<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 2000.
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-25060
HUMPHREY HOSPITALITY TRUST, INC.
(Exact name of registrant as specified in its charter)
Virginia 52-1889548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12301 Old Columbia Pike, Silver Spring MD 20904
(Address of principal executive offices)
Telephone number: (301) 680-4343
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 twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
Yes |X| No |_|
As of April 27, 2000, there were 11,173,543 shares of common stock, par value
$.01 per share, outstanding.
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
EXPLANATORY NOTE
On October 26, 1999, Humphrey Hospitality Trust, Inc. (the "Company")
and Supertel Hospitality, Inc. ("Supertel"), consummated a merger pursuant to
which the Company exchanged 1.30 shares of its common stock for each outstanding
share of Supertel's common stock (the "Merger"). As a result of the Merger and
in accordance with the provisions of Accounting Principles Board Opinion No. 16,
"Business Combinations," Supertel is considered the acquiring enterprise for
financial reporting purposes. Accordingly, the financial statements herein
present Supertel's historical financial information for periods prior to the
Merger.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. HUMPHREY HOSPITALITY TRUST, INC.
--------------------------------
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Income
for the three months ended March 31, 2000 and March 31, 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and March 31, 1999 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3(a). Quantitative and Qualitative Disclosures about Market Risk 12
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information - Humphrey Hospitality Management, Inc. Financial Information 12
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
Part I. FINANCIAL INFORMATION
</TABLE>
2
<PAGE>
Item 1.
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors
Humphrey Hospitality Trust, Inc.
We have reviewed the accompanying condensed consolidated balance sheet
of Humphrey Hospitality Trust, Inc. and Subsidiaries as of March 31, 2000 and
the related condensed consolidated statements of income and cash flows for each
of the three-month periods ended March 31, 2000 and 1999. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Humphrey Hospitality
Trust, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of income, changes in shareholders equity (deficit) and
cash flows for the year then ended (not presented herein); and in our report
dated March 20, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
May 5, 2000
3
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(See Independent Accountants' Report)
<TABLE>
<CAPTION>
As of
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C>
ASSETS
Investment in hotel properties $ 197,325,218 $ 196,189,326
Less accumulated depreciation 32,241,274 30,189,776
-------------- ---------------
165,083,944 165,999,550
Cash and cash equivalents 895,580 883,886
Accounts receivable - lessee 3,111,039 4,177,016
Accounts and note receivable 282,864 296,627
Prepaid expenses 361,808 255,899
Deferred financing cost, net of accumulated amortization 1,959,818 2,094,557
Other assets 42,418 42,616
-------------- ---------------
Total assets $ 171,737,471 $ 173,750,151
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Account payable and accrued expenses $ 2,029,889 $ 2,822,093
Income taxes payable - 850,000
Dividends Payable 903,139 903,139
Long-term debt 119,641,743 118,972,925
Other liabilities 466,582 487,166
-------------- ---------------
Total liabilities 123,041,353 124,035,323
-------------- ---------------
MINORITY INTEREST 3,510,971 3,584,439
-------------- ---------------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value, 25,000,000 shares authorized;
11,173,543 shares issued and outstanding 111,735 111,735
Additional paid-in capital 48,438,594 48,438,594
Distributions in excess or retained earnings (3,365,182) (2,419,940)
-------------- ---------------
Total shareholders' equity 45,185,147 46,130,389
-------------- ---------------
Total liabilities and shareholders' equity $ 171,737,471 $ 173,750,151
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(See Independent Accountants' Report)
(Unaudited)
<TABLE>
<CAPTION>
Three months
Ended March 31,
---------------------------------------
2000 1999
------------------ -------------------
<S> <C>
Revenue
Room revenue $ - $ 10,896,061
Other hotel revenue - 367,698
------------------ -------------------
Total hotel revenue - 11,263,759
Percentage lease revenue 7,559,525 -
Other revenue 50,263 7,950
------------------ -------------------
Total revenue 7,609,788 11,271,709
------------------ -------------------
Expenses
Hotel operating expenses - 7,339,295
Interest expense 2,671,218 889,769
Property operating expense 912,599 -
Depreciation 2,058,736 1,135,160
General and administrative 276,528 870,838
------------------ -------------------
Total expenses 5,919,081 10,235,062
------------------ -------------------
Income before minority interest and income
Taxes 1,690,707 1,036,647
Minority interest 121,900 -
------------------ -------------------
Income before income taxes 1,568,807 1,036,647
Income taxes - 414,659
------------------ -------------------
Net income $ 1,568,807 $ 621,988
================== ===================
Basic & diluted earnings per common share $ 0.14 $ 0.13
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(See Independent Accountants' Report)
(Unaudited)
<TABLE>
<CAPTION>
Three months
Ended March 31,
--------------------------------
2000 1999
-------- ---------
<S> <C>
Cash flows from operating activities
Net income $ 1,568,807 $ 621,988
Adjustments to reconcile net income to net cash
Provided by operating activities
Depreciation 2,058,736 1,083,615
Amortization of loan costs 134,739 51,545
Minority interest 121,900 -
Deferred income taxes - 125,091
(Increase) decrease in assets
Accounts receivable and note receivable 1,079,740 (22,135)
Prepaid expenses and other current assets (105,909) (416,671)
Other assets 198 -
Increase (decrease) in liabilities
Accounts payable (792,205) 549,138
Income taxes payable (850,000) 142,100
Other liabilities (20,584) (477,340)
------------- ----------
Cash provided by operating activities 3,195,422 1,657,331
------------- ----------
Cash flows from investing activities
Additions to hotel properties (1,143,131) (1,850,629)
------------- ----------
Cash used in investing activities (1,143,131) (1,850,629)
------------- ----------
Cash flows from financing activities
Repayments of long-term debt (431,182) (20,255,769)
Proceeds from long-term debt 1,100,000 8,928,474
Dividends and distributions paid (2,709,415) -
------------- -----------
Cash used in financing activities (2,040,597) (11,327,295)
------------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 11,694 (11,520,593)
Cash and cash equivalents, beginning of period 883,886 11,520,593
------------- ----------
Cash and cash equivalents, end of period $ 895,580 $ -
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Independent Accountants' Report)
(UNAUDITED)
Consolidated Financial Statements
The Company has prepared the condensed consolidated balance sheet as of
March 31, 2000 and the condensed consolidated statements of income and cash
flows for the three-month periods ended March 31, 2000 and 1999 without audit in
accordance with the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all necessary adjustments (which
include normal recurring adjustments) have been made to present fairly the
financial position at March 31, 2000 and the results of operations and cash
flows for all periods presented. Balance sheet data as of December 31, 1999 has
been derived from the audited consolidated financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although management believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
Annual Report for the year ended December 31, 1999. The results of operations
for the three-month periods ended March 31, 2000 and 1999 are not necessarily
indicative of the operating results for the full year.
Pro forma Financial Information (Unaudited)
The following unaudited pro forma summary financial information
presents information as if the Merger had occurred and all 88 hotels had been
owned at the beginning of the period presented and leased to Humphrey
Hospitality Management Inc. and its subsidiary (the "Lessee") pursuant to
percentage lease agreements. The pro forma summary financial information does
not purport to present what actual results of operations would have been if the
Merger had occurred and the leases executed on such date or to project results
for any future period.
Humphrey Hospitality Trust, Inc.
SELECTED PRO FORMA FINANCIAL DATA
Three months ended
March 31, 1999
Total Revenue $ 7,754,000
Expenses 6,031,000
Minority Interest 124,000
-----------
Net income $ 1,599,000
===========
Earnings per common share - Basic $ 0.14
===========
Earnings per common share - Diluted $ 0.14
===========
Reclassification
Certain amounts in the 1999 financial statements have been reclassified
to conform to the 2000 presentation.
7
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Independent Accountants Report)
(UNAUDITED)
Shareholders Equity
During the three months ended March 31, 2000, shareholders' equity
changed according to the following table:
Shareholders equity beginning of period
January 1, 2000 $ 46,130,389
Net income 1,568,807
Dividends paid (2,514,049)
-------------
Shareholders equity at the end of period
March 31, 2000 $ 45,185,147
=============
Related Party Transactions
The Lessee provides accounting and securities reporting services
pursuant to a services agreement with the Company. Effective October 26, 1999,
the agreement was amended to provide for an annual fee of $300,000. For the
period ended March 31, 2000, the Lessee received $75,000 for the services
provided in accordance with the agreement, which is included in general and
administrative expense. The Lessee provides capital improvement supervisory
services to Humphrey Hospitality Trust, Inc. pursuant to the terms of an
agreement, which provides for a fee equal to 9% of the total cost of the capital
improvements. For the period ended March 31, 2000 the Lessee earned fees
totaling $ 130,096. Capital improvement and service fees were not included in
the period ended March 31, 1999.
Subsequent event
On April 26, 2000 the Company completed the sale of its Comfort Inn in
Murphy, NC. Proceeds from the sale equaled approximately $2,000,000 and were
used to pay down debt.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Explanatory Note
On October 26, 1999, the Company and Supertel consummated a merger
pursuant to which Supertel was merged with and into the Company. As a result of
the merger and in accordance with the provision of Accounting Principles Board
Opinion No. 16, "Business Combinations," Supertel was considered the acquiring
enterprise for financial reporting purposes. Accordingly, Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains comparisons of the Company's historical information for the period
ended March 31, 2000 with Supertel's historical information for the period ended
March 31, 1999.
8
<PAGE>
General
Humphrey Hospitality Trust, Inc., was incorporated under the laws of
the Commonwealth of Virginia on August 23, 1994 and is a real estate investment
trust ("REIT") for federal income tax purposes. Humphrey Hospitality Trust,
Inc., through its wholly-owned subsidiaries, Humphrey Hospitality REIT Trust and
E&P REIT Trust (collectively, the "Company"), owns a controlling interest in
Humphrey Hospitality Limited Partnership and E&P Financing Limited Partnership
(the "Partnerships"). As of March 31, 2000, the Company owned a 92.79% interest
in Humphrey Hospitality Limited Partnership. Humphrey Hospitality Limited
Partnership owns a 99% general partnership interest and the Company a 1% limited
partnership interest in Solomons Beacon Inn Limited Partnership (the "Subsidiary
Partnership").
The Company's principal source of revenue after October 26, 1999 is
from payments by the Lessee under the Leases. The principal determinants of
Percentage Rent are the Hotels' room revenue, and to a lesser extent, other
revenue. The Lessee's ability to make payments to the Partnerships under the
Percentage Leases is dependent on the operations of the Hotels. Therefore, room
revenue and its related other hotel revenues and hotel expenses related to the
normal operations of Hotels are not reported after October 26, 1999 for the
Company and become revenue and expense items for the Lessee.
Results of Operations
Comparison of the three months ended March 31, 2000 to the three months ended
March 31, 1999
Total revenue for the three-month period ended March 31, 2000 was
$7,610,000, a decrease of $3,662,000 over the total revenue of $11,272,000 for
the three-month period ended March 31, 1999. Total revenue decreased for the
period because the principal source of revenue changed on the merger date
October 26, 1999 from room revenues and other hotel revenues to revenue from
operating leases, resulting in lower hotel and total revenue and lower related
hotel operating expenses.
For the period, the average daily room rate was $49.74 in 2000,
compared to $48.38 for 1999, an increase of 3% on a pro forma basis, assuming
the companies had been combined for the full-years. Proforma revenue per
available room ("RevPar") for 2000 decreased slightly to $28.83 from $29.31. Pro
forma occupancy as a percentage of rooms available for the period ended 2000 was
58% versus 61% for the same period in 1999.
There was no corresponding Hotel operating expenses for the period
ended March 31, 2000 compared to $7,339,000 for the period ended 1999. Hotel
operating expenses decreased for the period ended March 31, 2000 because the
principal source of revenue changed on the merger date October 26, 1999 from
room revenues and other hotel revenues to revenue from operating leases,
resulting in lower total revenue and lower related hotel operating expenses.
Interest expense increased by $1,781,000 for the period ended March 31,
2000 to $2,671,000 from $890,000 in 1999. The increase was primarily due to an
increase in debt related to the merger.
Depreciation expenses for the period ended 2000 were $2,059,000,
compared to $1,135,000 for 1999, an increase of $924,000. The increase in
depreciation expense was also primarily related to the merger.
Property operating expenses for the period ended 2000 were $913,000
with no corresponding amount for 1999. As a result of the merger, no hotel
operating expenses were reported after October 26, 1999. Property operating
expenses, which were reported after October 26, 1999, primarily include expenses
for real estate taxes, property related insurance, and land lease rents.
General and administrative expenses for the period ended March 31, 2000
were $277,000, compared to $871,000 for the period ended 1999, a decrease of
$594,000. The decrease primarily was related to the merger.
9
<PAGE>
Net income for the period ended March 31, 2000 was $1,569,000, or $.14
per share, versus net income of $622,000, or $.13 per share, on a diluted basis
for the corresponding period in 1999.
Liquidity and Capital Resources
Following the merger, the Company's principal source of cash to meet
its cash requirements, including distributions to shareholders, is its share of
the Partnerships' cash flow. The Partnerships' principal source of revenue is
rent payments received from the Lessee. The Lessee's obligations under the
Leases are unsecured. The Lessee's ability to make rent payments, and the
Company's liquidity, including its ability to make distributions to
shareholders, is dependent on the Lessee's ability to generate sufficient cash
flow from the operation of the Hotels.
The hotel business is seasonal, with hotel revenue generally greater in
the second and third quarters than in the first and fourth quarters, with the
exception of the Company's Hotels located in Florida, which are busiest in the
first and fourth quarters of the year. To the extent that cash flow from
operating activities is insufficient to provide all of the estimated monthly
distributions (particularly in the first quarter), the Company anticipates that
it will be able to fund any such deficit with advances from its line of credit.
The Company expects to meet its short-term liquidity requirements
generally through net cash provided by operations and existing cash balances.
The Company believes that its net cash provided by operations will be adequate
to fund both operating requirements and payment of dividends by the Company in
accordance with REIT requirements.
The Company expects to meet its long-term liquidity requirements, such
as scheduled debt maturities and property acquisitions, through long-term
secured and unsecured borrowings, the issuance of additional securities of the
Company, or, in connection with acquisitions of hotel properties, the issuance
of units of limited partnership interest in Humphrey Hospitality Limited
Partnership.
Debt
At March 31, 2000, the Company's outstanding debt was approximately
$119.6 million and is secured by most of the Hotels. The following table
summarizes the outstanding loan information.
<TABLE>
<CAPTION>
Approximate
Loan Balance At Interest Maturity
Lender 3/31/2000 Rate Year Other information
- ------------------------------------------------------------------------------------------------------------
<S> <C>
US Bank Line of Credit $ 6,100,000 7.99% 2001 LIBOR + 175-225,
Fixed at 60,90,180 days
US Bank E&P Term loan $ 12,800,000 8.31% 2004 15 Year Amortization
US Bank Term loan $ 9,800,000 8.53% 2004 15 Year Amortization
First National Bank of Omaha $ 14,900,000 8.40% 2009 20 Year Amortization
Mercantile Bank of Sedalia $ 6,600,000 8.30% 2004 20 Year Amortization
Marquette Capital Bank, N.A. $ 25,900,000 8.69% 2000 25 Year Amortization
Bertha Wetzler Note $ 800,000 9.25% 2009
Mercantile Safe-Deposit & Trust
Line of Credit $ 21,400,000 8.75% 2002 Variable, Prime + 25%
BankBoston Line of Credit $ 11,200,000 7.79% 2001 Libor+185-235-$11.2M
Swap Ceiling 7.79%
Susquehanna Bank $ 5,000,000 7.75% 2009 Fixed greater than 2004,Adjustable
every 5 yrs. Index+275
Regions Bank, NA $ 2,900,000 8.00% 2018 Fixed greater than 2003,Adjustable
every 5 yrs.Index +250
Crestar Bank Bonds $ 2,200,000 8.00% 2005 7.75% + fees = 8%
</TABLE>
<PAGE>
Funds from Operations
The Company's Funds From Operations ("FFO") was $3,749,443 for the
three months ended March 31, 2000, which was an increase of $2,344,446, or 167%
from $1,404,997 over the comparable period ended March 31, 1999. The increase
can be attributed to the addition of 63 Hotels purchased through the merger with
Supertel. Management considers FFO to be a market accepted measure of an equity
REIT's operating performance. All REITs do not calculate FFO in the same manner,
and therefore, the Company's calculation may not be the same as the calculation
of FFO for similar REITs. The Company defines FFO as defined under the National
Association of Real Estate Investment Trusts standards, which consists of net
income computed in accordance with generally accepted accounting principles,
excluding gains or losses on operating properties, plus depreciation and
amortization of real estate assets after adjustments for unconsolidated
partnerships and joint ventures. FFO is considered a key measurement of the
performance of a real estate investment trust. The Company has reported FFO for
the period using the most recent definition, which now does not exclude
non-recurring items and therefore certain amounts for 1999 have been
reclassified to conform to the 2000 presentation.
The computation of historical FFO is as follows:
<TABLE>
<CAPTION>
Historical Three Historical Three*
Month Period Ended Month Period Ended
March 31, 2000 Per Share March 31, 1999 Per Share
------------------- --------- -------------- ---------
<S> <C>
Net income applicable to
Common shares $ 1,568,807 $ 478,100
Add :
Minority interest expense 121,900 89,647
Depreciation and amortization 2,058,736 837,250
------------------ -----------
Funds From Operations $ 3,749,443 $0.31 $1,404,997 $0.26
================== ===== =========== =====
</TABLE>
*Presentation based on historical operations of Humphrey Hospitality Trust, Inc.
prior to its merger with Supertel Hospitality, Inc., on October 26, 1999. For
GAAP reporting basis, see FORM 10Q. Item 1.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information both included and incorporated by reference in this
Form 10-Q may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of the Company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts), availability of capital, interest rates,
competition, supply and demand for hotel rooms in the Company's current and
proposed market areas and general accounting principles, policies and guidelines
applicable to real estate investment trusts. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference herein.
Item 3 (a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in the Company's interest rate
exposure subsequent to March 31, 2000.
11
<PAGE>
Part II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5. OTHER INFORMATION. - HUMPHREY HOSPITALITY MANAGEMENT, INC. HISTORICAL
FINANCIAL INFORMATION FOR THE QUARTER ENDED MARCH 31, 2000.
As a supplement to the financial information presented in the Form
10-Q, the Company has voluntarily included this historical information for the
quarters ended March 31. 2000 and March 31, 1999 for Humphrey Hospitality
Management, Inc. and Subsidiary ("HHMI").
Index
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
Independent Accountants' Report 13
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 14
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2000 and March 31, 1999 15
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31,2000 and March 31, 1999 16
Notes to Condensed Consolidated Financial Statements (unaudited) 17
</TABLE>
12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders
Humphrey Hospitality Management, Inc.
We have reviewed the accompanying condensed consolidated balance sheet
of Humphrey Hospitality Management, Inc. and Subsidiary as of March 31, 2000 and
the related condensed consolidated statements of operations and cash flows for
each of the three-month periods ended March 31, 2000 and 1999. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Humphrey Hospitality
Management, Inc. and Subsidiary as of December 31, 1999, and the related
consolidated statements of operations, changes in shareholders equity (deficit)
and cash flows for the year then ended (not presented herein); and in our report
dated March 24, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
May 5, 2000
13
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(See Independent Accountants' Report)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- -----------------
(Unaudited) (Audited)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,373,111 $ 5,056,775
Accounts receivable 1,613,637 1,390,110
Prepaid expenses 402,728 314,767
Due from affiliates 7,822 55,172
Other assets 70,829 133,827
----------- -----------
4,468,127 6,950,651
Property and Equipment, net of accumulated depreciation
of $11,782 and $7,844, respectively 104,654 31,378
----------- -----------
Total current assets $ 4,572,781 $ 6,982,029
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (Deficit)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,559,850 $ 3,616,782
Other liabilities -- 38,454
Due to affiliates 3,278,845 4,177,016
----------- -----------
Total current liabilities 6,838,695 7,832,252
----------- -----------
COMMITMENTS -- --
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 1,000 shares authorized, 134 and
100 shares, issued and outstanding 1 1
50,369 50,369
Paid-in capital (2,276,284) (860,593)
Retained earnings (deficit) ----------- -----------
(2,225,914) (810,223)
Less: Note receivable - shareholder 40,000 40,000
----------- -----------
Total shareholders' equity (deficit) (2,265,914) (850,223)
----------- -----------
Total liabilities and shareholders' equity $ 4,572,781 $ 6,982,029
=========== ===========
</TABLE>
See accompanying notes to consolidated inancial statements.
14
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(See Independent Accountants' Report)
Three Months
-----------------------------
Ended March 31,
(Unaudited)
2000 1999
------------- ------------
Revenue
Room revenue $ 16,375,411 $ 5,852,852
Other hotel revenue 451,601 170,967
Other revenue 242,539 183,674
------------ ------------
Total revenue 17,069,551 6,207,493
------------ ------------
Expenses
Hotel operating expenses 9,568,967 3,172,024
General and administrative 1,185,006 325,000
Depreciation 3,938 --
Lease expense 7,727,331 2,963,224
------------ ------------
Total expenses 18,485,242 6,460,248
------------ ------------
Net loss $ (1,415,691) $ (252,755)
============ ============
See accompanying notes to consolidated financial statements.
15
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(See Independent Accountants' Report)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------
(Unaudited)
2000 1999
---- ----
<S> <C>
Cash flows from operating activities
Net income $(1,415,691) $ (252,755)
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation 3,938 --
Changes in assets and liabilities
Increase in accounts receivable (223,527) (100,936)
(Increase) decrease in prepaid expenses (87,961) 49,299
Decrease in other assets 62,998 4,859
(Decrease) increase in
accounts payable and accrued expenses (56,932) 308,272
Decrease in other liabilities (38,454) --
Decrease in due to affiliates (850,821) (1,126,420)
----------- -----------
Net cash used in operating activities (2,606,450) (1,117,681)
----------- -----------
Cash flows from investing activities
Investment in property and equipment (77,214) --
----------- -----------
Net cash used in investing activities (77,214) --
----------- -----------
Cash flows from financing activities
Advance from shareholder -- 400,000
Advances to affiliates -- (314,453)
----------- -----------
Net cash used in financing activities -- (85,547)
----------- -----------
Net decrease in cash and
cash equivalents (2,683,664) (1,032,134)
Cash and cash equivalents, beginning of period 5,056,775 3,262,524
----------- -----------
Cash and cash equivalents, end of period $ 2,373,111 $ 2,230,390
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(See Independent Accountants' Report)
(Unaudited)
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Management, Inc. and its wholly owned subsidiary,
Supertel Hospitality Management, Inc., (the "Lessee") was incorporated under the
laws of the State of Maryland on August 18, 1994 and October 26, 1999,
respectively, to lease and operate hotel properties from Humphrey Hospitality
Limited Partnership. As of December 31, 1998, James I. Humphrey, Jr. was the
sole shareholder of the Lessee. On June 1, 1999, the Lessee sold shares of stock
to certain of its officers, constituting a 25% interest in the company, in
exchange for $10,369 in cash and a $40,000 note receivable.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
the instructions to Form 10-Q and accordingly, do not include all of the
disclosures normally required by generally accepted accounting principles. The
financial information has been prepared in accordance with the Lessee's
customary accounting practices. In the opinion of management, the information
presented reflects all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Lessee's financial position
as of March 31, 2000, and the results of operations for the three months ended
March 31, 2000 and March 31, 1999. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000. The unaudited financial
statements should be read in conjunction with the audited financial statements
and footnotes thereto included in Humphrey Hospitality Trust, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1999.
Accounts Receivable
The Lessee typically considers accounts receivable to be fully collectible
although an allowance for doubtful accounts is sometimes required. If amounts
become uncollectible, they will be charged to operations when that determination
is made.
Income Taxes
The Lessee has elected to be treated as an S Corporation for federal and
state income tax purposes. Therefore, no provision or benefit for income taxes
has been included in these financial statements since taxable income or loss
passes through to, and is reportable by, the shareholders individually.
17
<PAGE>
Shareholders Equity (Deficit)
During the three months ended March 31, 2000, shareholders' equity
(deficit) changed according to the following table:
Shareholders equity (deficit) beginning
of period January 1, 2000 $ (850,223)
Net loss (1,415,691)
----------------
Shareholders equity (deficit) at the end
of period March 31, 2000 $ (2,265,914)
================
Related Party Transactions
The Lessee provides accounting and securities reporting services
pursuant to a services agreement with the Company. Effective October 26, 1999,
the agreement was amended to provide for an annual fee of $300,000. For the
periods ended March 31, 2000 and March 31, 1999, the Lessee received $75,000 and
$25,000, respectively, for the services provided in accordance with the
agreement, which is included in other revenue. Beginning in 1998, the Lessee
provides capital improvement supervisory services to Humphrey Hospitality Trust,
Inc. pursuant to the terms of an agreement, which provides for a fee equal to 9%
of the total cost of the capital improvements. For the period ended March 31,
2000 and March 31, 1999, the Lessee earned fees, which are included in other
revenue, totaling $ 130,096 and $94,248, respectively.
Lease Expense
Lease expense is recognized when accrued under the lease agreements
from the date of acquisition of each hotel property. Contingent lease expense is
accrued based on the probability of the future revenue target being achieved, in
accordance with Emerging Issues Task Force ("EITF") 98-9.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
(A) Exhibits
2.1 Agreement and Plan of Merger dated June 11, 1999 between the Company and
Supertel Hospitality, Inc. (incorporated by reference to the Company's Current
Report on Form 8-K filed on June 14, 1999).
3.1 Second Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to the Company's Quarterly Report on Form 10-Q/A
filed on December 10, 1999).
3.2 Third Amended and Restated Bylaws of the Registrant (incorporated by
reference to the Company's Quarterly Report on Form 10-Q/A filed on December 10,
1999).
10.1 Declaration of Trust of Humphrey Hospitality REIT Trust (incorporated by
reference to the Company's Registration Statement on Form S-11 (Registration No.
333-48583)).
10.2 Bylaws of Humphrey Hospitality REIT Trust (incorporated by reference to the
Company's Registration Statement on Form S-11 (Registration No. 333-48583)).
10.3 Declaration of Trust of E&P REIT Trust.
10.4 Bylaws of E&P REIT Trust.
18
<PAGE>
10.5 Second Amended and Restated Agreement of Limited Partnership of Humphrey
Hospitality Limited Partnership (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.6 Second Amended and Restated Agreement of Limited Partnership of Solomons
Beacon Inn Limited Partnership (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 33-93346)).
10.7 Agreement of Limited Partnership of E&P Financing Limited Partnership.
10.8 Agreement of Purchase and Sale dated March 26, 1997, between 344 Associates
Limited Partnership and Humphrey Hospitality Limited Partnership for the Comfort
Inn-Gettysburg, Pennsylvania (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-11 (Registration No. 333-48583)).
10.9 Agreement of Purchase and Sale dated March 26, 1997, between 144 Associated
Limited Partnership and Humphrey Hospitality Limited Partnership for the Holiday
Inn Express-Gettysburg, Pennsylvania (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.10 Purchase Agreement dated March 26, 1997, between 644 Associates Limited
Partnership and Humphrey Hospitality Limited Partnership for the Holiday Inn
Express - Allentown, Pennsylvania (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.11 Purchase Agreement, dated March 26, 1997, between 544 Associates Limited
Partnership and Humphrey Hospitality Limited Partnership for the Comfort
Inn-Chambersburg, Pennsylvania Hotel (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.12 Option Agreement (incorporated by reference to the Company's Registration
Statement on Form S-11 (Registration No. 33-83658)).
10.13 Non-Competition Agreement (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 33-83658)).
10.14 Services Agreement dated as of January 1, 1996 between the Company and
Humphrey Hospitality Management, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11 (Registration No. 333-15897)).
10.15 First Amendment to Services Agreement, dated as of October 1, 1996,
between the Company and Humphrey Hospitality Management, Inc. (incorporated by
reference to the Company's Registration Statement on Form S-11 (Registration No.
333-15897)).
10.16 Second Amendment to Services Agreement, dated as of October 26, 1999,
between the Company and Humphrey Hospitality Management, Inc.
10.17 Development Services Agreement, dated as of April 4, 1996, between
Humphrey Hospitality Limited Partnership and Humphrey Development (incorporated
by reference to the Company's Registration Statement on Form S-11 (Registration
No. 333-15897)).
10.18 First Amendment to Development Services Agreement dated November 6, 1996
between the Partnership and Humphrey Development (incorporated by reference to
the Company's Registration Statement on Form S-11 (Registration No. 333-15897)).
10.19 Agreement of Purchase and Sale dated May 31, 1998 between Allen
Investments, Inc. and Humphrey Hospitality Limited Partnership for the Best
Western - Ellenton, FL, the Shoney's Inn, Ellenton, FL and the Hampton Inn,
Brandon, FL (incorporated by reference to the Company's Current Report on Form
8-K/A filed August 6, 1998).
19
<PAGE>
10.20 Revolving Credit and Guaranty Agreement dated August 18,1998 among the
Company, Humphrey Hospitality Limited Partnership, Humphrey Hospitality REIT
Trust and Solomons Beacon Limited Partnership and BankBoston, N.A. and other
banks that may become parties to the agreement (incorporated by reference to the
Company's Quarterly Report on Form 10-K405 filed on March 31, 1999).
10.21 First Amendment to BankBoston Revolving Credit and Guaranty Agreement
dated November 30, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K405 filed on March 31, 1999).
10.22 Right of First Opportunity Agreement dated June 10, 1999, between the
Company, Humphrey Hospitality Limited Partnership and Humphrey Hospitality
Management, Inc. (incorporated by reference to the Company's Quarterly Report on
Form 10-Q filed on August 5, 1999).
10.23 Non-Competition Agreement between the Company, Humphrey Hospitality
Limited Partnership, Humphrey Hospitality REIT Trust and Steve H. Borgmann.
10.24 Non-Competition Agreement between the Company, Humphrey Hospitality
Limited Partnership and Humphrey Hospitality REIT Trust and Paul J. Schulte.
10.25 Loan Agreement between Mercantile Bank National Association and Supertel
Hospitality, Inc.
10.26 Loan Agreement between Supertel Hospitality, Inc. and U.S. Bank National
Association
10.27 Loan Agreement between E&P Financing Limited Partnership and U.S. Bank
National Association
10.28 Loan Agreement between Supertel Hospitality, Inc. and U.S. Bank National
Association
10.29 Loan Agreement between Marquette Capital Bank, N.A. and Bremer Bank,
National Association and Supertel Hospitality, Inc.
10.30 Loan Agreement between First National Bank of Omaha, N.A. and Supertel
Hospitality, Inc. (to be filed by Amendment)
27.1 Financial Data Schedule
B. Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUMPHREY HOSPITALITY TRUST, INC.
By: /s/ PAUL J. SCHULTE
----------------------------------
PAUL J. SCHULTE
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
DATED this 15th day of May, 2000.
20
<PAGE>
EXHIBIT 10.3
E & P REIT TRUST
DECLARATION OF TRUST
--------------------
Dated as of September ____, 1999
THIS DECLARATION OF TRUST is made as of the date set forth above by the
undersigned Trustee.
ARTICLE I
FORMATION
This Trust is a Maryland real estate investment trust within the meaning of
Title 8 (as defined herein). The Trust shall not be deemed to be a real estate
investment trust for purposes of the Code, a general partnership, limited
partnership, limited liability company, joint venture, joint stock company or a
corporation (but nothing herein shall preclude the Trust from being treated for
tax purposes as an association under the Code).
ARTICLE II
THE TRUST; DEFINITIONS
SECTION 2.1 Name. The name of the trust (hereinafter called the "Trust")
----
is:
E & P REIT Trust
SECTION 2.2 Resident Agent. The name and address of the resident agent of
--------------
the Trust in the State of Maryland is:
David E. Raderman, Esquire
Gallagher, Evelius & Jones
218 North Charles Street
Suite 400
Baltimore, Maryland 21201
This Trust may have such offices or places of business within or without
the State of Maryland as the Trustees may from time to time determine.
SECTION 2.3 Nature of Trust. The Trust is a real estate investment trust
---------------
within the meaning of Title 8.
<PAGE>
SECTION 2.4 Powers. The Trust shall have all of the powers granted to
------
real estate investment trusts generally by Title 8 and shall have any other and
further powers as are not inconsistent with and are appropriate to promote and
attain the purpose set forth in this Declaration of Trust.
SECTION 2.5 Definitions. As used in this Declaration of Trust, the
-----------
following terms shall have the following meanings unless the context otherwise
requires:
"Affiliate" or "Affiliated" means, as to any corporation, partnership,
--------- ----------
limited liability company, trust or other association (other than the Trust),
any Person (i) that holds beneficially, directly or indirectly, 5% or more of
the outstanding stock or equity interests thereof or (ii) who is an officer,
director, partner, member or trustee thereof or of any Person which controls, is
controlled by, or under common control with, such corporation, partnership,
limited liability company, trust or other association or (iii) which controls,
is controlled by, or under common control with, such corporation, partnership,
limited liability company, trust or other association.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Person" means an individual, corporation, partnership, limited liability
------
company, estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity, or any government and agency or
political subdivision thereof, and also includes a group as that term is used
for the purposes of Section 13(d)(3) of the Securities Exchange Act of 1934 as
amended.
"Securities" means Shares (as hereinafter defined), any stock, shares or
----------
other evidences of equity of beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"Securities of the Trust" means any Securities issued by the Trust.
-----------------------
"Shareholders" means holders of record of outstanding Shares.
------------
"Shares" means transferable shares of beneficial interest of the Trust of
------
any class or series.
"Title 8" means Title 8 of the Corporations and Associations Article of the
-------
Annotated Code of Maryland, as amended, or any successor statute.
2
<PAGE>
"Trust Property" means any and all property, real, personal or otherwise,
--------------
tangible or intangible, which is transferred or conveyed to the Trust or the
Trustees (including all rents, income, profits and gains therefrom), which is
owned or held by, or for the account of, the Trust or the Trustees.
"Trustee" means the individual named in Section 3.2 of this Declaration of
-------
Trust so long as he continues in office and all other individuals who hereafter
are duly elected and qualify as trustees of the Trust hereunder.
