Compliance with Laws. BOND is, and all of the Assets
are, in all material respects, in compliance with all applicable laws, orders,
rules, Licenses, codes, rulings, decrees, regulations, ordinances and other
requirements of all federal, state and local governmental, administrative and
judicial authorities and agencies. No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced.
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(p) Contracts. With respect to all service contracts,
construction contracts for work in progress, any warranties thereunder,
management contracts, reciprocal easement agreements, operating agreements,
maintenance agreements, franchise agreements and other similar agreements (the
"Contracts"). With respect to each of the Contracts, (i) the Contract is legal,
valid, binding, enforceable in accordance with its terms and in full force and
effect, except as may be limited by bankruptcy, reorganization, fraudulent
conveyance, insolvency or similar laws of general application relating to or
affecting the enforcement of creditor's rights and subject to general principles
of equity, (ii) the Contract will not be adversely affected by the occurrence of
the Closing and will be legal, valid, binding, enforceable in accordance with
its terms and in full force and effect on identical terms following the
consummation of the sale of the Partnership Interests, (iii) no party to the
Contract is in breach or default under any obligation thereunder or any
provisions thereof which would have material adverse affect upon BOND, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default, or permit any termination under the Contract which would have
a material adverse affect upon BOND, (iv) no event has occurred under the
Contract which would permit the creation of any Lien upon, or the restriction of
the right to the use of, any Asset and (v) no party to any Contract has
repudiated any material provision of the Contract.
(q) Loan Documents. With respect to all notes or other
evidence of indebtedness, loan agreements, mortgages, guaranty agreements, and
any and all other documents entered into by BOND and all amendments,
modifications and supplements thereto (collectively the "Loan Documents") in
connection with any Loans to BOND and all matters in connection with the Loans,
(i) each Loan Document is legal, valid, binding, enforceable in accordance with
its terms and in full force and effect, except as may be limited by bankruptcy,
reorganization, fraudulent conveyance, insolvency or similar laws of general
application relating to or affecting the enforcement of creditor's rights and
subject to general principles of equity, (ii) each Loan Document will not be
adversely affected by the occurrence of the Closing and will be legal, valid,
binding, enforceable in accordance with its terms and in full force and effect
on identical terms following the consummation of the sale of the Partnership
Interests, (iii) no party to the Loan Document is in breach or default under any
obligation thereunder or any provisions thereof which would have material
adverse affect upon BOND, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default, or permit any termination,
modification or acceleration under the Loan Documents which would have a
material adverse affect upon BOND, (iv) no event has occurred under the Loan
Document which would permit the creation of any Lien upon, or the restriction of
the right to the use of, any Asset and (v) no party to the Loan Document has
repudiated any material provision of the Loan Document.
(r) Insurance. Copies of all insurance policies of BOND by
which BOND and any of its Assets are now covered or have been covered during the
last three (3) years will be provided to the GPLP. Transferors agree to cause
BOND to maintain the existing policies (which are presently in force) or
comparable coverage in full force and effect at all times from the date of this
Agreement through and including the Closing Date. None of the Transferors or
BOND have received any notice from any insurance carrier of its intent to
discontinue any such insurance coverage or have any reason to believe that such
carrier intends to discontinue any such insurance coverage. Except as set forth
in Schedule 6(r), during the last
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three years, there has been no material casualty affecting BOND or loss, damage
or destruction to any of its properties, whether or not covered by or
compensated under any insurance policy of BOND.
(s) Orders and Litigation. No court or governmental or
regulatory authority of competent jurisdiction has enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in effect
and prohibits consummation by Transferors or BOND of the transactions
contemplated by this Agreement. Except as disclosed to GPLP, BOND is neither
subject to any outstanding injunction, judgment, order, decree, ruling or charge
nor a party, or, to the best of Transferors' knowledge, threatened to be made a
party, to any action, suit, proceeding, hearing or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state or local jurisdiction or before any arbitrator, and there is no basis
known to the Transferors for any such action.
(t) Employees. BOND does not now and has never had any
employees.
(u) Environmental Matters. Transferors have delivered to
GPLP all environmental reports and investigations relating to the Property
and/or the Prior Properties (as herein defined) which are available to Company
or Transferors or in Company's or Transferors' possession (the "Environmental
Reports"). Except as set forth in the Environmental Reports:
(i) BOND's prior uses of the Property have at all times
during BOND's lease, ownership or use thereof complied in all material
respects with, and neither has BOND nor, to the best of Transferors'
knowledge, any other person in connection with the ownership, lease,
occupancy, use, maintenance, or operation of the Property and the
conduct of the Business violated, in any material respect, any then
applicable federal, state, county or local statutes, laws, regulations,
rules, ordinances, codes, licenses or permits relating in any way to
the protection of the environment, including, without limitation, the
Clean Air Act, the Federal Water Pollution Control Act of 1972, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), and the Toxic Substances Control Act and any
amendments or extensions of the foregoing and the regulations
promulgated thereunder (collectively, the "Environmental Laws"). BOND's
existing use of the Property complies with and BOND is not currently,
in any material respect, in violation of any current Environmental Laws
in connection with the ownership, lease, occupancy, use, maintenance,
or operation of the Property and the conduct of the Business. During
the time BOND has owned, leased or used the Property, BOND has not
received any written notification from the Federal Environmental
Protection Agency, or the environmental protection agency or similar
agency of any of the States, that a permit is required by BOND for any
reason whatsoever, including, without limitation, the use or
maintenance of any improvement or facility on the Property and, to the
Transferors' knowledge, no such permit has been required. Neither
Company, nor to the best of Transferors' knowledge, any third party
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has installed, used or removed any storage tank on, from or in
connection with the Property except in full compliance with all
Environmental Laws, and to the best of Transferors' knowledge there are
no storage tanks or wells (whether existing or abandoned) located on,
under or about the Property and to the best of Transferors' knowledge
no storage tank has been installed on, used on or removed from or used
in connection with the Property in violation of any Environmental Laws.
To the best of Transferors' knowledge, the Property does not consist of
any building materials that contain Hazardous Materials. No claim,
action, suit or proceeding is pending or, to the Transferors'
knowledge, threatened against BOND, before any court or other
governmental authority or arbitration tribunal, relating to Hazardous
Materials, pollution or the environment, and there is no outstanding
judgment, order, writ, injunction, decree or award against or affecting
BOND or the Property with respect to the same. There is not presently
occurring, nor to the Transferors' knowledge, has there ever been any
"release" of any Hazardous Materials onto or from the Property in
violation of an Environmental Law. To the best of Transferors'
knowledge, there has never been, nor is there presently occurring, any
"release" of any "hazardous substance" from any location where BOND
transported, treated, disposed of or arranged or caused the
transportation, treatment or disposal of Hazardous Materials in
violation of an Environmental Law. BOND has utilized, stored, delivered
for disposal, disposed of and transported all wastes, whether hazardous
or not, in material compliance with the then applicable laws, rules,
regulations and ordinances and the common law and so as not to give
rise to any reporting, remediation or clean-up obligation under any
currently applicable law, rule, regulation or ordinance or the common
law. The provisions of this Subparagraph 6(u) shall also apply to the
real property of, and actions taken by, each person controlled by BOND
during all periods in which such person was controlled by BOND;
provided, however, that for purposes of this Subparagraph 6(u), BOND
shall not be deemed to be in control of any Tenant of the Property.
BOND has not received any written notice from any government agency
advising it that it is responsible for response costs with respect to a
release, a threatened release or clean up of chemical produced by, or
resulting from, any business, commercial, or industrial activities,
operations, or processes, including, but not limited to, Hazardous
Materials, and has not received any written information requests under
CERCLA from any government agency. As used herein, "release" shall have
the same meaning as defined in CERCLA.
(v) Intellectual Property. BOND does not utilize or
otherwise conduct any business under any trademark, service mark or tradename.
BOND has not been charged with, nor, to the knowledge of Transferors, has it
infringed, or, is it threatened to be charged with infringement of, any patent,
proprietary rights or trade secrets of others in the conduct of its Business,
and, to the date hereof, BOND has not, to Transferors' knowledge, received any
notice of conflict with or violation of the asserted rights in intangibles or
trade secrets of others.
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(w) Brokers' Fees. Neither the Transferors nor BOND has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(x) Accuracy of Information. Neither Transferor has
knowledge of any events, transactions or other facts which, either individually
or in the aggregate might reasonably give rise to circumstances or conditions
which might have a material adverse affect on the general affairs, business,
prospects, financial position, results of operations or net worth of BOND.
(y) No Indemnification Liabilities. There are no existing
liabilities that require BOND to indemnify its partners for acts or omissions by
such persons acting on behalf of BOND or existing agreements to provide
indemnification for such liabilities.
(z) No Foreign Persons. Neither Transferor is a "foreign
person" within the meaning of Section 1445(f)(3) of the Code.
(aa) Investment Representations.
(i)(A) Each Transferor is acquiring the Units for
investment for its own account, not as a nominee or agent, and not with
a view to the sale in connection with a public distribution of any part
thereof; and (B) each Transferor has no present intention of selling,
granting a participation in or otherwise distributing, and does not
have any contract, undertaking, agreement or arrangement with any
natural person, corporation, partnership, association or other entity
("Person") to sell, transfer or grant a participation to such person,
or to any third person, with respect to any of the Units.
(ii)Each Transferor understands that the Units are not
registered under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act") on the
ground that the sale and the issuance of the Units hereunder is exempt
from registration under the Securities Act pursuant to Section 4(2)
thereof and regulations issued thereunder, and that the GPLP's reliance
on such exemption is predicated on Transferors' representations set
forth herein.
(iii)Each Transferor represents that it either (A) is
both an "accredited investor" as that term is defined in Regulation D
promulgated under the Securities Act and a purchaser excluded from the
count of investors under Section 25102(f) of the California
Corporations code; or (B) alone or together with its professional
advisor, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of
investment in the GPLP and has the capacity to protect its own interest
in connection with the transactions contemplated hereby. Each
Transferor further represents that, during the course of the
transaction and prior to its purchase of shares of the Units, it had
access to, the opportunity to ask questions of, and receive answers
from, representatives of the GPLP concerning the terms and conditions
of the offering and to obtain additional information (to the extent the
GPLP possessed such information or could acquire it without
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unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access.
(iv) Each Transferor has relied solely on its own
investigations in making a decision to purchase the Units, and has
received no representation or warranty from GPLP, or any of its
affiliates, employees or agents, other than those set forth in this
Agreement.
(v) Each Transferor understands that the Units may not
be sold, transferred or otherwise disposed of without registration
under the Securities Act or pursuant to an exemption therefrom, and
that in the absence of an effective registration statement covering the
Units or an available exemption from registration under the Securities
Act, the Units must be held indefinitely. In particular, each
Transferor is aware that the Units may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of
that Rule are met. Each Transferor represents that, in the absence of
an effective registration statement covering the Units, it will sell,
transfer or otherwise dispose of the Units only in a manner consistent
with its representations set forth herein and then only in accordance
with the provisions of this Agreement, GPLP's Partnership Agreement,
and applicable laws and regulations.
(vi)Each Transferor agrees that, except as specifically
contemplated hereunder, in no event will it transfer or dispose of any
of the Units other than pursuant to an effective registration statement
under the Securities Act, unless and until (i) there is compliance with
all requirements contained in other sections of this Agreement and the
GPLP's partnership agreement; (ii) the Transferor shall have notified
GPLP of the proposed disposition and shall have furnished GPLP with a
statement of the circumstances surrounding the disposition; (iii) if
requested by GPLP, at the expense of such Transferor, or its
transferee, it shall have furnished to GPLP an opinion of counsel,
reasonably satisfactory to GPLP, to the effect that such transfer may
be consummated without registration under the Securities Act; and (iv)
the transferee executes and delivers an assumption of the terms and
conditions of this Agreement and the GPLP's Partnership Agreement
satisfactory to GPLP.
7. Representations and Warranties of GPLP. GPLP hereby represents and
warrants to Transferors as follows: GPLP is a duly organized and validly
existing limited partnership under the laws of the State of California; this
Agreement and all documents executed by GPLP which are to be delivered to
Transferors at the Closing are or at the time of Closing will be duly
authorized, executed and delivered by GPLP, and are or at the Closing will be
legal, valid and binding obligations of GPLP, and do not and at the time of
Closing will not violate any provisions of any agreement or judicial order to
which GPLP is subject.
8. Indemnification.
(a) Each party hereby agrees to indemnify the other party
and defend and hold it harmless from and against any and all claims, demands,
liabilities, costs, expenses,
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penalties, damages and losses, including, without limitation, attorneys' fees,
resulting from any misrepresentation or breach of warranty or breach of covenant
made by such party in this Agreement or in any document, certificate, or Exhibit
given or delivered to the other pursuant to or in connection with this
Agreement.
(b) Transferors agree on a joint and several basis to
indemnify GPLP and BOND and defend and hold GPLP and BOND harmless from and
against any and all claims, demands, liabilities, costs, expenses, penalties,
damages and losses, including, without limitation, attorneys' fees, asserted
against, incurred or suffered by GPLP or BOND resulting from or arising out of
any transaction entered into, any state of facts existing, or any personal
injury or property damage occurring in, on or about the Property or relating
thereto, before the Closing Date, from any cause whatsoever other than as a
consequence of the acts or omissions of GPLP, its agents, employees or
contractors.
(c) GPLP and BOND agree to indemnify Transferors and defend
and hold Transferors harmless from any claims, losses, demands, liabilities,
costs, expenses, penalties, damages and losses, including, without limitation,
attorneys' fees, asserted against, incurred or suffered by Transferors resulting
from or arising out of any transaction entered into, any state of facts
existing, or any personal injury or property damage occurring in, on or about
the Property or relating thereto, after the Closing Date, from any cause
whatsoever other than as a consequence of the acts or omissions of either
Transferor, or their respective agents, employees or contractors.
(d) Transferors agree on a joint and several basis to and do
hereby indemnify, defend and hold harmless GPLP, its shareholders and BOND and
the respective agents, contractors, employees, shareholders, trustees,
investment advisors, and representatives of each of GPLP, its shareholders, and
BOND and each of their successors and assigns, from and against any and all
liabilities, claims, demands, suits, administrative proceedings, causes of
action, costs, damages, personal injuries and property damages, losses and
expenses, both known and unknown, present and future, at law or in equity,
arising out of or related in any way to any active or inactive underground
storage tanks at the Property ("USTs") or the presence of any hazardous
substances in or about the Property or any portion thereof existing on or prior
to the Closing Date. This indemnification includes, without limitation, (i) any
and all remedial costs (including, without limitation, all costs, expenses and
fees incurred in connection with any corrective action, preventative measures,
or any response, removal, transport, disposal, clean-up, abatement, treatment
and monitoring actions relating to hazardous substances, including, regulatory
costs, penalties, fines, legal fees and disbursements and the costs of
environmental contractors and consultants) associated with any USTs or hazardous
substances, (ii) to the maximum extent allowed by law, all fines and/or
penalties that may be imposed in connection with any USTs, (iii) defense of any
claim made by any individual or entity (including any government or governmental
agency or entity) concerning any of the foregoing, which defense shall be
conducted by counsel and with the assistance of environmental advisors and
consultants, in all cases subject to the prior written approval of GPLP, and
(iv) reasonable attorneys' fees and costs and environmental advisors' and
consultants' fees incurred by GPLP and BOND with respect to enforcing its rights
under this indemnification provision.
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(e) The indemnification provisions of this Paragraph 8 shall
survive beyond the Closing, or, if the Closing does not occur pursuant to this
Agreement, beyond any termination of this Agreement.
9. Risk of Loss.
(a) Minor Loss. GPLP shall be bound to transfer the Units in
exchange for the Partnership Interests as required by the terms hereof, without
regard to the occurrence or effect of any damage to the Property or destruction
of any improvements thereon or condemnation of any portion of the Property,
provided that: (a) the cost to repair any such damage or destruction does not
exceed five percent (5%) of the fair market value of the Property or, in the
case of a partial condemnation, the value of the portion of the Property taken
does not exceed five percent (5%) of the fair market value of the Property; (b)
upon the Closing, there shall be a credit reducing the number of Units (at $15
per Unit) to be transferred by GPLP hereunder equal to the amount of any
insurance proceeds or condemnation awards collected by the Transferors as a
result of any such damage or destruction or condemnation, plus seventy-five
percent (75%) of the amount of any insurance deductible; (c) insurance or
condemnation proceeds available to BOND are sufficient to cover the cost of
restoration; and (d) the insurance carrier has admitted liability for the
payment of such costs. If the proceeds or awards have not been collected as of
the Closing, then Transferors' right, title and interest to such proceeds or
awards shall be assigned to GPLP.
(b) Major Loss. If the cost to repair such damage or
destruction to the Property exceeds fifteen percent (15%) of the fair market
value of the Property or, in the case of condemnation, if the value of the
Property taken exceeds fifteen percent (15%) of the fair market value of the
Property, then GPLP may, at its option to be exercised by written notice to
Transferors within twenty (20) days of Transferors' notice to GPLP of the
occurrence of the damage or destruction or the commencement of condemnation
proceedings, either (a) elect to terminate this Agreement, in which event each
party shall have no further right, liability or obligation to the other, except
as set forth herein by express reference in a paragraph or provision which
provides that such paragraph or provision shall survive termination of this
Agreement, or (b) consummate the purchase of all of the Property as required by
the terms hereof, subject to the credits against the Units provided below. If
GPLP elects to proceed with the purchase of all of the Property, then, upon the
Closing, GPLP shall be given a credit reducing the number of Units (at $15 per
Unit) to be transferred by GPLP hereunder equal to the amount of any insurance
proceeds or condemnation awards collected by the Transferors as a result of any
such damage or destruction or condemnation, plus seventy-five percent (75%) of
the amount of any insurance deductible. If the proceeds or awards have not been
collected as of the Closing, then Transferors' right, title and interest to such
proceeds or awards shall be assigned to GPLP. If GPLP fails to give Transferors
notice within such 20-day period, then GPLP will be deemed to have elected to
terminate this Agreement.