ARTICLE III
TRUSTEES
SECTION 3.1 Number. The Trust shall have a Board of Trustees consisting
------
of not less than one (1) nor more than nine (9) members, unless otherwise
determined from time to time by resolution adopted by the affirmative vote of at
least eighty percent (80%) of the members of the Board of Trustees.
SECTION 3.2 Initial Trustee. The name and address of the initial Trustee
---------------
who shall serve until the earlier of the first annual meeting or until his
successors are duly elected and qualifies is:
Paul J. Schulte
309 North 5/th/ Street
P. O. Box 144
Norfolk, Nebraska 68702
SECTION 3.3 Term. The Trustees shall be elected at each annual meeting of
----
shareholders and shall serve until the next annual meeting of shareholders and
until their successors are duly elected and qualify.
SECTION 3.4 Removal. A Trustee may be removed, at any time, at a meeting
-------
of the Shareholders called for that purpose, by the affirmative vote of the
holders of not less than a majority of the Shares then outstanding and entitled
to vote generally in the election of Trustees.
ARTICLE IV
POWERS OF TRUSTEES
Subject to the express limitations herein or in the Bylaws, (i) the
business and affairs of the Trust shall be managed under the direction of the
Board of Trustees and (ii) the Trustees shall have full, exclusive and absolute
power, control and authority over the Trust Property and over the business of
the Trust as if they, in their own rights, were the sole owners thereof. The
Trustees may take any actions as in their sole judgment and discretion are
necessary or desirable to conduct the business of the Trust. This Declaration of
Trust shall be construed with a presumption in favor of the grant of power and
authority to the Trustees. Any construction of this Declaration of Trust or
determination made in good faith by the Trustees concerning their powers and
authority hereunder shall be conclusive. The
3
<PAGE>
enumeration and definition of particular powers of the Trustees included in this
Article IV shall in no way be limited or restricted by reference to or inference
from the terms of this or any other provision of this Declaration of Trust or
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Trustees under the general laws of the State of
Maryland as now or hereafter in force.
ARTICLE V
SHARES
The beneficial interest in the Trust shall be divided into shares of
beneficial interest. The Trust has authority to issue 1,000 common shares of
beneficial interest, $.01 par value per share, and such other Securities of the
Trust as the Trustees may create and authorize from time to time and designate
as representing a beneficial interest in the Trust. The Board of Trustees may
classify or reclassify any unissued shares from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the shares.
ARTICLE VI
SHAREHOLDERS
There shall be an annual meeting of the Shareholders, to be held after
delivery of the annual report and on proper notice to the Shareholders, at such
time and place as shall be provided in the Bylaws.
ARTICLE VII
AMENDMENT
This Declaration of Trust may be amended only by the affirmative vote of
the holders of not less than a majority of the Shares then outstanding and
entitled to vote on the matter and otherwise in accordance with Section 8-501 of
Title 8.
ARTICLE VIII
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8.
4
<PAGE>
ARTICLE IX
LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
SECTION 9.1 Limitation of Shareholder Liability. No Shareholder shall be
-----------------------------------
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Trust Property or
the affairs of the Trust.
SECTION 9.2 Limitation of Trustee and Officer Liability. To the maximum
-------------------------------------------
extent that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a trust, no Trustee or officer of the
Trust shall be liable to the Trust or to any Shareholder for money damages.
Neither the amendment nor repeal of this Section, nor the adoption or amendment
of any other provision of this Declaration of Trust inconsistent with this
Section, shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption. In the absence of any Maryland
statute limiting the liability of trustees and officers of a Maryland trust for
money damages in a suit by or on behalf of the Trust or by any Shareholder, no
Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholder for money damages except to the extent that (i) the Trustee or
officer actually received an improper benefit or profit in money, property, or
services, for the amount of the benefit or profit in money, property, or
services actually received; or (ii) a judgment or other final adjudication
adverse to the Trustee or officer is entered in a proceeding based on a finding
in the proceeding that the Trustee's or officer's action or failure to act was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
SECTION 9.3 Express Exculpatory Clauses in Instruments. Neither the
------------------------------------------
Shareholders nor the Trustees, officers, employees or agents of the Trust shall
be liable under any written instrument creating an obligation of the Trust, and
all Persons shall look solely to the Trust Property for the payment of any claim
under or for the performance of that instrument. The omission of the foregoing
exculpatory language from any instrument shall not affect the validity or
enforceability of such instrument and shall not render any Shareholder, Trustee,
officer, employee or agent liable thereunder to any third party, nor shall the
Trustees or any officer, employee or agent of the Trust be liable to anyone for
such omission.
SECTION 9.4 Indemnification. To the extent provided in its Bylaws, the
---------------
Trust shall have the power to indemnify, and to pay or reimburse reasonable
expenses to, as such expenses are incurred by, each Shareholder, Trustee,
officer, employee or agent (including any person who, while a Trustee of the
Trust, is or was serving at the request of the Trust as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, limited liability company, joint venture, trust, other enterprise
or employee benefit plan) from all claims and liabilities to which such person
may become subject by reason of his being or having been a Shareholder, Trustee,
officer, employee or agent.
5
<PAGE>
SECTION 9.5 Transactions Between the Trust and its Trustees, Officers,
----------------------------------------------------------
Employees and Agents. Subject to any express restrictions in this Declaration
- --------------------
of Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust
may enter into any contract or transaction of any kind (including, without
limitation, for the purchase or sale of property or for any type of services,
including those in connection with underwriting or the offer or sale of
Securities of the Trust) with any Person, including any Trustee, officer,
employee or agent of the Trust or any Person affiliated with a Trustee, officer,
employee or agent of the Trust, whether or not any of them has a financial
interest in such transaction.
ARTICLE X
MISCELLANEOUS
This Declaration of Trust is executed by the Trustee and delivered under
the laws of the State of Maryland, and the rights of all parties and the
validity, construction and effect of every provision hereof shall be subject to
and construed according to the laws of the State of Maryland without regard to
conflicts of laws provisions thereof.
IN WITNESS WHEREOF, this Declaration of Trust has been executed on this ___
day of September, 1999, by the undersigned Trustee, who acknowledges that this
document is his/her act, that to the best of his/her knowledge, information, and
belief, the matters and facts set forth herein are true in all material respects
and that this statement is made under the penalties for perjury.
___________________________________
Paul J. Schulte
STATE OF NEBRASKA
CITY/COUNTY OF ______________
On this ____ day of September, 1999, before me personally appeared Paul J.
Schulte, known to me to be the person whose name is subscribed to the within
instrument, and acknowledged that he/she executed the same for the purposes
therein contained.
In witness whereof, I hereunto set my hand and official seal.
[SEAL]
_______________________________
Notary Public
My commission expires: ____________________
6
<PAGE>
Exhibit 10.4
E & P REIT TRUST
BYLAWS
------
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
----------------
located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at
------------------
such places as the Trustees may from time to time determine or the business of
the Trust may require.
Section 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of the
------------------------
Trust shall begin on January 1 and end on December 31.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
-----
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for the
--------------
election of Trustees and the transaction of any business within the powers of
the Trust shall be held immediately following the annual board of directors
meeting of Supertel Hospitality, Inc. or any successor corporation. Failure to
hold an annual meeting does not invalidate the Trust's existence or affect any
otherwise valid acts of the Trust.
Section 3. SPECIAL MEETINGS. The chairman of the board or the president or
----------------
one-third of the Trustees may call special meetings of the shareholders. Special
meetings of shareholders shall also be called by the secretary upon the written
request of the holders of shares entitled to cast not less than 25% of all the
votes entitled to be cast at such meeting. Such request shall state the purpose
of such meeting and the matters proposed to be acted on at such meeting. The
secretary shall inform such shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment by such
shareholders to the Trust of such costs, the secretary shall give notice to each
shareholder entitled to notice of the meeting. Unless requested by shareholders
entitled to cast a majority of all the votes entitled to be cast at such
meeting, a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any meeting of the shareholders
held during the preceding twelve months.
<PAGE>
Section 4. NOTICE. Not less than ten nor more than 90 days before each
------
meeting of shareholders, the secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such shareholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
shareholder at his post office address as it appears on the records of the
Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be transacted at
---------------
an annual meeting of shareholders without being specifically designated in the
notice, except such business as is required by any statute to be stated in such
notice. No business shall be transacted at a special meeting of shareholders
except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders, the Chairman
------------
of the Board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the Chairman of the Board, one of the following
officers present shall conduct the meeting in the order stated: the Vice
Chairman of the Board, if there be one, the President, the Vice Presidents in
their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in his absence, an assistant secretary, or in the absence of both
the Secretary and assistant secretaries, a person appointed by the Chairman
shall act as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the presence in person
------
or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this Section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such quorum
shall not be present at any meeting of the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have the
power to adjourn the meeting from time to time to a date not more than 120 days
after the original record date without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
------
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share may be voted for as many individuals as there are
Trustees to be elected and for whose election the share is entitled to be voted.
A majority of the votes cast at a meeting of shareholders duly called and at
which a quorum is present shall be sufficient to approve any other matter which
may properly come before the meeting, unless more than a majority of the votes
cast is required herein or by statute or by the Declaration of Trust. Unless
otherwise provided in the Declaration, each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders.
Section 9. PROXIES. A shareholder may vote the shares owned of record by
-------
him, either in person or by proxy executed in writing by the shareholder or by
his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Trust before or at the time of the meeting. No proxy
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shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
-----------------------------------
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a shareholder may
certify in writing to the Trust that any shares registered in the name of the
shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Trustees consider necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the Declaration
of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
beneficial interest of the Trust. This Section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares and,
upon such repeal, may, to the extent provided by any successor bylaw, apply to
any prior or subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of shareholders, the chairman of the
----------
meeting may, or upon the request of any shareholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the
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number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
----- -----
Section 12. REPORTS TO SHAREHOLDERS.
-----------------------
(a) Not later than 90 days after the close of each fiscal year of the
Trust, the Trustees shall deliver or cause to be delivered a report of the
business and operations of the Trust during such fiscal year to the
shareholders, containing a balance sheet and a statement of income and surplus
of the Trust, accompanied by the certification of an independent certified
public accountant, and such further information as the Trustees may determine is
required pursuant to any law or regulation to which the Trust is subject. A
signed copy of the annual report and the accountant's certificate shall be filed
by the Trustees with the State Department of Assessments and Taxation of
Maryland, and with such other governmental agencies as may be required by law
and as the Trustees may deem appropriate.
(b) Not later than 45 days after the end of each of the first three
quarterly periods of each fiscal year, the Trustees shall deliver or cause to be
delivered an interim report to the shareholders containing unaudited financial
statements for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, and such further information as the Trustees
may determine is required pursuant to any law or regulation to which the Trust
is subject.
Section 13. NOMINATIONS AND SHAREHOLDER BUSINESS.
------------------------------------
(a) Annual Meetings of Shareholders. Nominations of persons for election
-------------------------------
to the Board of Trustees and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (i) pursuant to
the Trust's notice of meeting, (ii) by or at the direction of the Trustees or
(iii) by any shareholder of the Trust who was a shareholder of record at the
time of giving of notice and who is entitled to vote at the meeting.
(b) Special Meetings of Shareholders. Only such business shall be
--------------------------------
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record at the time of giving of notice and who is entitled to
vote at the meeting.
(c) General. Only such persons who are nominated in accordance with the
-------
procedures set forth in this Section 13 shall be eligible to serve as Trustees
and only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 13. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 13 and, if any proposed nomination or business is not in
compliance with this Section 13, to declare that such defective nomination or
proposal be disregarded.
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Section 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
-------------------------------
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled to
notice of a meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.
Section 15. VOTING BY BALLOT. Voting on any question or in any election may
----------------
be viva voce unless the presiding officer shall order or any shareholder shall
---------
demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The
-----------------------------------------------------
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age who
is not under legal disability. Unless otherwise agreed between the Trust and the
Trustee, each individual Trustee, may engage in other business activities of the
type conducted by the Trust and is not required to present to the Trust any
investment opportunities presented to them even though the investment
opportunities may be within the scope of the Trust's investment policies. In
case of failure to elect Trustees at an annual meeting of the shareholders, the
Trustees holding over shall continue to direct the management of the business
and affairs of the Trust until their successors are elected and qualify.
Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Trustees
---------------------------
shall be held immediately after and at the same place as the annual meeting of
shareholders, no notice other than this Bylaw being necessary. The Trustees may
provide, by resolution, the time and place, either within or without the State
of Maryland, for the holding of regular meetings of the Trustees without other
notice than such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may be
----------------
called by or at the request of the chairman of the board or the president or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
Section 4. NOTICE. Notice of any special meeting shall be given by written
------
notice delivered personally, telegraphed, faxed or mailed to each Trustee at his
business or residence address. Personally delivered, faxed or telegraphed
notices shall be given at least two days prior to the meeting. Notice by mail
shall be given at least five days prior to the meeting. Telephone notice shall
be given at least 24 hours prior to the meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail properly addressed,
with postage thereon prepaid. If given by telegram or fax, such notice shall be
deemed to be given when the telegram is delivered to the telegraph company or
when the fax is sent with confirmation. Telephone notice shall be deemed given
when the Trustee is personally given such notice in a telephone call to which he
is a party. Neither the business to be
5
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transacted at, nor the purpose of, any annual, regular or special meeting of the
Trustees need be stated in the notice, unless specifically required by statute
or these Bylaws.
Section 5. QUORUM. A majority of the entire Board of Trustees shall
------
constitute a quorum for transaction of business at any meeting of the Trustees,
provided that, if less than a majority of such Trustees are present at said
meeting, a majority of the Trustees present may adjourn the meeting from time to
time without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a majority
of such group.
The Trustees present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Trustees to leave less than a quorum.
Section 6. VOTING. The action of the majority of the Trustees present at a
------
meeting at which a quorum is present shall be the action of the Trustees, unless
the concurrence of a greater proportion is required for such action by
applicable statute.
Section 7. TELEPHONE MEETINGS. Trustees may participate in a meeting by
------------------
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or permitted
---------------------------
to be taken at any meeting of the Trustees may be taken without a meeting, if a
consent in writing to such action is signed by each Trustee and such written
consent is filed with the minutes of proceedings of the Trustees.
Section 9. VACANCIES. If for any reason any or all the Trustees cease to
---------
be Trustees, such event shall not terminate the Trust or affect these Bylaws or
the powers of the remaining Trustees hereunder (even if fewer than two Trustees
remain). Any vacancy (including a vacancy created by an increase in the number
of Trustees) shall be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the Trustees. Any individual so
elected as Trustee shall hold office for the unexpired term of the Trustee he is
replacing.
Section 10. COMPENSATION. Trustees shall not receive any stated salary for
------------
their services as Trustees. Trustees may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the Trustees
or of any committee thereof; and for their expenses, if any, in connection with
each property visit and any other service or activity performed or engaged in as
Trustees; but nothing herein contained shall be construed to preclude any
Trustees from serving the Trust in any other capacity and receiving compensation
therefor.
Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time, remove
-------------------
any Trustee in the manner provided in the Declaration of Trust.
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Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any loss which
----------------
may occur by reason of the failure of the bank, trust company, savings and loan
association, or other institution with whom moneys or shares have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no Trustee shall be
------------
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each Trustee, officer, employee and agent of the
--------
Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. NUMBER AND QUALIFICATIONS. The number of Trustees of the Trust
-------------------------
shall not be less than one (1) nor more than nine (9). The Trustees shall be
classified, with respect to the terms for which they severally hold office, into
separate classes, if and in the manner prescribed in the Trust's Declaration of
Trust. At any regular meeting or at any special meeting called for that purpose,
at least 80% of the members of the Board of Trustees shall establish, increase
or decrease the number of Trustees, provided that the number thereof shall never
be less than required by Maryland law and further provided that the tenure of
office of a Trustee shall not be affected by any decrease in the number of
Trustees. Trustees need not be shareholders of the Trust.
Section 16. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the Maryland
-------------------------------
General Corporation Law (the "MGCL") shall be available for and apply to any
contract or other transaction between the Trust and any of its Trustees or
between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Trustees may
---------------------------------
appoint from among its members an Executive Committee and other committees
comprised of two or more Trustees. The Board of Trustees may delegate to any
committee any of the powers of the Board of Trustees except the power to elect
Trustees, declare dividends or distributions on stock, recommend to the
shareholders any action which requires shareholder approval, amend or repeal
these Bylaws, approve any merger or share exchange which does not require
shareholder approval, or issue stock. However, if the Board of Trustees has
given general authorization for the issuance of stock, a committee of the Board
of Trustees, in accordance with a general formula or method specified by the
Board of Trustees by resolution or by adoption of a stock option plan, may fix
the terms of stock, subject to classification or reclassification, and the terms
on which any stock may be issued.
Notice of committee meetings shall be given in the same manner as notice
for special meetings of the Board of Trustees.
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One-third, but not less than two, of the members of any committee shall be
present in person at any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting, and the act of a
majority present shall be the act of such committee. The Board of Trustees may
designate a chairman of any committee, and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of such absent or disqualified
members.
Each committee shall keep minutes of its proceedings and shall report the
same to the Board of Trustees at the meeting next succeeding, and any action by
the committees shall be subject to revision and alteration by the Board of
Trustees, provided that no rights of third persons shall be affected by any such
revision or alteration.
Subject to the provisions hereof, the Board of Trustees shall have the
power at any time to change the membership of any committee, to fill all
vacancies, to designate alternative members to replace any absent or
disqualified member, or to dissolve any such committee.
Section 2. POWERS. The Trustees may delegate to committees appointed under
------
Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
Section 3. MEETINGS. In the absence of any member of any such committee,
--------
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint another Trustee to act in the place of such absent member.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Trustees may
------------------
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted
-----------------------------
to be taken at any meeting of a committee of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each member of the
committee and such written consent is filed with the minutes of proceedings of
such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may consist of a
------------------
chairman of the board, a vice chairman of the board, a chief executive officer,
a president, one or more vice presidents, a treasurer, one or more assistant
treasurers, a secretary, and one or more assistant secretaries. In addition, the
Trustees may from time to time appoint such other officers with such powers and
duties as they shall deem necessary or desirable. The officers of the Trust
shall be elected
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annually by the Trustees at the first meeting of the Trustees held after each
annual meeting of shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualifies or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except president and vice president may be
held by the same person. In their discretion, the Trustees may leave unfilled
any office except that of president and secretary. Election of an officer or
agent shall not of itself create contract rights between the Trust and such
officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust may
-----------------------
be removed by the Trustees if in their judgment the best interests of the Trust
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Any officer of the Trust may
resign at any time by giving written notice of his resignation to the Trustees,
the chairman of the board, the president or the secretary. Any resignation shall
take effect at any time subsequent to the time specified therein or, if the time
when it shall become effective is not specified therein, immediately upon its
receipt. The acceptance of a resignation shall not be necessary to make it
effective unless otherwise stated in the resignation. Such resignation shall be
without prejudice to the contract rights, if any, of the Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by the Trustees
---------
for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a chief
-----------------------
executive officer from among the elected officers. The chief executive officer
shall have responsibility for implementation of the policies of the Trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of both the chairman and vice chairman of the
board, the chief executive officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
Section 5. CHIEF OPERATING OFFICER. The Trustees may designate a chief
-----------------------
operating officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a chief
-----------------------
financial officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of the
---------------------------------------
board shall preside over the meetings of the Trustees and of the shareholders at
which he shall be present and shall in general oversee all of the business and
affairs of the Trust. In the absence of the chairman of the board, the vice
chairman of the board shall preside at such meetings at which he shall be
present. The chairman and the vice chairman of the board may execute any deed,
mortgage, bond, contract or other instrument, except in cases where the
execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed. The chairman of the board and the vice chairman of the
board shall perform such other duties as may be assigned to him or them by the
Trustees.
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Section 8. PRESIDENT. In the absence of the chairman, the vice chairman of
---------
the board and the chief executive officer, the president shall preside over the
meetings of the Trustees and of the shareholders at which he shall be present.
In the absence of a designation of a chief executive officer by the Trustees,
the president shall be the chief executive officer and shall be ex officio a
member of all committees that may, from time to time, be constituted by the
Trustees. The president may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Trustees or by these Bylaws to some other officer or agent of
the Trust or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the Trustees from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
---------------
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Trustees. The Trustees may designate
one or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
---------
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the trust records and of the seal of the Trust; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the secretary by such shareholder; (e) have general charge of the share
transfer books of the Trust; and (f) in general perform such other duties as
from time to time may be assigned to him by the chief executive officer, the
president or by the Trustees.
Section 11. TREASURER. The treasurer shall have the custody of the funds
---------
and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
He shall disburse the funds of the Trust as may be ordered by the Trustees,
taking proper vouchers for such disbursements, and shall render to the president
and Trustees, at the regular meetings of the Trustees or whenever they may
require it, an account of all his transactions as treasurer and of the financial
condition of the Trust.
If required by the Trustees, he shall give the Trust a bond in such sum and
with such surety or sureties as shall be satisfactory to the Trustees for the
faithful performance of the duties of his office and for the restoration to the
Trust, in case of his death, resignation, retirement or removal from office, of
all books, papers, vouchers, moneys and other property of whatever kind in his
possession or under his control belonging to the Trust.
10
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Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
----------------------------------------------
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or treasurer, respectively, or by the
president or the Trustees. The assistant treasurers shall, if required by the
Trustees, give bonds for the faithful performance of their duties in such sums
and with such surety or sureties as shall be satisfactory to the Trustees.
Section 13. SALARIES. The salaries of the officers shall be fixed from
--------
time to time by the Trustees and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or agent to
---------
enter into any contract or to execute and deliver any instrument in the name of
and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
-----------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Trust shall be signed by such officer or officers, agent or agents of the
Trust in such manner as shall from time to time be determined by the Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed shall
--------
be deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Trustees may designate.
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ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the chief executive officer, the president or a
vice president and countersigned by the secretary or an assistant secretary or
the treasurer or an assistant treasurer and may be sealed with the seal, if any,
of the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the Trust,
shall have a statement of such restriction, limitation, preference or redemption
provision, or a summary thereof, plainly stated on the certificate. In lieu of
such statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable, and
---------
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a Maryland stock corporation. No
transfers of shares of the Trust shall be made if (i) void ab initio pursuant to
-- ------
any provision of the Declaration of Trust or (ii) the Board of Trustees,
pursuant to any provision of the Declaration of Trust, shall have refused to
permit the transfer of such shares. Permitted transfers of shares of the Trust
shall be made on the share records of the Trust only upon the instruction of the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and upon surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
share transfer power and the payment of all taxes thereon. Upon surrender to the
Trust or the transfer agent of the Trust of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, as to any transfers not prohibited by any provision of
the Declaration of Trust or by action of the Board of Trustees thereunder, it
shall be the duty of the Trust to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Trustees
-----------------------
may direct a new certificate to be issued in place of any certificate previously
issued by the Trust alleged to have been lost, stolen or destroyed upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, stolen or destroyed. When authorizing the issuance of a new certificate,
the officer designated by the Trustees may, in his discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or the owner's legal representative to advertise the same
in such manner as he shall require and/or to give bond, with sufficient surety,
to the Trust to indemnify it against any loss or claim which may arise as a
result of the issuance of a new certificate.
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Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
--------------------------------------------------
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other purpose. Such date, in any case, shall not be prior
to the close of business on the day the record date is fixed and shall be not
more than 90 days and, in the case of a meeting of shareholders not less than
ten days, before the date on which the meeting or particular action requiring
such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed for
the determination of shareholders, (a) the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of shareholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the Trustees, declaring
the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Trust shall maintain at its principal office
------------
or at the office of its counsel, accountants or transfer agent, an original or
duplicate share ledger containing the name and address of each shareholder and
the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may issue
------------------------------------
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
13
<PAGE>
ARTICLE VIII
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
-------------
shares of the Trust may be authorized and declared by the Trustees, subject to
the provisions of law and the Declaration of Trust. Dividends may be paid in
cash, property or shares of the Trust, subject to the provisions of law and the
Declaration of Trust.
ARTICLE IX
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal by the
----
Trust. The seal shall have inscribed thereon the name of the Trust and the year
of its formation. The Trustees may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is required to place its seal
-------------
to a document, it shall be sufficient to meet the requirements of any law, rule
or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Trust.
ARTICLE X
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall indemnify (a) any Trustee, officer or
shareholder or any former Trustee, officer or shareholder (including among the
foregoing, for all purposes of this Article X and without limitation, any
individual who, while a Trustee, officer or shareholder and at the express
request of the Trust, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, shareholder, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of service in such capacity,
against reasonable expenses incurred by him in connection with the proceeding,
(b) any Trustee or officer or any former Trustee or officer against any claim or
liability to which he may become subject by reason of such status unless it is
established that (i) his act or omission was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) he actually received an improper personal benefit in
money, property or services or (iii) in the case of a criminal proceeding, he
had reasonable cause to believe that his act or omission was unlawful and (c)
each shareholder or former shareholder against any claim or liability to which
he may become subject by reason of such status. In addition, the Trust shall pay
or reimburse, in
14
<PAGE>
advance of final disposition of a proceeding, reasonable expenses incurred by a
Trustee, officer or shareholder or former Trustee, officer or shareholder made a
party to a proceeding by reason such status, provided that, in the case of a
Trustee or officer, the Trust shall have received (i) a written affirmation by
the Trustee or officer of his good faith belief that he has met the applicable
standard of conduct necessary for indemnification by the Trust as authorized by
these Bylaws and (ii) a written undertaking by or on its behalf to repay the
amount paid or reimbursed by the Trust if it shall ultimately be determined that
the applicable standard of conduct was not met. The Trust may, with the approval
of its Trustees, provide such indemnification or payment or reimbursement of
expenses to any Trustee, officer or shareholder or any former Trustee, officer
or shareholder who served a predecessor of the Trust and to any employee or
agent of the Trust or a predecessor of the Trust. Neither the amendment nor
repeal of this Article, nor the adoption or amendment of any other provision of
the Declaration of Trust or these Bylaws inconsistent with this Article, shall
apply to or affect in any respect the applicability of this Article with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
Any indemnification or payment or reimbursement of the expenses permitted
by these Bylaws shall be furnished in accordance with the procedures provided
for indemnification or payment or reimbursement of expenses, as the case may be,
under Section 2-418 of the MGCL for directors of Maryland corporations. The
Trust may provide to Trustees, officers and shareholders such other and further
indemnification or payment or reimbursement of expenses, as the case may be, to
the fullest extent permitted by the MGCL, as in effect from time to time, for
directors of Maryland corporations.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Declaration of
Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any meeting
need be set forth in the waiver of notice, unless specifically required by
statute. The attendance of any person at any meeting shall constitute a waiver
of notice of such meeting, except where such person attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
ARTICLE XII
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws.
15
<PAGE>
ARTICLE XIII
MISCELLANEOUS
All references to the Declaration of Trust shall include any amendments
thereto.
16
<PAGE>
EXHIBIT 10.7
LIMITED PARTNERSHIP AGREEMENT
OF
E & P FINANCING LIMITED PARTNERSHIP
THIS LIMITED PARTNERSHIP AGREEMENT (this "Agreement") of E & P FINANCING
LIMITED PARTNERSHIP (the "Partnership"), is made and entered into as of the
_____ day of ____________, 1999, by and between E & P REIT TRUST, a Maryland
real estate investment trust, (the "General Partner"), and Supertel Hospitality,
Inc., a Delaware corporation, (the "Limited Partner") (collectively, the
"Partners" and individually, a "Partner").
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements between the parties hereto, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I
FORMATION OF PARTNERSHIP
------------------------
1.1 Name. The name of the Partnership shall be E & P Financing
----
Limited Partnership.
1.2 Term. The Partnership shall continue until December 31, 2050,
----
unless sooner terminated as hereinafter provided or by operation of law.
1.3 Purpose. The purpose and nature of the business to be conducted
-------
by the Partnership is to own, operate, lease, or otherwise deal solely with the
Partnership Property. The Limited Partner and the General Partner shall also be
empowered to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly traded partnership" for
the purposes of Section 7704(a) of the Code.
1.4 Specified Office. The specified office and place of business of
----------------
the Partnership, and where the records of the Partnership shall be kept, shall
be 12301 Old Columbia Pike, Suite 300, Silver Spring, Maryland 20904.
1.5 Registered Agent. The initial registered agent shall be David E.
----------------
Raderman, Esquire, Gallagher Evelius & Jones, LLP, 218 North Charles Street,
Suite 400, Baltimore, Maryland 21201.
1.6 Defined Terms.
-------------
"Property" or "Properties" means any hotel properties (plus any
personal property incidental thereto) as set forth in Exhibit A hereto.
<PAGE>
ARTICLE II
PERCENTAGE INTERESTS AND CAPITAL CONTRIBUTIONS
----------------------------------------------
2.1 Percentage Interests and Initial Capital Contributions. Each
------------------------------------------------------
Partner's address and percentage interest in the Partnership ("Percentage
Interest") are as follows:
Percentage
Partner Interest
------- --------
Limited Partner: 99%
309 North 5/th/ Street
P.O. Box 1448
Norfolk, Nebraska 68702
General Partner: 1%
309 North 5/th/ Street
P.O. Box 1448
Norfolk, Nebraska 68702
The General Partner's initial contribution to the capital of the
Partnership shall be an undivided interest in one percent (1%) of the
Properties. The Limited Partner's initial contribution to the capital of the
Partnership shall be an undivided interest in ninety-nine percent (99%) of the
Properties.
2.2 Additional Contributions. As and when the Partnership shall
------------------------
require funds to meet the costs and expenses of all business activities with
respect to the Partnership, the General Partner shall contribute to the
Partnership such required funds as may be determined by the General Partner. The
Limited Partner shall have no obligation to contribute any funds pursuant to
this Section 2.2.
ARTICLE III
MANAGEMENT
----------
3.1 Authority of the General Partner; Indemnification. The overall
-------------------------------------------------
management and control of the business and affairs of the Partnership shall be
vested in the General Partner. Except as otherwise provided in this Agreement,
all decisions concerning the management of the business and affairs of the
Partnership and its assets shall be made exclusively by the General Partner, all
in accordance with the objects and purposes of the Partnership set forth in
Section 1.3. The General Partner shall be authorized to execute documents and
take actions on behalf of the Partnership, which shall be binding on the
Partnership and on which third parties shall be entitled to rely. The
Partnership shall indemnify each Partner for any costs and/or expenses incurred
in connection with actions taken in good faith on behalf of the Partnership.
2
<PAGE>
ARTICLE IV
DISTRIBUTIONS
-------------
4.1 Definition of Net Cash Flow. As used herein, the term "Net Cash
---------------------------
Flow" for any period shall mean the excess, if any, of (i) the cash receipts of
the Partnership (other than from a Terminating Capital Transaction (as
hereinafter defined)) and amounts withdrawn from reserves, over (ii)
disbursements of cash by the Partnership (other than distributions to Partners
and amounts paid with receipts from a Terminating Capital Transaction),
including the payment of operating expenses, debt-service on any mortgage or
deed of trust encumbering the Partnership's property, capital expenditures, and
such amounts as may be required by the Partnership (as reasonably determined by
the General Partner) to pay Partnership expenses and to maintain reserves and
working capital.
4.2 Distribution of Net Cash Flow. Net Cash Flow shall be
-----------------------------
distributed on a quarterly basis (or, at the election of the General Partner on
a more frequent basis) among the Partners at such time or times as shall be
determined by the General Partner in accordance with their respective Percentage
Interests.
4.3 Distribution of Proceeds from Terminating Capital Transaction.
-------------------------------------------------------------
(a) Any net proceeds from the sale, exchange or other
disposition of all or substantially all of the assets of the Partnership, in
connection with a dissolution or termination of the Partnership (a "Terminating
Capital Transaction"), shall be distributed to the Partners who have positive
Capital Account balances (as hereinafter defined) in accordance with their
respective positive Capital Account balances. For purposes of the preceding
sentence, the Capital Account of each Partner shall be determined after all
adjustments made in accordance with Article V and Section 4.2 resulting from
Partnership operations and from all sales and dispositions of all or any part of
the Partnership's assets. Any distributions pursuant to this Section 4.3(a)
shall be made by the end of the Partnership's taxable year in which liquidation
occurs (or, if later, within 90 days after the date of the liquidation).
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Article V and
Section 4.2 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be distributed by the
Partnership to creditors, if any, and then to the Limited Partner in accordance
with Section 4.3(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
3
<PAGE>
ARTICLE V
CAPITAL ACCOUNTS; PROFITS AND LOSSES
------------------------------------
5.1 Capital Accounts. The General Partner, on behalf of the
----------------
Partnership, shall establish and maintain, or cause to be established and
maintained, a capital account ("Capital Account") for each Partner in accordance
with the rules described in Treasury Regulation Section 1.704-1(b)(2)(iv).
5.2 Definition of Profit and Loss. "Profit" and "Loss" and any items
-----------------------------
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Treasury Regulations Section 1.704-1(b)(2)(iv), except that Profit
and Loss shall not include items allocable pursuant to Section 5.4, 5.5 or 5.6.
All allocations of income, Profit, gain, Loss, and expense (and all items
contained therein) for federal income tax purposes shall be identical to all
allocations of such items set forth in this Article V, except as otherwise
required by Section 704(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Treasury Regulations Section 1.704-1(b)(4).
5.3 Allocation of Profit and Loss. Except as otherwise provided in
-----------------------------
this Article V, Profit and Loss of the Partnership shall be allocated among the
Partners in accordance with their respective Percentage Interests.