10. Inspections. Prior to the Closing Date, Transferors shall afford
authorized representatives of GPLP reasonable access to the Property for
purposes of satisfying GPLP with respect to the representations, warranties and
covenants of Transferors contained herein and with
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respect to satisfaction of any Conditions Precedent to the Closing contained
herein, including, without limitation, the drilling of test wells on and the
taking of soil borings from the Property. GPLP hereby agrees to indemnify and
hold Transferors harmless from any damage or injury to persons or property
caused by GPLP or its authorized representatives during their entry and
investigations prior to the Closing. In the event this Agreement is terminated,
GPLP shall restore the Property to substantially the condition in which it was
found. This indemnity shall survive the termination of this Agreement or the
Closing, as applicable.
11. Actions Prior to Closing. Subject to the provisions of Paragraph 12
below, from and after the Effective Date and until the Closing Date, or until
this Agreement shall be terminated as herein provided, Transferors shall not and
shall not otherwise cause BOND to (i) merge with or into, consolidate with, or
sell its assets to any other corporation or person, or enter into any other
transaction not in the ordinary course of the Business consistent with past
practice, (ii) incur any liability or obligation, make any commitment or
disbursement, acquire or dispose of any property or asset, make any contract or
agreement or engage in any transaction, except in the ordinary course of the
Business consistent with past practice, (iii) subject any of its properties or
assets to a Lien, (iv) hire any employee(s), or enter into any employment
agreement, engage in any activity, enter into any transaction or fail to take
any action which would be inconsistent with any of the representations and
warranties as set forth in this Agreement as if such representations and
warranties were made at a time subsequent to such activity or transaction and
all references to the date of this Agreement were deemed to be such later time,
(v) amend BOND's Partnership Agreement, or (vii) waive any material right.
12. Leases And Other Agreements; Capital Improvements Except as
otherwise contemplated or permitted by this Agreement or approved by GPLP in
writing, from the Effective Date to the Closing Date, Transferors will cause
BOND to operate, maintain, repair and lease the Property in a prudent manner, in
the ordinary course, on an arm's-length basis and consistent with their past
practices (and without limiting the foregoing, Transferors shall cause BOND, in
the ordinary course, negotiate with prospective tenants and enter into leases of
the Property, enforce leases in all material respects, pay all costs and
expenses of the Property, including, without limitation, debt service, real
estate taxes and assessments, maintain insurance and pay and perform obligations
under the Loan Documents) and will not dispose of or encumber any of the
Property, except for dispositions of personal property in the ordinary course of
business. Without the written consent of GPLP, which consent GPLP may grant or
deny in its sole and absolute discretion, Transferors shall not enter into any
contract or lease with a term of more than one (1) year and consideration
payable or to be received of more than Fifty Thousand Dollars ($50,000).
13. Cooperation. Transferors and GPLP shall cooperate and do all acts
as may be reasonably required or requested by the other with regard to the
fulfillment of any Condition Precedent or the consummation of the transactions
contemplated hereby including execution of any documents, applications or
permits. Transferors hereby irrevocably authorize GPLP and its agents to make
all inquiries of any third party, including any governmental authority, as GPLP
may reasonably require to complete its due diligence.
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14. Miscellaneous.
(a) Notices. Any notice, consent or approval required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given upon (i) hand delivery, (ii) one (1) day after being
deposited with Federal Express or another reliable overnight courier service or
transmitted by facsimile telecopy, or (iii) two (2) days after being deposited
in the United States mail, registered or certified mail, postage prepaid, return
receipt required, and addressed as follows:
If to Transferors: GPA, Ltd.
400 South El Camino Real
San Mateo, CA 94402-1708
Att'n: Andrew Batinovich
Telephone: (415) 343-9300
Fax No.: (415) 343-9690
Glenborough Corporation
400 South El Camino Real
San Mateo, CA 94402-1708
Telephone: (415) 343-9300
Attn: Robert Batinovich
Fax No.: (415) 343-9690
If to GPLP: Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, California 94402-1708
Att'n: Frank E. Austin
Telephone: (415) 343-9300
Fax: (415) 343-9690
With a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304-1018
Att'n: William L. Myers
Telephone: (415) 813-5770
Fax : (415) 494-0792
or such other address as either party may from time to time specify in writing
to the other.
(b) Brokers and Finders. Neither party has had any contact
or dealings regarding the Property, or any communication in connection with the
subject matter of this transaction, through any real estate broker or other
person who can claim a right to a commission or finder's fee in connection with
the sale contemplated herein. In the event that any other broker or finder
perfects a claim for a commission or finder's fee based upon any such contact,
dealings or communication, the party through whom the broker or finder makes its
claim
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shall be responsible for said commission or fee and shall indemnify and hold
harmless the other party from and against all liabilities, losses, costs and
expenses (including reasonable attorneys' fees) arising in connection with such
claim for a commission or finder's fee. The provisions of this Subparagraph
shall survive the Closing.
(c) Successors and Assigns. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors, heirs, administrators and assigns. GPLP shall have the right, with
notice to Transferors (but without the necessity of Transferors' consent), to
assign its right, title and interest in and to this Agreement to one or more
assignees at any time before the Closing Date, and in such event, the party
originally designated as GPLP shall be relieved of any and all obligations under
this Agreement and any other instruments executed pursuant hereto, and such
assignee(s) shall be substituted in its place and will assume all obligations of
GPLP hereunder. Transferors shall not have the right to assign any of their
respective interest in this Agreement.
(d) Amendments. Except as otherwise provided herein, this
Agreement may be amended or modified only by a written instrument executed by
Transferors and GPLP.
(e) Continuation and Survival of Representations and
Warranties, Etc. All representations and warranties by the respective parties
contained herein or made in writing pursuant to this Agreement are intended to
and shall remain true and correct as of the time of Closing, shall be deemed to
be material, and, together with all conditions, covenants and indemnities made
by the respective parties contained herein or made in writing pursuant to this
Agreement (except as otherwise expressly limited or expanded by the terms of
this Agreement), shall survive the execution and delivery of this Agreement and
the Closing, or, to the extent the context requires, beyond any termination of
this Agreement.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(g) Merger of Prior Agreements. This Agreement and the
Exhibits hereto constitute the entire agreement between the parties and
supersede all prior agreements and understandings between the parties relating
to the subject matter hereof.
(h) Enforcement. If either party hereto fails to perform any
of its obligations under this Agreement or if a dispute arises between the
parties hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such dispute
shall pay any and all costs and expenses incurred by the other party on account
of such default and/or in enforcing or establishing its rights hereunder,
including, without limitation, court costs and attorneys' fees and
disbursements. Any such attorneys' fees and other expenses incurred by either
party in enforcing a judgment in its favor under this Agreement shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Agreement and to survive and not be merged into any
such judgment.
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(i) Time of the Essence. Time is of the essence of this
Agreement.
(j) Severability. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
(k) Marketing. Transferors agree not to market or show the
Property or market the Partnership Interests to any other prospective purchasers
during the term of this Agreement.
(l) Effective Date. As used herein, the term "Effective
Date" shall mean the first date on which both Transferors and GPLP shall have
executed this Agreement.
(m) Joint and Several. The representations, warranties,
covenants and obligations of Transferors and GPLP are joint and several.
(n) Confidentiality. GPLP and Transferors shall each
maintain as confidential any and all material or information about the other or,
in the case of GPLP and its agents, employees, consultants and contractors,
about the Property, and shall not disclose such information to any third party,
except, in the case of information about the Property and BOND, to Transferors
or GPLP's lender or prospective lenders, underwriters and their counsel,
insurance and reinsurance firms, attorneys, environmental assessment and
remediation service firms and consultants, as may be reasonably required for the
consummation of the transaction contemplated hereunder and/or as required by
law.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GPLP:
GLENBOROUGH PROPERTIES, L.P.
a California limited partnership
Dated: By: Glenborough Realty Trust Incorporated,
a Maryland corporation, its general partner
By:
Its:
Transferors:
GPA: GPA, LTD., a California limited partnership
Dated: By: Glenborough Corporation,
a California corporation, its general partner
By:
Its:
Glenborough:GLENBOROUGH CORPORATION,
a California corporation
By:
Its:
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GRT CORP., a Georgia corporation
By:
Its:
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LIST OF EXHIBITS
Exhibit A - Registration Rights Agreement
Exhibit B - Assignment of Partnership Interests
Exhibit C - Assignment of Partnership Interests
Exhibit D - Title Policy
Exhibit E - Agreement and Consent Regarding Transfer of Partnership Interests
Exhibit F - Second Amendment to Limited Partnership Agreement of GPA Bond,
LP, on California Limited Partnership
Exhibit G - Rent Roll
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LIST OF SCHEDULE
Schedule 6(h)(i) - Real Property
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EXHIBIT B
ASSIGNMENT OF PARTNERSHIP INTERESTS
THIS ASSIGNMENT dated as of ___________ __, 1996 (the
"Assignment"), is entered into by and between GPA, LTD., a California limited
partnership ("Assignor") and GLENBOROUGH PROPERTIES, L.P., a California limited
partnership (the "Assignee").
W I T N E S S E T H :
WHEREAS, Assignor and Assignee, among other parties, have
entered into that certain Agreement For Contribution of Partnership Interests
dated as of July __, 1996 (the "Contribution Agreement") pursuant to which
Assignor agreed to contribute to Assignee its LP Interest in GPA BOND, LP, a
California limited partnership ("BOND"); and
WHEREAS, Assignor desires to assign the LP Interest to
Assignee, and Assignee desires to accept the assignment thereof;
NOW, THEREFORE, in consideration of the promises and
conditions contained herein, the parties hereby agree as follows:
1. Effective as of the Closing Date (as defined below),
Assignor hereby assigns to Assignee the LP Interest; it being the intent of the
parties that upon completion of such assignment, Assignee shall own one-hundred
percent (100%) of the LP Interest.
2. This Assignment is made subject to all of the
representations, warranties, covenants and indemnities contained in the
Contribution Agreement to the extent they survive the Closing Date.
3. Assignor, on behalf of Assignor and its successors and
assigns, waives the right to recover from, and forever releases and discharges,
BOND from any and all demands, claims, legal or administrative proceedings,
losses, liabilities, damages, penalties, fines, liens, judgments, costs or
expenses whatsoever (including, without limitation, attorneys' fees and costs),
whether direct or indirect, known or unknown, foreseen or unforeseen, that
either or both of the Assignors, or their respective successors or assigns, may
have against BOND whether pursuant to applicable law, or BOND's partnership
agreement or otherwise, and whether arising out of any right to indemnity, right
of contribution, or otherwise, where such claim results from or arises out of
any transaction entered into, any state of facts existing, or any personal
injury or property damage occurring whether in, on or about the Property or
elsewhere, before the Closing Date.
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4. Assignor gives Assignee the right to become a Substituted
Limited Partner (as that term is defined in that certain Limited Partnership
Agreement of GPA BOND, LP, dated as of December 22, 1994, as amended by that
certain First Amendment to the Agreement of Limited Partnership of GPA BOND, LP,
dated as of April 10, 1995 (the "Bond Partnership Agreement")) in its place and
agrees to pay all costs and expenses incurred by BOND in connection with the
assignment, including any filing, recording, and legal fees and costs, and the
costs, if any, of complying with any state or federal rules or regulations.
Assignor agrees to hold its Partnership Interests (as defined in the Bond
Partnership Agreement) as a Limited Partner (as defined in the Bond Partnership
Agreement) subject to the terms and conditions of the Bond Partnership Agreement
and assumes all obligations under the Bond Partnership Agreement pertaining to
the interest that is assigned.
5. In the event of any litigation arising out of this
Assignment, the losing party shall pay the prevailing party's costs and expenses
of such litigation, including, without limitation, reasonable attorneys' fees.
6.This Assignment shall be binding on and inure to the
benefit of the parties hereto, their successors in interest and assigns.
7. This Assignment shall be governed by and construed in
accordance with the laws of the State of California.
8. For the purposes of this Assignment, the "Closing Date"
shall be the date of the Closing.
9. All initially capitalized terms not otherwise defined
herein shall have the meaning set forth in the Contribution Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Assignor:
GPA: GPA LTD.,
a California limited partnership
By: Glenborough Corporation,
a California corporation, its general partner
By:
Its:
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Assignee:
GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: Glenborough Realty Trust Incorporated,
a Maryland corporation, its general partner
By:
Its:
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EXHIBIT C
ASSIGNMENT OF PARTNERSHIP INTERESTS
THIS ASSIGNMENT dated as of ___________ __, 1996 (the
"Assignment"), is entered into by and between GLENBOROUGH CORPORATION, a
California corporation ("Assignor"), and GRT Corp., a Georgia corporation
("Assignee").
W I T N E S S E T H :
WHEREAS, Assignor and Assignee, among other parties, have
entered into that certain Agreement for Contribution of Partnership Interests
dated as of July __, 1996 (the "Contribution Agreement") pursuant to which
Assignor agreed to transfer to Assignee its GP Interest in GPA BOND, LP, a
California limited partnership ("BOND") ; and
WHEREAS, Assignor desires to assign the GP Interest to
Assignee, and Assignee desires to accept the assignment thereof;
NOW, THEREFORE, in consideration of the promises and
conditions contained herein, the parties hereby agree as follows:
1.Effective as of the Closing Date (as defined below),
Assignor hereby assigns to Assignee the GP Interest, it being the intent of the
parties that upon completion of such assignments, Assignee shall own a
one-hundred percent (100%) of the GP Interest.
2. This Assignment is made subject to all of the
representations, warranties, covenants and indemnities contained in the
Contribution Agreement to the extent they survive the Closing Date.
3. Assignor, on behalf of Assignor and its successors and
assigns, waives its right to recover from, and forever releases and discharges,
BOND from any and all demands, claims, legal or administrative proceedings,
losses, liabilities, damages, penalties, fines, liens, judgments, costs or
expenses whatsoever (including, without limitation, attorneys' fees and costs),
whether direct or indirect, known or unknown, foreseen or unforeseen, that
either or both of the Assignors, or their respective successors or assigns, may
have against BOND whether pursuant to applicable law, or BOND's partnership
agreement or otherwise, and whether arising out of any right to indemnity, right
of contribution, or otherwise, where such claim results from or arises out of
any transaction entered into, any state of facts existing, or any personal
injury or property damage occurring whether in, on or about the Property or
elsewhere, before the Closing Date.
4. In the event of any litigation arising out of this
Assignment, the losing party shall pay the prevailing party's costs and expenses
of such litigation, including, without limitation, reasonable attorneys' fees.
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5. This Assignment shall be binding on and inure to the
benefit of the parties hereto, their successors in interest and assigns.
6. This Assignment shall be governed by and construed in
accordance with the laws of the State of California.
7.For the purposes of this Assignment, the "Closing Date"
shall be the date of the Closing (as defined in the Contribution Agreement).
8. All initially capitalized terms not otherwise defined in
this Agreement shall have the meaning set forth in the Contribution Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Assignor:
GLENBOROUGH CORPORATION,
a California limited partnership
By:
Its:
Assignee:
GRT CORP.,
a Georgia corporation
By:
Its:
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SECOND AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
GLENBOROUGH PROPERTIES, L.P.
THIS SECOND AMENDMENT TO THE FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP, dated as of ____ ___, 1996 (the "Amendment"), is entered
into by and among Glenborough Realty Trust Incorporated ("Glenborough"), a
Maryland corporation, as the General Partner and the Persons whose names are set
forth on Exhibit A as attached hereto, as the Limited Partners.
RECITALS
WHEREAS, the General Partner and the Initial Limited Partner executed
that certain Limited Partnership Agreement of Glenborough Properties, L.P. (the
"Original Agreement"), dated as of August 23, 1995, and the General Partner
caused the Partnership to file a Certificate of Limited Partnership on August
23, 1995, thereby causing the Partnership to be formed for the purposes set
forth in the Original Agreement; and
WHEREAS, the Original Agreement was amended and restated by that
certain First Amended and Restated Agreement of Limited Partnership of
Glenborough Properties, L.P., dated as of December 31, 1995, as further amended
by that certain Amendment to First Amended and Restated Agreement of Limited
Partnership of Glenborough Properties, L.P., dated as of July 12, 1996 (the
"Agreement"); and
WHEREAS, GPA, Ltd., a California limited partnership ("GPA"), and the
Partnership, among other parties, have entered into that certain Agreement for
Contribution of Partnership Interests, dated as of July __, 1996, pursuant to
which (i) GPA has agreed to contribute to the Partnership its 99% limited
partnership interest, in GPA BOND, LP, a California limited partnership ("GPA
BOND"), in exchange for the issuance of 29,333 Partnership Units to GPA; and
WHEREAS, the General Partner and the Limited Partners desire to amend
the Agreement to reflect the issuance of additional Partnership Units to GPA,
which is an existing Limited Partner.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Agreement as follows:
AGREEMENT
1. Capitalized terms used but not specifically defined herein shall
have the meanings ascribed to such terms in the Agreement.
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2. Exhibit A to the Agreement is hereby amended in its entirety by
Exhibit A attached hereto.