5.4 Minimum Gain Chargeback. Notwithstanding any provision to the
-----------------------
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Treasury Regulations Section 1.704-2(b)(1) shall be
allocated in accordance with the Partners' respective Percentage Interests, (ii)
any expense of the Partnership that is a "partner nonrecourse deduction" within
the meaning of Treasury Regulations Sections 1.704-2(i)(2) shall be allocated in
accordance with Treasury Regulation Sections 1.704-2(i)(1), (iii) if there is a
net decrease in Partnership Minimum Gain (as hereinafter defined) within the
meaning of Treasury Regulations Section 1.704-2(f)(1) for any Partnership
taxable year, items of gain and income shall be allocated among the Partners in
accordance with Treasury Regulations Section 1.704-2(f) and the ordering rules
contained in Treasury Regulations Section 1.704-2(j), and (iv) if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain (as hereinafter defined)
within the meaning of Treasury Regulations Section 1.704-2(i)(4) for any
Partnership taxable year, items of gain and income shall be allocated among the
Partners in accordance with Treasury Regulations Section 1.704-2(i)(4) and the
ordering rules contained in Treasury Regulations Section 1.704-2(j). A Partner's
"interest in partnership profits" for purposes of determining its share of the
nonrecourse liabilities of the Partnership within the meaning of Treasury
Regulations Section 1.752-3(a)(3) shall be such Partner's Percentage Interest,
"Partnership Minimum Gain" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(d). A Partner's share of Partnership Minimum Gain
shall be determined in accordance with Treasury Regulations Section 1.704-
2(g)(1). "Partner Nonrecourse Debt Minimum Gain" shall have the meaning set
forth in Treasury Regulations Section 1.704-2(i). A Partner's share of Partner
Nonrecourse Debt Minimum Gain shall be determined in accordance with Treasury
Regulations Section 1.704-2(i)(5).
5.5 Qualified Income Offset. If the Limited Partner receives in any
-----------------------
taxable year an
4
<PAGE>
adjustment, allocation or distribution described in subparagraphs (4), (5), or
(6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) that causes or
increases a negative balance in such Partner's Capital Account that exceeds the
sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain, as determined in accordance with Treasury Regulations Section
1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such
taxable year (and, if necessary, later taxable years) items of income and gain
in an amount and manner sufficient to eliminate such negative Capital Account
balance as quickly as possible as provided in Treasury Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to
the Limited Partner in accordance with this Section 5.5, to the extent permitted
by Treasury Regulations Section 1.704-1(b) and Section 5.6 hereof, items of
expense or loss shall be allocated to such Partner in an amount necessary to
offset the income or gain previously allocated to such Partner under this
Section 5.5.
5.6 Capital Account Deficits. Loss shall not be allocated to the
------------------------
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect items described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the
sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to
the General Partner. After the occurrence of an allocation of Loss to the
General Partner in accordance with this Section 5.6, to the extent permitted by
Treasury Regulations Section 1.704-1(b), Profit shall be allocated to such
Partner in an amount necessary to offset the Loss previously allocated to such
Partner under this Section 5.6.
ARTICLE VI
TRANSFERS; TERMINATION
----------------------
6.1 Transfers. A Partner may transfer, sell, assign, mortgage, grant
---------
a lien on, give or otherwise dispose of ("Transfer"), all or any part of its
interest in the Partnership ("Partnership Interest") to any person.
6.2 Termination.
-----------
(a) The Partnership shall terminate upon the first to occur of
any of the following events or dates:
(i) in accordance with Section 1.2 above;
(ii) by written agreement of the Partners;
(iii) by the sale or other disposition of all or
substantially all of the assets of the Partnership;
(iv) in the event of the retirement, resignation,
expulsion, bankruptcy, death, insanity, incompetence,
liquidation, termination or legal incapacity of the
General Partner, if hereof;
5
<PAGE>
or
(v) if for any reason there remains only one Partner.
(b) Upon termination of the Partnership under Section 6.2(a),
the Partnership shall discharge the obligations and pay the indebtedness of the
Partnership, or provide therefor, and distribute the balance, if any, of the
assets of the Partnership to the Partners as set forth in Section 4.3. After the
foregoing has been accomplished, it shall be deemed that the Partnership has
been liquidated and this Agreement shall terminate and no Partner shall have any
further rights or obligations hereunder. The liquidation of the Partnership and
the termination of the business and affairs of the Partnership shall be
conducted by the General Partner. During such period, the business and affairs
of the Partnership shall be conducted so as to maintain and preserve the assets
of the Partnership in a manner consistent with the liquidation of the
Partnership.
ARTICLE VII
BOOKS, RECORDS, AND ACCOUNTING
------------------------------
7.1 Fiscal and Taxable Year. The fiscal and taxable year of the
-----------------------
Partnership shall be the calendar year.
7.2 Method of Accounting. The General Partner shall keep, or cause
--------------------
to be kept, full and accurate records of all transactions of the Partnership in
accordance with a method of accounting that is (i) permissible under the Code
and (ii) agreed to by the Partners.
7.3 Books and Records. All books and records of the Partnership
-----------------
shall, at all times be maintained at the principal office of the Partnership or
at such other place as shall be determined by the General Partner.
7.4 Federal Tax Returns. The General Partner shall prepare, or cause
-------------------
to be prepared, at the expense of the Partnership, any federal information tax
return required by the Code, and any required state and local tax returns for
the Partnership for each taxable year of the Partnership.
7.5 Tax Return Information. The General Partner shall cause to be
----------------------
delivered to the Limited Partner such information as shall be necessary for the
preparation by the Limited Partner of its federal, state and local income and
other tax returns.
7.6 Tax Matters Partner. The General Partner shall be the Tax
-------------------
Matters Partner of the Partnership within the meaning of Section 6231 of the
Code. All elections required or permitted to be made by the Partnership under
the Code shall be made by the General Partner in its sole discretion.
6
<PAGE>
ARTICLE VIII
GENERAL
-------
8.1 Other Businesses. The Partners shall have the right to engage in
----------------
other businesses and ventures of any nature which are allowed by their
respective organizational documents, including, without limitation, the
ownership, management, improvement and operation of other real estate and
neither the Partnership nor the other Partners shall have any right in such
independent ventures or to the income or profits derived therefrom.
8.2 Notice. All notices, instructions, requests, demands or other
------
communications that are required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given when delivered by hand or
when deposited in the United States Mail, by registered or certified mail,
return receipt requested, postage prepaid to the addresses set forth in Article
II or at such different address as shall be specified by notice given in the
manner described herein.
8.3 Applicable Law. This Agreement and the obligations of the parties
--------------
hereunder shall be interpreted, construed and enforced in accordance with the
laws of the State of Maryland.
8.4 Entire Agreement; Amendments. This Agreement contains the entire
----------------------------
agreement among the parties hereto relative to the operation of the Partnership.
No variations, modifications or changes in this Agreement shall be binding upon
a party unless set forth in a document duly executed by or on behalf of such
party.
8.5 Waiver. No consent or waiver, expressed or implied, by any party
------
thereto of any breach or default by any other party hereto in the performance of
its obligations hereunder shall be deemed or construed to be a consent or waiver
to or of any other breach or default in the performance by such party of the
same or any other obligations of such party hereunder. Failure on the part of
any party to complain of any act or failure to act of another party or to
declare any other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder.
8.6 Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
8.7 Counterparts. This Agreement may be executed in counterparts and
------------
as so executed shall constitute one Agreement.
8.8 Captions. Captions and headings contained in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provisions hereof.
8.9 Waiver of Partition. Each Partner hereby irrevocably waives any
-------------------
right to partition the Property.
7
<PAGE>
8.10 Attorney Fees. In the event of any litigation between the
-------------
Partners arising out of this Agreement or relating to the Partnership, the
prevailing party shall be entitled to recover from the nonprevailing party its
reasonable attorneys fees and costs at the trial and all appellate levels.
8.11 Binding Effect. Except as otherwise provided in this Agreement,
--------------
every covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective heirs, legatees, legal
representatives and permitted successors, transferees and assigns.
IN WITNESS WHEREOF, this Limited Partnership Agreement is executed as
of date first set forth above.
GENERAL PARTNER:
---------------
E & P REIT TRUST,
a Maryland real estate investment trust
By:_________________________________________
Name: _____________________
Title: President
LIMITED PARTNER:
---------------
SUPERTEL HOSPITALITY, INC., a
Delaware corporation
By:_________________________________________
Name: _____________________
Title: President
8
<PAGE>
EXHIBIT 10.16
------------
SECOND AMENDMENT
TO
SERVICES AGREEMENT
------------------
AGREEMENT is effective as of the Effective Date (as defined in the
Agreement and Plan of Merger by and between Humphrey Hospitality Trust, Inc. and
Supertel Hospitality, Inc.) by and between HUMPHREY HOSPITALITY TRUST, INC., a
Virginia corporation (the "Company") and HUMPHREY HOSPITALITY MANAGEMENT, INC.,
a Maryland corporation (the "Provider").
WHEREAS, the Company is a publicly traded real estate investment trust;
WHEREAS, as a publicly traded company, the Company needs certain accounting
and administrative services to be performed in order to comply with the various
federal and state regulatory requirements;
WHEREAS, the Company desires that the Provider provide certain services
with respect to the Company's accounting and administrative requirements;
WHEREAS, the Company and the Provider wish to amend the amount of the fee
set forth in Section 3 of the Services Agreement originally executed as of
January 1, 1996, and as amended (the "Services Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Section 3 is hereby amended and replaced with the following:
For Services to be performed under this Agreement, the Company
shall pay the Provider a fee in the amount of Three Hundred
Thousand Dollars ($300,000) per year which shall be payable
monthly in installments by the tenth day following the month in
which the services are performed.
2. In all other respects, the Services Agreement remains in full force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
WITNESS: COMPANY:
-------
HUMPHREY HOSPITALITY TRUST, INC.
_____________________________ By:_________________________________________
Name:_____________________________
Title:____________________________
PROVIDER:
--------
HUMPHREY HOSPITALITY MANAGEMENT,
INC.
_____________________________ By:_________________________________________
Name:________________________________
Title:_______________________________
2
<PAGE>
EXHIBIT 10.23
EXCLUSIVE HOTEL DEVELOPMENT AGREEMENT
AND COVENANT NOT TO COMPETE
THIS EXCLUSIVE HOTEL DEVELOPMENT AGREEMENT AND COVENANT NOT TO COMPETE
(this "Agreement") is entered as of October 26, 1999 (the "Effective Date") by
and among (i) HUMPHREY HOSPITALITY LIMITED PARTNERSHIP (the "Partnership"), a
Virginia limited partnership, HUMPHREY HOSPITALITY REIT TRUST ("HHREIT"), a
Maryland business trust and the general partner of the Partnership, and HUMPHREY
HOSPITALITY TRUST, INC. ("HHTI"), a Virginia corporation and the sole
shareholder of HHREIT (HHTI, HHREIT and the Partnership are collectively
referred to as the "Company") on the one hand, and (ii) STEVE H. BORGMANN, in
his individual capacity ("Mr. Borgmann"), on the other hand.
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts,
understandings and intentions:
A. Since 1978, Mr. Borgmann has been continuously and actively engaged in
various aspects of hotel acquisition, development, management and operation,
personally, for companies and joint ventures controlled by Mr. Borgmann and for
Supertel Hospitality, Inc. ("STH"), a Delaware corporation.
B. HHTI and STH have entered into an Agreement and Plan of Merger
pursuant to which STH shall be merged with and into HHTI (the "Merger") and the
Company will acquire, among other things, ownership of the Hotel Properties
currently owned by STH. Upon completion of the Merger, the separate existence of
STH shall cease and HHTI shall be the surviving entity in the Merger.
C. HHTI's primary objective is to maximize shareholder value through its
majority partnership interest in the Partnership by participating in increased
room revenues from hotels owned by the Partnership through percentage leases and
by acquiring operating hotels that meet the Partnership's investment criteria.
D. Mr. Borgmann and the Company acknowledge that they are executing this
Agreement in connection with, and as an inducement to HHTI to enter into, the
Merger Agreement, and have determined that, in connection with the Merger, it is
desirable to set forth in this Agreement certain covenants and agreements with
respect to Hotel Development Activities, as hereinafter defined, of Mr.
Borgmann, personally and through the Borgmann Affiliates.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties provided for in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
1. Definitions. The following terms as used in this Agreement shall have
-----------
the following meanings (applicable to both the singular and plural forms of the
terms defined):
a. "Acquisition of Hotel Property" means engaging in the activity of
-----------------------------
soliciting, seeking to acquire (or obtaining an option or first right of refusal
to acquire) and/or acquiring, any interest in any Hotel Property.
b. "Affiliate" means (i) any person directly or indirectly owning,
---------
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner. The term
"person" means and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity. An indirect
relationship shall include circumstances in which a person's spouse is
associated with a person.
c. "Hotel Construction" means the construction, renovation or repair
------------------
of improvements on any Hotel Property by Mr. Borgmann or a Borgmann Affiliate.
d. "Hotel Development Activity" means engaging in directly, through
--------------------------
an Affiliate, or being employed as a developer, director, officer, manager,
consultant or advisor or in a similar capacity by any entity undertaking, or
otherwise undertaking to do any of the following: (i) Acquisition of Hotel
Property, (ii) Hotel Construction, (iii) Hotel Entitlements, (iv) Speculation,
or (v) Hotel Management and Operation.
e. "Hotel Entitlements" means engaging in the process by which a
------------------
person with an interest in any Property obtains necessary or desirable
governmental approvals, licenses, permits, entitlement or agreements for the
commencement of Hotel Construction.
f. "Hotel Management and Operation" means engaging in or otherwise
------------------------------
undertaking the day-to-day management and operation of Hotel Property, whether
pursuant to a master lease, management agreement or other arrangement.
g. "Hotel Property" means any Property that is used in whole or in
--------------
part for hotel purposes, including, without limitation, motels, motor inns,
extended-stay hotels and the like, whether in fee or leasehold, together with
all improvements and fixtures now or hereafter located thereon, all rights,
privileges and easements appurtenant thereto, and all tangible and intangible
personal property owned and used in connection therewith.
h. "Independent Director" shall mean a member of the Board of
--------------------
Directors of HHTI who is defined as an "Independent Director" in the Articles of
Incorporation of HHTI.
-2-
<PAGE>
i. "Property" means any real property or any interest therein.
--------
j. "Borgmann Affiliate" means any Affiliate of Mr. Borgmann.
------------------
k. "Speculation" means engaging in the activity of soliciting,
-----------
seeking to acquire (or obtaining an option or a first right of refusal to
acquire) and/or acquiring, any interest in a Hotel Property with the intention
at any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding any Hotel Property for subsequent sale or other transfer to
any person for purposes of Hotel Development Activity.
2. Term. The rights granted to the Company hereunder, and the
----
restrictions imposed on Mr. Borgmann and the Borgmann Affiliates, shall commence
on the Effective Date and shall terminate two (2) years after the date on which
Mr. Borgmann is no longer a director, officer, partner or employee of the
Company.
3. Negative Covenants. During the term of this Agreement:
------------------
a. Radius Restriction. Mr. Borgmann, personally or through any
------------------
Borgmann Affiliate, shall not conduct any Hotel Development Activity within
twenty (20) miles of any Hotel Property which the Company either currently owns,
is acquiring in connection with the Merger or has the written contractual right
to acquire, whether in fee, by ground lease or otherwise, unless a majority of
HHTI's Board of Directors, which majority must include a majority of the
Independent Directors, have determined that such Hotel Development Activity
within the twenty (20) mile radius will not have a material adverse effect on
the operations of any Hotel Property which the Company either owns or has a
right to acquire; provided, however, that Mr. Borgmann's vote shall not be
counted for such purposes.
b. Limited Hotel Management and Operations. Mr. Borgmann, personally
---------------------------------------
or through any Borgmann Affiliate, shall not engage in any Hotel Management and
Operation within the radius restriction set out in Section 3(a), except with
respect to any Hotel Property managed by Mr. Borgmann or any Borgmann Affiliate
as a result of any permitted Hotel Development Activity.
c. No Beneficial Ownership. Except as expressly permitted by this
-----------------------
Section 3,Mr. Borgmann, personally or through any Borgmann Affiliate, shall not
hold directly or indirectly any beneficial interest in any entity engaged in any
Hotel Development Activity within the radius restriction set out in Section
3(a), except for any interest in a company traded on a nationally recognized
public securities exchange (including The Nasdaq National Market), provided such
interest does not exceed five percent (5%).
d. Loans. Mr. Borgmann shall not directly or indirectly make any loan
-----
to, or hold any note evidencing a loan from, any entity engaged in any Hotel
Development Activity within the radius restriction set out in Section 3(a).
-3-
<PAGE>
e. Competitive Entity. Mr. Borgmann shall not be a director or
------------------
trustee, officer, or employee of, or consultant to (whether for compensation or
not) any entity engaged in any Hotel Development Activity within the radius
restriction set out in Section 3(a), other than a Borgmann Affiliate engaged in
any Hotel Development Activity permitted by this Section 3.
f. Company Hotel Development Activity. Notwithstanding anything to the
----------------------------------
contrary contained in this Section 3, from and after the date that the Company
notifies Mr. Borgmann in writing that the Company has elected to undertake any
additional Hotel Development Activity, Mr. Borgmann, personally or through any
Borgmann Affiliate, shall not undertake any Hotel Development Activity within
the radius restriction set out in Section 3(a) applicable to such additional
Hotel Development Activity without the prior consent of a majority of HHTI's
Board of Directors, which majority must include a majority of the Independent
Directors, provided, however, that Mr. Borgmann's vote shall not be counted for
such purposes, and provided further that this restriction shall terminate if the
Company fails to undertake such Hotel Development Activity within 90 days or
abandons such activity.
4. Notification to Independent Directors. If Mr. Borgmann or any Borgmann
-------------------------------------
Affiliate desires to engage in any Hotel Development Activity within the radius
restriction set out in Section 3(a), Mr. Borgmann shall be obligated to describe
fully the proposed activity in a written notice (the "Disclosure Notice") to the
Company and the Independent Directors. A Disclosure Notice shall only pertain
to a specific proposed project and the referenced proposed project shall be
described therein with specificity as to timing, location, scope and the extent
of involvement by Mr. Borgmann financially and in terms of his time commitment.
A Disclosure Notice may not request approval for any conceptual or non-project
specific activity or of any activity which is prohibited by this Agreement.
5. Miscellaneous.
-------------
a. Complete Agreement; Construction. This Agreement, and the other
--------------------------------
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter.
b. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the jurisdiction of the State of Nebraska without
regard to the principles of conflicts of laws thereof.
c. Consent to Jurisdiction. Any dispute and/or controversy of whatever
-----------------------
nature arising out of or relating to this Agreement by and among the Parties
hereto shall only be brought in a local, state or federal court situated within
the State of Nebraska and the parties consent to personal jurisdiction in such
state for these purposes.
-4-
<PAGE>
d. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be deemed duly given upon actual receipt,
and shall be delivered (i) in person, (ii) by registered or certified mail (by
air mail if addressed to an address outside of the country in which mailed),
postage prepaid, return receipt requested, or (iii) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (iii) shall also be sent pursuant to
clause (ii), addressed as follows (or to such other addresses as may be
specified by like notice to the other parties):
To Mr. Borgmann: Mr. Paul J. Borgmann
Supertel Hospitality Management, Inc.
309 North 5/th/ Street
Norfolk, Nebraska 68701
To the Company: Mr. James I. Humphrey, Jr.
Humphrey Hospitality Trust, Inc.
12301 Old Columbia Pike
Silver Spring, MD 20904
e. Amendments. No amendment, modification or supplement to this
----------
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Directors.
f. Successors and Assigns. Neither this Agreement nor any rights or
----------------------
obligations hereunder shall be assignable by a party to this Agreement without
the prior, express written consent of the other party. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective successors and permitted assigns.
g. No Third-Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
h. Titles and Headings. Titles and headings to paragraphs and sections
-------------------
in this Agreement are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
i. Maximum Legal Enforceability; Time of Essence. The parties agree
----------------------------
that a breach of the provisions of this Agreement by Mr. Borgmann could not be
compensated
-5-
<PAGE>
adequately by money damages; therefore, the Company shall be entitled, in
addition to any other right and remedy available to it, to seek an injunction
restraining such breach and the Company shall not be required to post a bond in
any proceeding brought for such purpose. Mr. Borgmann agrees that the provisions
of this Agreement are necessary and reasonable to protect the Company in the
conduct of its business. If any restriction contained in this Agreement shall be
deemed to be invalid, illegal, or unenforceable by reason of the extent,
duration, or geographical scope thereof, or otherwise, then the court making
such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies, at law or in equity, for such breach or threatened breach. Time shall
be of the essence as to each and every provision of this Agreement.
j. Further Assurances. The parties to this Agreement will execute and
------------------
deliver or cause the execution and delivery of such further instruments and
documents, and will take such other actions, as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
[SIGNATURE PAGE TO FOLLOW]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
STEVE H. BORGMANN
/s/ Steve H. Borgmann
------------------------------------
HUMPHREY HOSPITALITY LIMITED
PARTNERSHIP
By: Humphrey Hospitality REIT Trust
Its: General Partner
By: /s/ James I. Humphrey, Jr.
------------------------------------
James I. Humphrey, Jr.
President and Chief Executive
Officer
HUMPHREY HOSPITALITY REIT TRUST
By: /s/ James I. Humphrey, Jr.
------------------------------------
James I. Humphrey, Jr.
President and Chief Executive
Officer
HUMPHREY HOSPITALITY TRUST, INC.
By: /s/ James I. Humphrey, Jr.
------------------------------------
James I. Humphrey, Jr.
President and Chief Executive
Officer
-7-
<PAGE>
EXHIBIT 10.24
EXCLUSIVE HOTEL DEVELOPMENT AGREEMENT
AND COVENANT NOT TO COMPETE
THIS EXCLUSIVE HOTEL DEVELOPMENT AGREEMENT AND COVENANT NOT TO COMPETE
(this "Agreement") is entered as of October 26, 1999 (the "Effective Date") by
and among (i) HUMPHREY HOSPITALITY LIMITED PARTNERSHIP (the "Partnership"), a
Virginia limited partnership, HUMPHREY HOSPITALITY REIT TRUST ("HHREIT"), a
Maryland business trust and the general partner of the Partnership, and HUMPHREY
HOSPITALITY TRUST, INC. ("HHTI"), a Virginia corporation and the sole
shareholder of HHREIT (HHTI, HHREIT and the Partnership are collectively
referred to as the "Company") on the one hand, and (ii) PAUL J. SCHULTE, in his
individual capacity ("Mr. Schulte"), on the other hand.
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts,
understandings and intentions:
A. Since 1978, Mr. Schulte has been continuously and actively engaged in
various aspects of hotel acquisition, development, management and operation,
personally, for companies and joint ventures controlled by Mr. Schulte and for
Supertel Hospitality, Inc. ("STH"), a Delaware corporation.
B. HHTI and STH have entered into an Agreement and Plan of Merger pursuant
to which STH shall be merged with and into HHTI (the "Merger") and the Company
will acquire, among other things, ownership of the Hotel Properties currently
owned by STH. Upon completion of the Merger, the separate existence of STH
shall cease and HHTI shall be the surviving entity in the Merger.
C. HHTI's primary objective is to maximize shareholder value through its
majority partnership interest in the Partnership by participating in increased
room revenues from hotels owned by the Partnership through percentage leases and
by acquiring operating hotels that meet the Partnership's investment criteria.
D. Mr. Schulte and the Company acknowledge that they are executing this
Agreement in connection with, and as an inducement to HHTI to enter into, the
Merger Agreement, and have determined that, in connection with the Merger, it is
desirable to set forth in this Agreement certain covenants and agreements with
respect to Hotel Development Activities, as hereinafter defined, of Mr. Schulte,
personally and through the Schulte Affiliates.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties provided for in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
1. Definitions. The following terms as used in this Agreement shall have
-----------
the following meanings (applicable to both the singular and plural forms of the
terms defined):
a. "Acquisition of Hotel Property" means engaging in the activity of
-----------------------------
soliciting, seeking to acquire (or obtaining an option or first right of refusal
to acquire) and/or acquiring, any interest in any Hotel Property.
b. "Affiliate" means (i) any person directly or indirectly owning,
---------
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner. The term
"person" means and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity. An indirect
relationship shall include circumstances in which a person's spouse is
associated with a person.
c. "Hotel Construction" means the construction, renovation or repair
------------------
of improvements on any Hotel Property by Mr. Schulte or a Schulte Affiliate.
d. "Hotel Development Activity" means engaging in directly, through
--------------------------
an Affiliate, or being employed as a developer, director, officer, manager,
consultant or advisor or in a similar capacity by any entity undertaking, or
otherwise undertaking to do any of the following: (i) Acquisition of Hotel
Property, (ii) Hotel Construction, (iii) Hotel Entitlements, (iv) Speculation,
or (v) Hotel Management and Operation.
e. "Hotel Entitlements" means engaging in the process by which a
------------------
person with an interest in any Property obtains necessary or desirable
governmental approvals, licenses, permits, entitlement or agreements for the
commencement of Hotel Construction.
f. "Hotel Management and Operation" means engaging in or otherwise
------------------------------
undertaking the day-to-day management and operation of Hotel Property, whether
pursuant to a master lease, management agreement or other arrangement.
g. "Hotel Property" means any Property that is used in whole or in
--------------
part for hotel purposes, including, without limitation, motels, motor inns,
extended-stay hotels and the like, whether in fee or leasehold, together with
all improvements and fixtures now or hereafter located thereon, all rights,
privileges and easements appurtenant thereto, and all tangible and intangible
personal property owned and used in connection therewith.
h. "Independent Director" shall mean a member of the Board of
--------------------
Directors of HHTI who is defined as an "Independent Director" in the Articles of
Incorporation of HHTI.
-2-
<PAGE>
i. "Property" means any real property or any interest therein.
--------
j. "Schulte Affiliate" means any Affiliate of Mr. Schulte.
-----------------
k. "Speculation" means engaging in the activity of soliciting,
-----------
seeking to acquire (or obtaining an option or a first right of refusal to
acquire) and/or acquiring, any interest in a Hotel Property with the intention
at any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding any Hotel Property for subsequent sale or other transfer to
any person for purposes of Hotel Development Activity.
2. Term. The rights granted to the Company hereunder, and the
----
restrictions imposed on Mr. Schulte and the Schulte Affiliates, shall commence
on the Effective Date and shall terminate two (2) years after the date on which
Mr. Schulte is no longer a director, officer, partner or employee of the
Company.
3. Negative Covenants. During the term of this Agreement:
------------------
a. Radius Restriction. Mr. Schulte, personally or through any
------------------
Schulte Affiliate, shall not conduct any Hotel Development Activity within
twenty (20) miles of any Hotel Property which the Company either currently owns,
is acquiring in connection with the Merger or has the written contractual right
to acquire, whether in fee, by ground lease or otherwise, unless a majority of
HHTI's Board of Directors, which majority must include a majority of the
Independent Directors, have determined that such Hotel Development Activity
within the twenty (20) mile radius will not have a material adverse effect on
the operations of any Hotel Property which the Company either owns or has a
right to acquire; provided, however, that Mr. Schulte's vote shall not be
counted for such purposes.
b. Limited Hotel Management and Operations. Mr. Schulte, personally
---------------------------------------
or through any Schulte Affiliate, shall not engage in any Hotel Management and
Operation within the radius restriction set out in Section 3(a), except with
respect to any Hotel Property managed by Mr. Schulte or any Schulte Affiliate as
a result of any permitted Hotel Development Activity.
c. No Beneficial Ownership. Except as expressly permitted by this
-----------------------
Section 3, Mr. Schulte, personally or through any Schulte Affiliate, shall not
hold directly or indirectly any beneficial interest in any entity engaged in any
Hotel Development Activity within the radius restriction set out in Section
3(a), except for any interest in a company traded on a nationally recognized
public securities exchange (including The Nasdaq National Market), provided such
interest does not exceed five percent (5%).
d. Loans. Mr. Schulte shall not directly or indirectly make any loan
-----
to, or hold any note evidencing a loan from, any entity engaged in any Hotel
Development Activity within the radius restriction set out in Section 3(a).
-3-
<PAGE>
e. Competitive Entity. Mr. Schulte shall not be a director or
------------------
trustee, officer, or employee of, or consultant to (whether for compensation or
not) any entity engaged in any Hotel Development Activity within the radius
restriction set out in Section 3(a), other than a Schulte Affiliate engaged in
any Hotel Development Activity permitted by this Section 3.
f. Company Hotel Development Activity. Notwithstanding anything to
----------------------------------
the contrary contained in this Section 3, from and after the date that the
Company notifies Mr. Schulte in writing that the Company has elected to
undertake any additional Hotel Development Activity, Mr. Schulte, personally or
through any Schulte Affiliate, shall not undertake any Hotel Development
Activity within the radius restriction set out in Section 3(a) applicable to
such additional Hotel Development Activity without the prior consent of a
majority of HHTI's Board of Directors, which majority must include a majority of
the Independent Directors, provided, however, that Mr. Schulte's vote shall not
be counted for such purposes, and provided further that this restriction shall
terminate if the Company fails to undertake such Hotel Development Activity
within 90 days or abandons such activity.
4. Notification to Independent Directors. If Mr. Schulte or any Schulte
-------------------------------------
Affiliate desires to engage in any Hotel Development Activity within the radius
restriction set out in Section 3(a), Mr. Schulte shall be obligated to describe
fully the proposed activity in a written notice (the "Disclosure Notice") to the
Company and the Independent Directors. A Disclosure Notice shall only pertain
to a specific proposed project and the referenced proposed project shall be
described therein with specificity as to timing, location, scope and the extent
of involvement by Mr. Schulte financially and in terms of his time commitment.
A Disclosure Notice may not request approval for any conceptual or non-project
specific activity or of any activity which is prohibited by this Agreement.
5. Miscellaneous.
-------------
a. Complete Agreement; Construction. This Agreement, and the other
--------------------------------
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter.
b. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the jurisdiction of the State of Nebraska without
regard to the principles of conflicts of laws thereof.
c. Consent to Jurisdiction. Any dispute and/or controversy of
-----------------------
whatever nature arising out of or relating to this Agreement by and among the
Parties hereto shall only be brought in a local, state or federal court situated
within the State of Nebraska and the parties consent to personal jurisdiction in
such state for these purposes.
-4-
<PAGE>
d. Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered (i) in person, (ii) by registered or certified
mail (by air mail if addressed to an address outside of the country in which
mailed), postage prepaid, return receipt requested, or (iii) by facsimile or
other generally accepted means of electronic transmission (provided that a copy
of any notice delivered pursuant to this clause (iii) shall also be sent
pursuant to clause (ii), addressed as follows (or to such other addresses as may
be specified by like notice to the other parties):
To Mr. Schulte:
Mr. Paul J. Schulte
Supertel Hospitality Management, Inc.
309 North 5/th/ Street
Norfolk, Nebraska 68701
To the Company: Mr. James I. Humphrey, Jr.
Humphrey Hospitality Trust, Inc.
12301 Old Columbia Pike
Silver Spring, MD 20904
e. Amendments. No amendment, modification or supplement to this
----------
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Directors.
f. Successors and Assigns. Neither this Agreement nor any rights or
----------------------
obligations hereunder shall be assignable by a party to this Agreement without
the prior, express written consent of the other party. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective successors and permitted assigns.
g. No Third-Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
h. Titles and Headings. Titles and headings to paragraphs and
-------------------
sections in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
i. Maximum Legal Enforceability; Time of Essence. The parties agree
---------------------------------------------
that a breach of the provisions of this Agreement by Mr. Schulte could not be
compensated adequately
-5-
<PAGE>
by money damages; therefore, the Company shall be entitled, in addition to any
other right and remedy available to it, to seek an injunction restraining such
breach and the Company shall not be required to post a bond in any proceeding
brought for such purpose. Mr. Schulte agrees that the provisions of this
Agreement are necessary and reasonable to protect the Company in the conduct of
its business. If any restriction contained in this Agreement shall be deemed to
be invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form such restriction
shall then be enforceable in the manner contemplated hereby. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies,
at law or in equity, for such breach or threatened breach. Time shall be of the
essence as to each and every provision of this Agreement.
j. Further Assurances. The parties to this Agreement will execute
------------------
and deliver or cause the execution and delivery of such further instruments and
documents, and will take such other actions, as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
[SIGNATURE PAGE TO FOLLOW]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
PAUL J. SCHULTE
/s/ Paul J. Schulte
-----------------------------------------------
HUMPHREY HOSPITALITY LIMITED PARTNERSHIP
By: Humphrey Hospitality REIT Trust
Its: General Partner
By: /s/ James I. Humphrey, Jr.
-------------------------------------------
James I. Humphrey, Jr.
President and Chief Executive Officer
HUMPHREY HOSPITALITY REIT TRUST
By: /s/ James I. Humphrey, Jr.
-------------------------------------------
James I. Humphrey, Jr.
President and Chief Executive Officer
HUMPHREY HOSPITALITY TRUST, INC.
By: James I. Humphrey, Jr.
-------------------------------------------
James I. Humphrey, Jr.
President and Chief Executive Officer
-7-
<PAGE>
EXHIBIT 10.25
-------------
LOAN AGREEMENT
--------------
This LOAN AGREEMENT (this "Agreement"), dated as of October __, 1999, is
---------
made and entered into by and between MERCANTILE BANK NATIONAL ASSOCIATION, a
national banking association ("Bank"), and SUPERTEL HOSPITALITY, INC., a
----
Delaware corporation ("SHI"). The following recitals form the basis of this
---
Agreement and are made a material part hereof:
A. SHI is the owner of fee simple title to the six hotel properties
(collectively, the "Properties") legally described on Exhibit A through Exhibit
---------- --------- -------
F attached hereto.
- -
B. SHI has requested that Bank make a loan in the aggregate principal
amount of $6,700,000.00 (the "Loan") to refinance the existing mortgage
----
indebtedness which, prior to the date hereof, has been secured by the Properties
and three other hotel properties.
C. Within several days after the funding of the Loan, SHI anticipates
that SHI will merge with and into HH Trust and that HH Trust will convey the
Properties to HHLP.
D. Bank is willing to make the Loan to SHI on the terms and subject to
the conditions below.
NOW, THEREFORE, in consideration of the above recitals, the mutual
covenants and agreements herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
I. DEFINITIONS
-----------
1.1 Incorporation and Definitions. The foregoing recitals and all
-----------------------------
exhibits hereto are hereby made a part of this Agreement. The underlined and
capitalized terms and phrases set forth in this Section 1.1 have the following
meanings in this Agreement:
"Agreement Term" means the period during which any portion of the Loan
--------------
remains outstanding.
"Batesville Property" means the land legally described on Exhibit A
------------------- ---------
attached hereto, together with all building, improvements, furniture fixtures,
and equipment located thereon, together with all personal property (both
tangible and intangible) owned by Borrower used or useful in connection with the
operation of a hotel thereon, all as more particularly described in the Deed of
Trust of said Property, excluding, however, the Excluded Assets.
"Borrower" means (i) on the date hereof and at all times until the
--------
effectiveness of the Merger, SHI, (ii) upon the effectiveness of the Merger, HH
Trust, and (iii) upon the effectiveness of the Post Merger Transfer, HH Trust
and HHLP, jointly and severally.
"Borrower's Obligations" means all obligations, warranties,
----------------------
representations, agreements, covenants and liabilities of SHI, HH Trust and HHLP
to Bank (including, without limitation, the obligation to repay the Loan and all
interest thereon) whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing and however
arising, whether under this Agreement, the other Loan Documents or by operation
of law or otherwise.
"Business Day" means any day except a Saturday, Sunday or legal holiday
------------
observed by Bank.
<PAGE>
"Change of Control" means the occurrence of any Person or group (other
-----------------
than a Permitted Investor), determined in accordance with Section 13(d) of the
Exchange Act, which, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, having become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, of shares of the stock of SHI (before the Merger) or HH
Trust (at any time) representing at least 25% of the voting stock of such
entity.
"Closing" means the closing of the transactions contemplated herein and the
-------
funding of the Loan.
"Closing Date" means the date of this Agreement.
------------
"Debt Service Coverage Ratio" means, for any period, the quotient obtained
---------------------------
by dividing (a) the amount of the aggregate Net Cash Flow Available for Debt
Service generated by all of the Properties during such period, by (b) the amount
of debt service payments (principal and interest) which would be required to be
made hereunder during such period. For purposes of the foregoing and for
determining the Loan to Value Ratio, the phrase, "Net Cash Flow Available for
---------------------------
Debt Service" means, for any period, the amount of all income generated from the
- ------------
Properties (excluding insurance proceeds, condemnation awards and other
nonrecurring items of income or extraordinary items) reduced by the amount of
all expenses which were directly related to the ownership, operation or
maintenance of the Properties, including, without limitation, real estate taxes,
liability and property insurance premiums, repair costs, utility costs, the
amortized portion of capital expenses, wages and benefits, franchise fees and
royalties and advertising expenses. For purposes of the foregoing, the term
"expenses" shall (i) include a management fee (regardless of whether such amount
--------
is actually paid) of four percent (4%) of room revenue (excluding taxes) and an
FF&E reserve (regardless of whether such amount is actually paid) of six percent
(6%) of room revenue, and (ii) exclude any interest expense related to repayment
of the Loans, unamortized capitalized expenditures, depreciation and
amortization and income taxes. For purposes of the foregoing, the SHMI Leases
shall be disregarded.
"Deeds of Trust" means those certain deeds of trust (or mortgages) and
--------------
security agreements, dated as of the date hereof, granted by SHI for the benefit
of Bank and covering each Property, as the same may be amended from time to
time; and "Deed of Trust" means any one of the Deeds of Trust.
-------------
"Default" means any event or circumstance which, with the giving of notice
-------
the passage of time, or both, would constitute an Event of Default.
"Default Rate" means three percent (3%) over the Interest Rate.
------------
"E & P REIT Trust Transaction" means that certain transaction described on
----------------------------
Exhibit G attached hereto.
"Existing Debt" means the indebtedness of SHI to Bank in existence prior to
-------------
the Closing.
"Event of Default" means any event described in this Agreement as
----------------
constituting an Event of Default, including, without limitation, those events
described in Section 6.1 herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Excluded Assets" means, with respect to any Property, Books and Records,
---------------
the Intellectual Property and the Current Assets of SHI which will be
transferred to SHMI pursuant to that certain Purchase and Sale Agreement dated
June 11, 1999, or which may become the property of SHMI after the
-2-
<PAGE>
date of such transfer. For purposes of the foregoing, (i) "Books and Records"
shall mean original or true and complete copies of all books, records, files,
data and information of SHI, including, without limitation, financial and
accounting records, purchase orders and invoices, reservation log books, credit
and collection records, correspondence and miscellaneous records and all other
general correspondences; (ii) "Current Assets" shall mean all assets of SHI that
are property characterized as current assets in accordance with GAAP, including
accounts receivables, notes receivables, cash and cash equivalents, prepaid
expenses, including prepaid franchise fees; and (iii) "Intellectual Property"
means the following categories of intellectual property owned by SHI and used in
or necessary or desirable for the operation of the hotel at such Property: (a)
all inventions, patents and patent applications, (b) all registered and
unregistered trademarks, service marks, trade dress, logos, trade names and
brand names, and any combination of such names, including all goodwill
associated therewith and all applications, registrations and renewals in
connection therewith, (c) all copyrightable works, all copyrights and all
applications, registrations and renewals in connection therewith, (d) all trade
secrets and confidential business information (including ideas, research and
development, know-how, compositions, designs, drawings, specifications, customer
and supplier lists, pricing and cost information and business and market plans
and proposals), (e) all computer software and source codes (including hard copy
and soft copy as well as all data and related documentation), (f) all financial
models, (g) all accounting systems, and (h) all other intellectual or industrial
property.
"Fayetteville Property" means the land legally described on Exhibit B
--------------------- ---------
attached hereto, together with all building, improvements, furniture fixtures,
and equipment located thereon, together with all personal property (both
tangible and intangible) owned by Borrower used or useful in connection with the
operation of a hotel thereon, all as more particularly described in the Deed of
Trust of said Property, excluding, however, the Excluded Assets.
"Franchise Agreements" means those certain franchise agreements executed by
--------------------
and between SHI and Super 8 Motels, Inc., for each Property.
"Franchisor" means Super 8 Motels, Inc.
----------
"HHLP" means Humphrey Hospitality Limited Partnership, a Virginia limited
----
partnership.
"HHRT" means Humphrey Hospitality REIT Trust, a Maryland trust.
----
"HH Trust" means Humphrey Hospitality Trust, Inc., a Virginia corporation.
--------
"Interest Rate" means a fixed rate of interest equal to eight and three
-------------
tenths percent (8.30%) per annum.
"Kirksville Property" means the land legally described on Exhibit C
------------------- ---------
attached hereto, together with all building, improvements, furniture fixtures,
and equipment located thereon, together with all personal property (both
tangible and intangible) owned by Borrower used or useful in connection with the
operation of a hotel thereon, all as more particularly described in the Deed of
Trust of said Property, excluding, however, the Excluded Assets.
"Laws" means all Federal, state and local laws, rules, regulations,
----
ordinances, codes, orders, decrees or requirements.
"Leases" means any and all leases or occupancy agreements affecting any one
------
or more of the Properties; and "Lease" means any such lease or occupancy
-----
agreement.
-3-
<PAGE>
"Loan" means the Loan in the Loan Amount to be made pursuant to this
----
Agreement.
"Loan Amount" means Six Million Seven Hundred Thousand and NO /100 Dollars
-----------
($6,700,000.00).
"Loan Documents" means this Agreement, the Note, the documents specified in
--------------
Article III hereof and any other instruments evidencing, securing or
guaranteeing obligations of Borrower or any Obligor under the Loan, as the same
may be amended, restated or renewed from time to time.
"Loan Expenses" is defined in Section 5.7.
-------------
"Loan Proceeds" means all amounts advanced, or to be advanced, as part of
-------------
the Loan, whether advanced directly to Borrower or otherwise.
"Loan to Value Ratio" means as of any date a percentage equal to a
-------------------
fraction, the numerator of which is the outstanding principal balance of the
Loan on such date, and the denominator of which is the value of the Properties.
For purposes of the foregoing, the value of the Properties shall be determined
as of any date by dividing Net Cash Flow Available for Debt Service for all the
Properties for the twelve (12) month period ending on such date by twelve
percent (12%).
"Maturity Date" means October 31, 2004.
-------------
"Merger" means the merger of SHI with and into HH Trust as contemplated in
------
the Merger Agreement.
"Merger Agreement" means that certain Agreement and Plan of Merger, dated
----------------
as of June 11, 1999, by and between HH Trust and SHI.
"Mountain Home Property" means the land legally described on Exhibit D
---------------------- ---------
attached hereto, together with all building, improvements, furniture fixtures,
and equipment located thereon, together with all personal property (both
tangible and intangible) owned by Borrower used or useful in connection with the
operation of a hotel thereon, all as more particularly described in the Deed of
Trust of said Property, excluding, however, the Excluded Assets.
"Note" means that certain promissory note, dated as of the date hereof, in
----
the original principal amount of the Loan Amount, and made by SHI payable to the
order of Bank, which shall evidence the Loan, as the same may be amended,
renewed, modified, or replaced from time to time.
"Obligor" means the SHI and any other person primarily or secondarily
-------
liable for repayment of the Loan including, without limitation, HH Trust, HHRT
and HHLP upon the effectiveness of the Merger.
"Permitted Exceptions" means those title exceptions specified in Schedule B
--------------------
to the Title Policies.
"Permitted Investor" means any broker, dealer, bank, insurance company,
------------------
investment company or advisor, employee benefit plan or other institutional
investor directly or indirectly owning shares of stock of SHI before the Merger
or HH Trust at any time to the extent such Person acquires such ownership in the
ordinary course of its business and acquires and continues to hold such
ownership not with the purpose nor the effect of changing or directing the
control, management or policies of SHI or HH Trust.
"Person" means any individual or entity including, without limitation, any
------
corporation, partnership, trust, limited liability company, joint venture or
governmental entity.
-4-
<PAGE>
"Post Merger Transfer" means the conveyance of title to each of the
--------------------
Properties from HH Trust to HHLP which is anticipated to occur within thirty
days after the effectiveness of the Merger.
"Post Merger Transfer Documents" means all deeds, assignment, and other
------------------------------
documents and agreements executed and delivered to effectuate the Post Merger
Transfer.
"Properties" means collectively, the Fayetteville Property, the Batesville
----------
Property, the Mountain Home Property, the Russellville Property, the Kirksville
Property and the Sedalia Property; and "Property" means any one of the
--------
properties.
"Russellville Property" means the land legally described on Exhibit E
--------------------- ---------
attached hereto, together with all building, improvements, furniture fixtures,
and equipment located thereon, together with all personal property (both
tangible and intangible) owned by Borrower used or useful in connection with the
operation of a hotel thereon, all as more particularly described in the Deed of
Trust of said Property, excluding, however, the Excluded Assets.
"Sedalia Property" means the land legally described on Exhibit F attached
---------------- ---------
hereto, together with all building, improvements, furniture fixtures, and
equipment located thereon, together with all personal property (both tangible
and intangible) owned by Borrower used or useful in connection with the
operation of a hotel thereon, all as more particularly described in the Deed of
Trust of said Property, excluding, however, the Excluded Assets.
"SHMI" means Supertel Hospitality Management, Inc., a Maryland corporation.
----
"SHMI Lease" means the lease to be entered into between HHLP, as landlord,
----------
and SHMI, as tenant, upon the Merger.
"Title Company" means Chicago Title Insurance Company.
-------------
"Title Policies" means the loan policies of title insurance to be issued to
--------------
Bank by the Title Company on the date hereof.
II. THE LOAN
--------
2.1 The Loan. SHI agrees to borrow, and Bank agrees to lend, the Loan
--------
on the terms and condition described below and in the other provision of this
Agreement:
(a) The full amount of the Loan shall be disbursed in a single
advance on or within five (5) days after the date of this Agreement. The Loan
Proceeds shall be advanced by Bank to Bank and applied to repay the Existing
Debt.
(b) Bank may record the date and amount of any and all advances and
all payments of principal, interest and other amounts hereunder in the records
it maintains with respect thereto. Bank's books and records showing the account
between Bank and Borrower shall be admissible in evidence in any action or
proceeding and shall constitute prima facie proof of the items therein set
forth.
(c) Borrower's obligation to repay the Loan shall be further
evidenced and secured by each of the Loan Documents.
-5-
<PAGE>
(d) It is the intention and agreement of the parties that (i) upon
the effectiveness of the Merger, HH Trust will become fully obligated for
repayment of the Loan and all of the other Borrower's Obligations, and (ii) upon
the effectiveness of the Post Merger Transfer, HHLP and HHRT will become fully
obligated for repayment of the Loan and all of the other Borrower's Obligations
and that such assumption on the part of HHLP and HHRT will in no way relieve HH
Trust from any liability for the payment and performance of Borrower's
Obligations; it being agreed by the parties that, upon the effectiveness of the
Post Merger Transfer, HH Trust, HHRT and HHLP will be jointly and severally
liable and obligated for the payment and performance of Borrower's Obligations.
2.2 Repayment Terms. Borrower agrees to repay the Loan according to the
---------------
following payment terms:
(a) Commencing on November 1, 1999, and on the same day of each month
thereafter until the Maturity Date, Borrower shall make level monthly payments
of accrued interest and principal in the amount of Fifty Seven Thousand Five
Hundred Seventy Six and 55/100 Dollars ($57,576.55); and
(b) On the Maturity Date, all accrued interest, principal and late
charges, if any, under this Agreement, the Note and the other Loan Documents,
which have not previously been paid, shall be due and payable in full.
(c) Borrower shall not have the right to reborrow any principal which
is repaid or prepaid.
2.3 Interest.
--------
(a) Interest shall accrue on the outstanding principal balance under
the Note from time to time at the Interest Rate. Interest on the Loan shall be
calculated on the basis of a three hundred sixty (360) day year and the actual
number of days elapsed in any portion of a month for which interest may be due,
so that the amount of interest accruing each calendar day on the unpaid
principal balance of the Loan shall equal the product of (i) the unpaid
principal balance, (ii) the Interest Rate, and (iii) 1/360.
(b) If an Event of Default occurs, then interest shall be charged on
the unpaid principal balance of the Loan at the Default Rate commencing on the
date on which the Default which gave rise to such Event of Default occurred.
The Default Rate shall be applicable both before and after any judgment as may
be rendered by a court of competent jurisdiction.
2.4 Prepayment. Borrower shall be privileged to prepay at any time all or
----------
any part from time to time of the unpaid principal of the Note before the
Maturity Date, provided that each of the following conditions are satisfied:
(a) together with any such prepayment, Borrower shall pay accrued
interest on the principal so prepaid to the date of such prepayment;
(b) any prepayments shall be applied to the monthly installments of
principal due hereunder in the inverse order of their stated maturities;
(c) any partial prepayment shall not reduce the amount of any monthly
installments of principal and interest required to be paid thereafter or
obligate Bank to reamortize the principal amount of this Note, and
-6-
<PAGE>
(d) together with any such prepayment, Borrower shall pay to Bank a
prepayment premium (a "Prepayment Fee") equal to the amount of principal so
--------------
prepaid, multiplied by (i) Five Percent (5%) if such prepayment occurs on or
before October 31, 2002, (ii) Three Percent (3%) if such prepayment occurs in
the period from November 1, 2002, to and including October 31, 2003, and (iii)
One Percent (1%) if such prepayment occurs in the period from November 1, 2003,
to and including July 31, 2004. Said Prepayment Fee shall be due and payable
simultaneously with any full or partial prepayment, whether made voluntarily or
as a result of Bank's acceleration of the indebtedness evidenced by the Note in
accordance with its rights under the Note and the other Loan Documents. Said
Prepayment Fee shall be required whether payment is made by Borrower, anyone on
behalf of Borrower, by a guarantor or by the purchaser at any foreclosure sale
and may be included in any bid by Bank at such sale. Bank's obligation to
release any collateral for the Loan shall be conditioned upon receipt of any
Prepayment Fee required hereunder. Notwithstanding anything herein to the
contrary, a Prepayment Fee shall not apply to any prepayment made as a result of
Bank's application of insurance proceeds to repayment of the Loan following a
casualty loss.
2.5 Payments. Each payment and prepayment received by Bank under this
--------
Agreement or the Note shall be applied in the following order of priority:
first, against late charges if any; second, against Prepayment Fees if
applicable; third, against unpaid accrued interest; and fourth, against
principal. Partial prepayments will not reduce the amount of any monthly
principal payments Borrower is required to make. All payments of principal,
interest and other amounts hereunder shall be made in lawful currency of the
United States in Federal or other immediately available funds at the office of
Bank located at 3615 West Broadway, Sedalia, Missouri 65302-1147, or at such
other location as may be specified by Bank from time to time. Borrower shall
make each payment of principal, and interest on each Loan and any fees and all
other amounts payable hereunder, not later than 2:00 p.m. (Sedalia time) on the
date when due, in Federal or other funds immediately available in Sedalia,
Missouri, to Bank. Payments received by Bank after 2:00 p.m. shall be deemed
received on the next Business Day. Whenever any payment of principal, or
interest on either Loan or of fees shall be due on a day which is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day. If Borrower makes a payment by check, such payments shall only by
deemed made, and credited to repayment of such Loan, when Bank has received
immediately available funds from the bank on which such check was drawn. If the
date for any payment of principal is extended by operation of law or otherwise,
interest shall continue accruing on the outstanding principal balance of such
Loan, at the then applicable rate, until such payment is actually made.
2.6 Late Payment Fees. Borrower agrees to pay a late charge equal to five
-----------------
percent (5%) of any installment of principal and interest, which is not paid on
or before the fifteenth (15th) day after the due date thereof to cover the extra
expense of handling past due payments and any other detriment caused by such
payments being past due. Payment of any such late payment fee will not be deemed
to cure an Event of Default unless Bank agrees in writing to the contrary.
2.7 Set-Off Rights. Borrower further agrees that Bank shall, at any time
--------------
and from time to time, in addition to any rights Bank may have under applicable
law, after any Event of Default, have the right to, without prior notice or
demand, set-off, appropriate and apply toward payment of any amounts due under
this Agreement, in such order of application as Bank may from time to time elect
in its sole discretion, any balances, cash, credits, deposits, certificates of
deposit, instruments, money, accounts, securities and any other property of
Borrower pledged or in the possession, custody or control of Bank or any bank
under common ownership with Bank, including without limitation, any cash or
cash-equivalent deposited with or pledged to Bank. Failure to exercise any such
remedy shall not constitute a waiver of the right to exercise the same in the
event of any subsequent Event of Default.
-7-
<PAGE>
2.8 Reserves. Borrower shall maintain a repair/replacement reserve equal
--------
to six percent (6%) of room revenues, shall make such reserve available to SHMI
and shall cause SHMI to utilize said reserve to pay for repairs and replacements
of the improvements and furniture, fixtures and equipment comprising each
Property.
2.9. Substitution/Addition of Collateral. Borrower shall have the right
-----------------------------------
from time to time to request (a "Collateral Substitution/Addition Request") that
----------------------------------------
Bank agree to (i) release any one or more of the Properties from the lien and
security interests of the Loan Documents in exchange for other collateral having
an equal or greater value or (ii) allow Borrower to add one or more other hotel
properties as Collateral for the Loan. Any Collateral Substitution/Addition
Request shall (i) be in writing, (ii) identify the Property or Properties that
Borrower is requesting be released, if any, and the property or properties that
Borrower is proposing be added as collateral for the Loan, and (iii) contain
such financial information as may be reasonably necessary for Bank to evaluate
such request. Within thirty days after Bank's receipt of a Collateral
Substitution/Addition Request, Bank shall notify Borrower whether Bank is
willing to consider approving such request. If Bank is willing to consider
approving such request, then Borrower shall provide Bank with such information
and documents as Bank may require with respect to each property or properties
Borrower is proposing to add as Collateral for the Loan (each, an "Added
-----
Property"), including, without limitation, the following: an appraisal, a title
- --------
insurance commitment, an ALTA survey, an environmental report, UCC search
report, flood hazard certification, evidence of insurance, zoning information,
the franchise agreement, tax and judgment lien searches and a building
inspection report. Each such report shall be prepared by a third party
professional acceptable to Bank and shall be certified to Bank; provided,
--------
however, that the appraisal shall be engaged by Bank. Each such item shall be
- -------
furnished within thirty (30) days after Bank's notice to Borrower indicating the
Bank is willing to consider approving the Collateral Substitution/Addition
Request. If the items furnished Bank as aforesaid are complete and acceptable to
Bank in Bank's sole and absolute discretion, then Bank shall cause to be
prepared appropriate documents (collectively, the "Collateral
----------
Substitution/Addition Documents") amending the Loan Documents to (i) reflect the
- -------------------------------
collateral addition, (ii) grant appropriate liens and security interests in the
Added Property, and (iii) release the Property or Properties to be released from
the existing Loan Documents. The expenses of Bank (including, without
limitation, Bank's attorneys fees) in reviewing each Collateral
Substitution/Addition Request and any documents provided in connection therewith
and in preparing, negotiating and executing the Collateral Substitution/Addition
Documents and any and all other expenses of Bank in connection therewith
(including those defined in this Agreement as Loan Expenses) shall be reimbursed
by Borrower upon demand. Bank's agreement to approve any Collateral
Substitution/Addition Request shall not become final and binding until such time
as all Collateral Substitution/Addition Documents have been fully executed and
delivered and all conditions to the effectiveness thereof as provided therein
have been satisfied.
III. LOAN DOCUMENTS
--------------
3.1 Borrower agrees that the following Loan Documents will evidence,
secure and guarantee repayment of the Loan and all of Borrower's covenants and
obligations under this Agreement and the other Loan Documents:
(a) This Agreement;
(b) The Note;
(c) The Deeds of Trust;
(d) A first priority assignment of leases and rents, executed by
Borrower for the benefit of Bank for each of the Properties;
-8-
<PAGE>
(e) Uniform Commercial Credit Code Financing Statements as required
in the judgment of Bank to perfect all security interests granted by the Loan
Documents;
(f) An Assignment of Franchise Agreement for each Property executed
by SHI;
(g) A Collateral Assignment of Franchise Agreement for each Property
executed by SHMI:
(h) A Disclaimer and Waiver executed by SHMI for each Property;
(i) A Lease Subordination Agreement for each
Property, executed by SHMI;
(j) a Loan Assumption Without Release Agreement (the "Trust
-----
Assumption"), executed by HH Trust, HHLP and HHRT; and
- ----------
(k) Such other documents and instruments related to and as further
security for the Loan as Bank may reasonably require.
IV. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 SHI represents and warrants as follows:
(a) Status. SHI is a corporation organized under the laws of the
------
State of Delaware. SHI is duly organized and validly existing, in good standing
under the laws of the State of its incorporation, has stock outstanding which
has been duly and validly issued, and is qualified to do business and is in good
standing in each State where the laws of such State require that SHI be so
qualified, including, without limitation, the States of Missouri and Arkansas.
(b) Authority. SHI has full power and authority to execute this
---------
Agreement and all other Loan Documents required of SHI by Bank hereunder, and
the execution and delivery thereof have been duly authorized by all requisite
corporate action.
(c) Valid and Binding Obligation. This Agreement and the other Loan
----------------------------
Documents, when executed and delivered, will constitute the valid and legally
binding obligations of SHI and will be enforceable strictly in accordance with
their respective terms (except to the extent that enforceability may be affected
or limited by applicable bankruptcy, insolvency or other similar debtor relief
laws affecting the enforcement of creditors' rights generally), and no basis
presently exists for any claim or defense against Bank under this Agreement,
under the other Loan Documents, or otherwise with respect to the Loan.
(d) No Violation. Neither the execution, delivery, nor performance of
------------
this Agreement, the other Loan Documents will violate or conflict with any law,
rule, regulation, order, judgment, organizational document, indenture,
instrument, or agreement by which SHI or the Properties are bound. SHI is not in
default (without regard to grace or cure periods) under any contract or
agreement to which it is a party (including without limitation the Merger
Agreement), the effect of which could adversely affect the performance of SHI of
its obligations pursuant to and as contemplated by this Agreement.
(e) Title. On the date hereof and at all times thereafter until the
-----
effectiveness of the Merger, SHI possesses insurable fee simple title to each of
the Properties, subject only to the Permitted
-9-
<PAGE>
Exceptions. There are no leases of any Property between SHI and any other
Person. From and after the effectiveness of the Merger, HH Trust will possess
insurable fee simple title to each of the Properties, subject only to the
Permitted Exceptions and the SHMI Lease. From and after the effectiveness of the
Post Merger Transfer, HHLP will possess insurable fee simple title to each of
the Properties, subject only to the Permitted Exceptions and the SHMI Lease.
From and after the effectiveness of the Merger, SHMI will possess leasehold
title to each of the Properties under the SHMI Leases, subject only to the
Permitted Exceptions.
(f) No Adverse Conditions. Except for Permitted Exceptions and the
---------------------
Merger Agreement, no condition, event, agreement or restriction exists which
could adversely affect the validity or priority of the liens and security
interests under the Loan Documents, which could adversely affect the ability of
SHI to perform its obligations under the Loan Documents, or which could
constitute a Default or Event of Default.
(g) Compliance. Each Property is operated in accordance with all
----------
applicable Laws, ordinances, regulations, and other requirements of governmental
authorities and any restrictive covenants applicable to such Property
(including, without limitation, land use, development, zoning, building, noise
abatement, occupational health and safety and environmental Laws, regulations
and restrictions). Each Property does not contain any above ground or
underground storage tanks nor is any Property contaminated by any hazardous or
toxic substances or materials regulated by any Federal, State or local
governmental authority (including, without limitation, asbestos or asbestos
containing materials), nor has any Property been used as a land fill or other
waste disposal site.
(h) No Litigation. There is no litigation or proceeding pending or
-------------
threatened against or affecting SHI or the Properties, or any circumstance
existing which would in any manner materially adversely affect the priority or
enforceability of the Loan Documents and the liens and security interests
created pursuant thereto, or the ability of SHI to perform any of its
obligations under the Loan Documents.
(i) Accuracy. No information, certification, statement, budget,
--------
schedule, opinion, confirmation, application, affidavit, agreement, report or
other item submitted to Bank by SHI pursuant to this Agreement contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the information not misleading.
(j) No Defaults. No default, or event which with the giving of notice
-----------
or lapse of time or both would be an Event of Default exists under any of the
Loan Documents or any other agreement or instrument to which SHI is a party
including, without limitation, the Merger Agreement.
(k) Financial Statements. All financial statements of SHI delivered
--------------------
to Bank have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the financial condition of
SHI. Except for the Merger and Post Merger Transfer, and except for the E & P
REIT Trust Transaction, no material adverse change has occurred in the financial
condition of SHI since the respective dates thereof.
(l) Tax Returns. SHI has filed all required federal, state and local
-----------
tax returns and paid all taxes due pursuant to said returns.
(m) Utilities. All utility and municipal services necessary for the
---------
occupancy and operation of each Property are available for use at each Property,
including water supply, storm and sanitary sewer facilities, gas, electric,
cable and telephone facilities.
-10-
<PAGE>
(n) Parking; Access; and Zoning. Each Property has all parking
---------------------------
required by governmental authorities. Each Property physically abuts, and has
the legal right of access to one or more public roads and no curb cut approvals
or other governmental approvals are required for SHI to have the right of access
from the Property to such public road. Each Property constitutes a permitted
use within the zoning classification applicable to such Property and, further,
such Property does not constitute a nonconforming use.
(o) No Encroachments. The improvements located on each Property do
----------------
not encroach upon any building line, set back line, sideyard line, or any
recorded or visible easement (or other easement of which SHI is aware or has
reason to believe may exist) which exists with respect to each Property.
(p) Business Loan; Regulation U. The Loan, including interest rate,
---------------------------
fees and charges as contemplated hereby, is a business loan. The Loan Proceeds
shall be used for proper business purposes and consistently with all applicable
Laws. SHI is not in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U issued
by the Board of Governors of the Federal Reserve System), and no Loan Proceeds
shall be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock.
(q) Investment Company Act; ERISA. SHI is not an "investment company"
-----------------------------
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. All employee pension and benefit
plans subject to the Employee Retirement Income Security Act of 1974 ("ERISA")
-----
which are maintained for employees of SHI, are in compliance in all material
respects with the applicable provisions of ERISA. All of SHI's operations
comply in all material respects with all other Laws.
(r) Franchise Agreements. A true, correct and complete copy of each
--------------------
Franchise Agreement has been delivered to Bank and there are no amendments or
modifications thereof which have not been delivered to Bank prior to the Closing
Date. Each Franchise Agreement is in full force and effect and no event has
occurred or condition exists which constitutes or could constitute an event of
default thereunder on the part of any party thereto. SHI is the direct and
beneficial owner of the franchisee's rights under each Franchise Agreement, and
SHI has not previously assigned or granted a security interest in such rights to
any other Person other than Bank to secure the Existing Debt.
(s) Franchisor Consents. Franchisor has consented to (i) the
-------------------
assignment of the Franchise Agreement to Bank, (ii) the Merger, (iii) the Post
Merger Transfer and (iv) the SHMI Lease.
(t) Other Consents. All necessary or appropriate third party
--------------
consents to the execution and delivery of each of the Loan Documents have been
obtained.
4.2 Continuation of Representations and Warranties. SHI hereby covenants,
----------------------------------------------
warrants and agrees that the representations and warranties made herein shall be
and shall remain true and correct as of the date hereof and at all times
thereafter so long as any part of the Loan shall remain outstanding. If any such
representation or warranty fails to be true and correct in all material
respects, the same shall constitute an Event of Default hereunder.
V. COVENANTS OF BORROWER
---------------------
5.1 Insurance.
---------
-11-
<PAGE>
(a) Borrower agrees to secure, maintain and keep in force at all
times the following policies of insurance:
(i) Commercial general liability insurance, on an occurrence
basis, providing coverage for those liabilities which is equal or broader
than that currently covered by a CGL policy (ISO CGL form CG0001) with
primary coverage of not less than $1,000,000 per occurrence and $2,000,000
annual aggregate, with umbrella coverage of not less than $5,000,000 per
occurrence and $5,000,000 annual aggregate. The deductible or self-insured
retention under such policy shall not exceed $5,000.00.
(ii) In the event that all or any portion of the Properties are
located in a flood plain, flood insurance coverage in an amount acceptable
to Bank.
(iii) "All risk" property insurance on each Property providing
coverage for those risks which is equal or broader than that currently
covered by a "special form" policy (ISO form CP 1030) covering all
improvements, fixtures and equipment comprising the Properties in an amount
equal to the full replacement cost of the same, and in any event shall be
maintained in amounts sufficient to avoid co-insurance. Such insurance
shall also contain the following endorsements: Business Income with Extra
Expense Coverage; Extended Period of Indemnity for 360 days; Service
Interruption; Ordinance or Law; Legal Liability and Earthquake. The
deductible or self-insured retention under such policy shall not exceed
$5,000.00.
(iv) Business interruption insurance in an amount sufficient to
cover 100% of the potential gross income from each Property for a period of
at least six (6) months as projected by Bank.
(v) Such other coverages as Bank may reasonably require from
time to time.
(b) All policies of insurance shall be issued by companies
satisfactory to Bank and shall be in such form and contain such other
endorsements as Bank shall require. All policies of insurance shall contain a
lender's loss payable endorsement for the benefit of Bank and a mortgagee clause
approved by Bank and showing Bank as first mortgagee without contribution and as
loss payee. Bank shall be named as an additional insured on all such policies
of insurance. Borrower shall furnish Bank with an original evidence (ACORD 27
or equivalent) of all required insurance and satisfactory evidence of premium
payments and renewals at least thirty (30) days prior to the expiration of each
such policy. Complete duplicate originals of such policies shall be provided
from time to time upon request of Bank. All such insurance policies shall
contain a provision that the same will not be canceled or modified with respect
to the Properties without thirty (30) days prior written notice to Bank.
(c) All insurance moneys received on account of any loss or damage to
the Properties, after deducting therefrom the reasonable charges and expenses
paid or incurred in connection with the collection and disbursement of said
moneys, may be used and applied, at the option of Bank, in its sole and absolute
discretion, either for the purpose of paying the cost of repair, restoration or
replacement of the Properties damaged or destroyed, or applied to the
prepayment, or partial prepayment, of the Borrower's Obligations in such order
and manner as Bank may elect. In the event of loss or damage to any one or more
of the Properties, Borrower shall give immediate written notice to the insurance
carrier and to Bank. Borrower hereby grants to Bank full power and authority to
make proof of loss under any and all insurance policies, either in the name of
Borrower, or in the name of Bank (or the trustee under the respective Deeds of
Trust), and to adjust, settle, collect and receipt for all insurance, and to
endorse for and in behalf and in the name of Borrower any check, draft or other
instrument received therefor, and to collect the proceeds thereof and, if an
Event of Default shall occur hereunder, to collect
-12-
<PAGE>
and receipt for any unearned premiums and to apply same on the Borrower's
Obligations in such order and manner as Bank may elect. In the event of
foreclosure sale, any and all insurance policies may be assigned without consent
of Borrower, and Borrower authorizes the trustees under the respective Deeds of
Trust or Bank to assign said policies to the purchaser or purchasers at such
foreclosure sale, or if Bank so elects, such trustees or Bank may collect any
unearned premiums and apply the same on the Borrower's Obligations secured
hereby in such order and manner as Bank may elect.
(d) Notwithstanding anything to the contrary in subparagraph (c)
above, Bank agrees that the net proceeds of insurance will be made available to
Borrower for the cost of restoration or repair of any Property, provided that
each of the following conditions is satisfied:
(i) No Event of Default has occurred and is continuing at the
time of the damage or destruction or at any time thereafter;
(ii) Borrower gives Bank written notice within fifteen (15)
days after the date the damage occurred that it intends to restore or
repair the Property and requests that the net insurance proceeds be made
available therefor, and Borrower thereafter promptly commences the
restoration or repair and completes the same with reasonable diligence in
accordance with plans and specifications reasonably approved by Bank;
(iii) The net insurance proceeds are sufficient, in Bank's
reasonable judgment, to restore or repair the Property substantially to its
condition prior to the damage or destruction or, if in Bank's judgment such
proceeds are not sufficient, Borrower deposits with Bank funds in an amount
equal to the deficiency, which funds shall be expended prior to use of the
net insurance proceeds;
(iv) Bank receives evidence reasonably satisfactory to Bank
that the Property can lawfully be restored or repaired substantially to its
condition prior to the damage or destruction;
(v) Bank receives evidence reasonably satisfactory to Bank
that upon completion of the restoration or repair, the Property can be
operated substantially as it was before and can be expected to produce as
much Net Cash Flow Available for Debt Service as it did before the damage
or destruction;
(vi) The damage or destruction can be fully restored prior to
the Maturity Date and does not occur during the one year period expiring on
the Maturity Date;
(vii) Bank receives evidence reasonably satisfactory to Bank
that sufficient business interruption insurance is available to service the
Loan and pay the other expenses of the Property during the period of
restoration;
(viii) All insurance proceeds are paid to Bank and held by Bank
for disbursement as provided herein in an account bearing interest at
Bank's passbook savings rate; and
(ix) SHMI and HHLP confirm in writing that the SHMI Lease for
the Property will not terminate as a result of such damage or destruction.