3. Except as specifically amended as set forth herein, the Agreement
shall remain in full force and effect.
[The next page is the signature page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first written above.
GENERAL PARTNER:
GLENBOROUGH REALTY TRUST INCORPORATED, a Maryland corporation
By:
Title:
[CORPORATE SEAL]
LIMITED PARTNERS:
By: GLENBOROUGH REALTY TRUST INCORPORATED,
a Maryland corporation, as Attorney-in-Fact
for the Limited Partners
By:
Title:
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<TABLE>
<CAPTION>
EXHIBIT A
to
AGREEMENT OF LIMITED PARTNERSHIP
of
GLENBOROUGH PROPERTIES, L.P.
Agreed
Value of
Name and Address Cash Contributed Total Percentage Partnership
of Partner Contribution Property Contribution Contribution Units
General Partner
<S> <C> <C> <C> <C> <C>
Glenborough Realty - $ 600,450 $ 600,450 .99274% 40,030
Trust Incorporated
400 South El Camino Real
San Mateo, CA 94404-1708
Limited Partners
Glenborough Realty - 50,958,735 50,958,735 84.25136% 3,397,249
Trust Incorporated
400 South El Camino Real
San Mateo, CA 94404-1708
GPA, Ltd. - 8,734,085 8,734,085 14.44027% 582,272
c/o Glenborough Realty Corp.
Trust Incorporated
400 South El Camino Real
San Mateo, CA 94404-1708
Robert Batinovich - 190,905 190,905 .31563% 12,727
400 South El Camino Real
San Mateo, CA 94404-1708
---------- ------------- ------------- ------------- -----------
Total - $ 60,484,175 $ 60,484,175 100.00000% 4,032,278
</TABLE>
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EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
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SECOND AMENDMENT TO
LIMITED PARTNERSHIP AGREEMENT OF
GPA BOND, LP, A CALIFORNIA LIMITED PARTNERSHIP
THIS SECOND AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF GPA BOND,
LP, A CALIFORNIA LIMITED PARTNERSHIP, dated as of ____ ___, 1996 (the
"Amendment"), is entered into by and among Glenborough Corporation, a California
corporation formerly known as Glenborough Realty Corporation ("Glenborough"), as
the General Partner and the Persons whose names are set forth on Exhibit A as
attached hereto, as the Limited Partners.
RECITALS
Glenborough, as General Partner, and GPA Ltd., a California limited
partnership, formerly known as GOCO Realty Fund I ("GPA"), as Limited Partner,
executed that certain Limited Partnership Agreement of GPA BOND, LP (the
"Original Agreement"), dated as of December 22, 1994; and
WHEREAS, the Original Agreement was amended by that certain First
Amendment to the Agreement of Limited Partnership of GPA BOND, LP, dated as of
April 10, 1995 (the "First Amendment"; the First Amendment and Original
Agreement shall hereinafter be collectively referred to as the "Agreement"); and
WHEREAS, Glenborough, GPA and Glenborough Properties, L.P., a
California limited partnership ("GPLP"), among other parties, have entered into
that certain Agreement for Contribution of Partnership Interests, dated as of
____ __, 1996 (the "Contribution Agreement"), pursuant to which GPA has agreed
to contribute to GPLP its limited partnership interests in the partnership and
Glenborough has agreed to transfer its partnership interests as General Partner
to GRT Corp., a Georgia corporation ("GRT"); and
WHEREAS, GRT has become the new General Partner, and GPLP has become a
Substituted Limited Partner, of GPA BOND, LP, under the terms of the Agreement,
in the manner set forth in that certain Agreement and Consent Regarding Transfer
of Partnership Interests, dated as of _______, 1996, between and among GRT,
GPLP, Glenborough and GPA;
WHEREAS, GRT, as the new General Partner, and GPLP, as the Substituted
Limited Partner, desire to amend the Agreement in certain respects.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Agreement as follows:
AGREEMENT
1. All initially capitalized terms not otherwise defined herein shall
have the meaning set forth in the Agreement.
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2. The first sentence of Section 13.2 of the Agreement is hereby
deleted in its entirety.
3. Subsections (B) and (C) of Section 11.1 of the Agreement are hereby
deleted and the following Subsection 11.1(B) is inserted in their place:
"(B) No Partner may transfer all or any portion of its Partnership
Interests (or beneficial interest therein). Any purported transfer
of any Partnership Interests shall be null and void."
4. Except as specifically amended as set forth herein, the Agreement
shall remain in full force and effect.
[The next page is the signature page]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal as of the date first written above.
GENERAL PARTNER:
GRT CORPORATION, a Georgia corporation
By:________________________
Title:________________________
LIMITED PARTNER:
GLENBOROUGH PROPERTIES, L.P., a California
limited partnership
By: GLENBOROUGH REALTY TRUST
INCORPORATED, General Partner
By:_______________________
Title:_______________________
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LEASE AGREEMENT (SAN ANTONIO)
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the 1st
day of August, 1996, by and between GLENBOROUGH PROPERTIES, L.P., a California
limited partnership (hereinafter called "Lessor"), and GLENBOROUGH HOTEL GROUP,
a Nevada corporation (hereinafter called "Lessee"), provides as follows.
W I T N E S S E T H:
Contemporaneously with the execution hereof, Lessor acquired the
"Leased Property" (as hereinafter defined).
In furtherance of the consummation of such series of transactions,
Lessor and Lessee wish to enter into this Lease.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions hereinafter stated, does hereby rent and lease
unto Lessee, and lessee does hereby rent and lease from Lessor, the Leased
Property.
ARTICLE I
1.1 Leased Property. The Leased Property is comprised of
Lessor's interest in the following:
(a) the parcel of property described in Exhibit "A"
attached hereto and by reference incorporated herein (the "Land");
(b) all buildings, structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently situated upon
the Land (collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to
the Land and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of
property required or incidental to the use of the Leased Improvements as a
hotel, including all components thereof, now and hereafter permanently affixed
to or incorporated into the Leased Improvements, including without limitation,
all furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which to the
greatest extent permitted by law are hereby deemed by the parties hereto to
constitute real estate,
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together with all replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures");
(e) all furniture and furnishings and all other items of
personal property (excluding Inventory and personal property owned by Lessee)
located on, and used in connection with, the operation of the Leased
Improvements as a hotel, together with all replacements, modifications,
alterations and additions thereto; and
(f) all existing leases of space within the Leased
Property (including any security deposits or collateral held by
Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY ANY INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.
1.2 Term. The term of the Lease (the "Term") shall commence on the date
hereof (the "Commencement Date") and shall end on the fifth anniversary of the
last day of the month in which the Commencement Date occurs, unless sooner
terminated in accordance with the provisions hereof.
1.3 Option to Extend Term. Lessor hereby grants to Lessee an
option to extend the Term for five (5) years ("Option Period") on
the following terms and conditions:
(a) Lessee must give Lessor notice in writing of its exercise
of the option to extend the Term not less than two hundred ten (210) days nor
more than two hundred seventy (270) days before the date the Term would end but
for said exercise.
(b) All terms and conditions of this Lease shall apply during
the Option Period, except that the Base Rent and the Percentage Rent for the
Option Period shall be determined as provided in Subparagraph (c)
(c) The Base Rent and the Percentage Rent for the Option
Period shall be the then Fair Market Rent for the Leased Property determined, as
hereinafter provided, as of the commencement of the Option Period. In
determining the Fair Market Rent, the parties (or any appraisers) shall provide
for both a base rent and a percentage rent in a manner comparable to the Base
Rent and Percentage Rent during the initial five years of the Term. In
determining the Fair Market Rent, the parties (or any appraisers) may provide
that the Base Rent be subject to periodic increases
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based upon the Consumer Price Index or such other adjustments if such parties
(or any appraisers) shall determine that as of the commencement of the Option
Period, five-year leases at such time for comparable properties would provide
for adjustments during the term thereof for increase in the Consumer Price Index
or other adjustments; provided, however, if such adjustments are provided for,
they shall only provide for increases and in no event shall any rent be
decreased from the amount previously paid. In determining the Fair Market Rent
for the Leased Property, the parties (or any appraisers) shall take into account
that the respective obligations of Lessor and Lessee, including, but not being
limited to, payment of taxes, maintenance and insurance, will remain the same
during the option period. If the parties are unable to agree upon the Fair
Market Rent for the Leased Property at least one hundred eighty (180) days prior
to the commencement of the Option Period, then the Fair Market Rent shall be
determined by appraisal conducted pursuant to Article XXXIII consistent with the
provisions of this Subparagraph (c).
(d) Notwithstanding any provision herein to the contrary, the Base Rent
and the Percentage Rent during the Option Period shall not be less than the Base
Rent and the Percentage Rent payable during the first five years of the Term
following the Commencement Date. If the Option to Extend is exercised, wherever
reference is made to the Term, it shall include the Option Period. If the
appraisal process has not been completed by the commencement of the Option
Period, the Base Rent and Percentage Rent payable at the end of the initial five
years of the Term shall continue during the Option Period until the Base Rent
and Percentage Rent for the Option Period has been determined and on the first
day of the first calendar month following such determination, Lessee shall pay,
in addition to any payments then due, any additional amount that may be required
since the commencement of the Option Period as a consequence of any change in
the Base Rent and/or Percentage Rent, unless the first day for payment of
Percentage Rent since the commencement of the Option Period is not yet due, in
which event Percentage Rent shall be calculated from the commencement of the
Option Period and shall be due on such first payment date.
ARTICLE II
Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context other wise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as are at the time applicable, (c) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to
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this Lease as a whole and not to any particular Article, Section of
other subdivision:
Additional Charges: As defined in Section 3.3.
Affiliate: As used in this Lease the term "Affiliate" of a person shall
mean (a) any person that, directly or indirectly, controls or is controlled by
or is under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, five percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations, general
and limited partnerships, stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other entities and governments and agencies and political
subdivisions thereof, For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership of voting securities,
partnership interests or other equity interests.
Award: As Defined in Section 15.1(c).
Base Rate: The rate of interest announced publicly by Citibank, N.A.,
in New York, New York, from time to time, as such bank's base rate, If no such
rate is announced or becomes discontinued, then such other rate as Lessor may
reasonably designate.
Base Rent: As defined in Article III.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday this
is not a day on which national banks in the City of New York, New York, or in
the municipality wherein the Leased Property is located are closed.
CERCLA: The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 1.2 of the Lease.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any fiscal year or other
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accounting period for Lessee and its consolidated subsidiaries, statements of
earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the proceeding fiscal year, and prepared in accordance with generally
accepted accounting principles and audited by independent certified public
accountants acceptable to Lessor in its sole discretion.
Consolidated Net Worth: At any time, the sum of the following
for Lessee and any consolidated subsidiaries, on a consolidated
basis determined in accordance with generally accepted accounting
principles;
(a) The amount of capital or stated capital (after deducting
the cost of any share held in its treasury), plus
(b) the amount of capital surplus and retained earnings (or, in the
case of a capital or retained earnings deficit, minus the amount of such
deficit), minus
(c) the sum of the following (without duplication of deductions with
respect to items already deducted in arriving at surplus and retained earnings):
(1) unamortized debt discount and expense; and (2) any write-up in the book
value of assets resulting from a revaluation thereof subsequent to the most
recent Consolidated Financials prior to the date thereof, except any net
write-up in value of foreign currency in accordance with generally accepted
accounting principles.
CPI: The Consumer Price Index of the Bureau of Labor Statistics of the
United States Department of Labor for all Urban Consumers - U.S. City Average
All Items. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
otherwise changed or discontinued, then the index most nearly the same as the
CPI shall be used to make such calculation. In the event that Sublessor and
Sublessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in Los Angeles,
California, in accordance with the then rules of said association and the
decision of the arbitrators shall be binding upon the parties. The cost of the
Arbitration shall be paid equally by Lessor and Lessee.
Date of Taking: As defined in Section 15.1(b).
Encumbrance: As defined in Section XXXIV.
Environmental Authority: Any department, agency or other body
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or component of any Government that exercises any form of jurisdiction or
authority under any Environmental Law.
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
stratus), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabilities: Any and all obligations to pay the amount of
any judgment or settlement, the cost of complying with any settlement, judgement
or order for injunctive or other equitable relief, the cost of compliance or
corrective action in response to any notice, demand or request from an
Environmental Authority, the amount of any civil penalty or criminal fine, and
any court costs and reasonable amount for attorney's fees, fees for witnesses
and experts, and costs of investigation and preparation for defense of any claim
or any Proceeding, regardless of whether such Proceeding is threatened, pending
or completed, that may be or have been against or imposed upon Lessor, Lessee,
any Predecessor, the Leased Property or any property used therein and arising
out of:
(a) Failure of Lessee, Lessor, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under, at or
in any way affecting the Leased Property;
(c) A Release at any time of any Hazardous Materials on, in
at, under or in any way affecting the Leased Property;
(d) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible part under CERCLA or under any Environmental Law similar
to CERCLA;
(e) Presence at any time of any above-ground and/or underground storage
tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or
under the Leased Property or any adjacent site of facility; or
(f) Any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating
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or located at the Leased Property, or resulting from operation
thereof or any adjoining property.
Event of Default: As defined in Section 16.1.
Facility: The hotel and/or other facility offering lodging
and other services or amenities being operated or proposed to be
operated on the Leased Property.
Fair Market Rent: The fair market rent of the Leased Property means the
rental which a willing tenant not compelled to rent would pay a willing landlord
not compelled to lease for the use and occupancy of such Leased Property
pursuant to the Lease for the term in question, (a) assuming that Lessee is not
in default thereunder and (b) determined in accordance with the appraisal
procedures set forth in Article XXXIII or in such other manner as shall be
mutually acceptable to Lessor and Lessee.
Fair Market Value: The fair market value of the Leased Property and/or
the Inventory means an amount equal to the price that a willing buyer not
compelled to buy would pay a willing seller not compelled to sell for such
Leased Property and/or Inventory, (a) assuming the same is unencumbered by this
Lease, (b) determined in accordance with the appraisal procedures set forth in
Article XXXIII or in such other manner as shall be mutually acceptable to Lessor
and Lessee, (c) assuming, in the case of the Leased Property, that such seller
must pay customary closing costs and title premiums, and (d) taking into account
the positive or negative effect on the value of the Leased Property attributable
to the interest rate, amortization schedule, maturity date, prepayment penalty
and other terms and conditions of any encumbrances that is assumed by the
transferee. In addition, in determining the Fair Market Value with respect to
damaged or destroyed Leased Property such value shall be determined as if such
Leased Property had not been so damaged or destroyed.
FF&E Allowance: The quarterly furniture, fixture and equipment
allowance set forth on Exhibit B hereto, as adjusted pursuant to Article XL,
which Lessor shall make available to Lessee pursuant to Article XL.
FIERA: The Federal Insecticide, Fungicide, and Rodenticide
Act, as amended.
Fiscal Year: The 12-month period from January 1 to December
31.
Fixtures: As defined in Section 1.1.
Franchise Agreement: Any Franchise Agreement with a national
franchisor (such as Country Suites by Carlson) under which the
Facility is operated.
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Government: The United State of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any political subdivision of
any of the foregoing.
Hazardous Materials: All chemicals, pollutants, contaminants,
wastes and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or in any
Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in any
Environmental Law;
(c) Toxic substances, as defined in TSCA or in any
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in
FIFRA or in any Environmental Law; and
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenols, asbestos and urea formaldehyde.
Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term, ground rents, water, sewer or
other rents and charges, excises, tax inspection, authorization and similar fees
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property or the business conducted thereon by Lessee
(including all interest and penalties thereon caused by any failure in payment
by Lessee), which at any time prior to, during or with respect to the Term
hereof may be assessed or imposed on or with respect to or be a lien upon (a)
Lessor's interest in the Leased Property, (b) the Leased Property, or any part
thereof or any rent therefrom or any estate, right, title or interest therein,
or (c) any occupancy, operation, use or possession of, or sales from, or
activity conducted on or in connection with the Leased Property, or the leasing
or use of the Leased Property or any part thereof by Lessee. Nothing contained
in this definition of Impositions shall be construed to require Lessee to pay
(1) any tax based on net income (whether denominated as a franchise or a capital
stock or other tax) imposed on Lessor or any other person, or (2) any net
revenue tax of Lessor or any other person, or (3) any tax imposed with respect
to the sale, exchange or other disposition by Lessor of any Leased Property or
the proceeds thereof, or (4) any single
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business, gross receipts (other than a tax on any rent received by Lessor from
Lessee), transaction privilege or similar taxes as the same relate to or are
imposed upon Lessor, except to the extent that any tax, assessment, tax levy or
charge that Lessee is obligated to pay pursuant to the first sentence of this
definition and that is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof.
Indemnified Party: Either of a Lessee Indemnified Party or a
Lessor Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an
Indemnified Party pursuant to Sections 83. or 22.1.
Insurance Requirements: All terms of any insurance policy
required by this Lease and all requirements of the issuer of any
such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System of Accounts for Hotels (8th Revised
Edition, 1986) as published by the Hotel Association of New York City, Inc., as
same may hereafter be revised.
Land: As defined in Article I.
Lease: This Lease.
Leased Improvements: Leased Property: Each as defined in
Article I.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use or alteration thereof (whether by Lessee or otherwise),
whether or not hereafter enacted and in force, including (a) all laws, rules or
regulations pertaining to the environment, occupational health and safety and
public health, safety or welfare, and (b) any laws, rules or regulations that
may (1) require repairs, modifications or alterations in or to the Leased
Property or (2) in any way adversely affect the use and enjoyment thereof; and
all permits, licenses and authorizations and regulations relating thereto and
all covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.