(e) The following notice is provided pursuant to Section 427.120,
R.S.Mo. As used herein, the terms "you" and "your" shall refer to Borrower, and
the terms "we" and "us" shall refer to
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<PAGE>
Bank: UNLESS YOU PROVIDE EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY YOUR
AGREEMENT WITH US, WE MAY PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR
INTERESTS IN YOUR COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT YOUR
INTERESTS. THE COVERAGE THAT WE PURCHASE MAY NOT PAY ANY CLAIM THAT YOU MAKE OR
ANY CLAIM THAT IS MADE AGAINST YOU IN CONNECTION WITH THE COLLATERAL. YOU MAY
LATER CANCEL ANY INSURANCE PURCHASED BY US, BUT ONLY AFTER PROVIDING EVIDENCE
THAT YOU HAVE OBTAINED INSURANCE AS REQUIRED BY OUR AGREEMENT. IF WE PURCHASE
INSURANCE FOR THE COLLATERAL, YOU WILL BE RESPONSIBLE FOR THE COSTS OF THAT
INSURANCE, INCLUDING THE INSURANCE PREMIUM, INTEREST AND ANY OTHER CHARGES WE
MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE
EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF
THE INSURANCE MAY BE ADDED TO YOUR TOTAL OUTSTANDING BALANCE OR OBLIGATION. THE
COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE YOU MAY BE ABLE TO
OBTAIN ON YOUR OWN.
5.2 Financials and Reports. SHI, HH Trust, HHRT and HHLP, during such
----------------------
time as each is an Obligor, each shall:
(a) cooperate with Bank in promptly supplying Bank with such
information concerning the respective assets, liabilities and affairs of each
Obligor and SHMI, as Bank may request from time to time;
(b) without necessity of any request by Bank, as soon as available
and in no event later than ninety (90) days after the close of each fiscal year,
provide (i) a copy of HH Trust's annual report and 10-K, and (ii) to the extent
not included within the foregoing information, audited financial statements for
HH Trust, HHLP and any other Obligor, prepared by a firm of certified public
accountants acceptable to Bank, showing the results of operations and consisting
of a balance sheet and statement of income prepared in accordance with generally
accepted accounting principles consistently applied and certified by an officer
or managing member, as appropriate, of Borrower as being true and correct (Bank
acknowledges and agrees that Borrower's delivery of Borrower's 10-K to Bank will
satisfy Borrower's obligations as set forth in subparagraph (b) herein);
(c) without necessity of any request by Bank, as soon as available
and in no event later than forty-five (45) days after the close of each fiscal
quarter of HH Trust, HHLP and any other Obligor, provide a copy of HH Trust's
10-Q and internally prepared quarterly operating statements in form and
substance acceptable to Bank, certified as being true and correct by the chief
financial officer of HH Trust (Bank acknowledges and agrees that the Borrower's
delivery of Borrower's 10-Q to Bank will satisfy Borrower's obligations as set
forth in subparagraph (c) herein);
(d) without necessity of any request by Bank, as soon as available
and in no event later than forty-five (45) days after the close of each fiscal
quarter of HH Trust, provide a copy of internally prepared quarterly operating
statements for each Property in form and substance acceptable to Bank, certified
as being true and correct by the chief financial officer of HH Trust;
(e) promptly notify Bank of any condition or event which constitutes
(or which, with the giving of notice or lapse of time, or both, would
constitute) an Event of Default, and of any material adverse change in the
financial condition of Borrower;
-14-
<PAGE>
(f) within thirty (30) days after the real estate taxes for each
Property would be delinquent each year, provide evidence to Bank that all real
estate taxes have been paid;
(g) maintain its books and records in accordance with generally
accepted accounting principles consistently applied; and
(h) permit Bank or any of its agents or representatives to have
access to and to examine all books and records of any Obligor or any Property at
any time or times hereafter during business hours, and permit Bank to copy and
make abstracts from any and all of said books and records.
5.3 Fixtures and Personal Property. All of the personal property,
------------------------------
fixtures, attachments and equipment delivered upon, attached to or used in
connection with the operation of each Property shall be (i) in the name of
Borrower (as such name may change as contemplated herein), and (ii) kept free
and clear of all chattel mortgages, conditional vendor's liens and all liens,
encumbrances and security interests whatsoever. Borrower will, from time to
time, furnish Bank with satisfactory evidence of such ownership, including
searches of applicable public records.
5.4 Further Assurances. Borrower shall, on request of Bank, from time to
------------------
time, execute, deliver and furnish such documents as may be necessary to create,
perfect and maintain perfected as valid liens upon the Properties the liens
granted by Borrower to Bank pursuant to this Agreement, and to fully consummate
the transactions contemplated under this Agreement.
5.5 Leasing. Borrower shall not enter into any Lease without Bank's prior
-------
written consent. Notwithstanding the foregoing, (a) HHLP may execute and
deliver the SHMI Lease for each Property without the necessity of Bank's
consent, provided that (i) such SHMI Lease is on the exact form attached to the
Lease Subordination Agreement, (ii) a fully executed copy of such Lease is
promptly delivered to Bank upon the execution and delivery thereof, (iii) the
Lease Subordination Agreement for such SHMI Lease has been fully and duly
executed and delivered by SHMI to Bank; and (b) Borrower may enter into
equipment leases or other personal property leases provided that the aggregate
value of all property leased at any one Property does not exceed $25,000.00.
5.6 Authorization. Borrower shall furnish or cause to be furnished to
-------------
Bank such certificates, resolutions, and other documents necessary to evidence
the authority of the person or persons signing the Loan Documents on behalf of
Borrower to execute the Loan Documents and consummate the transactions herein
contemplated.
5.7 Expenses. Regardless of whether any disbursement of Loan Proceeds is
--------
made hereunder, Borrower shall pay, without limitation, all costs and expenses
incurred by Bank in connection with the Loan and the preparation, negotiation
and execution of this Agreement and the Loan Documents, including but not
limited to Bank's attorneys' fees and expenses, title insurance premiums,
survey, recording and filing fees, fees for appraisals, surveys, reports of
engineers and insurance, mortgage registration tax, and any other type of
mortgage tax, if any (all such fees and expenses being collectively referred to
herein as the "Loan Expenses"). Borrower's obligation to pay such costs and
-------------
expenses shall be in addition to Borrower's payment of other sums to Bank
pursuant to the terms of this Agreement. Notwithstanding anything to the
contrary in this Agreement, the obligation of Borrower to pay Loan Expenses
shall survive any termination of this Agreement. If Borrower fails to pay any
Loan Expenses as and when required, then Bank shall have the right, in addition
to any other remedies available to Bank, to advance Loan Proceeds to pay for
such Loan Expenses by means of paying the Person or Persons entitled to payment
and to add the amount thereof to the Loan. Any such advance shall accrue
interest at the Default Rate and shall be secured by the Loan Documents. Any
such advance shall not be deemed to have cured any default on the part of
Borrower to pay such amount.
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<PAGE>
5.8 Lease Covenants. Borrower shall not amend, modify or terminate any of
---------------
the SHMI Leases or any other Bank-approved Lease without the prior written
consent of Bank. Borrower will not suffer or permit any breach or default to
occur in any of the obligations of Borrower under any of the SHMI Leases or any
other Bank-approved Lease nor suffer or permit the same to terminate by reason
of any failure of Borrower to meet any requirement thereof. Borrower will keep
each SHMI Lease and any other Bank-approved Lease in full force and effect and
promptly notify the Bank of any default by any party thereunder. Borrower will
comply with all provisions of each SHMI Lease and any other Bank-approved Lease
which are binding on Borrower or its affiliates and will execute all documents
necessary for the consummation of the transactions contemplated thereby. If any
breach or default occurs by any party under any of the SHMI Leases or any other
Bank-approved Lease, which breach or default is not cured within any applicable
cure or grace period, then such breach or default shall constitute an Event of
Default. Borrower shall not, without the prior written consent of Bank, (i)
waive any default on the part of SHMI under any SHMI Lease, nor (ii) extend the
time for performance of any action required to be taken by SHMI under any SHMI
Lease, nor (iii) consent to any assignment of any SHMI Lease or any other
material action requiring the prior written consent of the landlord under the
SHMI Lease. Borrower shall not waive any default, or release any tenant or other
party from any obligation under any other Bank-approved Lease.
5.9 Franchise Agreement Covenants. Borrower shall not amend, modify or
-----------------------------
terminate any one or more of the Franchise Agreements without the prior written
consent of Bank. Borrower will not suffer or permit any breach or default to
occur in any of the obligations of Borrower under any of the Franchise
Agreements nor suffer or permit the same to terminate by reason of any failure
of Borrower to comply with any provision thereof. Borrower will keep each
Franchise Agreement in full force and effect and will promptly notify Bank of
any default by any party thereunder. Borrower will comply with all provisions
of the Franchise Agreements which are binding on Borrower or its affiliates and
will execute all documents necessary for the consummation of the transactions
contemplated thereby. If any breach or default occurs by any party under any of
the Franchise Agreements, which breach or default is not cured within any
applicable cure or grace period, then such breach or default shall constitute an
Event of Default. Borrower shall not waive any default, or release the
Franchisor from any obligation under any Franchise Agreement.
5.10 Mechanics' Liens and Taxes. Borrower agrees that it will not suffer
--------------------------
or permit any liens (other than the Permitted Exceptions) or mechanics' liens to
be claimed or filed or otherwise asserted against any one or more of the
Properties and will promptly discharge the same in case of the filing of any
claims for lien or proceedings for the enforcement thereof, and will pay all
special assessments which have been placed in collection and all real estate
taxes and assessments of every kind upon the Properties, before the same become
delinquent. Notwithstanding the foregoing, Borrower shall have the right to
contest any such lien, assessment or tax without the same constituting an Event
of Default provided that (i) such lien, assessment or tax is being contested
diligently and in good faith by appropriate proceedings, (ii) the sale of the
Property pursuant to said lien, assessment or tax is stayed pending the
resolution of such contest, and (iii) Borrower causes the Title Company to
provide Bank with insurance over such lien, assessment or tax. If Borrower
shall fail promptly to discharge or insure over any such liens, taxes or
assessments asserted and cause any judgment or decree to be satisfied and lien
to be released, then and in any such event Bank may, at its election (but shall
not be required to), procure the release and discharge of any such claim and any
judgment or decree thereon and, further, in its sole discretion effect any
settlement or compromise of the same. Any amounts so expended by Bank,
including premiums paid or security furnished in connection with the issuance of
any surety bonds, shall be deemed to constitute disbursement of Loan Proceeds
hereunder. In settling, compromising, discharging or providing indemnity or
security for any claim for lien, tax or assessment, Bank shall not be required
to inquire into the validity or amount thereof.
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<PAGE>
5.11 Litigation. If any proceedings are filed or are threatened to be
----------
filed seeking to (i) enjoin or otherwise prevent or declare invalid or unlawful
the occupancy or maintenance of one or more of the Properties or any portion
thereof; (ii) adversely affect the validity or priority of the liens and
security interests granted Bank under any one or more of the Loan Documents, or
(iii) enjoin or adversely affect the Merger or the Post Merger Transfer; then
Borrower will notify Bank of such proceedings and within two (2) Business Days
following Borrower's notice of such proceedings, Borrower will cause such
proceedings to be vigorously contested in good faith, and in the event of an
adverse ruling or decision, prosecute all allowable appeals therefrom. Borrower
will, without limiting the generality of the foregoing, resist the entry or seek
the stay of any temporary or permanent injunction that may be entered, and use
its best efforts to bring about a favorable and speedy disposition of all such
proceedings. Borrower agrees to reimburse Bank for all of Bank's legal fees and
expenses incurred in connection with reviewing and advising Bank with respect to
any such proceedings. Notwithstanding Borrower's performance of its obligations
hereunder, if such proceedings, in the reasonable opinion of Bank, materially
and adversely affect the Properties, then the same shall constitute an Event of
Default.
5.12 Negative Covenants. Until the Loan is repaid in full, without the
------------------
prior consent of Bank, Borrower agrees as follows:
(a) Except as may be expressly permitted herein, Borrower shall not
sell, agree to sell, lease (except to the extent expressly permitted herein),
rent, assign, transfer, or otherwise dispose of (i) any one or more of the
Properties or any portion thereof, (ii) any collateral for the Loan, (iii) any
SHMI Lease or any other Bank-approved Lease, or (iv) any of Borrower's rights
under any of the Franchise Agreements; provided, however, that Borrower shall
have the right to replace worn out or obsolete Collateral with Collateral of
equal or greater value.
(b) Except for the Merger, SHI shall not merge into or consolidate
with or into any Person; and SHI shall not dissolve, liquidate or otherwise
discontinue its business, except for mergers where HH Trust is the surviving
entity.
(c) Except for the Merger, HH Trust shall not merge into or
consolidate with or into any Person; and HH Trust shall not dissolve, liquidate
or otherwise discontinue its business, except for mergers where HH Trust is the
surviving entity.
(d) HHLP shall not merge into or consolidate with or into any Person;
and HHLP shall not dissolve, liquidate or otherwise discontinue its business.
(e) Borrower shall not mortgage, encumber or suffer any lien,
security interest or other encumbrance on any assets which are subjected to the
liens and security interests created by the Loan Documents other than mortgages,
encumbrances or liens of Bank and the Permitted Exceptions.
(f) No Property shall be subjected to any management agreement, and
no Person shall be granted any property management rights with respect to any
Property, provided, however, that SHMI shall have the right to enter into a
-------- -------
management agreement for each Property provided that (i) such agreement contains
terms and conditions reasonably acceptable to Bank, (ii) the property manager
agrees in writing and for the benefit of Bank that such agreement is subordinate
in all respects to the Loan Documents and that Bank will have the right to
terminate such agreement in the event Bank (or its designee) acquires title to
any Property through foreclosure or deed in lieu thereof, and (iii) a copy of
such management agreement is delivered to Bank promptly upon the due execution
and delivery thereof.
5.13 Financial Covenants.
-------------------
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<PAGE>
(a) If the Debt Service Coverage Ratio for the twelve month period
ending on December 31, 1999, or ending on each March 31, June 30, September 30
and December 31 of each year thereafter during the Agreement Term is less than
1.50, then the same shall constitute a Default under this Agreement. Borrower
shall deliver to Bank within forty-five (45) days after the end of each such
period twelve month period a certificate, signed by the chief financial officer
of Borrower, certifying as to the Debt Service Coverage Ratio for such twelve-
month period. If a Default occurs as aforesaid and Borrower delivers to Bank a
Collateral Substitution/Addition Request concurrently with Borrower's
certification of the Debt Service Coverage Ratio which, if approved, reasonably
would result in the cure of such Default, then said Default shall not constitute
an Event of Default provided that Collateral Substitution/Addition Documents (in
form and substance acceptable to Bank), effecting the substitution of collateral
proposed in said Collateral Substitution/Addition Request, have been fully
executed and delivered (and all conditions to the effectiveness thereof as
provided therein have been satisfied) within thirty (30) days after Bank has
approved the Collateral Substitution/Addition Request. If a Default occurs as
aforesaid and Borrower fails to deliver a Collateral Substitution/Addition
Request concurrently with Borrower's certification of the Debt Service Coverage
Ratio as aforesaid, then the same shall constitute an Event of Default without
the necessity of any further action.
(b) If the Loan to Value Ratio for the twelve month period ending on
December 31, 1999, or ending on each March 31, June 30, September 30 and
December 31 of each year thereafter during the Agreement Term is greater than
sixty percent (60%), then the same shall constitute a Default under this
Agreement. Borrower shall deliver to Bank within forty-five (45) days after the
end of each such period twelve month period a certificate, signed by the chief
financial officer of Borrower, certifying as to the Loan to Value Ratio for such
twelve-month period. If a Default occurs as aforesaid and Borrower delivers to
Bank a Collateral Substitution/Addition Request concurrently with Borrower's
certification of the Loan to Value Ratio which, if approved, reasonably would
result in the cure of such Default, then said Default shall not constitute an
Event of Default provided that Collateral Substitution/Addition Documents (in
form and substance acceptable to Bank), effecting the substitution of collateral
proposed in said Collateral Substitution/Addition Request, have been fully
executed and delivered (and all conditions to the effectiveness thereof as
provided therein have been satisfied) within thirty (30) days after the
Collateral Substitution/Addition Request. If a Default occurs as aforesaid and
Borrower fails to deliver a Collateral Substitution/Addition Request
concurrently with Borrower's certification of the Loan to Value Ratio as
aforesaid, then the same shall constitute an Event of Default without the
necessity of any further action.
5.14 Merger Covenants. SHI agrees to cause the Merger to be completed
----------------
within thirty days after the Closing Date. In addition, SHI and HH Trust agree
to cause each of the following to be delivered to Bank in form and substance
acceptable to Bank by October 31, 1999:
(a) Certified resolutions adopted by the board of directors or other
governing body of HH Trust authorizing, approving, ratifying and confirming the
execution and delivery of the Trust Assumption;
(b) An incumbency certificate, executed by the Secretary of HH Trust;
(c) Good standing certificates for HHLP issued by the Secretary of
State for the States of Virginia, Missouri and Arkansas;
(d) An opinion of counsel to HH Trust opining as to the organization
and good standing of HH Trust, the due authorization of the execution and
delivery of the Trust Assumption and the enforceability of the Trust Assumption
in accordance with its terms;
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<PAGE>
(e) Complete copies of all documents, agreements and Secretary of
State filings required to effectuate the Merger;
(f) A fully executed Collateral Assignment of Franchise Agreement
executed by SHMI for each Property;
(g) A fully executed copy of the SHMI Lease for each Property;
(h) A fully executed Lease Subordination Agreement, executed by SHMI,
for each Property, if not previously delivered to Bank; and
(i) Such other documents, agreements and further assurances as Bank
may reasonably require to confirm that HH Trust has assumed all of Borrower's
Obligations.
5.15 Post Merger Transfer Covenants. Upon the effectiveness of the
------------------------------
Merger, HH Trust agrees to cause the Post Merger Transfer to be completed by
October 31, 1999. In addition, HH Trust, HHRT and HHLP agree to cause each of
the following to be delivered to Bank in form and substance acceptable to Bank
within said thirty-day period:
(a) Certified resolutions adopted by the board of directors or other
governing body of HH Trust authorizing, approving, ratifying and confirming the
execution and delivery of the Post Merger Transfer Documents;
(b) Certified resolutions adopted by the partners or other governing
body of HHLP authorizing, approving, ratifying and confirming the execution and
delivery of the Post Merger Transfer Documents;
(c) Certified resolutions adopted by the trustees or other governing
body of HHRT authorizing, approving, ratifying and confirming the execution and
delivery of the Post Merger Transfer Documents;
(d) An incumbency certificate, executed by the Secretary of HH Trust;
(e) An incumbency certificate, executed by the general partner of
HHLP;
(f) An incumbency certificate, executed by a trustee of HHRT;
(g) Good standing certificates for HH Trust issued by the Secretary
of State for the States of Virginia, Missouri and Arkansas;
(h) Good standing certificates for HHRT issued by the Secretary of
State for the States of Maryland, Missouri and Arkansas;
(i) Good standing certificates for HHLP issued by the Secretary of
State for the States of Virginia, Missouri and Arkansas;
(j) An opinion of counsel to HHLP opining as to the organization and
good standing of HH Trust, the due authorization of the execution and delivery
of the Trust Assumption and the enforceability of the Trust Assumption in
accordance with its terms;
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<PAGE>
(k) An endorsement to each of the Title Policies indicating that fee
simple title to each of the Properties is vested in HHLP and otherwise updating
the effective date of each such policy to the date the Post Merger Transfer
Documents were recorded in the real estate records for the County and State
where each of the Properties are located;
(l) Complete copies of all of the Post Merger Transfer Documents; and
(m) Such other documents, agreements and further assurances as Bank
may reasonably require to confirm that HHLP has assumed all of Borrower's
Obligations and that HH Trust has not been released therefrom.
5.16 HHLP Covenants. HH Trust shall own and control (directly or through
--------------
its wholly-owned subsidiary Humphrey Hospitality REIT Trust) at all times during
the Agreement Term not less than a majority of the partnership interests of HHLP
and all of the general partnership interests of HHLP.
VI. EVENTS OF DEFAULT; REMEDIES
---------------------------
6.1 Events of Default; Remedies. The occurrence of any one or more of
---------------------------
the following events shall constitute an "Event of Default" as that term is used
----------------
herein, and any default which may occur hereunder shall constitute a default
under each of the other Loan Documents:
(a) If any installment of principal or interest on the Loan is not
paid within ten (10) days following Borrowers receipt of written notice after
the same becomes due and payable as required herein;
(b) If default shall be made by Borrower in the due performance of
any other covenant, agreement or condition herein contained or required to be
performed or observed by Borrower, provided, however, that if such default is
-------- -------
not a default otherwise described in this Section 6.1 and such default is cured
within thirty (30) days after Bank mails written notice to Borrower of such
default, then the same shall not constitute an Event of Default;
(c) If any representation, warranty, statement, report or certificate
contained herein, in any of the Loan Documents or contained in any other item
furnished to Bank by or on behalf of Borrower in connection with the Loan shall
prove to be in any material respect incorrect;
(d) If any Obligor defaults in the performance of its obligations
under any of the other Loan Documents, or if a default or an event of default
shall otherwise occur under the terms of any of the other Loan Documents which
is not cured within the applicable cure period, if any, provided in said
documents;
(e) If any Obligor shall: (i) file a voluntary petition in bankruptcy
or for arrangement, reorganization or other relief under any chapter of the
Federal Bankruptcy Code or any similar Law, state or federal, now or hereafter
in effect; or (ii) file an answer or other pleading in any proceedings
admitting insolvency, bankruptcy, or inability to pay its debts as they mature;
or (iii) not cause to be vacated within sixty (60) days after the filing against
it, any involuntary proceedings under the Federal Bankruptcy Act or similar Law,
state or federal, now or hereafter in effect, or any order appointing a
receiver, trustee or liquidator for it or for all or a major part of its
property or the Properties; or (iv) be adjudicated a bankrupt; or (v) 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 shall consent to the
appointment of a
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receiver or trustee or liquidator of all or the major part of its property, or
the Properties; or (vi) be dissolved, terminated or merged, if a corporation;
(f) If any one or more of the Properties are damaged or destroyed by
fire or other casualty or any condemnation proceeding is commenced against any
one or more of the Properties, and Bank does not make available the proceeds of
any insurance or condemnation awards for the restoration of the Property
affected by such damage, destruction or condemnation; provided, however, that
-------- -------
such non availability shall not constitute an Event of Default if each of the
following conditions are satisfied (i) Borrower delivers to Bank a Collateral
Substitution/Addition Request pursuant to the terms of Section 2.9 herein within
thirty (30) days after the date the damage or destruction occurs pursuant to
which another hotel property will be added as Collateral for the Loan or
substituted in lieu of the damaged or destroyed Property, (ii) Bank notifies
Borrower within thirty (30) days after receipt of such request that Bank is
willing to consider approving such request, and (iii) after Bank gives such
notice, all Collateral Substitution/Addition Documents have been fully executed
and delivered and all conditions to the effectiveness thereof as provided
therein have been satisfied;
(g) If any Loan Document ceases to be in full force and effect or if
any Obligor asserts that any one or more of the Loan Document is invalid or
unenforceable; provided, however, the Bank's failure to file a UCC continuation
statement shall not constitute an Event of Default;
(h) If a default or event of default shall occur under or pursuant to
the terms of any other indebtedness or other obligation of Borrower or any other
Obligor to Bank, whether now existing or hereafter arising, including but not
limited to any other loan, line of credit, revolving credit, letter of credit or
industrial bond financing;
(i) If any litigation is commenced involving any Obligor or any one
or more of the Properties, which in Bank's reasonable opinion will have a
material adverse effect on the Properties, or on Borrower's financial condition
or on Borrower's ability to perform its obligations hereunder;
(j) Sale or encumbrance of any one or more of the Properties or any
other collateral or security for the Loan without Bank's prior written consent;
or the making of any levy, seizure or attachment of or upon the Properties, or
any other collateral or security for the Loan, if such levy, seizure or
attachment remains unbonded, undismissed or unstayed and in effect for a period
of thirty (30) days;
(k) If any Obligor defaults in prompt and full payment or performance
when due (by acceleration or otherwise) in connection with obligations due third
parties or any material agreement to which such Obligor is a party and such
default continues beyond any permissible cure period provided for in such
arrangements with third parties;
(l) If any collusion, fraud, dishonesty or bad faith by or with the
acquiescence of any Obligor or any partner or officer of any such entity which
in any way relates to or affects the Loan or the Properties is discovered on or
after the date hereof;
(m) If a judgment or judgments for the payment of money in excess of
$100,000.00 in the aggregate shall have been rendered against any Obligor and
the same shall have remained unsatisfied and in effect, without stay of
execution, for a period of thirty (30) days;
(n) If there occurs any Change of Control;
(o) If any breach occurs in any one or more of the covenants set
forth in Section 5.5, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13 (subject to the cure
provisions provided therein) or 5.16; or
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(p) If any breach occurs in the covenant set forth in Section 5.1 for
more than twenty four (24) hours.
6.2 Remedies. Upon the occurrence of any Event of Default, Bank, in
--------
addition to all remedies conferred upon Bank by law and by the terms of the
other Loan Documents, may (but shall not be required to) pursue any one or more
of the following remedies concurrently or successively, it being the intent
hereof that none of such remedies shall be to the exclusion of any others:
(a) take possession of any one or more of the Properties;
(b) without inquiring into and without respect to the validity
thereof, to pay, settle, or compromise all existing bills and claims which
may be liens, or to avoid such bills and claims becoming liens, against the
Properties or any portion thereof, or as may be necessary or desirable for
the clearance of title to the Properties or the operation thereof;
(c) to prosecute and defend actions or proceedings in connection with
the Properties;
(d) to do any and every act which Borrower might do in its own behalf
with respect to the Properties, it being understood and agreed that this
power of attorney is a durable power of attorney and shall be a power
coupled with an interest and cannot be revoked;
(e) declare the Note and all amounts due to Bank under this Agreement
to be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived; and
(f) exercise or pursue any other remedy or cause of action permitted
at law or at equity or under this Agreement as any other Loan Document,
including without limitation, foreclosure of the Deed of Trust and enforcement
of any or all Loan Documents.
6.3 Right of Bank to Make Advances to Cure Defaults. In the event that
-----------------------------------------------
Borrower shall fail to perform any of its covenants or agreements herein or in
any of the other Loan Documents contained, Bank may (but shall not be required
to) perform any of such covenants and agreements, and any amounts expended by
Bank in so doing shall constitute additional indebtedness payable on demand
evidenced and secured by the Loan Documents.
6.4 Attorneys' Fees. Borrower will pay all reasonable attorneys' fees and
---------------
costs incurred by Bank and its participants in connection with the
administration and enforcement of any of the Loan Documents. Without limiting
the generality of the foregoing, if at any time hereafter the Bank employs
counsel for advice or other representation with respect to any matter concerning
Borrower, this Agreement, the Properties or the Loan Documents or to protect,
collect, lease, sell, take possession of, or liquidate any of the Properties, or
to attempt to enforce or protect any security interest or lien or other right in
any of the Properties or under any of the Loan Documents, or to enforce any
rights of the Bank or obligations of Borrower or any other person which may be
obligated to Bank by virtue of any of the Loan Documents or any other agreement
delivered to Bank in furtherance hereof, then all of Bank's reasonable expenses
resulting therefrom (including, without limitation, attorneys' fees and
expenses) relating thereto, shall constitute an additional indebtedness owing by
Borrower to Bank payable on demand and evidenced and secured by the Loan
Documents. The payment of any such fees by Bank shall constitute an advance of
Loan Proceeds hereunder.
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<PAGE>
6.5 No Waiver. No failure by Bank to exercise, or delay by Bank in
---------
exercising, any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement and in the Loan Documents are cumulative and not
exclusive of each other or of any right or remedy provided by law or equity. No
notice to or demand on Borrower in any case shall, in itself, entitle Borrower
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of Bank to any other or further action in any
circumstances without notice or demand.
6.6 Default Rate. If an Event of Default occurs and is continuing, then
------------
interest on the outstanding principal balance of the Loan shall accrue from (i)
the date the Default occurred which gave rise to the Event of Default if such
Default was as a result of a failure to make any payment required to be made
hereunder, or (ii) the date the Event of Default occurred if such Event of
Default relates to something other than the failure to make a payment required
hereunder, such Default Rate to accrue until the Event of Default is cured;
provided, however, that the parties agree that the foregoing provision shall not
imply that Bank has any obligation to agree that any Event of Default has been
cured or to accept any cure thereof. The failure of Bank to charge interest at
the Default Rate shall not be evidence of the absence of a Default or waiver of
a Default by Bank.
VII. GENERAL CONDITIONS
------------------
7.1 Time Is of the Essence. Borrower agrees that time is of the
----------------------
essence of all of its covenants under this Agreement.
7.2 Prior Agreements. This Agreement and the other Loan Documents,
----------------
and any other documents or instruments executed pursuant thereto or contemplated
thereby, shall represent the entire, integrated agreement between the parties
hereto, and shall supersede all prior negotiations, representations, or
agreements pertaining thereto, either oral or written. This Agreement and any
provision hereof shall not be modified, amended, waived or discharged in any
manner other than by a written amendment executed by all parties to this
Agreement.
7.3 Disclaimer. Bank shall not be liable for any debts or claims
----------
accruing in favor of any third party against Borrower or against the Properties.
Borrower is not nor shall be an agent of Bank for any purposes, and Bank is not
a venture partner with Borrower in any manner whatsoever.
7.4 Indemnification. To the fullest extent permitted by law,
---------------
Borrower shall protect, indemnify, defend (by counsel acceptable to Bank) and
save harmless, Bank and its directors, officers, agents and employees from and
against any and all liability, claim, cause of action, judgment, damage,
settlement, fine and expense (including, without limitation, attorneys' fees,
court costs and all litigation expenses) resulting from or arising out of any
one or more of the following: (a) any condition of the Properties (including,
without limitation, environmental conditions at or affecting the Properties),
(b) any acts or omission of Borrower or its agents, employees, partners,
contractors or subcontractors, (c) any Default or Event of Default, (d) any
misrepresentation or breach of warranty made by Borrower under this Agreement or
the other Loan Documents, (e) any default under the Franchise Agreements, or (f)
any litigation in connection with the Properties or any portion thereof;
provided, however, that Borrower shall not be liable for any loss or liability
incurred as a result of the gross negligence or intentional misconduct by Bank,
its agents or employees. This obligation on the part of Borrower shall survive
the closing of the Loan, the repayment thereof and any cancellation of the Loan
Agreement. Borrower shall pay, and hold Bank harmless from, any and all claims
of any brokers, finders or agents claiming a right to any fees in connection
with arranging the financing contemplated hereby. Bank hereby represents that
it has not
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<PAGE>
employed a broker or other finder in connection with the Loan. Borrower
represents and warrants that no brokerage commissions or finder's fees are to be
paid in connection with the Loan.
7.5 Captions. The captions and headings of various Articles and
--------
Sections of this Agreement and exhibits pertaining hereto are for convenience
only and are not to be considered as defining or limiting in any way the scope
or intent of the provisions hereof.
7.6 Inconsistent Terms and Partial Invalidity. In the event of any
-----------------------------------------
inconsistency among the terms hereof (including incorporated terms), or between
such terms and the terms of any other Loan Document, the terms of this Agreement
shall govern and prevail. If any provision of this Agreement, or any Section,
sentence, clause, phrase, or word, or the application thereof, in any
circumstances, is adjudicated by a court of competent jurisdiction to be
invalid, the validity of the remainder of this Agreement shall be construed as
if such invalid part were never included herein.
7.7 Gender and Number. Any word herein which is expressed in the
-----------------
masculine or neuter gender shall be deemed to include the masculine, feminine
and neuter genders. Any word herein which is expressed in the singular or
plural number shall be deemed, whenever appropriate in the context, to include
the singular and the plural.
7.8 Notices. Any notice, demand or other communication required or
-------
permitted hereunder or under the other Loan Documents shall be in writing and
shall be deemed to have been given if and when received if personally delivered
or sent via facsimile, on the first business day after being deposited with a
nationally recognized overnight courier service prepaid and specifying the
overnight delivery and addressed to the party at its address as provided herein
or on the second business day after being deposited in United States registered
or certified mail, postage prepaid, and addressed to a party at its address set
forth below or to such other address the party to receive such notice may have
designated to all other parties by notice in accordance herewith:
If to Bank:
Mercantile Bank National Association
3615 West Broadway
Sedalia, Missouri 65302-1147
Attention: Ernie Staashelm
Facsimile: (660) 826-0261
with a copy to:
Thompson Coburn LLP
One Mercantile Center, Suite 3500
St. Louis, Missouri 63101
Attention: Paul Macon
Facsimile: (314) 552-7000
If to Borrower:
Supertel Hospitality, Inc.
309 North 5/th/ Street
Norfolk, Nebraska 68702-2520
Attention: Troy Beatty
Facsimile: (402) 371-4229
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<PAGE>
with a copy to:
McGrath, North, Mullin & Kratz, P.C.
1400 One Central Park Plaza
222 South Fifteenth Street
Omaha, NE 68102
Attention: Ron Comes
Facsimile: (402) 341-0216
If to HHLP (post-merger):
Humphrey Hospitality Limited Partnership
12301 Old Columbia Pike
Silver Spring, MD 20904
Attention: Bethany Hooper
Facsimile: (301) 680-4342
with a copy to:
Gallagher, Evelius & Jones, LLP
Park Charles, Suite 400
218 North Charles Street
Baltimore, MD 21201
Attention: Stephen A. Goldberg, Esq.
Facsimile: (410) 837-3079
or to such other address the party to receive such notice may have theretofore
furnished to all other parties by notice in accordance herewith. Except as
otherwise specifically required herein, no notice of the exercise of any right
or option granted to Bank herein is required to be given.
7.9 Assignment. Bank may assign, negotiate, pledge or otherwise
----------
hypothecate this Agreement or any of its rights and security hereunder,
including the Note, Deed of Trust, and other Loan Documents to any third party
(including, without limitation, any bank, participant or financial institution),
and in case of such assignment, Borrower will accord full recognition thereto
and agree that all rights and remedies of Bank in connection with the interest
so assigned shall be enforceable against Borrower by such third party with the
same force and effect and to the same extent as the same would have been
enforceable by Bank but for such assignment, and any such assignee shall agree
to be bound by Bank's obligations under the Loan Documents. Bank is authorized
to disclose to any such assignee or participant any and all financial and other
information in the possession of Bank relating to the Properties or any Obligor.
Borrower may not assign its rights under this Agreement.
7.10 Waiver. BORROWER AND BANK HEREBY WAIVE AND MUTUALLY RELINQUISH THEIR
------
RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF THE
LOAN OR THE PROPERTIES.
7.11 Disgorgement. This Agreement shall continue in full force and effect
------------
until Borrower's Obligations are fully paid, performed and discharged. If Bank
receives any payment on account of Borrower's Obligations, and any such
payment(s) or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver or any other party under any Law, then, to the extent of
such payment(s) received, Borrower's
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<PAGE>
Obligations shall be revived and continue in full force and effect, as if such
payment(s) had not been received by Bank and applied on account of Borrower's
Obligations.
7.12 Effect of Agreement. The submission of this Agreement and the Loan
-------------------
Documents to Borrower for examination does not constitute a commitment or an
offer by Bank to make a commitment to lend money to Borrower; this Agreement
shall become effective only upon execution and delivery hereof by Bank to
Borrower.
7.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
7.14 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Missouri, without regard to its
conflict of laws rules. Any litigation arising hereunder or under any of the
other Loan Documents, shall be subject to the jurisdiction of any state or
federal court located in the State of Missouri as the Bank may designate, and
venue shall be in the United States District Court for the Eastern District of
Missouri or the Circuit Court for the State of Missouri located in such County
as may be designated by Bank. Any of the foregoing courts shall have personal
jurisdiction over Borrower. If Borrower is not then present in Missouri, Bank
may obtain service of process on the same pursuant to any rule or statute
governing service of process outside such State. Borrower waives any and all
rights to contest said jurisdiction and venue and waives any right to commence
any action against Bank in any other jurisdiction. Nothing in the foregoing
shall be deemed to prohibit the enforcement by Bank of its rights under the Loan
Documents in the courts of such other States as Bank may deem necessary or
appropriate to protect its interests, including, without limitation, the right
to prosecute foreclosure actions or other creditor's rights actions in Courts
located in the State of Arkansas.
7.15 No Oral Agreements. This notice is provided pursuant to Section
------------------
432.045, R.S.Mo. As used herein, "creditor" means Bank and "this writing" means
this Agreement and all the other Loan Documents. ORAL AGREEMENTS OR COMMITMENTS
TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT
YOU (BORROWER) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"Bank"
MERCANTILE BANK NATIONAL ASSOCIATION, a national
banking association
By:______________________________________________
Printed Name:____________________________________
Title:___________________________________________
"Borrower"
SUPERTEL HOSPITALITY, INC., a Delaware
corporation
By:______________________________________________
Printed Name:____________________________________
Title:___________________________________________
Schedule of Exhibits
--------------------
A Batesville Legal description
B Fayetteville Legal description
C Kirksville Legal description
D Mountain Home Legal description
E Russellville Legal description
F Sedalia Legal description
G Description of E & P REIT Trust Transaction
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EXHIBIT A
---------
(Batesville Property)
A TRACT OF LAND BEING A PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER
AND A PART OF THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 9,
TOWNSHIP 13 NORTH, RANGE 6 WEST IN THE CITY OF BATESVILLE, INDEPENDENCE COUNTY,
ARKANSAS, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTH
QUARTER CORNER OF SAID SECTION 9; THENCE SOUTH 04 DEGREES 00 MINUTES EAST A
DISTANCE OF 50.0 FEET TO THE SOUTH RIGHT OF WAY LINE OF WHITE DRIVE; THENCE
NORTH 86 DEGREES 00 MINUTES EAST ALONG SAID SOUTH RIGHT OF WAY LINE A DISTANCE
OF 226.0 FEET; THENCE SOUTH 04 DEGREES 00 MINUTES EAST A DISTANCE OF 300.0 FEET;
THENCE NORTH 86 DEGREES 26 MINUTES EAST A DISTANCE OF 148.15 FEET TO THE WEST
RIGHT OF WAY LINE OF RAMADA DRIVE; THENCE SOUTH 28 DEGREES 53 MINUTES WEST ALONG
SAID WEST RIGHT OF WAY LINE A DISTANCE OF 463.71 FEET TO THE POINT OF BEGINNING
(POB); THENCE CONTINUE SOUTH 28 DEGREES 53 MINUTES WEST ALONG SAID WEST RIGHT OF
WAY LINE A DISTANCE OF 163.92 FEET; THENCE SOUTH 33 DEGREES 00 MINUTES WEST
ALONG SAID WEST RIGHT OF WAY LINE A DISTANCE OF 22.97 FEET; THENCE SOUTH 86
DEGREES 00 MINUTES WEST A DISTANCE OF 358.00 FEET; THENCE NORTH 01 DEGREES 47
MINUTES 26 SECONDS EAST A DISTANCE OF 156.8 FEET; THENCE NORTH 86 DEGREES 00
MINUTES EAST A DISTANCE OF 445.00 FEET TO THE POINT OF BEGINNING.
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EXHIBIT B
---------
(Fayetteville Property)
PART OF A TRACT OF LAND RECORDED IN LIBER 1406, PAGE 906, LOCATED IN THE SE/4 OF
THE NE/4 AND PART OF A TRACT OF LAND RECORDED AT LIBER 1311, PAGE 229, LOCATED
IN THE NE/4 OF THE NE/4, ALL IN SECTION 19, T-16-N, R-30-W, FAYETTEVILLE,
WASHINGTON COUNTY, ARKANSAS, DESCRIBED AS:
COMMENCING AT THE NE CORNER OF SAID SE/4 OF THE NE/4; THENCE N 8932'00" W 476.40
FEET ALONG THE NORTH LINE OF SAID SE/4 OF THE NE/4 TO AN EXISTING IRON PIN AT
THE NE CORNER OF THE AFOREMENTIONED TRACT OF LAND RECORDED AT LIBER 1406, PAGE
906, FOR THE POINT OF BEGINNING, SAID POINT BEING ALSO THE NW CORNER OF A TRACT
OF LAND RECORDED AT LIBER 1153, PAGE 585; THENCE S 0050'37"W 238.30 FEET, ALONG
THE COMMON LINE OF THE ABOVE MENTIONED TRACTS TO A FOUND IRON PIN; THENCE N
8932'00"W 282.00 FEET TO A CHISELED "X" ON THE EAST LINE OF A PRIVATE STREET;
THENCE N 0050'37" E 115.00 FEET ALONG SAID EAST LINE OF THE PRIVATE STREET TO A
FOUND IRON PIN; THENCE N 3222'28" E 145.24 FEET TO AN EXISTING BOLT SET IN
CONCRETE ON THE NORTH LINE OF SAID SE/4 OF THE NE/4, BEING ALSO THE SW CORNER OF
THE AFOREMENTIONED TRACT OF LAND RECORDED AT LIBER 1311, PAGE 229, THENCE N
0123'53" E 94.81 FEET ALONG THE WEST LINE OF SAID TRACT TO A FOUND IRON PIN;
THENCE N 8953'54" E, 150.42 FEET TO A FOUND IRON PIN; THENCE S 0006'11" E 96.30
FEET ALONG THE EAST LINE OF SAID TRACT TO AN EXISTING CHISELED "X" AT THE SE
CORNER THEREOF; THENCE S 8932'00" E 53.14 FEET TO THE POINT OF BEGINNING,
CONTAINING 1.77 ACRES, MORE OR LESS, BEING SUBJECT TO ANY AND ALL EASEMENTS AND
RIGHTS OF WAY OR RECORD.
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EXHIBIT C
---------
(Kirksville Property)
Beginning at the Southwest corner of Lot 1, Block 2, Country Club Plaza, a
subdivision filed for record in Plat Book 7, Page 6 of Adair County Records;
thence along the West line of said Lot 1, North 00 degrees 45 minutes East a
distance of 370.02 feet; thence leaving said lot line, South 82 degrees 07
minutes East, a distance of 151.17 feet; thence along a line 150 feet East of
and perpendicular to the West line of said Lot 1, South 00 degrees 45 minutes
West, a distance of 350.72 feet to the Northerly right-of-way of Country Club
Drive, 60 feet wide, thence along the Northerly right-of-way of said Country
Club Drive in a Westerly direction along the arc of a curve to the left having a
radius of 530 feet, a distance of 22.47 feet to the point of tangent; thence
North 89 degrees 36 minutes 30 seconds West, a distance of 127.52 feet to the
point of beginning, being a part of Lot 1, Block 2, Country Club Plaza, as
determined by Survey Order Number 5326, made by Edward A. Cleaver L.S. 1241, in
August, 1999, and filed for record in Surveyors record Book 4, at Page 218, of
the Adair County Records.
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EXHIBIT D
---------
(Mountain Home Property)
Part of the Southeast 1/4 Northeast 1/4 of Section 4, Township 19 North, Range
13 West, Baxter County, Arkansas, more particularly described as follows:
Beginning at the Northeast corner of the Southeast 1/4 of the Northeast 1/4,
thence North 88 deg. 49' 28" East for a distance of 893.43 feet; thence South 00
deg. 06' 42" East for a distance of 345.60 feet to the point of beginning;
thence South 88 deg. 42' 42" East for a distance of 300.51 feet; thence South 01
deg. 06' 18" West for a distance of 170.00 feet; thence North 88 deg. 41' 42"
West for a distance of 296.90 feet; thence North 00 deg. 06' 50" West for a
distance of 169.96 feet to the point of beginning.
Together with an easement for ingress and egress as shown in Easement dated
October 24, 1977 and filed February 13, 1978 in Misc. Book 2 at page 227.
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EXHIBIT A
---------
(Russellville Property)
A part of the NW 1/4 of the NW 1/4 of Section 33, Township 8 North, Range 20
West described as follows: Beginning at a point which is 161.40 feet East of
the SW corner of said NW 1/4 of the NW 1/4; thence North 77.50 feet; thence East
25.00 feet; thence North 71.90 feet to a point on the Southerly right of way of
Interstate 40; thence North 89 degrees 34 minutes 05 seconds East along said
right of way 574.00 feet; thence South 65 degrees 47 minutes 45 seconds East
along said right of way 366.85 feet; thence West 933.55 feet to the point of
beginning.
Together with that certain Reciprocal Easement for Ingress/Egress and
Parking between Arkansas Waffles, Inc. and Double W, Inc., dated March 9,
1990, recorded March 13, 1990 in Deed Book 24-J at Page 145, and re-
recorded April 11, 1990, in Deed Book 24-J at Page 824, as amended by
Amendment to Reciprocal Easement for Ingress/Egress and Parking dated
October 30, 1990, recorded November 6, 1990 in Deed Book 24-T at Page 660.
LESS AND EXCEPT THE FOLLOWING TWO TRACTS:
Tract 1: A part of the NW 1/4 of the NW 1/4 described as commencing at the SW
corner of said NW 1/4 of the NW 1/4; thence East 1094.95 feet to a point on the
Southerly right of way of Interstate 40; thence North 65 degrees 47 minutes 45
seconds West along said right of way 362.85 feet to the point of beginning;
thence South 24 degrees 12 minutes 15 seconds West 30.00 feet; thence North 65
degrees 47 minutes 45 seconds West 4.00 feet, thence North 24 degrees 12 minutes
15 seconds East 30.00 feet to a point on the Southerly right of way of
Interstate 40; thence South 65 degrees 47 minutes 45 seconds East along said
right of way 4.00 feet to the point of beginning.
Tract 2: A part of the NW 1/4 of the NW 1/4 of Section 33, Township 8 North,
Range 20 West, Russellville, Pope County, Arkansas, more particularly described
as follows: Commencing at the SW corner of said NW 1/4 of the NW 1/4; thence
East 1094.95 feet to a point on the Southerly right of way of Interstate 40;
thence North 65 degrees 47 minutes 45 seconds West along said right of way
366.85 feet to the point of beginning; thence South 24 degrees 12 minutes 15
seconds West 50.00 feet; thence North 65 degrees 47 minutes 45 seconds West 4.00
feet; thence North 24 degrees 12 minutes 15 seconds East 48.19 feet to a point
on the Southerly right of way of Interstate 40; thence North 89 degrees 54
minutes 05 seconds East along said right of way 4.39 feet to the point of
beginning.
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EXHIBIT F
---------
(Sedalia Property)
BEGINNING AT THE INTERSECTION OF THE NORTH LINE OF U.S. ROUTE 50 AND THE WEST
LINE OF DUKE ROAD, SAID POINT BEING NORTH 6726'40" WEST, 892.35 FEET FROM THE
WEST LINE OF THOMPSON BOULEVARD IN THE CITY OF SEDALIA, PETTIS COUNTY, MISSOURI;
THENCE NORTH 6726'40" WEST ALONG THE NORTH RIGHT-OF-WAY LINE OF SAID U.S. ROUTE
50, 134.0 FEET TO THE POINT OF BEGINNING; THENCE CONTINUING NORTH 6726'40" WEST
ALONG THE NORTH RIGHT-OF-WAY LINE OF SAID U.S. ROUTE 50, 150.0 FEET; THENCE
NORTH 2233'20" EAST PARALLEL WITH THE WEST RIGHT-OF-WAY LINE OF SAID DUKE ROAD,
390.43 FEET; THENCE NORTH 0007'20" EAST PARALLEL WITH THE WEST RIGHT-OF-WAY LINE
OF SAID DUKE ROAD, 202.10 FEET TO A POINT ON THE SOUTH RIGHT-OF-WAY LINE OF 2ND
STREET; THENCE SOUTH 7404'40" EAST ALONG SAID SOUTH RIGHT-OF-WAY LINE, 155.89
FEET TO A POINT 139.26 FEET WEST OF THE WEST RIGHT-OF-WAY LINE OF SAID DUKE ROAD
AS MEASURED ALONG THE SOUTH RIGHT-OF-WAY LINE OF SAID 2ND STREET; THENCE SOUTH
0007'20" WEST PARALLEL WITH THE WEST RIGHT-OF-WAY LINE OF SAID DUKE ROAD, 189.40
FEET; THENCE CONTINUING PARALLEL WITH SAID WEST RIGHT-OF-WAY LINE SOUTH 2233'20"
WEST, 420.17 FEET TO THE POINT OF BEGINNING. EXCEPT THE SOUTH 60 FEET THEREOF
FOR ROADWAY AND SEWER EASEMENT AS DESCRIBED IN BOOK 21, PAGE 239. BEING A PART
OF LOT 2 OF THE NORTHEAST QUARTER OF SECTION 6, TOWNSHIP 45 NORTH, RANGE 21
WEST, PETTIS COUNTY, MISSOURI.
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EXHIBIT G
Description of E & P REIT Trust Transaction
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Exhibit 10.26
LOAN AGREEMENT
FOR
TERM LOAN CREDIT FACILITY
THIS AGREEMENT is made as of this 20th day of October, 1999, by and
between Supertel Hospitality, Inc., a Delaware corporation ("Borrower"), and
U.S. Bank National Association, a national banking association ("Bank"). In
consideration of the promises and mutual agreements hereinafter contained, the
Borrower and the Bank agree as follows:
SECTION 1. TERM LOAN
1.1 TERM LOAN. Upon the execution of this Agreement, the Bank agrees to
loan to the Borrower the principal sum of Ten Million and No/100 Dollars
($10,000,000) (herein the "Term Loan Commitment" or "Term Loan").
1.2 TERM LOAN NOTE. The loan to the Borrower under this Section 1 shall
be evidenced by a certain Term Loan Note (herein, together with any and all
extensions, renewals, modifications and substitutions thereof or exchanges
therefor, referred to as the "Term Loan Note") dated the date of issuance,
payable to the order of the Bank, in the principal amount of the Term Loan
Commitment. A copy of the Term Loan Note is attached hereto as Exhibit "A" and
is incorporated herein by this reference.
1.3 INTEREST. The unpaid principal amount of the Term Loan Note
outstanding from time to time shall bear interest at the following rates per
year:
(a) Fixed Rate. The interest rate on the Term Loan Note shall
be 8.53% per annum. The interest rate shall be calculated on the basis
of the actual number of days elapsed in a 360-day year.
(b) Default Rate. After maturity, whether by lapse of time,
default, acceleration or otherwise, at a rate equal to the Reference
Rate plus three percent (3%) per annum (the "Default Rate").
"Reference Rate" shall mean the rate of interest per annum
which has been publicly announced by U.S. Bank National Association in
Minneapolis, Minnesota (USBNA) as its "Reference Rate," which is not
necessarily the lowest rate charged by the Bank or USBNA on loans and
is set by the Bank in its sole discretion.
1.4 INTEREST AND PRINCIPAL DATES. Principal and interest shall be
amortized over a fifteen-year period and paid in monthly payments of Ninety-Nine
Thousand Six Hundred Thirty-Four and 20/100 Dollars ($99,634.20) commencing on
November 30, 1999 and continuing monthly on the last day of each month
thereafter. The total unpaid principal balance and all accrued but unpaid
interest shall be paid at maturity on October 15, 2004 (the "Term Loan Maturity
Date").
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1.5 FUNDS. Payments and prepayments of principal and interest shall be
made in immediately available funds to the Bank by payment at its main office at
233 South 13th Street, Lincoln, Nebraska 68508, or at such other place as the
Bank or the holder hereof may designate in writing to the Borrower.
1.6 PREPAYMENTS. The Borrower acknowledges that the Borrower shall have
no right to prepay the Term Loan Note without the Bank's consent, which the Bank
will not grant except upon the terms and subject to the conditions hereinafter
provided. In order to induce the Bank to agree to accept voluntary prepayments,
the Borrower agrees to pay the Bank a prepayment premium as described in this
section upon any prepayment, voluntary or involuntary. Because there is no
readily available index of rates payable on loans such as that from the Bank to
the Borrower, nor any assurance that the Bank could replace the loan with a
similar loan, the Borrower and the Bank agree that the changes in the yields on
U.S. Government securities provide a reasonable approximation for changes in
interest rates generally. For purposes of this section, the following terms
shall have the meanings given below:
"Average Maturity Period": The weighted average time to
scheduled maturity of all principal prepaid at any one time. Average
Maturity Period shall be computed by multiplying the dollar amount of
each installment of principal prepaid by the number of days until the
scheduled maturity of that installment, adding together the resulting
products and dividing the resulting sum by the total dollar amount of
principal being prepaid.
"Government Yield": As of any date of determination, the yield
(converted as necessary to the equivalent semi-annual compound rate) on
U.S. Treasury securities having a maturity date closest to the Average
Maturity Period, as published in The Wall Street Journal (or, if not so
published, as determined by the Bank by using the average of quotes
obtained by the Bank from three primary dealers that market U.S.
Treasury securities in the secondary market). "U.S. Treasury
securities" means actively traded U.S. Treasury bonds, bills and notes
and, if more than one issue of U.S. Treasury securities is scheduled to
mature at or about the time of the scheduled maturity of the Term Loan
Note, then to the extent possible the U.S. Treasury security issued
most recently prior to the date of determination will be chosen as the
basis of the Government Yield.
"Interest Differential": As of the date of any full or partial
prepayment, the Note Rate minus the sum of the Government Yield as of
the date of prepayment and the Issuance Spread.
"Issuance Spread": 1.79% per annum (approximately the amount
by which the Bank's cost of funds exceeds the Government Yield as of
the date of the Term Loan Note).
"Note Rate": The rate of interest payable under the Term Loan
Note.
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The Term Loan Note may be prepaid in whole or in part at any time, with
partial prepayments in the amount of $100,000.00 or an integral multiple
thereof. Any partial prepayments shall be applied to installments due under the
Term Loan Note in the inverse order of their maturity. If at the time of any
prepayment (whether voluntary or involuntary, and specifically including, but
not limited to, any payment prior to scheduled maturity following acceleration
of the Term Loan Note), the sum of the Government Yield as of the date of
prepayment plus the Issuance Spread is less than the Note Rate, the Borrower
shall pay to the Bank a prepayment premium equal to the present value
(determined in accordance with standard financial practice) of the product of
the Interest Differential times the amount prepaid times the Average Maturity
Period. The amount of the prepayment premium shall be calculated as follows. The
amount prepaid shall be multiplied by (a) the Interest Differential, times (b) a
fraction, the numerator of which is the number of days in the Average Maturity
Period and the denominator of which is 360. The resulting product shall then be
divided by the number of whole months (using a thirty-day month) in the Average
Maturity Period, yielding a quotient (the "Quotient"). The amount of the
prepayment premium shall be the present value (determined in accordance with
standard financial practice) on the date of prepayment (using the Government
Yield as of the date of such prepayment as the discount factor) of a stream of
equal monthly payments in number equal to the number of whole months (using a
thirty-day month) in the Average Maturity Period, with the amount of each
hypothetical monthly payment equal to the Quotient and with the first payment
payable thirty days after the date of prepayment.
Prepayments shall be applied first against the unpaid interest, then
any remaining sum shall be applied against unpaid installments of the Term Loan
Note in the inverse order of their scheduled maturity. Such prepayments shall
not relieve the undersigned of the obligation to continue any regularly
scheduled repayment of the outstanding indebtedness hereunder.
1.7 PERMISSIBLE BORROWING PURPOSES. The Term Loan extended to the
Borrower hereunder shall be used for general corporate purposes of the Borrower.
1.8 COMMITMENT FEE. Upon the execution of this Agreement, Borrower
shall pay the Bank a commitment fee in the amount of $50,000.
1.9 LATE FEES. Borrower shall pay the Bank a late fee of 5% of the
amount of any payment received 15 days or more after its due date.
SECTION 2. COLLATERAL AND SECURITY
2.1 SECURITY. As security for the payment of the Term Loan Note, which
Term Loan Note is executed in connection herewith (including any and all
extensions, renewals, modifications and substitutions thereof or exchanges
therefor), any and all future advances of credit to the Borrower, the
performance of this Agreement and any other agreement executed in connection
herewith, the payment of any and all amounts advanced by the Bank hereunder on
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<PAGE>
behalf of the Borrower, any legal fees and all other fees, charges, expenses, or
costs incurred by the Bank in connection herewith (herein collectively called
the "Obligations"), the Borrower will execute and deliver to the Bank certain
documents in connection with this Agreement as follows:
(a) Deeds of Trust or Mortgages, in form and substance
satisfactory to the Bank, on all of the real estate described on
Exhibit "B" attached hereto and incorporated herein by this reference,
and any additions thereto or substitutions therefor approved by the
Bank (the "Term Loan Properties"), giving the Bank a first lien on all
of the real estate described on Exhibit "B" to secure the Obligations.
(b) Assignments of Leases and Rents, in the form attached
hereto as Exhibit "C", assigning the rights of the Borrower as lessor
of each of the Term Loan Properties that are leased by the Borrower,
together with resolutions of authority as applicable to Borrower. The
foregoing provision notwithstanding, Borrower shall not lease any of
the Term Loan Properties without the Bank's prior written consent. The
Bank consents to the lease of the Term Loan Properties to Supertel
Hospitality Management, Inc. provided that the merger between Supertel
Hospitality, Inc. ("Supertel") and Humphrey Hospitality Trust, Inc.
("HH Trust") described in the Disclosure Schedule has been consummated
and all conditions of this Agreement have been satisfied.
(c) Lease Subordination Agreements, in the form attached
hereto as Exhibit "D", from the lessees of each of the Term Loan
Properties.
(d) Collateral Assignment of Franchise Agreements in form and
substance satisfactory to the Bank and in substantially the form
attached hereto as Exhibit "E", from the lessees of each of the Term
Loan Properties.
(e) Agreements from the franchisors or licensors of all of the
Term Loan Properties in form and substance satisfactory to the Bank
providing the Bank with assurances in substantially the form attached
hereto as Exhibit "F" to the effect that they will not terminate the
franchises with Borrower in the event the Bank enforces its rights
under the Security Documents or in the event of a default under the
franchises.
(f) Security Agreement(s) and Financing Statement(s) on all
the personal property now owned or held or hereafter acquired, and any
proceeds thereof together with resolutions of authority as applicable
to Borrower giving the Bank a first lien on all personal property of
Borrower relating to or pertaining to the Term Loan Properties. A copy
of the Security Agreement is attached hereto as Exhibit "G" and is
incorporated herein by this reference. A copy of the form of Financing
Statement to be used is attached hereto as Exhibit "H" and is
incorporated herein by this reference.
Borrower hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Bank the attorney-in-fact
of Borrower coupled with an interest, to execute, deliver, and if
appropriate, to file with the appropriate filing officer or office such
security agreements, financing statements or other instruments as Bank
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<PAGE>
may request or require in order to impose or perfect the lien or
security interest hereof more specifically thereon.
2.2 RIGHTS IN PROPERTY HELD BY BANK. As further security for the prompt
satisfaction of all the Obligations of the Borrower to the Bank, the Borrower
hereby assigns, transfers, and sets over to the Bank all of its right, title and
interest in and to, and grants the Bank a lien on and a security interest in,
and agrees that the Bank may set off against, all amounts that may be owing from
time to time by the Borrower to the Bank in any capacity, including, but without
limitation, any balances, credits, deposits, accounts, monies, or any other
property of the Borrower, now or hereafter in the possession of the Bank.
2.3 SECURITY DOCUMENTS. The executed Deeds of Trust, Mortgages,
Assignments of Leases and Rents, Lease Subordination Agreements, Collateral
Assignments, Agreements with franchisors, Security Agreement(s) and Financing
Statements described in Section 2.1 and the rights, liens and security interests
and setoff described in Section 2.2 are collectively and individually referred
to as "Security Documents."
2.4 SUBSTITUTION AND ADDITION TO TERM LOAN PROPERTIES. Subject to the
approval of the Bank, as hereinafter set forth, Borrower may request permission
for any reason to substitute real estate and obtain the release of real estate
that is a part of the Term Loan Properties, and Borrower may also request
permission to add real estate to the Term Loan Properties to maintain compliance
with, or cure any failure to maintain compliance with, any of the ratios set
forth in Section 4.4 of this Agreement. At the time of making any such request,
the Borrower shall provide the Bank with such information and documents as the
Bank may require, including, without limitation, the following: an appraisal, a
title insurance commitment, an ALTA survey, an environmental report, a U.C.C.
search, flood hazard certification, evidence of insurance, zoning information,
the franchise agreement, tax and judgment lien searches, and a building
inspection report. The Bank shall have thirty (30) days after the request by the
Borrower to determine, in its sole discretion, if the real estate proposed to be
substituted or added is of appropriate character, quality and value. Any request
to add real estate to the Term Loan Properties to cure a failure to comply with
any ratios set forth in Section 4.4 shall be made within the thirty-day period
provided herein to cure any noncompliance with this Agreement.
If the Bank determines in its sole discretion that it will permit the
substitution and release or addition of real estate to the Term Loan Properties,
Borrower shall provide the Bank with documentation, in form and substance
acceptable to the Bank, to provide the Bank with the same rights with respect to
the substituted or added real estate and related personal property and franchise
rights as are provided by the Security Documents described herein with respect
to the existing Term Loan Properties. The documentation shall be provided by the
Borrower within the time required by the Bank. The documentation relating to the
substituted or additional real estate and related personal property and
franchise rights shall thereafter be considered to be a part of the Security
Documents for purposes of this Agreement and all other documents relating to or
pertaining to this Agreement.
5
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Term Loan, the Borrower represents and
warrants to the Bank that:
3.1 ORGANIZATION. Borrower is a corporation existing and in good
standing under the laws of the State of Delaware. The Borrower is duly
qualified, in good standing and authorized to do business in each jurisdiction
where, because of the nature of its activities or properties, such qualification
is required, and where a failure to so qualify would have a material adverse
effect on the Borrower; and the Borrower has the power and authority as a
corporation to own its properties and to carry on its business as now being
conducted.
3.2 AUTHORIZATION; NO CONFLICT. The borrowings hereunder, the execution
and delivery of the Term Loan Note and the Security Documents and the
performance by the Borrower of its obligations under this Agreement, the Term
Loan Note and Security Documents are within the Borrower's corporate powers,
have been authorized by all necessary corporate action, have received all
necessary governmental approval (if any shall be required) and do not and will
not contravene or conflict with any provision of law or of the articles of
incorporation or bylaws of the Borrower or of any agreement binding upon the
Borrower and are and will continue to be enforceable under the laws of the State
of Nebraska in accordance with their respective terms, except as such
enforcement may be qualified or limited by bankruptcy, insolvency, or other
similar laws affecting creditors rights in general.
3.3 FINANCIAL STATEMENTS; CONTINGENT LIABILITIES. The financial
statements of Borrower dated June 30, 1999, copies of which have been furnished
to the Bank, were prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a basis consistent with that of Borrower's
preceding fiscal year, and accurately present the financial condition of
Borrower as at such dates and the results of their operations for the respective
period then ended. Since the date of such financial statements, no material
adverse change in the business, properties, assets, operations, conditions or
prospects of Borrower has occurred. There are no contingent liabilities of
Borrower in an amount in excess of $100,000 individually, or $1,000,000 in the
aggregate, which is known to the Borrower or which should reasonably be known to
the Borrower, which is not reflected in such financial statements or which is
not disclosed in the Disclosure Schedule attached hereto at Exhibit "I" (the
"Disclosure Schedule") and incorporated herein by this reference. The Bank
hereby acknowledges that it is aware of the proposed merger of Supertel into HH
Trust, as described in the Disclosure Schedule.
3.4 TAXES. The Borrower has filed or caused to be filed all federal,
state, county and local tax returns which are required to be filed, and has paid
or caused to be paid all personal property taxes, real estate taxes, income
taxes, other taxes, special assessments, assessments, withholding, contributions
and governmental charges or levies (collectively and individually referred to as
"Taxes") as shown on such returns and reports, or on any assessment received by
them, to the extent that such Taxes have become due (except for current Taxes
not delinquent and Taxes being contested as provided by law, in good faith and
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by appropriate legal proceedings for which adequate reserves have been provided
on the books of the Borrower, and as to which no foreclosure, distraint, sale or
similar proceedings have been commenced).
3.5 LIENS. Borrower has good and marketable title to all of the assets
described in the Security Documents, including, without limitation, the Term
Loan Properties. None of the assets of the Borrower described in the Security
Documents are subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance or security interest, except for: (a) liens in favor of the
Bank granted hereunder; (b) current Taxes not delinquent or Taxes being
contested as provided by law in good faith and by appropriate legal proceedings;
(c) liens arising in the ordinary course of business for sums not due or sums
being contested in good faith and by appropriate legal proceedings, but not
involving any deposits or advances of borrowed money or the deferred purchase
price of property or services; (d) to the extent specifically shown in the
financial statements referred to above; and (e) to the extent reflected in the
attached Disclosure Schedule.
3.6 ADVERSE CONTRACTS. The Borrower is not a party to any agreement or
instrument, or subject to any charter or other corporate restriction, nor is it
subject to any judgment, decree or order of any court or governmental body,
which Borrower knows or reasonably should know may have a material and adverse
effect on the business, assets, liabilities, financial condition, operations or
business obligations under this Agreement or the Term Loan Note or Security
Documents. Except as disclosed in the Disclosure Schedule, the Borrower has no,
nor with reasonable diligence should have had, knowledge of or notice that it is
in default on the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement, instrument,
charter or other corporate restriction, judgment, decree or order of any court
or governmental body that might have a material adverse impact on the Borrower.
The Bank hereby acknowledges that it is aware of the proposed merger of Supertel
into HH Trust, as described in the Disclosure Schedule.
3.7 REGULATION U. The Borrower is not engaged principally in, nor is
one of the Borrower's important activities, the business of extending credit for
the purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereinafter in effect.
3.8 LITIGATION. No litigation (including derivative actions),
arbitration proceedings or governmental proceedings are pending or threatened
against the Borrower which would (singly or in the aggregate), if adversely
determined, have a material and adverse effect on the financial condition,
continued operations or prospects of the Borrower, except as set forth
(including estimates of the dollar amounts involved) in the Disclosure Schedule.
3.9 SELL, CONVEY AND TRANSFER. Except in the ordinary course of
business, the Borrower has not sold, conveyed, transferred, disposed of, or
otherwise further encumbered, any of the Borrower's assets within the last
ninety (90) days that is not disclosed in the Disclosure Schedule.
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3.10 LAWFUL INTEREST. The amounts to be received by Bank as interest
payments under the Term Loan Note shall constitute lawful interest and shall be
neither usurious nor illegal under the laws of the State of Nebraska.
3.11 SECURITY DOCUMENTS. The provisions of the Security Documents as
provided herein, are effective to create, in favor of the Bank, legal, valid and
enforceable liens on all of the real estate and personal property described
therein. The Deeds of Trust, Mortgages and Assignments of Leases and Rents when
filed with the recording offices listed on Exhibit "B" and the Financing
Statements when filed with the Secretaries of State (or other appropriate
recording office) in Nebraska, Texas, Iowa, Virginia and Maryland, will
constitute fully perfected first security interests and liens on all right,
title and interest of the Borrower in the real estate and personal property
described therein (to the extent perfection is controlled by the Uniform
Commercial Code), prior and superior to all other liens.
3.12 PLACE OF BUSINESS. Borrower's principal place of business and
chief executive offices are located in Norfolk, Nebraska. In the event of the
merger described in Section 4.1, Borrower's principal place of business and
chief executive offices shall be located in Silver Spring, Maryland.