Lending Institution: Any insurance company, credit company,
federally insured commercial or savings bank, national banking
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association, savings and loan association, employees welfare, pension or
retirement fund or system, corporate profit sharing or pension trust, college or
university, or real estate investment trust, including any corporation qualified
to be treated for federal tax purposes as a real estate investment trust, such
trust having a net worth of at lease $10,000,000.
Lessee: The Lessee designated on this Lease and its
respective permitted successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's
interest) in Lessee, the officers, directors, stockholders, employees, agents
and representatives of Lessee and any corporate stockholder, agent, or
representative of Lessee, and the respective heirs, personal representatives,
successors and assigns of any such officer, director, stockholder, employee,
agent or representative.
Lessor: The Lessor designated on this Lease and its
respective successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's or
partnership interest) in Lessor, the officers, directors, stockholders,
employees, agents and representatives of the general partner of Lessor and any
partner, agent, or representative of Lessor, and the respective heirs, personal
representatives, successors and assigns of any such officer, director, partner,
stockholder, employee, agent or representative.
Minimum Price: The sum of (a) the equity in the Leased Property at the
time of acquisition of the Leased Property by Lessor (i.e. based upon the
appraised value thereof as established by Robert A. Stanger & Co., Inc. as of
June 30, 1994, if the Leased Property was acquired by Lessor from Glenborough
Realty Trust Incorporated as part of the original capitalization of Lessor, or
that portion of the purchase price of the Leased Property paid by Lessor is
cash) plus (b) other capital expenditures on the Leased Property by Lessor after
the date hereof plus (c) the unpaid principal balance of all encumbrances
against the Leased Property at the time of purchase of the Leased Property by
Lessee, less (x) all proceeds received by Lessor from any financing or
refinancing of the Leased Property after the date hereof (after payment of any
debt refinanced and net of any costs and expenses incurred in connection with
such financing or refinancing, including, without limitation, loan points,
commitment fees and commissions and legal fees) and (y) the net amount (after
deduction of all reasonable legal fees and other costs and expenses, including
without
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limitation expert witness fees, incurred by Lessor in connection with obtaining
any such proceeds or award) of all insurance proceeds received by Lessor and
awards received by Lessor from any partial Taking of the Leased Property that
are not applied to restoration.
Notice: A notice given pursuant to Article XXXII.
Officer's Certificate: A certificate of Lessee signed by the chief
financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.
Option Period: As defined in Section 1.3.
Other Revenues: Shall mean gross revenues from the operation of the
Leased Property, including parking; telephone; laundry; incidental services;
food and beverage sales; or otherwise, and whether such revenues are received or
accrue from operations conducted by Lessee or any permitted sublessee or
licensee of Lessee, but excluding the following:
(a) Revenues from the rental of guest rooms (whether to
individuals, groups or transients);
(b) The amount of all credit, rebates or refunds to customers, guests
or patrons relating to the services and other items including in the computation
of Other Revenues;
(c) All sales taxes or any other taxes imposed on the
services and other items included in the computation of Other
Revenues; and
(d) All gratuities collected from customers, guests or patrons and paid
to employees which relate to the services and other items included in Other
Revenues.
Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per
annum, but in no event greater that the maximum rate then permitted under
applicable law.
Payment Date: Any due date for the payment of any installment
of Base Rent.
Percentage Rent: As defined in Section 3.1(b), 3.1(c).
Person: Any Government, natural person, corporation,
partnership or other legal entity.
Predecessor: Any Person whose liabilities arising under any
Environmental Law have or may have been retained or assumed by Lessee, either
contractually or by operation of law, relating to the Leased Property.
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Primary Intended Use: As defined in Section 7.2(b).
Proceeding: Any judicial action, suit or proceeding (whether
civil or criminal), any administrative proceeding (whether formal
or informal), any investigation by a governmental authority or
entity (including a grand jury), and any arbitration, mediation or other
non-judicial process for dispute resolution.
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land, and any improvements
thereon.
Rejectable Offer Price: An amount equal to the greater of (a)
the Fair Market Value, determined as of the applicable purchase
date, or (b) the Minimum Price.
Release: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
Rent: Collectively, the Base Rent, Percentage Rent, and
Additional Charges.
Room Revenues: Shall mean gross revenues from the operation of the
Leased Property from the rental of guest rooms, whether to individuals, groups
or transients, whether such revenues are received or accrue from operations
conducted by Lessee or any permitted sublessee or licensee of Lessee, but
excluding the following:
(a) The amount of all credit, rebates or refunds to
customers, guests or patrons;
(b) All sales taxes or any other taxes imposed on the rental
of guest rooms; and
(c) All gratuities collected from customers, guests or patrons and paid
to employees which relate to the rental of guest rooms.
SARA: The Superfund Amendments and Reauthorization Act of
1986, as amended.
State: The State or Commonwealth of the United States in
which the Leased Property is located.
Subsidiaries: Corporations in which Lessee owns, directly or
indirectly, more than 50% of the voting stock or control, as
applicable (individually, a "Subsidiary").
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Taking: A taking or voluntary conveyance during the Term hereof of all
or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.
Term: As defined in Section 1.2.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.
Uneconomic for its Primary Intended Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, the Facility cannot be operated on a commercially practicable
basis for its Primary Intended Use, taking into account, among other relevant
factors, the number of usable rooms and projected revenues, such that Lessee
intends to, and shall, complete the cessation of operations from the Leased
Facility.
Uniform System: Shall mean the Uniform System of Accounts for Hotels
(8th Revised Edition, 1986) as published by the Hotel Association of New York
City, Inc., as same may hereafter be revised.
Unsuitable for its Primary Intended Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, due to casualty damage or loss through Condemnation, the
Facility cannot function as a integrated hotel facility consistent with
standards applicable to a well maintained and operated hotel.
ARTICLE III
3.1 Rent. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article XXXII hereof or at such other place or to such other Person, as Lessor
from time to time may designate in a Notice, all Base Rent, Percentage Rent and
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Additional Charges, during the Term, as follows:
(a) Base Rent: The annual sum set forth on Exhibit B hereto for the
Leased Property, payable in advance in equal, consecutive monthly installments,
on or before the first day of each calendar month of the Term ("Base Rent");
provided however, that the first and last monthly payments of Base Rent shall be
pro rated as to any partial month (subject to adjustment as provided in Sections
5.2, 14.5, 15.3, 15.5, and 15.6); and
(b) Percentage Rent: For each Fiscal Year during the Term commencing
with the Fiscal Year ending December 31, 1996, Tenant shall pay percentage rent
("Percentage Rent") quarterly in an amount calculated by the following formulas:
(i) Percentage Rent from Room Revenues:
The Percentage Rent applicable to the Room
Revenues of the Leased Property as set forth
on Exhibit B hereto
less
an amount equal to the Base Rent paid yearto
date for the applicable Fiscal Year
less
an amount equal to Percentage Rent from Room
Revenues paid year to date for the applicable
Fiscal Year
equals
Percentage Rent from Room Revenues for the
applicable quarter.
(ii) Percentage Rent from Other Revenues:
5% of Other Revenues.
(c) Officer's Certificates. Additionally an Officer's Certificate shall
be delivered to Lessor quarterly, together with such quarterly Percentage Rent
payment, setting forth the calculation of such rent payment for such quarter
within 45 days after each of the first three quarters of each Fiscal Year (or
part thereof) in the Term. Such quarterly payments shall be based on the
formulas set forth in Section 3.1(b). There shall be no reduction in the Base
Rent regardless of the result of the Revenue computations.
In addition, on or before March 31 each year, commencing with
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March 31, 1997, Lessee shall deliver to Lessor an Officer's Certificate
reasonably acceptable to Lessor setting forth the computation of the actual
Percentage Rent that accrued for each quarter of the Fiscal Year that ended on
the immediately preceding December 31 and shall pay to Lessor Percentage Rent,
if due and payable, for the last quarter of the applicable Fiscal Year.
Additionally, if the annual Percentage Rent due and payable for any Fiscal Year
(as shown in the applicable Officer's Certificate) exceeds the amount actually
paid as Percentage Rent by Lessee for such year, Lessee also shall pay such
excess to Lessor at the time such certificate is delivered. If the Percentage
Rent actually due and payable for such Fiscal Year is shown by such certificate
to be less than the amount actually paid as Percentage Rent for the applicable
Fiscal Year, Lessor, at its option, shall reimburse such amount to Lessee or
credit such amount against the next month's Base Rent and, to the extent
necessary, the next quarter's Percentage Rent payments, which credits shall
continue until the amount due Lessee has been paid or otherwise discharged. Any
interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.
The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term, and final reconciliation, taking into account
among other relevant adjustments, any adjustments which are accrued after such
expiration or termination date but which related to Percentage Rent accrued
prior to such termination date, and Lessee's good faith best estimate of the
amount of any unresolved contractual allowances, shall be made not later than
two years after such expiration or termination date, but Lessee shall advise
Lessor within 60 days after such expiration or termination date of Lessee's best
estimate at that time of the approximate amount of such adjustments, which
estimate shall not be binding on Lessee or have any legal effect whatsoever.
(c) Adjustments for Changes in CPI: The threshold set forth on Exhibit
B hereto which is used to determine when there will be a change in the
percentage that is used to calculate Percentage Rent from Room Revenues shall be
adjusted annually as of the first day of each Fiscal Year commencing January 1,
1997, for any increase, but not because of any decrease, in the CPI from the
beginning of the previous Fiscal Year.
3.2 Confirmation of Percentage Rent. Lessee shall utilize, or cause to
be utilized, an accounting system for the Leased Property in accordance with its
usual and customary practices, and in accordance with generally accepted
accounting principles and the Uniform System, that will accurately record all
data necessary to compute Percentage Rent, and Lessee shall retain, for at least
four years after the expiration of each Fiscal Year (and in any event until the
reconciliation described in Section 3.1(c) for such Fiscal Year has been made),
reasonably adequate records conforming
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to such accounting system showing all data necessary to compute Percentage Rent
for the applicable Fiscal Years. Lessor, at its expense (except as provided
hereinbelow), shall have the right from time to time by its accountants or
representatives to audit the information that formed the basis for the data set
forth in any Officer's Certificate provided under Section 3.1(c) and, in
connection with such audits, to examine all Lessee's records (including
supporting data and sales and excise tax returns) reasonably required to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements. If any such audit discloses a deficiency in
the payment of Percentage Rent, and either Lessee agrees with the result of such
audit or the matter is otherwise determined or compromised, Lessee shall
forthwith pay to Lessor the amount of the deficiency, as finally agreed or
determined, together with interest at the Overdue Rate from the date when said
payment should have been made to the date of payment thereof; provided, however,
that as to any audit that is commenced more than two years after the date
Percentage Rent for any Fiscal Year is reported by Lessee to Lessor, the
deficiency, if any, with respect to such Percentage Rent shall bear interest at
the Overdue Rate only from the date such determination of deficiency is made
unless such deficiency is the result of gross negligence or willful misconduct
on the part of Lessee, is which case interest at the Overdue Rate will accrue
from the date such payment should have been made to the date of payment thereof.
If any such audit discloses that the Percentage Rent actually due from Lessee
for any Fiscal Year exceed those reported by Lessee by more than 3%, Lessee
shall pay the cost of such audit and examination. Any proprietary information
obtained by Lessor pursuant to the provisions of this Section shall be treated
as confidential, except that such information may be used, subject to
appropriate confidentiality safeguards, in any litigation between the parties
and except further that Lessor may disclose such information to prospective
lenders. The obligations of Lessee contained in this Section shall survive the
expiration or earlier termination of this Lease.
3.3 Additional Charges. In addition to the Base Rent and Percentage
Rent, (a) Lessee also will pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions that Lessee assumes or
agrees to pay under this Lease, and (b) in the event of any failure on the part
of Lessee to pay any of those items referred to in clause (a) of this Section
3.3, Lessee also will promptly pay and discharge every fine, penalty, interest
and cost that may be added for non-payment or late payment of such items (the
items referred to in clauses (a) and (b) of this Section 3.3 being additional
rent hereunder and being referred to herein collectively as the "Additional
Charges"), and Lessor shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Lease or by statutes or otherwise in
the case of non-payment of the Additional Charges as in the case of non-payment
of the Base Rent. If any installment of Base Rent,
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Percentage Rent or Additional Charges (but only as to those Additional Charges
that are payable directly to Lessor) shall not be paid within fifteen calendar
days after the due date, Lessee will pay Lessor on demand, as Additional
Charges, a late charge (to the extent permitted by law) equal to five percent
(5%) of such overdue amount together with interest computed at the Overdue Rate
on such overdue amount from the due date to the date of payment thereof. To the
extent that Lessee pays any Additional Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be relieved of its obligation to pay
such Additional Charges to the entity to which they would otherwise be due and
Lessor shall pay same from monies received from Lessee.
3.4 Net Lease Provision. The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, Percentage Rent and Additional Charges throughout the
Term, all as more fully set forth in Article V, but subject to any other
provisions of this Lease that expressly provide for adjustment or abatement of
Rent or other charges or expressly provide that certain expenses or maintenance
shall be paid or performed by Lessor.
ARTICLE IV
4.1 Payment of Impositions. Subject to Article XII relating to
permitted contents, Lessee will pay, or cause to be paid, all Impositions (other
than Real Estate Taxes, which shall be paid by Lessor) before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made directly
to the taxing or other authorities where feasible, and will promptly furnish to
Lessor copies of official receipts or other satisfactory proof evidencing such
payments. Lessee's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof. If any such Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee may exercise the option to pay the
same (and any accrued interest on the unpaid balance of such Imposition) in
installments and in such event, shall pay such installments during the Term
hereof (subject to Lessee's right to contest pursuant to the provisions of
Article XII) as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto. Lessor, at its expense,
shall, to the extent required or permitted by applicable law, prepare and file
all tax returns in respect of Lessor's net income, gross receipts, sales and
use, single business, transaction privilege, rent, ad valorem, franchise taxes,
Real Estate Taxes and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent required or permitted by applicable laws and regulations
prepare and file all other tax returns and reports in respect of any Imposition
as may be required
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by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Lessee, the same shall be paid
over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. If an Event of Default shall have occurred and be
continuing, any such refund shall be paid over to or retained by Lessor. Any
such funds retained by Lessor due to an Event of Default shall be applied as
provided in Article XVI. Lessor and Lessee shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. Lessee shall file all personal property tax returns in such
jurisdictions where it is legally required to so file. Lessor, to the extent it
possesses the same, and Lessee, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessor shall provide Lessee with copies of assessment notices in
sufficient time for Lessee to file a protest. Lessee may, upon notice to Lessor,
at Lessee's option and at Lessee's sole expense, protect, appeal, or institute
such other proceedings (in it's or Lessor's name) as Lessee may deem appropriate
to effect a reduction of real estate or personal property assessments for those
Impositions to be paid by Lessee, and Lessor, at Lessee's expense as aforesaid,
shall fully cooperate with Lessee in such protest, appeal, or other action.
Lessee hereby agrees to indemnify, defend, and hold harmless Lessor from and
against any claims, obligations, and liabilities against or incurred by Lessor
in connection with such cooperation. Billings for reimbursement of personal
property taxes by Lessee to Lessor shall be accompanied by copies of a bill
therefor and payments thereof which identify the personal property with respect
to which such payments are made. Lessor, however, reserves the right to affect
any such protest, appeal or other action and, upon notice to Lessee, shall
control any such activity, which shall then go forward at Lessor's sole expense.
Upon such notice, Lessee, at Lessor's expense, shall cooperate fully with such
activities.
4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such Notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives Notice of any Imposition which it is obligated to pay during the first
taxing period applicable thereto.
4.3 Adjustment of Impositions. Impositions imposed in respect of the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after
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termination shall survive such termination.
4.4 Utility Charges. Lessee will be solely responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause to
be paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.
4.5 Insurance Premiums. Lessee will pay or cause to be paid
all premiums for the insurance coverages required to be maintained
by it under Article XIII.
ARTICLE V
5.1 No Termination, Abatement, etc. Except as otherwise specifically
provided in this Lease, and except for loss of Franchise Agreement solely by
reason of any action or inaction by Lessor, Lessee, to the extent permitted by
law, shall remain bound by this Lease in accordance with its terms and shall
neither take any action without the written consent of Lessor to modify,
surrender or terminate the same, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of the Rent, or setoff against the Rent, nor
shall the obligations of lessee be otherwise affected by reason of (a) any
damage to, or destruction of, any Leased Property or any portion thereof from
whatever cause for any Taking of the Leased Property or any portion thereof, (b)
the lawful or unlawful prohibition of, or restriction upon, Lessee's use of the
Leased Property, or any portion thereof, or the interference with such use by
any Person, corporation, partnership or other entity, or by reason of eviction
by paramount title, (c) any claim which Lessee has or might have against Lessor
by reason of any default or breach of any warranty by Lessor under this Lease or
any other agreement between Lessor and Lessee, or to which Lessor and Lessee are
parties, (d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Lessor or any assignee or transferee of Lessor, or (e) for any other cause
whether similar or dissimilar to any of the foregoing other than a discharge of
Lessee from any such obligations as a matter of law. Lessee hereby specifically
waives all rights, arising from any occurrence whatsoever, which may now or
hereafter be conferred upon it by law to (1) modify, surrender or terminate this
Lease or quit or surrender the Leased Property or any portion thereof, or (2)
entitle Lessee to any abatement, reduction, suspension or deferment of the Rent
or other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. The obligations of Lessee hereunder shall be separate
and independent covenants and agreements and the Rent and all other sums payable
by Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of the Lease or by termination of this Lease other than by reason of
an Event of Default.