3.13 ENVIRONMENTAL COMPLIANCE. Except as set forth in the Disclosure
Statement, the Borrower and its subsidiaries are in material compliance with all
environmental protection laws in each jurisdiction where they are presently
doing business, the violation of which would have a material adverse effect on
the use, operation or value of the Term Loan Properties, or any of them. The
Borrower is not subject to any liabilities nor have they received any notice
from any governmental agency regarding any action, pending or contemplated,
pertaining to any alleged violation of any environmental protection laws with
respect to any of the present or previously owned real properties of the
Borrower where the effect of which could be reasonably expected to have a
material adverse effect on the Borrower or any of its properties.
3.14 ERISA. Borrower has fulfilled all obligations under the Employee
Retirement Income Security Act of 1974, as amended, in respect of any employee
benefit plan maintained for employees of the Borrower, and no reportable event
or prohibited transaction has occurred with respect to any such employee benefit
plan.
3.15 DEFAULTS. The Borrower is not in default, nor has any event or
circumstance occurred which, but for the passage of time or the giving of
notice, or both, would constitute an Event of Default, as defined herein.
3.16 COMPLIANCE WITH THE LAW. Borrower (a) is not in violation of any
federal, state or county governmental rule, regulation or ordinance; and (b) has
not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of Borrower's properties or the conduct
of its business; which violation or failure (in the event that such violation or
failure were asserted by any person or entity by appropriate action) would
result in a material impediment to the conduct of the Borrower's regular
business generally or at any of its properties.
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3.17 INVESTMENT COMPANY ACT. The Borrower is not a "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.18 SUBSIDIARIES. Exhibit "J", attached hereto lists all of the
subsidiaries and affiliates of Borrower. Borrower represents that all of its
subsidiaries and affiliates are duly organized and existing under the laws of
their respective jurisdictions of their creation, and are duly qualified, in
good standing and authorized to do business in each jurisdiction where, because
of the nature of its activities or properties, such qualification is required,
and where a failure to so qualify would have a material adverse effect on the
Borrower; and the Borrower has the corporate power and authority to own its
properties and to carry on its business as now being conducted.
3.19 Y2K COMPLIANCE. Borrower has reviewed and assessed its business
operations and computer systems and applications to address the "year 2000
problem" (that is, that computer applications and equipment used by Borrower,
directly or indirectly through third parties, may be unable to properly perform
date-sensitive functions before, during and after January 1, 2000). Borrower
reasonably believes that the year 2000 problem will not result in a material
adverse change in Borrower's business condition (financial or otherwise),
operations, properties or prospects or ability to repay the Bank. Borrower
agrees that this representation will be true and correct on and shall be deemed
made by Borrower on each date Borrower requests any advance under this Agreement
or the Term Loan Note or delivers any information to the Bank. Borrower will
promptly deliver to the Bank such information relating to this representation as
the Bank requests from time to time.
3.20 FRANCHISES, PATENTS, COPYRIGHTS, ETC. The Borrower possesses, and
will at all times possess, all franchises, including, without limitation, motel
franchises or licenses, patents, copyrights, trademarks, trade names, licenses
and permits, and rights in respect of the foregoing, adequate for the conduct of
its business substantially as now conducted or as it is intended to be
conducted, without known conflict with any rights of others.
3.21 SALE TO SUPERTEL HOSPITALITY MANAGEMENT, INC. Borrower represents
that all personal property assets relating to or pertaining to the Term Loan
Properties, excluding furniture, fixtures and equipment, will, immediately prior
to the merger, be sold to Supertel Hospitality Management, Inc., as described in
the Disclosure Schedule.
SECTION 4. COVENANTS
Until all Obligations of the Borrower hereunder and under the Term Loan
Note are paid and fulfilled in full, the Borrower agrees that they shall comply
with the following covenants, unless the Bank consents otherwise in writing:
4.1 CORPORATE EXISTENCE. The Borrower shall preserve and maintain its
corporate existence, rights, franchises and licenses, and will not liquidate,
dissolve, or merge, or consolidate with or into any other corporation, or sell,
lease, transfer or otherwise dispose of all or a substantial part of its assets
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without the Bank's prior written consent. The Bank hereby consents to the
contemplated merger of Borrower into Humphrey Hospitality Trust, Inc. ("HH
Trust"), a Virginia corporation, and the transfer of the real and personal
property of Borrower subject to the Security Documents into Humphrey Hospitality
Limited Partnership ("HHLP"), a Virginia limited partnership; provided that HH
Trust, HHLP and Humphrey Hospitality REIT Trust, a Maryland real estate
investment trust ("HH REIT") (HH Trust, HHLP and HH REIT are collectively
referred to herein as the "HH Parties"); agree to assume and perform the
Obligations of Borrower under this Agreement, the Term Loan Note and Security
Documents, and to execute such documents as are required by the Bank to evidence
said assumption and agreement to perform by the HH Parties. The Bank further
consents to any merger after which HH Trust is the surviving entity; provided
that the surviving entity is otherwise in compliance with the provisions of this
Agreement.
4.2 REPORTS, CERTIFICATES AND OTHER INFORMATION. The Borrower shall
furnish to the Bank:
(a) Audit Report. Within one hundred-twenty (120) days after
the end of each fiscal year of the Borrower, a copy of an unqualified
annual consolidated audit report of the Borrower prepared on a basis
and in conformity with generally accepted accounting principles
("GAAP") applied on a basis consistent with the prior audited financial
statement of Supertel duly certified by independent certified public
accountants of recognized standing reasonably satisfactory to the Bank,
and including, without limitation, footnotes required by GAAP regarding
any defaults on the Revolving Loan identified in the audit, and
including any management letter provided to the Borrower by its
accountants.
(b) Certificates. Contemporaneously with the furnishing of a
copy of each annual audit report and all required interim reports
required by subsection (e) a certificate dated the date of such annual
report and interim reports and signed by either the President or the
Chief Financial Officer of Borrower, to the effect that no Event of
Default has occurred and is continuing or, if there is any such event,
describing it and the steps, if any, being taken to cure it.
(c) Reports to SEC and to Shareholders. Copies of each filing
and report made by the Borrower to any securities exchange or the
Securities and Exchange Commission, except in respect of any single
shareholder, and of each communication from the Borrower to
shareholders generally, promptly upon the filing or making thereof.
(d) Notice of Default, Litigation and ERISA Matters.
Immediately upon learning of the occurrence of any of the following,
written notice describing the same and the steps being taken by the
Borrower or any subsidiary affected in respect thereof: (i) the
occurrence of any Event of Default or any event or condition which with
the passage of time or the giving of notice, or both, might become an
Event of Default; or (ii) the institution of, or any adverse
determination in, any litigation, arbitration or governmental
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proceeding which is material to the Borrower, or (iii) the occurrence
of a reportable event under, or the institution of any steps by
Borrower to withdraw from, or the institution of any proceedings to
terminate, any employee benefit plans as to which the Borrower may have
any liability.
(e) Interim Reports. Within forty-five (45) days after the end
of each fiscal quarter, a copy of an internally prepared financial
statement of the Borrower prepared on a basis consistent with the
audited financial statements of the Borrower, signed by an authorized
officer of the Borrower and consisting of at least (i) a balance sheet
as at the close of the preceding quarter, (ii) a statement of earnings
for the preceding quarter, and (iii) operating statements for each of
the Term Loan Properties; provided, however, that such financial
statements will not include footnotes and will be subject to normal
year-end adjustments.
(f) Annual Corporate Tax Return. A copy of Borrower's annual
tax return promptly after it is submitted to the Internal Revenue
Service.
(g) Capital Expenditure Account. A quarterly report detailing
Borrower's use of the funds in the Capital Expenditure Account created
pursuant to Section 4.25.
(h) Other Information. From time to time such other
information, financial or otherwise, concerning the Borrower as the
Bank may reasonably request.
4.3 INSPECTION. The Borrower will permit the Bank or any officer,
employee or agent of the Bank at any time during the Borrower's regular business
hours to inspect their properties and to inspect and copy their books and
records. Upon the occurrence of an Event of Default, the Bank shall also be
entitled to have an independent audit of Borrower's books and records. Borrower
shall pay all costs associated with annual inspections of the real and personal
properties described in the Security Documents.
4.4 FINANCIAL REQUIREMENTS. Borrower shall comply with the following
financial covenants to be tested in accordance with GAAP consistently applied:
(a) Term Loan Debt Service Coverage Ratio. Borrower shall
maintain a Term Loan Debt Service Coverage Ratio greater than 1.5 to 1,
to be tested quarterly at the end of each calendar quarter based on the
trailing one-year period.
The Term Loan Debt Service Coverage Ratio shall be measured as
of December 31, 1999, and at quarterly intervals thereafter, and for
any period shall be determined as the quotient obtained by dividing (a)
Adjusted Net Operating Income from the Term Loan Properties for such
period by (b) the amount of debt service payments (principal and
interest) which would be required to be made under this Agreement and
related loan documents during such period.
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"Adjusted Net Operating Income" for this and the other
financial covenants is defined as the remainder of the Net Operating
Income after reducing Net Operating Income by an amount equal to the
sum of (a) 4% of gross room revenue for FF&E reserve, plus (b) 4% of
gross room revenue for management fees and expenses.
"Net Operating Income" shall be the net operating income of
the relevant properties determined for this and the other financial
covenants from Borrower's internally generated operating statements
prepared consistently with Borrower's internally prepared 1999 Profit
and Loss Statement.
(b) Consolidated Debt Service Coverage Ratio. Borrower shall
maintain a Consolidated Debt Service Coverage Ratio greater than 1.5 to
1, to be tested at the end of each calendar quarter based on the
trailing one-year period.
The Consolidated Loan Debt Service Coverage Ratio shall be
measured as of December 31, 1999, and at quarterly intervals
thereafter, and for any period shall be determined as the quotient
obtained by dividing (a) Adjusted Net Operating Income from all of
Borrower's properties for such period by (b) the amount of Borrower's
total debt service payments (principal and interest) which would be
required to be made during such period, including Imputed Debt Service.
"Imputed Debt Service" means the annual payments of principal
and interest that would be required to fully amortize the outstanding
revolving loan balance of Borrower's aggregate revolving loan
indebtedness for the trailing one-year period as if the revolving loans
were loans to be amortized in equal monthly payments of principal and
interest over a 25-year period, with an assumed interest rate of the
yield on U.S. Treasury securities having a 10-year maturity at the time
of the determination, plus 3.0%.
(c) Term Loan to Value Ratio. The ratio of the principal
balance outstanding on the Term Loan to the value of the Term Loan
Properties shall be less than 50% tested at the end of each calendar
quarter.
For purposes of calculation of the Term Loan to Value Ratio as
of December 31, 1999, and at quarterly measurement intervals
thereafter, the value of the Term Loan Properties shall be the sum of
(i) the Adjusted Net Operating Income for the trailing one-year period
from the Term Loan Properties owned throughout that period capitalized
at 12%, plus (ii) the lesser of the acquisition cost or the appraised
value of any of the Term Loan Properties acquired by the Borrower
within the preceding 12 months.
(d) Consolidated Loan to Value Ratio. The ratio of Borrower's
aggregate interest bearing debt to the value of all of Borrower's real
estate assets shall be less than 60% tested at each fiscal year end.
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For purposes of calculation of the Consolidated Loan to Value
Ratio as of December 31, 1999, and at yearly intervals thereafter, the
value of all of Borrower's real estate assets shall be the sum of the
Adjusted Net Operating Income for the trailing one-year period from all
of Borrower's real estate assets owned throughout that period
capitalized at 12%, plus (ii) the lesser of the acquisition cost or the
appraised value of any of Borrower's real estate assets acquired within
the preceding 12 months.
(e) IBD/EBITDA Ratio. Borrower shall maintain a ratio of
interest bearing debt divided by earnings before interest, taxes,
depreciation and amortization of less than 4.5 to 1 to be tested at
each fiscal year end.
4.5 INDEBTEDNESS, LIENS AND TAXES. Without the Bank's prior written
consent, the Borrower and its subsidiaries shall:
(a) Indebtedness. Not incur, permit to remain outstanding,
assume or in any way become committed for indebtedness in respect of
borrowed money, except indebtedness incurred hereunder, indebtedness
related to the transactions described in the Disclosure Schedule and
additional indebtedness provided that Borrower is in compliance with
all of the Financial Requirements of Section 4.4 before and immediately
after incurring any such additional indebtedness.
(b) Liens. Not create, suffer or permit to exist any lien or
encumbrance of any kind or nature upon any of the real and personal
property subject to the Security Documents now or hereafter owned or
acquired, or acquire or agree to acquire any property or assets of any
character under any conditional sale agreement or other title retention
agreement, but this Section shall not be deemed to apply to: (i) liens
for taxes, assessments and other governmental charges not yet due or
which are being contested in good faith and for which such reserves as
shall be required by generally accepted accounting principles shall
have been made therefor; (ii) liens of landlords, vendors, carriers,
warehousemen, mechanics, laborers and materialmen arising at law in the
ordinary course of business for sums not yet due or being contested in
good faith if such reserves as shall be required by generally accepted
accounting principles shall have been made therefor; (iii) pledges or
deposits in connection with or to secure worker's compensation,
unemployment insurance, pensions or other employee benefits; and (iv)
liens and encumbrances arising out of the transactions described on the
attached Disclosure Schedule.
(c) Taxes. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it, upon its income or
profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for labor,
materials and supplies when due, except that no such tax, assessment,
charge, levy or claim need be paid which is being contested in good
faith and by appropriate legal proceedings and as to which adequate
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reserves shall have been established, and as to which no foreclosure,
distraint, sale or similar proceedings have commenced.
(d) Guarantee/Indemnity Agreements. Not assume, guarantee,
borrow, indorse or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods
or services, or to supply or advance any funds, assets, goods or
services, or otherwise) with respect to the obligation of any other
person or entity, except by the indorsement of negotiable instruments
for deposit or collection in the ordinary course of business, and
except with respect to the acquisition of motels in the ordinary course
of Borrower's business. The Bank acknowledges that Borrower intends to
pay a dividend prior to the merger of Supertel into HH Trust, as
described in the Disclosure Schedule, and the Bank agrees that the
payment of the dividend will not violate this covenant.
4.6 INVESTMENT AND LOANS. Borrower shall not make any loan, advance,
extension of credit, or capital contribution to any person or legal entity; nor
purchase or otherwise acquire for a consideration, evidences of indebtedness,
capital stock or other securities of any person or legal entity, and except with
respect to the acquisition of motels in the ordinary course of Borrower's
business.
4.7 DIVIDENDS AND TRANSFERS. Borrower shall not issue any dividends or
other distribution: (i) in excess of seventy-five percent (75%) of Borrower's
funds from operations per year, or such higher amounts as may be required to
maintain the status of Borrower as a real estate investment trust, or (ii) after
the occurrence of an Event of Default that continues for a period of sixty (60)
days or more.
4.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain, or cause to
be maintained, in good repair, working order and condition (ordinary wear and
tear excepted), all of its properties (whether owned or held under lease), and
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
4.9 INSURANCE. The Borrower shall maintain insurance in responsible
companies in such amounts and against such risks as is required by the Bank and,
at a minimum, insurance on its respective businesses, fixed assets, inventory
and other properties, including specifically, but without limitation, flood and
title insurance, worker's compensation or similar insurance as required by law,
and adequate public liability (including product liability) insurance against
claims for personal injury, death or property damage arising out of its
services, products, facilities or operations, as is usually carried by similar
businesses conducting operations in similar areas, all such policies naming the
Bank as loss payee with respect to the real and personal properties subject to
the Security Documents and the business operations related thereto.
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4.10 USE OF PROCEEDS.
(a) The Borrower shall not use or permit any proceeds of the
Term Loan Note to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or
carrying any margin stock" within the meaning of Regulations U or X of
the Board of Governors of the Federal Reserve System, as amended from
time to time. If requested by the Bank, the Borrower will furnish to
the Bank a statement in conformity with the requirements of Federal
Reserve Form U-1 to the foregoing effect. No part of the proceeds of
the Term Loan Note will be used for any purpose which violates or is
inconsistent with the provisions of Regulations U or X of the Board of
Governors.
(b) Tender Offers and Going Private. The Borrower shall not
use (or permit to be used) any proceeds of the Term Loan Note to
acquire any security in any transaction which is subject to Section 13
or 14 of the Securities Exchange Act of 1934, as amended, or any
regulations or rulings thereunder.
4.11 LIMITATION ON BUSINESS. The Borrower shall not engage in any
business or activity other than the business engaged in as of the date hereof
and in activities related or incidental to such business without the Bank's
prior written consent, which consent shall not be unreasonably withheld.
4.12 MANAGEMENT. The management of Borrower includes Paul J. Schulte
and Steve H. Borgmann and will include Jim Humphrey in the event of the
contemplated merger referred to in Section 4.1 ("Management Personnel").
Immediately following the merger, the HH Trust board will include Paul J.
Schulte, Steve H. Borgmann and Jim Humphrey. Until the Term Loan Maturity Date,
at least two of such persons will continue to be on the HH Trust board unless
the Bank consents otherwise in writing, which consent shall not be unreasonably
withheld.
4.13 FEDERAL, STATE, COUNTY AND LOCAL LAWS AND REGULATIONS. The
Borrower shall comply in all respects with any and all applicable state and
federal securities laws and regulations and any and all applicable rules and
regulations of any securities exchange or the Securities and Exchange Commission
as the same relate to the issuance, purchase, sale or registration of
securities. The Borrower shall comply in all respects with any and all
applicable federal, state, county and local laws, statutes, ordinances, court
orders, rules, and regulations with respect to Borrower's businesses, fixed
assets, inventory, employees, corporate structures and properties.
4.14 NOTIFICATION OF LEGAL ACTIONS. The Borrower shall notify the Bank,
in writing, of any material legal action commenced or threatened against the
Borrower within five (5) days of receipt of such information by the Borrower.
For purposes of this Agreement, any material legal action shall be deemed one
where the amount in controversy, either directly or indirectly, exceeds the sum
of Five Hundred Thousand and No/100 Dollars ($500,000).
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4.15 ADVERSE CHANGE. The Borrower shall immediately upon obtaining any
knowledge of any material adverse change in the financial condition or position
of the Borrower provide the Bank with written notice describing in detail the
nature of such adverse change.
4.16 CORPORATE OFFICES. The chief executive office of Borrower is in
Norfolk, Nebraska. Borrower shall not change the location of its principal place
of business unless Borrower shall give the Bank at least 60 days prior written
notice thereof and all actions necessary or advisable in the Bank's opinion to
protect the Bank's liens covered by the Security Documents shall have been
taken.
4.17 LOAN TO EMPLOYEES. Borrower shall not make any loans to any
employees, officers or shareholders of the Borrower after the date of this
Agreement, except with respect to incidental expenses related to the performance
of the duties of the employees and officers such as travel expenses.
4.18 SELL, CONVEY AND TRANSFER. Borrower shall not sell, convey,
transfer, dispose of or further encumber the Borrower's properties subject to
the liens created by the Security Documents or any part thereof or any interest
therein except as otherwise provided in the Security Documents or this Agreement
covering all or any portion thereof or an undivided interest therein, either
voluntarily, involuntarily or otherwise, or enter into an agreement to do so
without the prior written consent of the Bank, except sales and dispositions of
personal property in the ordinary course of Borrower's business.
4.19 RECORDS. Borrower shall keep and maintain full and accurate
accounts and records of Borrower's operations and businesses according to
generally accepted accounting principles and practices for Borrower's type of
business.
4.20 INDEMNIFICATION. Borrower shall, at Borrower's expense, protect,
defend, indemnify, save and hold Bank harmless against any and all claims,
demands, losses, expenses, damages, causes of action (whether legal or equitable
in nature) asserted by any person or entity arising out of, caused by or
relating to this Agreement, the Term Loan and Security Documents, and Borrower
shall pay Bank upon demand all claims, judgments, damages, losses, and expenses
(including court costs and expenses) incurred by Bank as a result of any legal
or other action arising out of this Agreement, the Term Loan or Security
Documents as aforesaid, except for costs arising out of the Bank's gross
negligence or willful misconduct.
4.21 THIRD PARTY CLAIMS. Bank shall not be liable to, and Borrower
shall save Bank harmless against the claims of, materialmen, contractors,
subcontractors, laborers and others for goods delivered by them to the Borrower
or Borrower's properties or services performed by them in or upon the Borrower's
properties or otherwise in connection with the Borrower. Borrower is not and
shall not be considered to be the agent of Bank for any purpose.
4.22 INSURANCE. Borrower shall not obtain or carry any separate
insurance whatsoever which is concurrent in form, or contributing in the event
of loss, with that required under Section 4.9 hereof unless Bank is also named
therein as an insured, with loss payable as provided in Section 4.9 hereof.
Borrower shall notify Bank at least 30 days before any such separate insurance
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is obtained and shall deliver to the Bank the policy or policies or certificates
evidencing such insurance immediately after such policy or policies or such
certificates are issued.
4.23 SUBSIDIARIES. Borrower shall not assign, pledge or grant a
security interest in the stock of any of its subsidiaries.
4.24 CAPITAL EXPENDITURE ACCOUNT. Borrower shall establish a Capital
Expenditure Account with the Bank upon the execution of this Agreement, and
shall maintain the account until all amounts owed to the Bank have been repaid
and the Bank shall have no remaining obligation to make further advances to the
Borrower. Borrower shall deposit, or shall direct any tenant, lessor or manager
to deposit, 4% of the total revenue from the Term Loan Properties into the
Capital Reserve Account to be used solely for the purpose of maintenance and
capital expenditures relating to properties owned by the Borrower. Until the
occurrence of an Event of Default, or until otherwise notified by the Bank,
Borrower may use the funds in the Capital Expenditure Account at its discretion
for the purposes set forth herein.
4.25 FRANCHISOR PERFORMANCE REPORTS. Borrower shall comply, and shall
cause any tenant to comply, with all recommendations of its franchisors or
licensors in any performance reports for the operation and maintenance of the
Term Loan Properties within the time frames required or recommended by the
respective franchisors or licensors.
4.26 HOTEL OPERATOR. Borrower acknowledges that the Bank has agreed to
make this loan in reliance on the expertise of Paul J. Schulte, Steve H.
Borgmann, Jim Humphrey and Randy P. Smith in operating properties such as the
Term Loan Properties. Borrower agrees that unless the Bank otherwise consents in
writing (which consent shall not be unreasonably withheld), one or more of the
individuals listed in the preceding sentence shall be actively involved in the
operation and management of the Term Loan Properties throughout the term of this
Agreement.
4.27 ADDITIONAL COLLATERAL. In the event the merger described in the
Disclosure Schedule does not occur on or before October 31, 1999, Borrower shall
provide the Bank with such additional documents as is required by the Bank to
perfect a lien on all personal property, grant an assignment of all rents and
leases, provide a collateral assignment of all franchise rights and provide
agreements from franchisors all relating to or pertaining to the Term Loan
Properties, or assign or transfer interests in the franchises for the Term Loan
Properties. Borrower further covenants and agrees that it shall not transfer or
grant any liens on any of Borrower's personal property relating to or pertaining
to the Term Loan Properties, or assign any of the rents and leases relating to
or pertaining to the Term Loan Properties after the execution of this Agreement
unless the merger described in the Disclosure Schedule occurs on or before
October 31, 1999, and then only as provided in the Disclosure Schedule.
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SECTION 5. DEFAULT
5.1 EVENTS OF DEFAULT. Each of the following occurrences is hereby
defined as an "Event of Default."
(a) Nonpayment. The Borrower shall fail to make any payment of
principal or interest on the Term Loan Note or shall fail to make
payment of other amounts payable by the Borrower hereunder or under the
Security Documents when and as due and such failure shall continue for
a period of three (3) Banking Days after Borrower's receipt of written
notice that the same is due (for the purposes of this Section 5.1(a)
only, and notwithstanding anything to the contrary contained in Section
7.2 below, the Borrower shall be deemed to have received the Bank's
notice of a payment default on the same day such notice is sent to
Borrower via telecopier, provided that the Bank receives a confirmation
upon completion of the Bank's telecopier transmission that the
respective notice has been successfully transmitted to the Borrower at
the telecopier number provided in Section 7.2 below, unless the
transmission cannot be completed because the Borrower has not
maintained the ability to receive telecopier transmissions at the
telecopier number set forth in Section 7.2); or
(b) Nonperformance. There shall occur any default or event of
default, (subject to curative rights, if any) or any event which
requires the prepayment of borrowed money or the acceleration of the
maturity thereof, under the terms of any other evidence of indebtedness
or any other agreement for borrowed money issued or assumed or entered
into by the Borrower with this Bank or with any other bank or third
party, or under the terms of any indenture agreement or instrument
under which any such evidence of indebtedness or other agreement is
issued, assumed, secured or guaranteed, and such event shall continue
beyond any applicable period of grace; or
(c) Dissolutions, etc. The Borrower shall fail to comply with
any prohibition against dissolution, liquidation, merger, consolidation
or sale of assets; or
(d) Warranties. Any representation, warranty, schedule,
certificate, financial statement, report, notice or other writing
furnished by or on behalf of the Borrower to the Bank or any
representation, warranty or covenant contained in this Agreement, the
Term Loan Note or Security Documents, is false or misleading in any
material respect on the date as of which the facts therein set forth
are stated certified or reaffirmed; or
(e) ERISA. Any reportable event shall occur under the Employee
Retirement Income Security Act of 1974, as amended, in respect of any
employee benefit plan maintained for employees of the Borrower or its
subsidiaries; or
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(f) Litigation. Any financial judgment, resulting from
judicial or administrative action, shall be entered against the
Borrower, or with respect to any assets of the Borrower, in which the
amount of such judgment exceeds One Hundred Thousand and No/100 Dollars
($100,000), if such judgment remains undischarged for a period of sixty
(60) days or more after the date on which such judgment becomes final,
without regard to any right of appeal to a higher court of law, unless
Borrower shall have taken whatever action is required, including,
without limitation, posting a supersedeas bond, to stay proceedings to
enforce any such judgment; or any proceeding (judicial or
administrative) could have a material and adverse effect on the future
operations of the Borrower; or
(g) Noncompliance with this Agreement, Term Loan Note or
Security Documents. The Borrower shall fail to comply with any
provision hereof or any provision of the Term Loan Note or any Security
Documents, which failure does not otherwise constitute an Event of
Default under Section 5.1(a), and such failure shall continue for
thirty (30) days after written notice thereof to the Borrower by the
Bank or any other holder, beneficiary, or secured party of the Term
Loan Note or Security Documents; or
(h) Bankruptcy - Filing of Petition. The Borrower shall file a
petition seeking relief, or consent or answer consenting to a petition
seeking relief against Borrower under the federal Bankruptcy Code, as
now constituted or hereafter amended, or any other applicable federal,
state or foreign bankruptcy law or other similar law, or the Borrower
shall consent to the institution of proceedings thereunder or the
filing of any such petition or to the appointment or taking possession
of a receiver, liquidator, assignee, trustee, custodian, sequestrator
or similar official of the Borrower or any subsidiary; or
(i) Bankruptcy - Entry of Order for Relief. There shall be
entered a decree or order by a court constituting an order for relief
in respect of the Borrower, under the federal Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable federal,
state or foreign bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or
similar official of the Borrower or of any substantial part of their
properties, or ordering the winding-up of or liquidation of the affairs
of the Borrower and any such decree or order shall continue unstayed
and in effect for a period of sixty (60) consecutive days; or
(j) Insolvency. The Borrower shall become insolvent or shall
fail or be unable to pay its debts as they mature, or shall admit in
writing its inability to pay its debts as they mature, or shall make a
general assignment for the benefit of its creditors, or shall enter
into any composition or similar agreement, or shall suspend the
transaction of all or a substantial portion of its usual business; or
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(k) Environmental Noncompliance. Notice shall be given of any
alleged violation of environmental laws relating to the present or
previously-owned or leased real properties of the Borrower or any of
its subsidiaries, the effect of which could be reasonably expected to
have a material adverse effect on the Borrower; or
(l) E&P Financing Default. E&P Financing Limited Partnership,
a Maryland limited partnership, shall fail to make any payment of
principal or interest due or otherwise default on any other obligations
to the Bank beyond any applicable grace or cure period; or
(m) Franchise Agreement Default. Borrower or any tenant of
Borrower shall default on any franchise or license agreement relating
to any of the Term Loan Properties, and such default shall continue
beyond any applicable grace or cure period provided in the franchise or
license agreement.
5.2 REMEDIES. Time is of the essence. Upon the occurrence of any such
Event of Default and during the continuance thereof, any obligation of the Bank,
or any other holders of the Term Loan Note, with respect to the Term Loan shall
automatically terminate, and the Bank or any other holders of the Term Loan Note
may declare the Term Loan Note to be immediately due and payable, whereupon the
Term Loan Note and any other amounts at the time accrued or payable hereunder
but unpaid, shall immediately become due and payable, which acceleration shall
occur automatically upon the occurrence of the Events of Default provided in
Sections 5.1(h) and (i), without presentment, demand, notice or protest of any
kind, all of which are hereby expressly waived by the Borrower. No delay or
omission on the part of the Bank or any holder of the Term Loan Note in
exercising any power or right hereunder or under the Term Loan Note or Security
Documents shall impair such right or power or be construed to be a waiver of any
Event of Default or any acquiescence therein, nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof, or the exercise of any other power or right.
SECTION 6. CONDITIONS OF LENDING
The obligation of the Bank to make the Term Loan is subject to the
following conditions:
6.1 DOCUMENTATION. In addition to the conditions precedent set forth in
Section 6.2, the obligation of the Bank to make the Term Loan is subject to the
conditions precedent that the Bank shall have received all of the following,
each duly executed and dated the date of the Term Loan in form and substance
satisfactory to the Bank and its counsel, at the expense of the Borrower, and in
such number of signed counterparts as the Bank may request (except for the Term
Loan Note, of which only the original of each shall be signed):
(a) Notes. The duly executed Term Loan Note;
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(b) Security Documents. The duly executed or endorsed Deeds of
Trust, Mortgages, Assignments of Leases and Rents, Subordination,
Nondisturbance and Attornment Agreements, Security Agreement(s) and
Financing Statements;
(c) Insurance. Original insurance policies or certificates
thereof for the insurance required by Section 4.9 hereof;
(d) Taxes. Evidence satisfactory to Bank that all taxes are
fully paid and not delinquent;
(e) Resolution. A certified copy of the resolution of the
Board of Directors of the Borrower authorizing or ratifying the
execution, delivery and performance, respectively, of this Agreement,
the Term Loan Note, Security Documents, and the other agreements,
documents and instruments provided for in this Agreement, certified by
the Secretary of the Borrower;
(f) Articles of Incorporation and Bylaws. A certified copy of
the articles of incorporation and bylaws of the Borrower certified by
the Secretary and a certificate of good standing issued by the
Secretary of State of the states of Delaware;
(g) Certificate of Incumbency. A certificate of the Secretary
of the Borrower certifying the names of the officer or officers of the
Borrower authorized to sign this Agreement, Term Loan Note and Security
Documents and the other agreements, documents, and instruments provided
for in this Agreement, together with a sample of the true signature of
each such officer (the Bank may conclusively rely on such certificate);
(h) Certificate of No Default. A certificate signed by the
Chief Financial Officer of the Borrower to the effect that (i) no Event
of Default has occurred and is continuing or will result from the
making of the Term Loan; and (ii) the representations and warranties of
the Borrower contained herein are true and correct as at the date of
the Term Loan as though made on that date;
(i) Opinion of Counsel for the Borrower. A written opinion of
counsel to the Borrower in form and substance acceptable to the Bank
confirming to Bank the accuracy of the representations and warranties
of Borrower set forth in this Agreement and other matters and things as
Bank shall request;
(j) Collateral Documents.
U.C.C. searches with respect to the Borrower.
Phase I Environmental Reports.
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Lender's Title Policies.
Surveys.
Appraisals.
Comfort Letters or Agreements.
(k) Miscellaneous. Such other documents and certificates as
the Bank may reasonably request.
6.2 REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
(a) Representations and Warranties. At the date of this
Agreement and any advance under the Term Loan, the Borrower's
representations and warranties set forth herein shall be true and
correct as at such date with the same effect as though those
representations and warranties had been made on and as at such date.
(b) No Default. At the time of this Agreement and any advance
under the Term Loan, and immediately after giving effect to the Term
Loan, the Borrower shall be in compliance with all the terms and
provisions set forth herein on its part to be observed or performed,
and no Event of Default shall have occurred and be continuing at the
time of the Term Loan or would result from the making of the Term Loan
or any subsequent advances thereunder.
6.3 SUCCEEDING LOANS. The application or request by the Borrower for
any loan other than the Term Loan, including requests for advances thereunder,
shall be deemed a representation and warranty by the Borrower that the
statements in Sections 3 and 4 are true and correct on and as of the date of
each such loan except with respect to any changes in those statements permitted
by this Agreement, changes of which Borrower has given written notice to Bank
pursuant to the terms of this Agreement and changes agreed upon by the Bank in
writing subsequent to the date of this Agreement.
SECTION 7. MISCELLANEOUS
7.1 WAIVER OF DEFAULT. The Bank may, by written notice to the Borrower,
at any time and from time to time, waive any default in the performance or
observance of any condition, covenant or other term hereof, which shall be for
such period and subject to such conditions as shall be specified in any such
notice. In the case of any such waiver, the Bank and the Borrower shall be
restored to their former position and rights hereunder and under the Term Loan
Note, and any Event of Default so waived shall be deemed to be cured and not
continuing; but no such waiver shall affect, extend or impair any rights of the
Bank with respect to any default, except as specifically set forth in the Bank's
written notice, nor shall it affect Bank's rights with respect to any subsequent
or other Event of Default.
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7.2 NOTICES. All notices, communications and distributions hereunder
shall be given or made to the following parties at the following addresses:
(a) if to the Borrower:
E&P FINANCING LIMITED PARTNERSHIP
Pre-Merger:
c/o SUPERTEL HOSPITALITY, INC.
309 North 5th Street
Norfolk, Nebraska 68702-2520
Telecopier: (402) 371-4229
with a copy thereof to:
MCGRATH, NORTH, MULLIN, KRATZ, P.C.
222 South 15th Street, Suite 1400
Omaha, Nebraska 68102
(402)341-3070
Attention: Ronald L. Comes
Telecopier: (402) 341-0216
Post-Merger:
c/o HUMPHREY HOSPITALITY TRUST, INC.