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5.2 Abatement Procedures. In the event of a partial Taking as described
in Section 15.5, the Lease shall not terminate, but the Base Rent shall be
abated in the manner and to the extent that is fair, just and equitable to both
Lessee and Lessor, taking into consideration, among other relevant factors, the
number of usable rooms, the amount of square footage, or the revenues affected
by such partial Taking. If Lessor and Lessee are unable to agree upon the amount
of such abatement within 30 days after such partial Taking, the matter may be
submitted by either party to a court of competent jurisdiction for resolution.
ARTICLE VI
6.1 Ownership of the Leased Property. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the possession and use of the Leased Property upon the terms and conditions of
this Lease.
6.2 Lessee's Personal Property. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner contemplated by this Lease. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee. Lessee, at the commencement of the Term,
and from time to time thereafter, shall provide Lessor with an accurate list of
all such items of Lessee's personal property (collectively, the "Lessee's
Personal Property"). Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal Property
set forth on such list at any time during the Term or upon the expiration or any
prior termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within ten days following the expiration or
earlier termination of the Term shall be considered abandoned by Lessee and may
be appropriated, sold, destroyed or otherwise disposed of by Lessor without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any obligation to account therefor. Lessee will, at its expense, restore the
Leased Property to the condition required by Section 9.1(d), including repair of
all damage to the Leased Property caused by the removal of Lessee's Personal
Property, whether effected by Lessee or Lessor. Upon the expiration or earlier
termination of the Term, Lessee shall sell and Lessor, or its designee, shall
have the option to purchase all Inventory on hand at the Leased Property at the
time of such expiration or termination for a sale price equal to the lesser of
Lessee's actual cost of such Inventory, as evidenced by invoices, receipts, or
other reasonable documentation, or the then Fair Market Value thereof. The
option provided for herein shall be exercised by written notice to Lessee which
Lessor shall give on or before the date of such expiration or earlier
termination. Lessee
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may make such financing arrangements, title retention agreements, leases or
other agreements with respect to the Lessee's Personal Property as it sees fit
provided that Lessee first advises Lessor of any such arrangement and such
arrangement expressly provides that in the event of Lessee's default thereunder,
Lessor (or its designee) may assume Lessee's obligations and rights under such
arrangement.
6.3 Lessor's Lien. To the fullest extent permitted by applicable law,
Lessor is granted a lien and security interest on all Lessee's personal property
now or hereinafter placed in or upon the Leased Property, and such lien and
security interest shall remain attached to such Lease's personal property until
payment in full of all Rent and satisfaction of all of Lessee's obligations
hereunder; provided, however, Lessor shall subordinate its lien and security
interest to that of any non-Affiliate of Lessee which finances such Lessee's
personal property or any non-Affiliate conditional seller of such Lessee's
personal property, the terms and conditions of such subordination to be
satisfactory to Lessor in the exercise of reasonable discretion. Lessee shall,
upon the request of Lessor, execute such financing statements or other documents
or instruments reasonably requested by Lessor to perfect the lien and security
interests herein granted.
ARTICLE VII
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased Property and has found the same to
be satisfactory for its purposes hereunder. Lessee is leasing the Leased
Property "as is" in its present condition. Lessee waives any claim or action
against Lessor in respect of the condition of the Leased Property. LESSOR MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided,
however, to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's rights to proceed against any predecessor in title other than Lessee
(or an Affiliate of Lease which conveyed the Property to Lessor) for breaches of
warranties or representations or for latent defects in the Leased Property.
Lessor shall fully cooperate with Lessee in the prosecution of any such claim,
in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
claims, obligations and liabilities against or incurred by Lessor in connection
with such cooperation.
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7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise its best effort to obtain and to maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property
only as a hotel facility, and for such other uses as may be necessary or
incidental to such use or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of Lessor, which
consent may be granted, denied or conditioned in Lessor's sole discretion. No
use shall be made or permitted to be made of the Leased Property, and no acts
shall be done, which will cause the cancellation or increase the premium of any
insurance policy covering the Leased Property or any part thereof (unless
another adequate policy satisfactory to Lessor is available and Lessee pays any
premium increase), nor shall Lessee sell or permit to be kept, used or sold in
or about the Leased Property any article which may be prohibited by law or fire
underwriter's regulations. Lessee shall, at its sole cost, comply with all of
the requirements pertaining to the Leased Property of any insurance board,
association, organization or company necessary for the maintenance of insurance,
as herein provided, covering the Leased Property and Lessee's Personal Property.
(c) Subject to the provisions of Articles XIV, XV, XXI and
XXII, Lessee covenants and agrees that during the Term it will (1) operate
continuously the Lease Property as a hotel facility, (2) keep in full force and
effect and comply with all the provision of the Franchise Agreement, (3) not
terminate or amend the Franchise Agreement without the consent of Lessor, (4)
maintain appropriate certifications and licenses for such use and (5) will seek
to maximize the gross revenues generated therefrom consistent with sound
business practices.
(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Lessee cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property
or any portion thereof, or Lessee's Personal Property, to be used in such a
manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case
may be) title thereto or to any portion thereof, or (2) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied dedication of the Lease Property or any portion thereof,
except as necessary in the ordinary and prudent operation of the Facility on the
Leased Property.
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(f) Neither Lessee or an Affiliate of Lessee shall operate or
manage any hotel or motel that is within the greater of (i) a 10 mile radius of
the Leased Property or (ii) the area surrounding the Leased Property defined as
the Protected Area in the Franchise Agreement other than pursuant to this Lease
or another lease, agreement or arrangement with Lessor or an Affiliate of
Lessor.
7.3 Lessor to Grant Easements, etc. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed), (a) grant
easements and other rights in the nature of easements with respect to the Leased
Property to third parties, (b) release existing easements or other rights in the
nature of easements which are for the benefit of the Leased Property, (c)
dedicate or transfer unimproved portions of the Leased Property for road,
highway or other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility district, (e) execute
amendments to any covenants and restrictions affecting the Leased Property and
(f) execute and deliver to any person any instrument appropriate to confirm or
effect such grants, releases, dedications, transfers, petitions and amendments
(to the extent of its interests in the Leased Property), but only upon delivery
to Lessor of an Officer's Certificate stating that such grant, releases,
dedication, transfer, petition or amendment is not detrimental to the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.
ARTICLE VIII
8.1 Compliance with Legal and Insurance Requirements, etc. Subject to
Section 8.3(b) below and Article XII relating to permitted contests, Lessee, at
its expense, will promptly (a) comply with all applicable Legal Requirements and
Insurance Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased Property, and (b) procure, maintain and comply with
appropriate licenses and other authorizations required by any use of the Leased
Property and Lessee's Personal Property than being made, and for the proper
erection, installation, operation and maintenance of the Leased Property or any
part thereof.
8.2 Legal Requirement Covenants. Subject to Section 8.3(b) below,
Lessee covenants and agrees that the Leased Property and Lessee's Personal
Property shall not be used for any unlawful purpose, and that Lessee shall not
permit or suffer to exist any unlawful use of the Leased Property by others.
Lessee shall acquire and maintain all appropriate licenses, certifications,
permits ad other authorizations and approvals needed to operate the
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Leased Property in its customary manner for the Primary Intended Use, and any
other lawful use conducted on the Leased Property as may be permitted from time
to time hereunder. Lessee further covenants and agrees that Lessee's use of the
Leased Property and maintenance, alteration, and operation of the same, and all
parts thereof, shall at all times conform to all Legal Requirements, unless the
same are finally determined by a court of competent jurisdiction to be unlawful
(and Lessee shall cause all such subtenants, invitees or others to so comply
with all Legal Requirements). Lessee may, however, upon prior Notice to Lessor,
contest the legality or applicability of any such Legal Requirement or any
license or certification decision if Lessee maintains such action in good faith,
with due diligence, without prejudice to Lessor's rights hereunder, and at
Lessee's sole expense. If by the terms of any such Legal Requirement compliance
therewith pending the persecution of any such proceeding may legally be delayed
without the incurrence of any lien, charges or liability of any kind against the
Facility or Lessee's leasehold interest therein and without subjecting Lessee or
Lessor to any liability, civil or criminal, for failure so to comply therewith,
Lessee may delay compliance therewith until the final determination of such
proceeding. If any lien, charge or civil or criminal liability would be incurred
by reason of any such delay, Lessee, on the prior written consent of Lessor,
which consent shall not be unreasonably withheld, may nonetheless contest as
aforesaid any delay as aforesaid provided that such delay would not subject
Lessor to criminal liability and Lessee both (a) furnishes to Lessor security
reasonably satisfactory to Lessor against any loss or injury by reason of such
contest or delay and (b) prosecutes the contest with due diligence and in good
faith.
8.3 Environmental Covenants. Lessor and Lessee (in addition
to, and not in diminution of, Lessee's covenants and undertakings
in Sections 8.1 and 8.2 hereof) covenant and agree as follows:
(a) At all times hereafter until such time as all liabilities,
duties or obligations of Lessee to the Lessor under the Lease have been
satisfied in full, Lessee shall fully comply with all Environmental Laws
applicable to the Leased Property and the operations thereon. Lessee agrees to
give Lessor prompt written notice of (1) all Environmental Liabilities; (2) all
pending, threatened or anticipated Proceedings, and all notices, demands,
requests or investigations, relating to any Environmental Liability or relating
to the issuance, revocation or change in any Environmental Authorization
required for operation of the Leased Property; (3) all Releases at, on, in,
under or in any way affecting the Leased Property, or any Release known by
Lessee at, on, in or under any property adjacent to the Leased Property; and (4)
all facts, events or conditions that could reasonably lead to the occurrence of
any of the above-referenced matters.
(b) Lessor hereby agrees to defend, indemnify and save
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harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities other than Environmental Liabilities which were caused
by the acts or grossly negligent failures to act of Lessee.
(c) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities caused by the acts or grossly negligent failures to
act of Lessee.
(d) If any Proceeding is brought against any Indemnified Party
in respect of an Environmental Liability with respect to which such Indemnified
Party may claim indemnification under either Section 8.3(b) or (c), the
Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnified Party and approved by the Indemnifying Party,
which approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance. Each Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel will be at the sole expense of such
Indemnified Party unless such counsel has been approved by the Indemnifying
Party, which approval shall not be unreasonably withheld. The Indemnifying Party
shall not be liable for any settlement of any such Proceeding made without its
consent, which shall not be unreasonably withheld, but if settled with the
consent of the Indemnifying Party, or if settled without its consent (if its
consent shall be unreasonably withheld), or if there be a final, nonappealable
judgment for an adversary party in any such Proceeding, the Indemnifying Party
shall indemnify and hold harmless the Indemnified Parties from and against any
liabilities incurred by such Indemnified Parties by reason of such settlement or
judgment.
(f) The indemnification rights and obligations provided for in
this Article VIII shall be in addition to any indemnification rights and
obligations provided for elsewhere in this Lease.
(g) The indemnification rights and obligations provided for in
this Article VIII shall survive the termination of this Agreement.
For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks information shall be computed net of (a) any actual
income tax benefit resulting therefrom to such Indemnified Party, (b) any
insurance proceeds received (net of tax effects) wit respect thereto, and (c)
any amounts recovered (net of tax effects) from any third parties based on
claims the Indemnified
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Party has against such third parties which reduce the damages that would
otherwise be sustained; provided that in all cases, the timing of the receipt of
realization of insurance proceeds or income tax benefits or recoveries from
third parties shall be taken into account in determining the amount of reduction
of damages. Each Indemnified Party agrees to use its reasonable efforts to
pursue, or assign to Lessee or Lessor, as the case may be, any claims or rights
it may have against any third party which would materially reduce the amount of
damages otherwise incurred by such Indemnified Party.
Notwithstanding anything to the contrary contained in this
Agreement, if Lessor shall become entitled to the possession of the Leased
Property by virtue of the termination of the Lease or repossession of the Leased
Property, then Lessor may assign its indemnification rights under Section 8.3 of
this Agreement (but not any other rights hereunder) to any Person to whom the
Lessor subsequently transfers the Leased Property, subject to the following
conditions and limitations, each of which shall be deemed to be incorporated
into the terms of such assignment, whether or not specifically referred to
therein:
(1) The indemnification rights referred to in this
section may be assigned only if a known Environmental
Liability then exists or if a Proceeding is then pending or,
to the knowledge of Lessee or Lessor, then threatened with
respect to the Leased Property;
(2) Such indemnification rights shall be limited to
Environmental Liabilities relating to or specifically
affecting the Leased Property; and
(3) Any assignment of such indemnification rights
shall be limited to the immediate transferee of Lessor, and
shall not extend to any such transferee's successors or
assigns.
ARTICLE IX
9.1 Maintenance and Repair. (a) Lessee, at its sole expense, will keep
the Leased Property and all private roadways, sidewalks and curbs appurtenant
thereto that are under Lessee's control, including windows and plate glass,
parking lots, mechanical, electrical and plumbing systems and equipment
(including conduit and ductware), and non-load bearing interior walls, in good
order and repair, except for ordinary wear and tear (whether or not the need for
such repairs occurred as a result of Lessee's use, any prior use, the elements
or the age of the Leased Property, or any portions thereof), and, except as
otherwise provided in Section 9.1(b), Article XIV or Article XV, with reasonable
promptness, make all necessary and appropriate repairs,
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replacements, and improvements thereto of every kind and nature, whether
interior or exterior ordinary or extraordinary, foreseen or unforseen or arising
by reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise), or required by any governmental agency having
jurisdiction over the Leased Property, except as to the structural elements of
the Leased Improvements. Lessee, however, shall be permitted to prosecute claims
against Lessor's predecessor in title for breach of any representation or
warranty or for any latent defects in the Leased Property to be maintained by
Lessee unless Lessor is already diligently pursuing such a claim. All repairs
shall, to the extent reasonably achievable, be at least equivalent in quality to
the original work. Lessee will not take or omit to take any action, the taking
or omission of which might materially impair the value or the usefulness of
there Leased Property or any part thereof for its Primary Intended Use.
(b) Notwithstanding Lessee's obligations under Section 9.1(a)
above, unless caused by Lessee's negligence or willful misconduct or that of its
employees or agents, Lessor shall be required to bear the cost of painting (or
repainting) the exterior of the Leased Property and maintaining any underground
utilities and the structural elements of the Leased Improvements, including the
roof of the Facility (but excluding windows and plate glass, parking lots,
mechanical, electrical and plumbing systems and equipment, including conduit and
ductware, and non-load bearing walls). Except as set forth in the preceding
sentence and in Article XL, Lessor shall not under any circumstances be required
to build or rebuild any improvement on the Leased Property, or to make any
repairs, replacements, alterations, restoration or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary, foreseen
or unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expenses of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted. Lessor shall have the right to
give, record and post, as appropriate, notices of nonresponsibility under any
mechanic's lien laws now or hereafter existing.
(c) Nothing contained in this Lease and no action or inaction
by Lessor shall be construed as (1) constituting the request of Lessor,
expressed or implied, to any contractor, subcontractor, laborer, materialman or
vendor to or for the performance of any labor or services or the furnishing of
any materials or other property for the construction, alteration, addition,
repair or demolition of or to the Leased Property or any part thereof, or (2)
giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in
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respect thereof or to make any agreement that may create, or in any way be the
basis for any right, title, interest, lien, claim or other encumbrance upon the
estate of Lessor in the Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property to Lessor in the condition in
which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair,
as would a prudent owner, during the entire Term of the Lease), or damage by
casualty or Condemnation (subject to the obligations of Lessee to restore or
repair as set forth in the Lease).
9.2 Encroachments, Restrictions, Etc. If any of the Leased
Improvements, at any time, materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or impair the rights of
others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor or at the behest of any person
affected by an such encroachment, violation or impairment, Lessee shall, at its
expense, subject to its right to contest the existence of any encroachment,
violation or impairment and in such case, in the event of an adverse final
determination, either (a) obtain valid and effective waivers or settlements of
all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or Lessee or (b)
make such changes in the Leased Improvements, and take such other action, as
Lessee in the good faith exercise of its judgment deems reasonably practicable
to remove such encroachment, and to end such violation or impairment, including,
if necessary, the alteration of any of the Leased Improvements, and in any event
take all such actions as may be necessary in order to be able to continue the
operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation, impairment or encroachment. Any such alteration
shall be made in conformity with the applicable requirements of Article X.
Lessee's obligations under this Section 9.2 shall be in addition to and shall in
no way discharge or diminish any obligation of any insurer under any policy of
title or other insurance held by Lessor.
ARTICLE X
10.1 Alterations. Subject to the provisions hereinafter
provided for Lessor's consent, Lessee shall have the right to make
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additions, modifications or improvements to the Leased Property from time to
time as Lessee, in its discretion, may deem to be desirable for its permitted
uses and purposes, provided that such action will not significantly alter the
character or purposes or significantly detract from the value or operating
efficiency thereof and will not significantly impair the revenue-producing
capability of the Leased Property or adversely affect the ability of the Lessee
to comply with the provisions of this Lease. The cost of such additions,
modifications or improvements to the Leased Property shall be paid by Lessee,
and all such additions, modifications and improvements shall, without payment by
Lessor at any time, be included under the terms of this Lease and upon
expiration or earlier termination of this Lease shall pass to and become the
property of Lessor.
Notwithstanding the foregoing, Lessee shall not make any additions,
modifications or improvements to the Leased Property without Lessor's prior
written consent if any such addition, modification or improvement involves
puncturing, relocating or removing the roof or any existing walls or the cost
thereof exceeds $10,000. If Lessor's consent is required, Lessee shall present
to Lessor, in written form, detailed plans for any such proposed addition,
modification or improvement, together with cost estimates and the name of the
contractor who will perform the work and the name of the architect, if any. All
consents by Lessor shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing of
copies of such permits, together with a copy of the plans and specifications to
Lessor prior to commencement of work thereon and (iii) the compliance by Lessee
of all conditions of said permits in a prompt and expeditious manner. Lessor, at
its option, may require that a lien and completion bond be furnished in an
amount equal to 1-1/2 times the estimated cost of the work. Lessee shall pay,
when due, all claims for labor or materials furnished or alleged to be furnished
to or for Lessee at or for use on the Leased Property, which claims are or may
be secured by any mechanics' or materialmen's lien against the Leased Property
or any interest therein. Lessee shall give Lessor not less than ten days notice
prior to the commencement of any work in, on, or about the Leased Property and
Lessor shall have the right to post notices of non-responsibility in or on the
Leased Property, as provided by law.
10.2 Salvage. All materials which are scrapped or removed in connection
with the making of repairs required by Articles IX or X shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work; provided, however, Lessee shall not be entitled to
retain any salvaged materials to the extent the value thereof exceeds the cost
of any repairs or replacements made by Lessee.
10.3 Joint Use Agreements. If Lessee constructs additional
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improvements that are connected to the Leased Property or share maintenance
facilities, HVAC, electrical, plumbing or other systems, utilities, parking or
other amenities, the parties shall enter into a mutually agreeable
cross-easement or joint use agreement to make available necessary services and
facilities in connection with such additional improvements, to protect each of
their respective interests in the properties affected, and to provide for
separate ownership, use, and/or financing of such improvements.
ARTICLE XI
Liens. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are consented to in writing by Lessor or any easements
granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for
those taxes upon Lessor which Lessee is not required to pay hereunder (e)
subleases permitted by Article XXV hereof, (f) liens for Impositions or for sums
resulting from noncompliance with Legal Requirements so long as (1) the same are
not yet payable or are payable without the addition of any fine or penalty or
(2) such liens are in the process of being contested as permitted by Article
XII, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for
sums either disputed or not yet due provided that (1) the payment of such sums
shall not be postponed under any related contract for more than 60 days after
the completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor or (2) any such liens are in
the process of being contested as permitted by Article XII hereof, and (h) any
liens which are the responsibility of Lessor pursuant to the provisions of
Article XXXIV of this Lease.
ARTICLE XII
Permitted Contests. Lessee shall have the right to contest the amount
or validity of any Imposition to be paid by Lessee or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim ("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee's covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Article provided),
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on condition, however, that such legal proceedings shall not operate to relieve
Lessee from its obligations hereunder and shall not cause the sale or risk the
loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to
be in default under any mortgage, deed of trust or security deed encumbering the
Leased Property or any interest therein. Upon the request of Lessor, Lessee
shall either (a) provide a bond or other assurance reasonably satisfactory to
Lessor that all Claim which may be assessed against the Leased Property together
with interest and penalties, if any, thereon will be paid, or (b) deposit within
the time otherwise required for payment with a bank or trust company as trustee
upon terms reasonably satisfactory to Lessor, as security for the payment of
such Claims, money in an amount sufficient to pay the same, together with
interest and penalties in connection therewith, as to all Claims which may be
assessed against or become a Claim on the Leased Property, or any part thereof,
in said legal proceedings. Lessee shall furnish Lessor and any lender of Lessor
with reasonable evidence of such deposit within five days of the same. Lessor
agrees to join in any such proceedings if the same be required to legally
prosecute such contest of the validity of such Claims; provided however, that
Lessor shall not thereby be subjected to any liability for the payment of any
costs or expenses in connection with any proceedings brought by Lessee; and
Lessee covenants to indemnify and save harmless Lessor form any such costs or
expenses. Lessee shall be entitled to any refund of any Claims and such charges
and penalties or interest thereon which have been paid by Lessee or paid by
Lessor and for which Lessor has been fully reimbursed. In the event that Lessee
fails to pay any Claims when due or to provide the security thereof as provided
in this paragraph and to diligently prosecute any contest of the same, Lessor
may, upon ten days advance Notice to Lessee, pay such charges together with any
interest and penalties and the same shall be payable by Lessee to Lessor as
Additional Charges at the next Payment Date provided for in this Lease.
Provided, however, that should Lessor reasonably determine that the giving of
such Notice would risk loss to the Leased Property or cause damage to Lessor,
then Lessor shall give such Notice as is practical under the circumstances.
Lessor reserves the right to contest any of the Claims as its expense not
pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the
contest of any claims.
ARTICLE XIII
13.1 General Insurance Requirements. During the Term of this Lease,
Lessor, as hereinafter provided in subparagraph (a) below, and Lessee, as
hereinafter provided in subparagraph (b) below, shall at all time keep the
Leased Property insured with the kinds and amounts of insurance described below.
This insurance shall be written by companies authorized to use insurance in the
State. The policies must name Lessor as the insured or as an additional named
insured, as the case may be. Losses shall be payable to Lessor or Lessee as
provided in this Lease. Any loss adjustment shall
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require the written consent of Lessor and Lessee, each acting reasonably and in
good faith. Evidence of insurance shall be deposited with Lessor. The policies
on the Leased Property, including the Leased Improvements, Fixtures and Lessee's
Personal Property, shall include:
(a) Lessor shall obtain the following insurance and pay
all premiums associated therewith:
(1) Building insurance on the "Special From"
(formerly "All Risk" form)(including earthquake and flood in reasonable amounts
as determined by Lessor) in an amount not less than 100% of the then full
replacement cost thereof (as defined in Section 13.2) or such other amount which
is acceptable to Lessor, and personal property insurance on the "Special Form"
in the full amount of the replacement cost thereof;
(2) Insurance for loss or damage (direct and
indirect) from steam boilers, pressure vessels or similar apparatus, now or
hereafter installed in the Facility, in the minimum amount of $5,000,000 or in
such greater amounts as are then customary or as may be reasonably requested by
Lessor from time to time;
(3) Loss of income insurance on the "Special Form",
in the amount of one year Base Rent for the benefit of Lessor, and unless
otherwise agreed by the parties, without duplication, business interruption
insurance on the "Special Form" in the amount of one year's gross revenues of
the Facility for the benefit of Lessor and Lessee to the extent of their
respective interests in such revenues;
(4) Insurance covering such other hazards and in
such amounts as may be customary for comparable properties in the area of the
Leased Property and is available from insurance companies, insurance pools or
other appropriate companies authorized to do business in the State at rates
which are economically practicable in relation to the risks covered as may be
reasonably requested by Lessor;
(b) Lessee shall obtain the following insurance and,
except as hereinafter provided, pay all premiums associated
therewith;
(1) Commercial general liability insurance, with
amounts not less than $10,000,000 covering each of the following: bodily injury,
death, or property damage liability per occurrence, personal and advertising
injury, general aggregate, products and completed operations, with respect to
Lessor, and "all risk legal liability" (including liquor law or "dram shop"
liability) with respect to Lessor and Lessee;
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(2) Fidelity bonds with limits and deductibles as
may be reasonably requested by Lessor, covering Lessee's employees in job
classifications normally bonded under prudent hotel management practices in the
United States or otherwise required by law;
(3) Workmen's compensation insurance to the extent
necessary to protect Lessor and the Leased Property against
Lessee's workman's compensation claims;
(4) Vehicle liability insurance for owned, non-
owned, and hired vehicles, in the amount of $1,000,000;
(5) Such other insurance as Lessor may reasonably
request for facilities such as the Leased Property and the
operation thereof; and
Lessee shall keep in force the foregoing insurance coverages
at its expense and any other "casualty" coverages required by Lessor.
13.2 Replacement Cost. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost (the then-replacement cost less such
exclusions) has increased or decreased at any time during the Lease Term, it
shall have the right to have such full replacement cost re-determined.
13.3 Worker's Compensation. Lessee, at its sole cost, shall at all
times maintain adequate worker's compensation insurance coverage for all persons
employed by Lessee on the Leased Property. Such worker's compensation insurance
shall be in accordance with the requirements of applicable local, state and
federal law.
13.4 Waiver of Subrogation. All insurance policies carried by Lessor or
Lessee covering the Leased Property, the Fixtures, the Facility, Lessee's
Personal Property and Worker's Compensation, including, without limitation,
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the party of the insurer against the other party. The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so.
13.5 Form Satisfactory, etc. All of the policies of insurance referred
to in this Article XIII shall be written in a form, with deductibles and by
insurance companies satisfactory to Lessor.
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Subject to the right to reimbursement or credit specified in Section 13.1 (b),
Lessor and Lessee, in a timely manner, shall pay all of the premiums for the
insurance coverage provided for in this Article XIII in the manner provided in
Section 13.1 (a) and Section 13.1 (b), and the party responsible for obtaining
such insurance shall deliver such policies or certificates thereof to the other
party prior to their effective date (and, with respect to any renewal policy, 30
days prior to the expiration of the existing policy), and in the event of the
failure of the party responsible for obtaining any such insurance coverage
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to the other party
at the times required, such other party shall be entitled, but shall have no
obligation, to affect such insurance and pay the premiums therefor, and the
party responsible for obtaining any such insurance coverage shall reimburse such
other party for any premium or premiums paid by such other party for the
coverages required under Sections 13.1(a) and 13.1(b) upon written demand
therefor. Lessee's failure to repay the same within 30 days after Notice of such
failure from Lessor shall constitute an Event of Default within the meaning of
Section 16.1(a). Each insurer mentioned in this Article XIII shall agree, by
endorsement to the policy or policies issued by it, or by independent instrument
furnished to Lessor and Lessee, that it will give to Lessor and Lessee 30 days'
written notice before the policy or policies in question shall be materially
altered, allowed to expire or canceled.
13.6 Increase in Limits. If either Lessor or Lessee at any time deems
the limits of the personal injury or property damage under the comprehensive
public liability insurance then carried to be either excessive or insufficient,
Lessor or Lessee shall endeavor in good faith to agree on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereunder be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section.
13.7 Blanket Policy. Notwithstanding anything to be contrary contained
in this Article XIII, Lessor or Lessee may bring the insurance provided for
herein to be obtained by Lessor or Lessee, as the case may be, within the
coverage of a so called blanket policy or policies of insurance carried and
maintained by Lessor or Lessee, as the case may be; provided, however, that the
coverage afforded by such policy or policies will not be reduced or diminished
or otherwise be different form that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
Article XIII are otherwise satisfied.
13.8 No Separate Insurance. Lessee shall not on Lessee's own initiative
or pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or
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contributing in the event of loss with that required in this Article to be
furnished, or increase the amount of any then existing insurance by securing an
additional policy or additional policies, unless all parties have an insurable
interest in the subject matter of the insurance, including in all cases Lessor,
are included therein as additional insureds, and the loss is payable under such
additional separate insurance in the same manner as losses are payable under
this Lease. Lessee shall immediately notify Lessor that Lessee has obtained any
such separate insurance or of the increasing of any of the amounts of the then
existing insurance.
ARTICLE XIV
14.1 Insurance Proceeds. Subject to the provisions of Section 14.6, all
proceeds payable by reason of any loss or damage to the Leased Property, or any
portion thereof, and insured under any policy of insurance required by Article
XIII of this Lease shall be paid to Lessor and held in trust by Lessor in an
interest-bearing account, shall be made available, if applicable, for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof, and, if applicable, shall be paid
out by Lessor from time to time for the reasonable costs of such reconstruction
or repair upon satisfaction of reasonable terms and conditions specified by
Lessor. Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the Leased Property shall be paid to Lessee. If
neither Lessor nor Lessee is required or elects to repair and restore, and the
Lease is terminated without purchase by Lessee as described in Section 14.2, all
such insurance proceeds shall be retained by Lessor. All salvage resulting from
any risk covered by insurance shall belong to Lessor.
14.2 Reconstruction in the Event of Damage or Destruction
Covered by Insurance.
(a) Except as provided in Section 14.6, if during the Term the
Leased Property is totally or partially destroyed by a risk covered by the
insurance described in Article XIII and the Facility thereby is rendered
Unsuitable for its Primary Intended Use, Lessee shall, at Lessee's option,
within 30 days after the occurrence of such event notify Lessor that Lessee has
elected to either (1) restore the Facility to substantially the same condition
as existed immediately before the damage or destruction and otherwise in
accordance with the terms of the Lease, or (2) offer to acquire the Leased
Property from Lessor for a purchase price equal to the Rejectable Offer Price of
the Leased Property. If Lessee elects to restore the Facility, it shall proceed
to do so in a prompt and diligent manner and the insurance proceeds shall be
paid out by Lessor from time to time for the reasonable costs of such
restoration upon satisfaction of reasonable terms and conditions, and any excess
proceeds remaining after such
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restoration shall be paid to Lessor. If Lessee offers to acquire title to the
Leased Property and such offer is accepted by Lessor, Lessee shall receive the
insurance proceeds. If Lessee offers to acquire title to the Leased Property,
Lessor shall have a period of 60 days to accept Lessee's offer to purchase the
Leased Property. If Lessor does not accept the Lessee's offer, the Lease shall
terminate five days after the expiration of said 60 day period (or five days
after such earlier date as Lessor shall notify Lessee that it has rejected such
offer with respect to the Leased Property) without further liability hereunder
and Lessor shall be entitled to retain all insurance proceeds.
(b) Except as provided in Section 14.6, if during the Term the
Leased Property is partially destroyed by a risk covered by the insurance
described in Article XIII, but the Facility is not thereby rendered Unsuitable
for its Primary Use, Lessee shall restore in a prompt and diligent manner the
Facility to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of the Lease.
Such damage or destruction shall not terminate this Lease; provided, however,
that if Lessee cannot within a reasonable time obtain all government approvals,
including building permits, licenses and conditional use permits, after diligent
efforts to do so, to perform all required repair and restoration work and to
operate the Facility for its Primary Intended Use in substantially the same
manner as existed immediately prior to such damage or destruction and otherwise
in accordance with the terms of the Lease, Lessee may offer to purchase the
Leased Property for a purchase price equal to the Rejectable Offer Price of the
Leased Property determined without regard to such damage or destruction. If
Lessee makes such offer and Lessor does not accept the same, Lessee shall
withdraw such offer, in which event this Lease shall remain in full force and
effect and Lessee shall immediately proceed to restore the Facility to
substantially the same condition as existed immediately before such damage or
destruction and otherwise in accordance with the terms of the Lease. If Lessee
restores the Facility, the insurance proceeds shall be paid out by Lessor form
time to time for the reasonable costs of such restoration upon satisfaction of
reasonable terms and conditions specified by Lessor, and any excess proceeds
remaining after such restoration shall be paid to Lessor.
(c) If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance required under Article
XIII, Lessee shall be obligated to contribute any excess amounts needed to
restore the Facility prior to commencing work thereon. Such difference shall be
paid by Lessee to Lessor to be held in trust, together with any other insurance
proceeds, for application to the cost of repair and restoration.
(d) If Lessor accepts Lessee's offer to purchase the
Leased Property under this Article, this Lease shall terminate as
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to the Leased Property upon payment of the purchase price, and Lessor shall
remit to Lessee all insurance proceeds pertaining to the Leased Property being
held in trust by Lessor.
14.3. Reconstruction in the Event of Damages or
Destruction Not Covered by Insurance. Except as provided in
Section 14.6, if during the Term the Facility is totally or materially destroyed
by a risk not covered by the insurance described in Article XIII, whether or not
such damages or destruction renders the Facility Unsuitable for its Primary
Intended Use, Lessee at its option, within 30 days after the occurrence of such
event, shall notify Lessor that Lessee has elected to either (a) restore the
Facility to substantially the same condition it was in immediately before such
damage or destruction and such damage or destruction shall not terminate this
Lease which Lessee shall proceed to do in a prompt and diligent manner, or (b)
terminate this Lease with respect to the Leased Property, in which event the
Lease shall terminate five days after the date of such notice without further
penalty hereunder. If such damage or destruction is not material, Lessee shall
restore the Facility to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the terms of
the Lease, which Lessee shall proceed to do in a prompt and diligent manner.
14.4 Lessee's Property. All insurance proceeds payable by reason of any
loss of or damage to any of Lessee's Personal Property shall be paid to Lessee;
provided however, no such payments shall diminish or reduce the insurance
payments otherwise payable to or for the benefit of Lessor hereunder.
14.5 Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the first six months of any period required
for the applicable repair and restoration. Thereafter Base Rent shall be
equitably abated.
14.6 Damage Near End of Term. Notwithstanding any provisions of Section
14.2 or 14.3 appearing to the contrary, if damage to or destruction of the
Facility renders it unsuitable for its Primary Intended Use occurs during the
last 12 months of the Term, the Lessee shall have the right to terminate the
Lease by giving written notice to Lessor within 30 days after the occurrence of
such event, whereupon all secured Rent shall be paid immediately, and this Lease
shall automatically terminate five days after the date of such notice.
14.7 Waiver. Lessee hereby waives any statutory rights of termination
that ma arise by reason of any damage or destruction of the Facility that Lessor
is obligated to restore or may restore
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under any of the provisions of this Lease.
ARTICLE XV
15.1 Definitions.
(a) "Condemnation" means a Taking resulting from (a) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceeds for condemnation are
pending.
(b) "Date of Taking" means the date the Condemnor has
the right to possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power
of Condemnation.
15.2 Parties' Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
15.3 Total Taking. If title to the fee of the whole of the Leased
Property is condemned by any Condemnor, subject to the provisions of Section
15.7, this Lease shall cease and terminate as the Date of Taking by the
Condemnor. If title to the fee of less than the whole of the Leased Property is
so taken or condemned, which nevertheless renders the Leased Property Unsuitable
or Uneconomic for its Primary Intended Use, Lessee and Lessor shall each have
the option, by notice to the other, at any time prior to the Date of Taking, to
terminate this Lease as of the Date of Taking. Upon such date, if such Notice
has been given, this Lease shall thereupon cease and terminate. All Base Rent,
Percentage Rent and Additional Charges paid or payable by Lessee hereunder shall
be apportioned as of the Date of Taking, and Lessee shall promptly pay Lessor
such amounts. In the event of any such termination, the provisions of Section
15.7 shall apply.
15.4 Allocation of Award. The total Award made with respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term, shall be solely the property of and payable to Lessor. Any Award made for
loss of business during the remaining Term, if any, for the taking of Lessee's
Personal Property, or for removal and relocation expenses of Lessee in any such
proceedings shall be the sole property of and payable to Lessee. In any
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective
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expense; provided, however, Lessee shall not initiate, prosecute or acquiesce in
any proceedings that may result in a diminution of any Award payable to Lessor.
15.5 Partial Taking. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is not Unsuitable for its Primary
Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but neither elects to terminate this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable dispatch restore the
untaken portion of any Leased Improvements so that such Leased Improvements
constitute a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as the Leased
Improvements existing immediately prior to the Condemnation. Lessor shall
contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such contribution shall not exceed such cost.
15.6 Temporary Taking. If the whole or any part of the Leased Property
or of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, the Lease shall not terminate by reason thereof, and
Lessee shall continue to pay, in the manner and at the terms herein specified,
the full amount of Base Rent and Additional Charges. In addition, Lessee shall
pay Percentage Rent at a rate equal to the average Percentage Rent during the
last three preceding Fiscal Years (or if three Fiscal Years shall not have
elapsed, the average during the preceding Fiscal Years). Except only to the
extend that Lessee may be prevented from so doing pursuant to the terms of the
order of the Condemnor, Lessee shall continue to perform and observe all of the
other terms, covenants, conditions and obligations hereof on the part of the
Lessee to be performed and observed, as though such Condemnation had not
occurred. In the event of any Condemnation as in this Section 15.6 described,
the entire amount of any Award made for such Condemnation allocable to the Term
of this Lease, whether paid by way of damages, rent or otherwise, shall be paid
to Lessee. Lessee covenants that upon the termination of any such period of
temporary use or occupancy it will, at its sole cost and expense (subject to
Lessor's contribution as set forth below), promptly restore the Leased Property
as nearly as may be reasonably possible to the condition in which the same was
immediately prior to such Condemnation, unless such period of temporary use or
occupancy extends beyond the expiration of the Term, in which case Lessee shall
not be required to make such restoration. If restoration is required hereunder,
Lessor shall contribute to the cost of such restoration that portion of its
entire Award that is specifically allocated to such restoration in the judgment
or order of the court, if any, and Lessee shall fund the balance of such costs
in advance of restoration in a manner reasonably satisfactory to Lessor.
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Notwithstanding the foregoing, if the temporary taking is to be for a
period of more than 30 days pursuant to the terms of the order providing
therefor, Lessee, upon 30 days prior written notice to Lessor given at any time
on or after the Date of Taking by the Condemnor in connection with such
temporary taking, may terminate this Lease if the temporary taking renders the
hotel Uneconomic or Unsuitable for its Primary Intended Purpose.
15.7 Lessee's Offer. In the event of the termination of this Lease as
provided in Section 15.3, Lessee shall offer to acquire the Leased Property
without regard to such taking and, if accepted, Lessee shall receive the entire
Award. If Lessor does not accept Lessee's offer to purchase the Leased Property,
Lessee shall withdraw its offer to purchase the Leased Property and, if so
withdrawn, Lessee may terminate the Lease with respect to the Leased Property
without further liability hereunder, except for payment of Rent as provided in
the penultimate sentence of Section 15.3 or for matters which by their express
terms survive termination of this Lease, and Lessor shall be entitled to retain
the Award except as provided in Section 15.4.
ARTICLE XVI
16.1 Events of Default. If any one or more of the following
events individually, an "Event of Default") occurs:
(a) if Lessee fails to make payment of the Base Rent when the
same becomes due and payable for a period of ten days after receipt by the
Lessee of Notice form the Lessor thereof;
(b) if Lessee fails to make payment of annual Percentage Rent
when the same becomes due and payable and such condition continues for a period
of 90 days after the end of the applicable Fiscal Year;
(c) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of 30 days after receipt by the Lessee of Notice thereof from
Lessor, unless such failure cannot with due diligence be cured within a period
of 30 days, in which case it shall not be deemed an Event of Default if Lessee
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof provided, however, in no event shall such cure
period extend beyond 90 days after such Notice; or
(d) if the Lessee shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state bankruptcy
law or any similar federal or state law, or shall be adjudicated a bankrupt or
shall make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of the Lessee as a bankrupt or its
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reorganization pursuant to any federal or state bankruptcy law or any similar
federal or state law shall be filed in any court and the Lessee shall be
adjudicated a bankrupt and such adjudication shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if a
receiver of the Lessee or the whole or substantially all of the assets of the
Lessee shall be appointed in any proceeding brought by the Lessee or if any such
receiver, trustee or liquidator shall be appointed in any proceeding brought
against the Lessee and shall not be vacated or set aside or stayed within 60
days after such anointment; or
(e) if Lessee is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner, permits
the sale or divestiture of substantially all of its assets; or
(f) if the estate or interest of Lessee in the Leased Property
or any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any proceeding (unless Lessee is contesting
such lien or attachment in good faith in accordance with Article XII hereof); or
(g) if, except as a result of damage, destruction or partial
or complete Condemnation, Lessee voluntarily causes operations on the Leased
Property for a period in excess of 30 days; or
(h) if an event of default has been declared by the franchisor
under the Franchise Agreement with respect to the Facility on the Leased
Property as a result of any action or failure to act by the Lessee or any Person
with whom the Lessee contracts for management services at the Facility;
then, and in any such event, Lessor may exercise one or more
remedies available to it herein or at law or in equity, including but not
limited to its right to terminate the Lease by giving Lessee not less than ten
days' Notice of such termination.
If litigation is commenced with respect to any alleged default
under this Lease, the prevailing party in such litigation shall receive, in
addition to its damages incurred, such sum as the court shall determine as its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith.
No Event of Default (other than a failure to make a payment of
money) shall be deemed to exist under clause (c) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee remedies such default or Event of Default
without further delay.
16.2 Surrender. If an Event of Default occurs (and the event
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giving rise to such Event of Default has not been cured within the curative
period relating thereto as set forth in Section 16.1) and is continuing, whether
or not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and lessor may
enter upon and repossess the Leased Property by reasonable force, summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all personal property from the Leased Property, subject to rights of
any hotel guests and to any requirement of law. Lessee hereby waives any and all
requirements of applicable laws for service of notice to re-enter the Leased
Property. Lessor shall be under no obligation to, but may if it so chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.
16.3 Damages. Neither (a) the termination of this Lease, (b) the
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all Rent due and payable
with respect to the Leased Property to and including the date of such
termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as
and for liquidated and agreed current damages for Lessee's default, either:
(1) Without termination of Lessee's right to possession of the
Lease Property, each installment of Rent and other sums payable by Lessee to
Lessor under the Lease as the same becomes due and payable, which Rent and other
sums shall bear interest at the Overdue Rate, and Lessor may enforce, by action
or otherwise, any other term or covenant of this Lease; or
(2) the sum of:
(A) the unpaid Rent which had been earned at the
time of termination, repossession or reletting, and
(B) the worth at the time of termination,
repossession or reletting of the amount by which the unpaid
Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount of
such rental loss that Lessee proves could be reasonably
avoided, and
(C) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure
to perform its obligations under this Lease or
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which in the ordinary course of things, would be likely to
result therefrom. The worth at the time of termination,
repossession or reletting of the amount referred to in
subparagraph (B) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of New York at the
time of award plus 1%.
Percentage Rent for the purposes of this Section 16.3 shall be a sum equal to
(i) the average of the annual amounts of the Percentage Rent for the three
Fiscal Years immediately preceding the Fiscal Year in which the termination,
re-entry or repossession takes place, or (ii) if three Fiscal Years shall not
have elapsed, the average of the Percentage Rent during the preceding Fiscal
Years during which the Lease was in effect, or (iii) if one Fiscal Year has not
elapsed, the amount derived by annualizing the Percentage Rent from the
effective date of this Lease.
16.4 Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article XVI, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate vail" of Lessee other than to the extent
funds shall have been inappropriately paid any Affiliate of Lessee following a
default resulting in an Event of Default.
16.5 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's obligations in the order that Lessor may
determine or as may be prescribed by the laws of the State.
ARTICLE XVII
Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time periods
provided in Section 16.1, Lessor, without waiving or releasing any obligation of
Lessee, and without waiving or releasing any obligation or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and,
subject to section 16.4, take all such action thereon as, in Lessor's opinion,
may be necessary or appropriate therefor. No such entry shall be deemed an
eviction of Lessee. All sums so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent
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permitted by law) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which such sums or
expenses are paid or incurred by Lessors, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this Article
shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
Provisions Relating to Purchase of the Leased Property. If Lessee
purchases the Leased Property from Lessor pursuant to any of the terms of this
Lease, Lessor shall, upon receipt from Lessee of the applicable purchase price,
together with full payment of any unpaid Rent due and payable with respect to
any period ending on or before the date of the purchase, deliver to Lessee an
appropriate limited or special warranty deed or other conveyance conveying the
entire interest of Lessor in and to the Leased Property to Lessee free and clear
of all encumbrances other than (a) those that Lessee has agreed hereunder to pay
or discharge, (b) those mortgage liens, if any, that Lessee has agreed in
writing to accept and to take title subject to, (c) those liens and encumbrances
subject to which the Leased Property was conveyed to Lessor, (d) encumbrances,
easements, licenses or rights of way required to be imposed on the Leased
Property under Section 7.3, and (e) any other encumbrances permitted to be
imposed on the Leased Property under the provisions of Section XXXIV that are
assumable at no cost to Lessee or to which Lessee may take subject without cost
to Lessee. The difference between the applicable purchase price and the total of
the encumbrances assumed or taken subject tot shall be paid in cash to Lessor or
as Lessor may direct. in federal or other immediately available funds, except as
otherwise mutually agreed by Lessor and Lessee. All expenses of such conveyance,
including, without limitation the cost of title examination or title insurance,
if desired by Lessee, Lessee's attorneys' fees incurred in connection with such
conveyance and release, and transfer taxes and recording fees, shall be paid by
Lessee. Lessor shall pay its attorney's fees.
ARTICLE XIX
19.1 Personal Property Limitation. Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the items
of personal property that are leased to the Lessee under this Lease at the
beginning and at the end of any Fiscal Year shall not exceed 15% of the average
of the aggregate adjusted tax bases of the Leased Property at the beginning and
at the end of such Fiscal Year. This Section 19.1 is intended to ensure that the
Rent qualifies as "rents from real property," within the meaning of Section
856(d) of the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent.
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19.2 Sublease Rent Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the income or profits derived by the
business activities of the sublessee, or (b) any other formula such that any
portion of the Rent would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.
19.3 Sublease Tenant Limitation. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublease the Leased Property to
any Person in which Glenborough Realty Trust Incorporated owns, directly or
indirectly, a 10% or more interest, within the meaning of Section 856(d)(2)(B)
of the Code, or any similar or successor provisions thereto.
19.4 Lessee Ownership Limitation. Anything contained in this Lease to
the contrary notwithstanding, neither Lessee or an Affiliate of the Lessee shall
acquire, directly or indirectly, a 10% or more interest in Glenborough Realty
Trust Incorporated, within the meaning of Section 856(d)(2)(B) of the Code, or
any similar or successor provision thereto.
19.5 Lessee Officer and Employee Limitation. Anything contained in this
Lease to the contrary notwithstanding, except with the prior written approval of
Glenborough Realty Trust Incorporated, none of the officers or employees of the
Lessee (or any Person who furnishes or renders services to the tenants of the
Leased Property, or manages or operates the Lease Property) shall be officers or
employees to Glenborough Realty Trust Incorporated (or any Person who serves as
an advisor of Glenborough Realty Trust Incorporated). In addition, if a Person
serves as both (a) a director of the Lessee (or any Person who furnishes or
renders services to the tenants of the Leased Property, or manages or operates
the Leased Property) and (b) a director and officer (or employee) of Glenborough
Realty Trust Incorporated (or any Person who serves as an advisor of Glenborough
Realty Trust Incorporated) that Person shall not receive any compensation for
serving as a director of the Lessee (or any Person who furnishes or renders
services to the tenants of the Leased Property, or manages or operates the
Leased Property).
19.6 Payments to Affiliates of Lessee. During the term, Lessee shall
not pay any fees to any Affiliate of Lessee in connection with the Facility.
ARTICLE XX
Holding Over. If Lessee for any reason remains in possession
of the Leased Property after the expiration or earlier termination
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of the Term, such possession shall be as a tenant at sufferance during which
time Lessee shall pay as rental each month two times the aggregate of (a)
one-twelfth of the aggregate Base Rent and Percentage Rent payable with respect
to the last Fiscal Year of the Term, (b) all Additional Charges accruing during
the applicable month and (c) all other sums, if any, payable by Lessee under
this Lease with respect to the Leased Property. During such period, Lessee shall
be obligated to perform and observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenancies of sufferance, to continue its occupancy and
use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE XXI
Risk of Loss. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, theft, riots, wars or
otherwise, or in consequence of foreclosure, attachments, levies or executions
(other than those caused by Lessor and those claiming from, through to under
Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful
misconduct or breach of this Lease by Lessor pursuant to Section 34.3, Lessor
shall in no event be answerable or accountable therefor, nor shall any of the
events mentioned in this Section entitle Lessee to any abatement of Rent except
as specifically provided in this Lease.
ARTICLE XXII
22.1 Indemnification. Notwithstanding the existence of any insurance,
and without regard to the policy limits of any such insurance or self-insurance,
but subject to Section 16.4 and Article VIII, Lessee will protect, indemnify,
hold harmless and defend Lessor from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against Lessor
Indemnified Parties by reason of: (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, including without limitation any claims under
liquor liability, "dram shop" or similar laws, (b) any past, present or future
use, misuse, non-use, condition, management, maintenance or repair by Lessee or
any of its agents, employees or invitees of the Leased Property or Lessee's
Personal Property or any litigation, proceeding or claim by governmental
entities or other third parties to which a Lessor Indemnified Party is made a
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party or participant related to such use, misuse, non-use, condition,
management, maintenance, or repair thereof by Lessee or any of its agents
employees or invitees, including any failure of Lessee or any of its agents,
employees or invitees to perform any obligations under this Lease or imposed by
applicable law (other than arising out of Condemnation proceedings), (c) any
Impositions that are the obligations of Lessee pursuant to the applicable
provisions of this Lese, (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, and (e) the non-performance of any
of the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord thereunder.
Lessor shall indemnify, save harmless and defend Lessee Indemnified
Parties from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses imposed upon or incurred by or
asserted against Lessee Indemnified Parties as a result of (a) the gross
negligence or willful misconduct of Lessor arising in connection with this Lease
or (b) any failure on the pat of Lessor to perform or comply with any of the
terms of this Lease.
Any amounts that become payable by an Indemnifying Party under this
Section shall be paid within ten days after liability therefor on the pat of the
Indemnifying Party is determined by litigation or otherwise, and if not timely
paid, shall bear a late charge (to the extent permitted by law) at the Overdue
Rate from the date of such determination to the date of Payment. An Indemnifying
Party, at its expenses, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against the Indemnified Party. The
Indemnified Party, at its expense, shall be entitled to participate in any such
claim, action, or proceeding, and the Indemnifying Party may not compromise or
otherwise dispose of the same without the consent of the Indemnified Party,
which may not be unreasonably withheld. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own grossly negligent acts
or omissions or wilful misconduct.
Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.
ARTICLE XXIII
23.1 Subletting and Assignment. Subject to the provision of Article XIX
and Section 23.2 and any other express conditions or limitation set forth
herein, Lessee may, but only with the consent of Lessor, (a) assign this Lease
or sublet all or any part of the Leased Property to an Affiliate of Lessee, or
(b) sublet any retail or restaurant portion of the Leased Improvements in the
normal course of the Primary Intended Use; provided that any subletting shall
not individually as to any one such subletting, or in the aggregate, materially
diminish the actual or potential Percentage
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Rent payable under this Lease. In the case of subletting, the sublessee shall
comply with the provisions of Section 23.2, and in the case of an assignment,
the assignee shall assume in writing and agree to keep and perform all of the
terms of this Lease on the part of Lessee to be kept and performed and shall be,
and become, jointly and severally liable with Lessee for the performance
thereof. Notwithstanding the above, Lessee may assign the Lease to an Affiliate
without the consent of Lessor; provided that any such assignee assumes in
writing and agrees to keep and perform all of the terms of the Lease on the part
of Lessee to be kept and performed and shall be and become jointly and severally
liable with Lessee for the performance thereof. In case of either an assignment
or subletting made during the Term, Lessee shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Lessee hereunder. An original counterpart of each such sublease and
assignment and assumption, duly executed by Lessee and such sublessee or
assignee, as the case may be, in form and substance satisfactory to Lessor,
shall be delivered promptly to Lessor.
23.2 Attornment. Lessee shall insert in each sublease permitted under
Section 23.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder,, (b) if this Lease terminates before the expiration of such
sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
ARTICLE XXIV
Officer's Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants.
(a) At any time and from time to time upon not less than 20 days Notice
by Lessor, Lessee will furnish to Lessor an Officer's Certificate certifying
that this Lease is unmodified and in full force and effect (or that this Lease
is in full force and effect as modified and setting forth the modifications),
the date to which the Rent has been paid, whether to the knowledge of Lessee any
existing default or Event of Default exists thereunder by Lessor or Lessee, and
such other information as may be reasonably requested
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by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender and any prospective purchaser of the Leased Property.
(b) Lessee will furnish the following statements to
Lessor:
(1) with reasonable promptness, such
information respecting the financial condition and
affairs of Lessee including audited financial
statements prepared by the sums certified independent
accounting firm that prepares the returns for Lessor
or such other accounting firm as may be approved by
Lessor, as Lessor may reasonably request from time to
time; and
(2) the most recent Consolidated Financials
of Lessee within 45 days after each quarter of any
Fiscal Year (or, in the case of the final quarter in
any Fiscal Year, the most recent audited Consolidated
Financials of Lessee within 90 days); and
(3) on or about the 15th day of each month,
a detailed profit and loss statement for the Leased
Property for the preceding month, a balance sheet for
the Leased Property as of the end of the preceding
month, and a detailed accounting of revenues for the
Leased Property for the preceding month, each in form
acceptable to Lessor.
(c) At any time and from time to time upon not less than 20
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel certificate certifying that this Lease is unmodified and
in full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which Rent has been
paid, whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's part hereunder, and such other information as may be
reasonably requested by Lessee.
(d) Lessee covenants that during the Term it will maintain a
ratio of recourse debt-to-Consolidated Net Worth of 50% or less, exclusive of
capitalized leases.
ARTICLE XXV
Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual
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business hours upon reasonable advance notice, subject only to any business
confidentiality requirements reasonably requested by Lessee.
ARTICLE XXVI
No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE XXVII
Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
ARTICLE XXVIII
Acceptance of Surrender. No surrender to Lessor of this Lease or of the
Leased Property or any part thereof, or of any interest therein, shall be valid
or effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
ARTICLE XXIX
No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold directly or indirectly (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXX
Conveyance by Lessor. If Lessor or any successor owner of the
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Leased Property conveys the Lease Property in accordance with the terms hereof
other than as security for a debt, and the grantee or transferee of the Lease
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
ARTICLE XXXI
Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Lease Property for
the Term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all liens and encumbrances subject
to which the Leased Property was conveyed to Lessor hereafter consented to by
Lessee or provided for herein. Notwithstanding the foregoing, Lessee shall have
the right by separate and independent action to pursue any claim it may have
against Lessor as a result of breach by Lessor of the covenant of quiet
enjoyment contained in this Section.
ARTICLE XXXII
Notices. All notices, demands, requests, consents approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by registered or certified mail, return receipt
requested and postage prepaid), addressed to Lessor in care of Glenborough
Realty Trust Incorporated, at its principal office, Attention: President, and
addressed to Lessee as set forth in this Lease, or to such other address or
addresses as either party may hereafter designate. Personally delivered Notice
shall be effective upon receipt, and Notice given by mail shall be complete at
the time of deposit in the U.S. Mail system, but any prescribed period of Notice
and any right or duty to do any act or make any responses within any prescribed
period or on a date certain after the service of such Notice given by mail shall
be extended five days.
ARTICLE XXXIII
Appraisers. If it becomes necessary to determine the Fair
Market Value or Fair Market Rent of the Leased Property for any
purpose of this Lease, the party required or permitted to give
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Notice of such required determination shall include in the Notice the name of a
person selected to act as appraiser on its behalf. Within 10 days after Notice,
Lessor (or Lessee, as the case may be) shall by Notice to Lessee (or Lessor, as
the case may be) appoint a second person as appraiser on its behalf. The
appraisers thus appointed, each of whom must be a member of the American
Institute of Real Estate Appraisers (or any successor organization thereto) with
at least five years experience in the State appraising property similar to the
Leased Property, shall, within 45 days after the date of the Notice appointing
the first appraiser, proceed to appraise the Leased Property to determine the
Fair Market Value or Fair Market Rent thereof as of the relevant date (giving
effect to the impact, if any, of inflation from the date of their decision to
relevant date); provided, however, that if only one appraiser shall have been so
appointed, then the determination of such appraiser shall be final and binding
upon the parties. To the extent consistent with sound appraisal practice as then
existing at the time of any such appraisal such appraisal shall be made on a
basis consistent with the basis on which the Leased Property was appraised for
purposes of determining its Fair Market Value at the time the Leased Property
was acquired by Lessor. If two appraisers are appointed and if the difference
between the amounts so determined does not exceed 5% of the lesser of such
amounts, then the Fair Market Value or Fair Market Rent shall be an amount equal
to 50% of the sum of the amounts so determined. If the difference between the
amounts so determined exceeds 5% of the lesser of such amounts, then such two
appraiser shall have 20 days to appoint a third appraiser. If no such appraiser
shall have been appointed within such 20 days or within 90 days of the original
request for determination of Fair Market Value or Fair Market Rent, whichever is
earlier, either Lessor or Lessee may apply to any court having jurisdiction to
have such appointment made by such court. Any appraiser appointed by the
original appraisers or by such court shall be instructed to determine the Fair
Market Value or Fair Market Rent within 45 days after appointment of such
appraiser. The determination of the appraiser which differs most in the terms of
dollar amount from the determinations of the other two appraisers shall be
excluded, and 50% of the sum of the remaining two determinations shall be final
and binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rent
of the Leased Property, as the case may be. This provision for determining by
appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by applicable law.
Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.
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ARTICLE XXXIV
34.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor may,
subject to the terms and conditions set forth below in this Section 34.1, from
time to time, directly or indirectly, create or otherwise cause to exist any
lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Any such Encumbrance shall
(a) contain the right to prepay (whether or not subject to a prepayment
penalty); (b) provide that it is subject to the rights of Lessee under this
Lease, (c) contain the Agreement by the holer of the Encumbrance that it will
(1) give Lessee the same notice, if any, given to Lessor of any default or
acceleration of any obligation underlying any such Encumbrance or any sale in
foreclosure under Encumbrance, (2) permit Lessee to cure any such default on
Lessor's behalf within any applicable cure period, and Lessee shall be
reimbursed by Lessor for any and all costs incurred in effecting such cure,
including without limitation out-of-pocket costs incurred to affect any such
cure (including reasonable attorneys' fees) and (3) permit Lessee to appear by
its representative and to bid at any sale in foreclosure made with respect to
any such encumbrance. Upon the request of Lessor, Lessee shall subordinate this
Lease to the lien of a new mortgage on the Leased Property, on the condition
that the proposed mortgagee executes a non-disturbance agreement recognizing
this Lease, and agreeing, for itself and its successors and assigns, to comply
with the provisions of this Article XXXIV.
34.2 Lessee's Right to Cure. Subject to the provisions of Section 34.3,
if Lessor breaches any covenant to be performed by it under this Lease, Lessee,
after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor. All
sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) so incurred, together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessee, be paid by Lessor to Lessee on demand or, following
entry of a final, nonappealable judgment against Lessor for such sums, may be
offset by Lessee against the Base Rent payments next accruing or coming due. The
rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 34.2 shall survive the termination of this Lease
with respect to the Leased Property.
34.3 Breach by Lessor. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure continues for a period of 30 days after
Notice thereof from Lessee, unless such failure cannot with due diligence be
cured within a
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period of 30 days, in which case such failure shall not be deemed to continue if
Lessor, within such 30 day period, proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof. The time within
which Lessor shall be obligated to cure and such failure also shall be subject
to extension of time due to the occurrence of any Unavoidable Delay. If Lessor
fails to cure any such breach within the grace period described above and the
amount of damage, as determined by entry of a final nonappealable judgment as
provided in Section 34.2 above, exceeds the Base Rent payable for the balance of
the Term, and the amount of such judgment is not paid within 60 days of the date
as of which it becomes final, Lessee, without waiving or releasing any
obligations hereunder, and in addition to all other remedies available to Lessee
at law or in equity, may purchase the Leased Property from Lessor for a purchase
price equal to the then Fair Market Value. If Lessee elects to purchase the
Leased Property it shall deliver a Notice thereof to Lessor specifying a
settlement date to occur not less than 90 days subsequent to the date of such
Notice in which it shall purchase the Leased Property, and the same shall be
thereupon conveyed in accordance with the provisions of Article XVIII.
ARTICLE XXXV
35.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum permissible
rate. Neither this Lease or any provision hereof may be changed, waived,
discharged or terminated except by a written instrument in recordable form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The headings in this Lease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. This
Lease shall be governed by and construed in accordance with the laws of the
State, but not including its conflict of laws rules.
35.2 Transfer of Licenses. Upon the expiration or earlier termination
of the Term, Lessee shall use its best efforts (i) to transfer to Lessor or
Lessor's nominee all licenses, operating permits and other governmental
authorizations and all contracts, including contracts with governmental or
quasi-governmental entities, that may be necessary for the operation of the
Facility
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(collectively, "Licenses"), or (ii) if such transfer is prohibited by law or
Lessor otherwise elects, to cooperate with Lessor or Lessor's nominee in
connection with the processing by Lessor or Lessor's nominee of any applications
for, all Licenses; provided, in either case, that the costs and expenses of any
such transfer or the processing of any such application shall be paid by Lessor
or Lessor's nominee.
35.3 Waiver of Presentment, etc.. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein.
ARTICLE XXXVI
Lessor's Option to Purchase Assets of Lessee. Effective on not less
than 90 days prior Notice given at any time within 180 days before the
expiration of the Term, but not later than 90 days prior to such expiration, or
upon such shorter Notice period as shall be appropriate if this Lease is
terminated prior to its expiration date, Lessor shall have the option to
purchase all (but not less than all) of the assets of Lessee, tangible and
intangible, relating to the Leased Property (other than this Lease), at the
expiration or termination of this Lease for an amount (payable in cash on the
expiration date of this Lease) equal to the fair market value thereof as
appraised in conformity with Article XXXIII, except that the appraisers need not
be members of the American Institute of Real Estate Appraisers, but rather shall
be appraisers having at least ten years experience in valuing similar assets.
Notwithstanding any such purchase, Lessor shall obtain no rights to any trade
name or logo used in connection with the Franchise unless separate agreement as
to such use is reached with the applicable franchisor.
ARTICLE XXXVII
Lessor's Option to Terminate Lease. In the event Lessor enters into a
bona fide contract to sell the Leased Property to a non-Affiliate, Lessor may
terminate the Lease by giving not less than 30 days prior Notice to Lessee of
Lessor's election to terminate the Lease effective upon the closing under such
contract. Effective upon such closing, this Lease shall terminate and be of no
further fore and effect except as to any obligations of the parties existing as
of such date that survive termination of this Lease. As compensation for the
early termination of its Leasehold estate under this Article XXXVII, Lessor
shall within 90 days of such closing either (a) pay to Lessee the fair market
value of Lessee's leasehold estate hereunder as of the closing of the sale
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of the Leased Property or (b) offer to lease to Lessee one or more substitute
hotel facilities pursuant to one or more leases that would create for the Lessee
leasehold estates that have an aggregate fair market value of no less then the
fair market value of the original leasehold estate, both such values as
determined as of the closing of the sale of the Leased Property. The fair market
value of Lessee's leasehold estate shall exclude any unexercised option to
extend the term, whether or not the option is then exercisable. If Lessor elects
and complies with the option described in (b) above, regardless of whether
Lessee entered into the lease(s) described therein, Lessor shall have no further
obligations to Lessee with respect to compensation for the early termination of
this Lease. In the event Lessor and Lessee are unable to agree upon the fair
market value of an original or replacement leasehold estate, it shall be
determined by appraisal using the appraisal procedure set forth in Article
XXXIII.
For this purpose of this Section, fair market value of the leasehold
estate means, as applicable, an amount equal to the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell for
Lessee's leasehold estate under this Lease or an offered replacement leasehold
estate.
ARTICLE XXXVIII
Compliance with Franchise Agreement. To the extent any of the
provisions of the Franchise Agreement impose a greater obligation on Lessee than
the corresponding provisions of the Lease, then Lessee shall be obligated to
comply with the provisions of the Franchise Agreement, it being the intent of
the parties hereto that Lessee comply in every respect with the provisions of
the Franchise Agreement so as to avoid any default thereunder.
ARTICLE XXXIX
Furniture Fixture and Equipment Allowance. Lessor shall be obligated to
pay Lessee for each quarter in any Fiscal Year during the Term, an amount equal
to the quarterly FF&E Allowance set forth on Exhibit B hereto. For the first and
last quarter of the term, the FF&E Allowance shall be prorated as to any partial
quarter. The FF&E Allowance shall be adjusted annually as of the first day of
each Fiscal Year, commencing January 1, 1997, for any increase, but not because
of any decrease, in the CPI, from the beginning of the previous Fiscal Year.
Upon written request by Lessee to Lessor stating the specific use to be made and
the reasonable approval thereof by Lessor, such funds shall be made available by
Lessor for use by Lessee for replacement or refurbishing of furniture, fixtures
and equipment that constitute Leased Property in connection with the Primary
Intended Use; provided, however, that no amounts made available under this
Article shall be used to
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purchase property (other than "real property" within the meaning of Treasury
Regulations Section 1.856-3(d)), to the extent that doing so would cause the
Lessor to recognize income other than "rents from real property" as defined in
Section 856(d) of the Code. Lessor's obligation shall be cumulative, but not
compounded, and any amounts that have accrued hereunder shall be payable in
future periods for such uses and in accordance with the procedure set forth
herein. Lessee shall have no interest in any accrued obligation of Lessor
hereunder after the termination of this Lease.
ARTICLE XL
Subordination. This Lease and the rights and interests of the parties
hereunder shall be and become subject and subordinate to the lien of any
mortgage, deed of trust or other encumbrance (together with any interest
thereon, advances made thereunder and any conditions, renewals, extensions or
replacements thereof), now or hereafter placed, charged or enforced against the
Leased Property are a part, or any portion or portions thereof. It is the
intention of the parties that this provision shall be self- executing and no
further instrument shall be required to effect such subordination. Lessee agrees
to execute any and all documents and other agreements requested by any lender
which may be requested to evidence the foregoing.
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
"LESSOR"
GLENBOROUGH PROPERTIES, L.P., a
California limited partnership.
By: Glenborough Realty Trust Incorporated
Its: General Partner
By: ____________________________
Title: ________________________
"LESSEE"
GLENBOROUGH HOTEL GROUP
By: ____________________________
Title: _________________________
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EXHIBIT A
The Land, as Defined in Section 1.1 of the
Attached Lease Agreement is described as
follows:
That certain real property commonly known as Country Suites by Carlson
(formerly Shoney's Inn), 8600 Jones Matlsberger Road, San Antonio, Texas 78232,
which is more particularly described as follows:
Lot 21, Block 1, New City Block 8673, Crownhill Acres Subdivision, an
addition to the City of San Antonio, Bexar County, Texas according to
the map or plat thereof, recorded in, Volume 9527, Page 180, Deed and
Plat Records of Bexar County, Texas.
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EXHIBIT B
The rent payment for the Leased Property equals the sum of (i) the
greater of the Base Rent or the Percentage Rent from Room Revenues plus
(ii) the Percentage Rent from Other Revenues.
Calculation of Base Rent and Percentage Rent from Room
Revenues:
The annual Base Rent will be $312,000 vs. Percentage Rent
equal to 33% of the first $1,200,000 in Room Revenues plus 40%
of the Room Revenues over $1,200,000.
The quarterly FF&E Allowance is $10,500, effective August 1. 1997.
Pursuant to Article XXXIX, this amount will be adjusted for increases
in the CPI for the calendar year 1996, so that when it goes into
effect, this amount will have been adjusted for any increase in the CPI
during the entire calendar year 1996.
THE THRESHOLD FOR THE CALCULATION OF PERCENTAGE RENT FROM ROOM REVENUES
HAS BEEN ADJUSTED FOR INCREASES IN THE CPI FOR THE CALENDAR YEAR 1995.
THE FIRST ADJUSTMENT WILL BE MADE RETROACTIVE TO JANUARY 1, 1997, WHEN
THE CPI IS AVAILABLE THROUGH DECEMBER, 1996. AS OF JANUARY 1, 1997, THE
THRESHOLD WILL BE ADJUSTED FOR ANY INCREASE IN THE CPI DURING THE
ENTIRE CALENDAR YEAR 1996, AND NOT JUST FROM THE COMMENCEMENT OF THE
LEASE.
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000929454
<NAME> Glenborough Realty Trust Incorporated
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 610
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 610
<PP&E> 126,124
<DEPRECIATION> 26,959
<TOTAL-ASSETS> 119,205
<CURRENT-LIABILITIES> 3,072
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 48,829
<TOTAL-LIABILITY-AND-EQUITY> 119,205
<SALES> 0
<TOTAL-REVENUES> 13,787
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,546
<INCOME-PRETAX> 4,326
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,326
<DISCONTINUED> 0
<EXTRAORDINARY> 7,735
<CHANGES> 0
<NET-INCOME> (3,409)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> 0
</TABLE>