12301 Old Columbia Pike
Silver Spring, Maryland 20904
Attention: Bethany Hooper
Telecopier: (301) 680-4342
with a copy thereof to:
GALLAGHER, EVELIUS & JONES, LLP
218 North Charles Street, Suite 400
Baltimore, Maryland 21201
(410)727-7702
Attention: Stephen A. Goldberg
Telecopier: (410) 837-3085
(b) if to the Bank:
U.S. BANK NATIONAL ASSOCIATION
233 South 13th Street, Suite 911
Lincoln, Nebraska 68508
Attention: Steven D. Erwin, Senior Vice President
23
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with a copy thereof to:
CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
1900 U.S. Bank Building
233 South 13th Street
Lincoln, Nebraska 68508
(402) 474-6900
Attention: Stephen H. Nelsen
or in any of the foregoing cases at such other addresses as the addressee may
hereafter specify for such purpose by written notice to the parties. Such
notices and other communications will be effectively given only if and when
given in writing and delivered at the address set forth herein duly deposited in
the mails with first-class postage prepaid, or delivered to a telegraph company
with all charges prepaid, addressed as aforesaid.
7.3 WAIVERS. If the Bank does not require certain conditions precedent
to closing of the Term Loan as described in Section 6, such act shall be
construed only as a conditional waiver of those conditions as to closing on the
Term Loan on the date hereof and shall not be a general waiver of the compliance
with those conditions by the Borrower, and the Borrower shall comply with those
conditions hereafter on demand by the Bank. Any condition precedent to closing
of the Term Loan waived by the Bank under this paragraph shall automatically be
a condition precedent to all other future corresponding loans and disbursements
of the Term Loan.
7.4 NONWAIVER; CUMULATIVE REMEDIES. No failure to exercise, and no
delay in exercising, on the part of the Bank of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies of the Bank
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
7.5 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of this Agreement, the Term
Loan Note and the Security Documents and the making of any loans or advances.
7.6 SUCCESSORS. This Agreement shall, upon execution and delivery by
the Borrower, become effective and shall be binding upon and inure to the
benefit of the Borrower and the Bank, and their respective successors and
assigns, except that the Borrower may not transfer or assign any of its rights
or interest hereunder without the prior written consent of the Bank.
7.7 CAPTIONS. Captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof. Reference herein to Sections without reference to the document in which
they are contained are references to this Agreement.
7.8 SINGULAR AND PLURAL. Unless the context requires otherwise,
wherever used herein the singular shall include the plural and vice versa.
7.9 COUNTERPARTS. This Agreement may be executed by the parties on any
number of separate counterparts, and by each party on separate counterparts,
each counterpart shall be deemed an original instrument; and all of the
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<PAGE>
counterparts taken together shall be deemed to constitute one and the same
instrument.
7.10 FEES. The Borrower agrees, upon written request of the Bank, to
pay or reimburse the Bank for all costs and expenses incurred by the Bank
relating to this Agreement, including, without limitation, the costs and
expenses of seeking advice in regard to preparing and enforcing this Agreement
or the Term Loan Note or Security Documents, or preserving its rights hereunder
or under any document or instrument executed in connection herewith (including
legal fees and reasonable time charges of attorneys who may be employees of the
Bank, whether in or out of court, in original or appellate proceedings or in
bankruptcy), together with all expenses of record searches, environmental
studies, surveys, title insurance policies, appraisals, and filing and closing
fees paid by the Bank with respect to this Agreement and the perfection of the
Bank's liens.
7.11 FURTHER ASSURANCES. From time to time, the Borrower will execute
and deliver to the Bank such additional documents, and will provide such
additional information as the Bank may reasonably require to carry out the terms
of this Agreement and be informed of the Borrower's status and affairs.
7.12 CONSTRUCTION. This Agreement, the Term Loan Note and Security
Documents and any document or instrument or other agreement executed in
connection herewith and except as otherwise specifically provided therein shall
be governed by, and construed and interpreted in accordance with, the internal
laws of the State of Nebraska, and shall be deemed to have been executed in the
State of Nebraska.
7.13 ENTIRE AGREEMENT. This Agreement may not be assigned by Borrower
without the prior written consent of Bank which consent may be withheld. This
Agreement constitutes the entire understanding between the parties hereto with
respect to the subject matter hereof, superseding all prior written or oral
understandings, and may not be modified, amended or terminated except by a
written agreement signed by each of the parties hereto or thereto.
Notwithstanding the foregoing, the provisions of this Agreement are not intended
to supersede the provisions of the Term Loan Note or Security Documents, but
shall be construed as supplemental thereto.
7.14 SEVERABILITY. If any term or provision of this Agreement, or the
Term Loan Note or Security Documents, or any document or instrument executed in
connection therewith, including amendments and modifications or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the terms and provisions or the application of such term or
provision to person or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each form and
provision shall be valid or enforced to the fullest extent possible by law.
7.15 SUBMISSION TO JURISDICTION; VENUE. To induce the Bank to make the
Term Loan, as evidenced by the Term Loan Note and Security Documents and this
Agreement, the Borrower irrevocably agrees that, subject to the Bank's sole and
absolute election, all suits, actions or other proceedings in any way, manner or
respect, arising out of or from or related to this Agreement, the Term Loan Note
and Security Documents, or any document executed in connection herewith, shall
25
<PAGE>
be subject to litigation in courts having situs within Nebraska. The Borrower
hereby consents and submits to the jurisdiction of any local, state or federal
court located within Nebraska. The Borrower hereby waives any right it may have
to transfer or change the venue of any suit, action or other proceeding brought
against the Borrower by the Bank in accordance with this section.
7.16 WAIVER OF TRIAL BY JURY. BANK BY ITS ACCEPTANCE HEREOF AND
BORROWER HEREBY VOLUNTARILY, KNOWINGLY AND INTENTIONALLY WAIVE ANY AND ALL
RIGHTS TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS
AGREEMENT OR CONCERNING THE OBLIGATIONS OR ANY REAL OR PERSONAL PROPERTY PLEDGED
AS COLLATERAL UNDER THE SECURITY DOCUMENTS, REGARDLESS OF WHETHER SUCH ACTIONS
OR PROCEEDINGS CONCERN ANY CONTRACTUAL OR TORTIOUS OR OTHER CLAIM. BORROWER
ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL TO BANK IN EXTENDING
CREDIT TO BORROWER, THAT BANK WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS
JURY TRIAL WAIVER, AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS
HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY
TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
7.17 CREDIT AGREEMENT NOTICE. A credit agreement must be in writing to
be enforceable under Nebraska law. To protect you and us from any
misunderstandings or disappointments, any contract, promise, undertaking, or
offer to forebear repayment of money or to make any other financial
accommodation in connection with this loan of money or grant or extension of
credit, or any amendment of, cancellation of, waiver of, or substitution for any
or all of the terms or provisions of any instrument or document executed in
connection with this loan of money or grant or extension of credit, must be in
writing to be effective.
7.18 APPLICATION OF PROCEEDS. The Bank shall have sole discretion
regarding the application of any payments or proceeds received from the
Borrower, voluntary or involuntary, including, without limitation, any proceeds
from the sale or other disposition of any of the collateral or security
described in Section 2.
7.19 CONSENT TO TRANSACTIONS. Notwithstanding any provisions of this
Agreement or the Security Documents to the contrary, the Bank hereby consents to
the transactions described in the Disclosure Schedule attached hereto as Exhibit
"I", provided that the transactions are consummated on or before October 31,
1999 and strictly in accordance with the Disclosure Schedule. The Disclosure
Schedule was prepared by the Borrower, and the Borrower represents and warrants
the truth and accuracy of information provided in the Disclosure Schedule, which
representation and warranty shall survive the execution of this Agreement.
"BORROWER"
SUPERTEL HOSPITALITY, INC.
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By:__________________________
Paul J. Schulte
President
"BANK"
U.S. BANK NATIONAL ASSOCIATION
By:__________________________
Steven D. Erwin
Senior Vice President
STATE OF _____________ )
) ss.
COUNTY OF ____________ )
The foregoing instrument was acknowledged before me this ___ day of
October, 1999, by Paul J. Schulte, President of Supertel Hospitality, Inc., a
Delaware corporation, on behalf of said corporation.
-----------------------
Notary Public
STATE OF _____________ )
) ss.
COUNTY OF ____________ )
The foregoing instrument was acknowledged before me this ___ day of
October, 1999, by Steven D. Erwin, Senior Vice President of U. S. Bank National
Association, a national banking association, on behalf of said Association.
----------------------------
Notary Public
27
<PAGE>
EXHIBITS
Exhibit A Term Loan Note
Exhibit B Real Estate Descriptions and Recording Offices
Exhibit C Assignment of Leases and Rents
Exhibit D Lease Subordination Agreement
Exhibit E Collateral Assignment of Franchise Agreement
Exhibit F Agreement with Franchisors
Exhibit G Security Agreement
Exhibit H Financing Statement
Exhibit I Disclosure Schedule
Exhibit J Subsidiaries
28
<PAGE>
Exhibit 10.27
LOAN AGREEMENT
FOR
TERM LOAN CREDIT FACILITY
THIS AGREEMENT is made as of this 20th day of October, 1999, by and
between E&P Financing Limited Partnership, a Maryland limited partnership
("Borrower"), and U.S. Bank National Association, a national banking association
("Bank"). In consideration of the promises and mutual agreements hereinafter
contained, the Borrower and the Bank agree as follows:
SECTION 1. TERM LOAN
1.1 TERM LOAN. Upon the execution of this Agreement, the Bank agrees to
loan to the Borrower the principal sum of Thirteen Million and No/100 Dollars
($13,000,000) (herein the "Term Loan Commitment" or "Term Loan").
1.2 TERM LOAN NOTE. The loan to the Borrower under this Section 1 shall
be evidenced by a certain Term Loan Note (herein, together with any and all
extensions, renewals, modifications and substitutions thereof or exchanges
therefor, referred to as the "Term Loan Note") dated the date of issuance,
payable to the order of the Bank, in the principal amount of the Term Loan
Commitment. A copy of the Term Loan Note is attached hereto as Exhibit "A" and
is incorporated herein by this reference.
1.3 INTEREST. The unpaid principal amount of the Term Loan Note
outstanding from time to time shall bear interest at the following rates per
year:
(a) During the first three years of the Term Loan, and before
maturity of the Term Loan, at the rate of 8.31% per annum, and during
the fourth and fifth years of the Term Loan at the LIBOR Rate plus
2.25% to be determined by the Bank on the last Banking Day prior to the
beginning of the fourth year and the beginning of the fifth year of the
Term Loan for the following year. The interest rate shall be calculated
on the basis of the actual number of days elapsed in a 360-day year.
"LIBOR Rate" shall mean the London Interbank Offered Rate per
annum for a 360-day period as obtained by the Bank from the Reuters
Service, plus any reserves the Bank determines it is required to
maintain with respect to LIBOR or Eurodollar currency loans. In the
event the Reuters Service shall discontinue quoting LIBOR rates, the
Bank shall designate an alternate method to determine the LIBOR rates.
The Bank's designation shall be binding on the undersigned.
<PAGE>
"Banking Day" shall mean a day on which banks are open for
business in London, England and Lincoln, Nebraska, and dealing in
United States dollar deposits in London, England.
(b) Default Rate. After maturity, whether by lapse of time,
default, acceleration or otherwise, at a rate equal to the Reference
Rate plus three percent (3%) per annum (the "Default Rate").
"Reference Rate" shall mean the rate of interest per annum
which has been publicly announced by U.S. Bank National Association in
Minneapolis, Minnesota (USBNA) as its "Reference Rate," which is not
necessarily the lowest rate charged by the Bank or USBNA on loans and
is set by the Bank in its sole discretion.
1.4 INTEREST AND PRINCIPAL DATES. Principal and interest shall be
amortized at the applicable rate of interest set forth in Section 1.3 and
adjusted at the time of a change in the interest rate as provided in Section 1.3
over a fifteen-year period and paid in monthly payments commencing on November
30, 1999 and continuing monthly on the last day of each month thereafter. The
monthly payments for the first three years of the Term Loan shall be One Hundred
Twenty-Seven Thousand Eight Hundred Eight and 72/100 Dollars ($127,808.72). The
total unpaid principal balance and all accrued but unpaid interest shall be paid
at maturity on October 15, 2004 (the "Term Loan Maturity Date").
1.5 FUNDS. Payments and prepayments of principal and interest shall be
made in immediately available funds to the Bank by payment at its main office at
233 South 13th Street, Lincoln, Nebraska 68508, or at such other place as the
Bank or the holder hereof may designate in writing to the Borrower.
1.6 PREPAYMENTS. The Borrower acknowledges that the Borrower shall have
no right to prepay the Term Loan Note without the Bank's consent, which the Bank
will not grant except upon the terms and subject to the conditions hereinafter
provided. In order to induce the Bank to agree to accept voluntary prepayments,
the Borrower agrees to pay the Bank a prepayment premium as described in this
section upon any prepayment, voluntary or involuntary. Because there is no
readily available index of rates payable on loans such as that from the Bank to
the Borrower, nor any assurance that the Bank could replace the loan with a
similar loan, the Borrower and the Bank agree that the changes in the yields on
U.S. Government securities provide a reasonable approximation for changes in
interest rates generally. For purposes of this section, the following terms
shall have the meanings given below:
"Average Maturity Period": The weighted average time to
scheduled maturity of all principal prepaid at any one time. Average
Maturity Period shall be computed by multiplying the dollar amount of
each installment of principal prepaid by the number of days until the
scheduled maturity of that installment, adding together the resulting
products and dividing the resulting sum by the total dollar amount of
principal being prepaid.
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"Government Yield": As of any date of determination, the yield
(converted as necessary to the equivalent semi-annual compound rate) on
U.S. Treasury securities having a maturity date closest to the Average
Maturity Period, as published in The Wall Street Journal (or, if not so
published, as determined by the Bank by using the average of quotes
obtained by the Bank from three primary dealers that market U.S.
Treasury securities in the secondary market). "U.S. Treasury
securities" means actively traded U.S. Treasury bonds, bills and notes
and, if more than one issue of U.S. Treasury securities is scheduled to
mature at or about the time of the scheduled maturity of the Term Loan
Note, then to the extent possible the U.S. Treasury security issued
most recently prior to the date of determination will be chosen as the
basis of the Government Yield.
"Interest Differential": As of the date of any full or partial
prepayment, the Note Rate minus the sum of the Government Yield as of
the date of prepayment and the Issuance Spread.
"Issuance Spread": The issuance spread for the first three
years of the Term Loan is 1.73% per annum (the approximate amount by
which the Bank's cost of funds exceeds the Government Yield as of the
date of the Term Loan Note). During each of the last two years of the
Term Loan, the issuance spread shall be the approximate amount by which
the Bank's cost of funds exceeds the Government Yield as of the first
day of the fourth and fifth years.
"Note Rate": The applicable rates of interest payable under
the Term Loan Note.
The Term Loan Note may be prepaid in whole or in part at any time, with
partial prepayments in the amount of $100,000.00 or an integral multiple
thereof. Any partial prepayments shall be applied to installments due under the
Term Loan Note in the inverse order of their maturity. If at the time of any
prepayment (whether voluntary or involuntary, and specifically including, but
not limited to, any payment prior to scheduled maturity following acceleration
of the Term Loan Note), the sum of the Government Yield as of the date of
prepayment plus the Issuance Spread is less than the Note Rate, the Borrower
shall pay to the Bank a prepayment premium equal to the present value
(determined in accordance with standard financial practice) of the product of
the Interest Differential times the amount prepaid times the Average Maturity
Period. The amount of the prepayment premium shall be calculated as follows. The
amount prepaid shall be multiplied by (a) the Interest Differential, times (b) a
fraction, the numerator of which is the number of days in the Average Maturity
Period and the denominator of which is 360. The resulting product shall then be
divided by the number of whole months (using a thirty-day month) in the Average
Maturity Period, yielding a quotient (the "Quotient"). The amount of the
prepayment premium shall be the present value (determined in accordance with
standard financial practice) on the date of prepayment (using the Government
Yield as of the date of such prepayment as the discount factor) of a stream of
equal monthly payments in number equal to the number of whole months (using a
thirty-day month) in the Average Maturity Period, with the amount of each
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hypothetical monthly payment equal to the Quotient and with the first payment
payable thirty days after the date of prepayment.
Prepayments shall be applied first against the unpaid interest, then
any remaining sum shall be applied against unpaid installments of the Term Loan
Note in the inverse order of their scheduled maturity. Such prepayments shall
not relieve the undersigned of the obligation to continue any regularly
scheduled repayment of the outstanding indebtedness hereunder.
The foregoing provisions notwithstanding, Borrower may prepay the Term
Loan in full on the third or fourth anniversary date of the Term Loan, without
prepayment premium, by giving the Bank written notice of its election to prepay
the Term Loan ten (10) days prior to said anniversary dates.
1.7 PERMISSIBLE BORROWING PURPOSES. The Term Loan extended to the
Borrower hereunder may be used for general corporate purposes of the Borrower.
1.8 COMMITMENT FEE. Upon the execution of this Agreement, Borrower
shall pay the Bank a commitment fee in the amount of $65,000.
1.9 LATE FEES. Borrower shall pay the Bank a late fee of 5% of the
amount of any payment received 15 days or more after its due date.
SECTION 2. COLLATERAL AND SECURITY
2.1 SECURITY. As security for the payment of the Term Loan Note, which
Term Loan Note is executed in connection herewith (including any and all
extensions, renewals, modifications and substitutions thereof or exchanges
therefor), any and all future advances of credit to the Borrower, the
performance of this Agreement and any other agreement executed in connection
herewith, the payment of any and all amounts advanced by the Bank hereunder on
behalf of the Borrower, any legal fees and all other fees, charges, expenses, or
costs incurred by the Bank in connection herewith (herein collectively called
the "Obligations"), the Borrower will execute and deliver to the Bank certain
documents in connection with this Agreement as follows:
(a) Deeds of Trust or Mortgages, in form and substance
satisfactory to the Bank, on all of the real estate described on
Exhibit "B" attached hereto and incorporated herein by this reference,
and any additions thereto or substitutions therefor approved by the
Bank (the "Term Loan Properties"), giving the Bank a first lien on all
of the real estate described on Exhibit "B" to secure the Obligations.
(b) Assignments of Leases and Rents, in the form attached
hereto as Exhibit "C", assigning the rights of the Borrower as lessor
of each of the Term Loan Properties that are leased by the Borrower,
together with resolutions of authority as applicable to Borrower. The
foregoing provision notwithstanding, Borrower shall not lease any of
the Term Loan Properties without the Bank's prior written consent. The
Bank consents to the lease of the Term Loan Properties to Supertel
Hospitality Management, Inc. provided that the merger between Supertel
Hospitality, Inc. ("Supertel") and Humphrey Hospitality Trust, Inc.
("HH Trust") described in the Disclosure Schedule has been consummated
and all conditions of this Agreement have been satisfied.
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(c) Lease Subordination Agreements, in the form attached
hereto as Exhibit "D", from the lessees of each of the Term Loan
Properties.
(d) Collateral Assignments from Supertel Hospitality
Management, Inc. in form and substance satisfactory to the Bank and in
substantially the form attached hereto as Exhibit "E" assigning the
franchises for each of the Term Loan Properties.
(e) Agreements from the franchisors or licensors of all of the
Term Loan Properties in form and substance satisfactory to the Bank
providing the Bank with assurances in substantially the form attached
hereto as Exhibit "F" to the effect that they will not terminate the
franchises with Borrower in the event the Bank enforces its rights
under the Security Documents or in the event of a default under the
franchises.
(f) Security Agreement(s) and Financing Statement(s) on all
the personal property now owned or held or hereafter acquired, and any
proceeds thereof together with resolutions of authority as applicable
to Borrower giving the Bank a first lien on all personal property of
Borrower relating to or pertaining to the Term Loan Properties as
described in the Security Agreement, a copy of which is attached hereto
as Exhibit "G" and is incorporated herein by this reference. A copy of
the form of Financing Statement to be used is attached hereto as
Exhibit "H" and is incorporated herein by this reference.
Borrower hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Bank the attorney-in-fact
of Borrower coupled with an interest, to execute, deliver, and if
appropriate, to file with the appropriate filing officer or office such
security agreements, financing statements or other instruments as Bank
may request or require in order to impose or perfect the lien or
security interest hereof more specifically thereon.
2.2 RIGHTS IN PROPERTY HELD BY BANK. As further security for the prompt
satisfaction of all the Obligations of the Borrower to the Bank, the Borrower
hereby assigns, transfers, and sets over to the Bank all of its right, title and
interest in and to, and grants the Bank a lien on and a security interest in,
and agrees that the Bank may set off against, all amounts that may be owing from
time to time by the Borrower to the Bank in any capacity, including, but without
limitation, any balances, credits, deposits, accounts, monies, or any other
property of the Borrower, now or hereafter in the possession of the Bank.
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2.3 SECURITY DOCUMENTS. The executed Deeds of Trust, Mortgages,
Assignments of Leases and Rents, Lease Subordination, Collateral Assignments,
Agreements with franchisors, Security Agreement(s) and Financing Statements
described in Section 2.1 and the rights, liens and security interests and setoff
described in Section 2.2 are collectively and individually referred to as
"Security Documents."
2.4 SUBSTITUTION AND ADDITION TO TERM LOAN PROPERTIES. Subject to the
approval of the Bank, as hereinafter set forth, Borrower may request permission
for any reason to substitute real estate and obtain the release of real estate
that is a part of the Term Loan Properties, and Borrower may also request
permission to add real estate to the Term Loan Properties to maintain compliance
with, or cure any failure to maintain compliance with, any of the ratios set
forth in Section 4.4 of this Agreement. At the time of making any such request,
the Borrower shall provide the Bank with such information and documents as the
Bank may require, including, without limitation, the following: an appraisal, a
title insurance commitment, an ALTA survey, an environmental report, a U.C.C.
search, flood hazard certification, evidence of insurance, zoning information,
the franchise agreement, tax and judgment lien searches, and a building
inspection report. The Bank shall have thirty (30) days after the request by the
Borrower to determine, in its sole discretion, if the real estate proposed to be
substituted or added is of appropriate character, quality and value. Any request
to add real estate to the Term Loan Properties to cure a failure to comply with
any ratios set forth in Section 4.4 shall be made within the thirty-day period
provided herein to cure any noncompliance with this Agreement.
If the Bank determines in its sole discretion that it will permit the
substitution and release or addition of real estate to the Term Loan Properties,
Borrower shall provide the Bank with documentation, in form and substance
acceptable to the Bank, to provide the Bank with the same rights with respect to
the substituted or added real estate and related personal property and franchise
rights as are provided by the Security Documents described herein with respect
to the existing Term Loan Properties. The documentation shall be provided by the
Borrower within the time required by the Bank. The documentation relating to the
substituted or additional real estate and related personal property and
franchise rights shall thereafter be considered to be a part of the Security
Documents for purposes of this Agreement and all other documents relating to or
pertaining to this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Term Loan, the Borrower represents and
warrants to the Bank that:
3.1 ORGANIZATION. Borrower is a limited partnership existing and in
good standing under the laws of the State of Maryland. The Borrower is duly
qualified, in good standing and authorized to do business in each jurisdiction
where, because of the nature of its activities or properties, such qualification
is required, and where a failure to so qualify would have a material adverse
effect on the Borrower; and the Borrower has the power and authority as a
limited partnership to own its properties and to carry on its business as now
being conducted.
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3.2 AUTHORIZATION; NO CONFLICT. The borrowings hereunder, the execution
and delivery of the Term Loan Note and the Security Documents and the
performance by the Borrower of its obligations under this Agreement, the Term
Loan Note and Security Documents are within the Borrower's limited partnership
powers, have been authorized by all necessary limited partnership action, have
received all necessary governmental approval (if any shall be required) and do
not and will not contravene or conflict with any provision of law or of the
certificate of limited partnership or limited partnership agreement of the
Borrower or of any agreement binding upon the Borrower and are and will continue
to be enforceable under the laws of the State of Nebraska in accordance with
their respective terms, except as such enforcement may be qualified or limited
by bankruptcy, insolvency, or other similar laws affecting creditors rights in
general.
3.3 FINANCIAL STATEMENTS; CONTINGENT LIABILITIES. The assets,
liabilities and operations of the Borrower were acquired from Supertel
concurrently with the execution of this Agreement. Therefore, the financial
statements of Supertel are the best evidence of the financial condition of
Borrower. The financial statements of Supertel dated June 30, 1999, copies of
which have been furnished to the Bank, were prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with that of Supertel's preceding fiscal year, and accurately present the
financial condition of Supertel as at such dates and the results of their
operations for the respective period then ended. Since the date of such
financial statements, no material adverse change in the business, properties,
assets, operations, conditions or prospects of Supertel has occurred. There are
no contingent liabilities of Supertel in an amount in excess of $100,000
individually, or $1,000,000 in the aggregate, which is known to the Borrower or
which should reasonably be known to the Borrower, which is not reflected in such
financial statements or which is not disclosed in the Disclosure Schedule
attached hereto at Exhibit "I" (the "Disclosure Schedule") and incorporated
herein by this reference. The Bank hereby acknowledges that it is aware of the
proposed merger of Supertel into HH Trust, as described in the Disclosure
Schedule.
3.4 TAXES. The Borrower has filed or caused to be filed all federal,
state, county and local tax returns which are required to be filed, and has paid
or caused to be paid all personal property taxes, real estate taxes, income
taxes, other taxes, special assessments, assessments, withholding, contributions
and governmental charges or levies (collectively and individually referred to as
"Taxes") as shown on such returns and reports, or on any assessment received by
them, to the extent that such Taxes have become due (except for current Taxes
not delinquent and Taxes being contested as provided by law, in good faith and
by appropriate legal proceedings for which adequate reserves have been provided
on the books of the Borrower, and as to which no foreclosure, distraint, sale or
similar proceedings have been commenced).
3.5 LIENS. Borrower has good and marketable title to all of the assets
described in the Security Documents, including, without limitation, the Term
Loan Properties. None of the assets of the Borrower described in the Security
Documents are subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance or security interest, except for: (a) liens in favor of the
Bank granted hereunder; (b) current Taxes not delinquent or Taxes being
contested as provided by law in good faith and by appropriate legal proceedings;
(c) liens arising in the ordinary course of business for sums not due or sums
being contested in good faith and by appropriate legal proceedings, but not
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involving any deposits or advances of borrowed money or the deferred purchase
price of property or services; (d) to the extent specifically shown in the
financial statements referred to above; and (e) to the extent reflected in the
attached Disclosure Schedule.
3.6 ADVERSE CONTRACTS. The Borrower is not a party to any agreement or
instrument, or subject to any charter or other corporate restriction, nor is it
subject to any judgment, decree or order of any court or governmental body,
which Borrower knows or reasonably should know may have a material and adverse
effect on the business, assets, liabilities, financial condition, operations or
business obligations under this Agreement or the Term Loan Note or Security
Documents. Except as disclosed in the Disclosure Schedule, the Borrower has no,
nor with reasonable diligence should have had, knowledge of or notice that it is
in default on the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement, instrument,
charter or other corporate restriction, judgment, decree or order of any court
or governmental body that might have a material adverse impact on the Borrower.
The Bank hereby acknowledges that it is aware of the proposed merger of Supertel
into HH Trust, as described in the Disclosure Schedule.
3.7 REGULATION U. The Borrower is not engaged principally in, nor is
one of the Borrower's important activities, the business of extending credit for
the purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereinafter in effect.
3.8 LITIGATION. No litigation (including derivative actions),
arbitration proceedings or governmental proceedings are pending or threatened
against the Borrower which would (singly or in the aggregate), if adversely
determined, have a material and adverse effect on the financial condition,
continued operations or prospects of the Borrower, except as set forth
(including estimates of the dollar amounts involved) in the Disclosure Schedule.
3.9 SELL, CONVEY AND TRANSFER. Except in the ordinary course of
business, the Borrower has not sold, conveyed, transferred, disposed of, or
otherwise further encumbered, any of the Borrower's assets within the last
ninety (90) days that is not disclosed in the Disclosure Schedule.
3.10 LAWFUL INTEREST. The amounts to be received by Bank as interest
payments under the Term Loan Note shall constitute lawful interest and shall be
neither usurious nor illegal under the laws of the State of Nebraska.
3.11 SECURITY DOCUMENTS. The provisions of the Security Documents as
provided herein, are effective to create, in favor of the Bank, legal, valid and
enforceable liens on all of the real estate and personal property described
therein. The Deeds of Trust, Mortgages and Assignments of Leases and Rents when
filed with the recording offices listed on Exhibit "B" and the Financing
Statements when filed with the Secretaries of State (or other appropriate
recording office) in Nebraska, Kansas, Iowa, Missouri and Maryland, will
constitute fully perfected first security interests and liens on all right,
title and interest of the Borrower in the real estate and personal property
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described therein (to the extent perfection is controlled by the Uniform
Commercial Code), prior and superior to all other liens.
3.12 PLACE OF BUSINESS. Borrower's principal place of business and
chief executive offices are located in Silver Spring, Maryland.
3.13 ENVIRONMENTAL COMPLIANCE. Except as set forth in the Disclosure
Statement, the Borrower and its subsidiaries are in material compliance with all
environmental protection laws in each jurisdiction where they are presently
doing business, the violation of which would have a material, adverse effect on
the use, operation or value of the Term Loan Properties, or any of them. The
Borrower is not subject to any liabilities nor have they received any notice
from any governmental agency regarding any action, pending or contemplated,
pertaining to any alleged violation of any environmental protection laws with
respect to any of the present or previously owned real properties of the
Borrower where the effect of which could be reasonably expected to have a
material adverse effect on the Borrower or any of its properties.
3.14 ERISA. Borrower has fulfilled all obligations under the Employee
Retirement Income Security Act of 1974, as amended, in respect of any employee
benefit plan maintained for employees of the Borrower, and no reportable event
or prohibited transaction has occurred with respect to any such employee benefit
plan.
3.15 DEFAULTS. The Borrower is not in default, nor has any event or
circumstance occurred which, but for the passage of time or the giving of
notice, or both, would constitute an Event of Default, as defined herein.
3.16 COMPLIANCE WITH THE LAW. Borrower (a) is not in violation of any
federal, state or county governmental rule, regulation or ordinance; and (b) has
not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of Borrower's properties or the conduct
of its business; which violation or failure (in the event that such violation or
failure were asserted by any person or entity by appropriate action) would
result in a material impediment to the conduct of the Borrower's regular
business generally or at any of its properties.
3.17 INVESTMENT COMPANY ACT. The Borrower is not a "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.18 SUBSIDIARIES. Exhibit "J", attached hereto lists all of the
subsidiaries and affiliates of Borrower. Borrower represents that all of its
subsidiaries and affiliates are duly organized and existing under the laws of
their respective jurisdictions of their creation, and are duly qualified, in
good standing and authorized to do business in each jurisdiction where, because
of the nature of its activities or properties, such qualification is required,
and where a failure to so qualify would have a material adverse effect on the
Borrower; and the Borrower has the corporate power and authority to own its
properties and to carry on its business as now being conducted.
3.19 Y2K COMPLIANCE. Borrower has reviewed and assessed its business
operations and computer systems and applications to address the "year 2000
problem" (that is, that computer applications and equipment used by Borrower,
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directly or indirectly through third parties, may be unable to properly perform
date-sensitive functions before, during and after January 1, 2000). Borrower
reasonably believes that the year 2000 problem will not result in a material
adverse change in Borrower's business condition (financial or otherwise),
operations, properties or prospects or ability to repay the Bank. Borrower
agrees that this representation will be true and correct on and shall be deemed
made by Borrower on each date Borrower requests any advance under this Agreement
or the Term Loan Note or delivers any information to the Bank. Borrower will
promptly deliver to the Bank such information relating to this representation as
the Bank requests from time to time.
3.20 FRANCHISES, PATENTS, COPYRIGHTS, ETC. The Borrower and/or any
tenant approved by the Bank possesses, and will at all times possess, all
franchises, including, without limitation, motel franchises or licenses,
patents, copyrights, trademarks, trade names, licenses and permits, and rights
in respect of the foregoing, adequate for the conduct of its business
substantially as now conducted or as it is intended to be conducted, without
known conflict with any rights of others.
3.21 SALE TO SUPERTEL HOSPITALITY MANAGEMENT, INC. Borrower represents
that all personal property assets relating to or pertaining to the Term Loan
Properties, excluding furniture, fixtures and equipment, will, immediately prior
to the merger, be sold to Supertel Hospitality Management, Inc., as described in
the Disclosure Schedule.
SECTION 4. COVENANTS
Until all Obligations of the Borrower hereunder and under the Term Loan
Note are paid and fulfilled in full, the Borrower agrees that they shall comply
with the following covenants, unless the Bank consents otherwise in writing:
4.1 LIMITED PARTNERSHIP EXISTENCE. The Borrower shall preserve and
maintain its limited partnership existence, rights, franchises and licenses, and
will not liquidate, dissolve, or merge, or consolidate with or into any other
entity, or sell, lease, transfer or otherwise dispose of all or a substantial
part of its assets without the Bank's prior written consent.
4.2 REPORTS, CERTIFICATES AND OTHER INFORMATION. The Borrower shall
furnish to the Bank:
(a) Audit Report. Within one hundred twenty (120) days after
the close of each fiscal year of Borrower: (a) a consolidated statement
of partners' equity and a consolidated statement of cash flow of the
Borrower and any subsidiaries for such fiscal year; (b) consolidated
and consolidating income statements of the Borrower and HH Trust and
any subsidiaries as of the end of such fiscal year, all such statements
to be in reasonable detail, including all supporting schedules and
comments; the consolidated statements and balance sheets of HH Trust
(including financial statements of the Borrower) to be audited by
independent certified public accountants selected by Borrower and
acceptable to the Bank, prepared in accordance with GAAP and to present
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fairly the consolidated financial position and results of operations of
HH Trust and any subsidiaries, and including, without limitation,
footnotes required by GAAP regarding any defaults on the Term Loan
identified in the audit, and accompanied by such accountants' opinion
thereon that such documents have been audited in compliance with the
American Institute of Certified Public Accountants' Statements of
Auditing Standards in effect as of the execution hereof. The Bank shall
have the right from time to time, to discuss the affairs of the
Borrower directly with such independent certified public accountants
after notice to the Borrower and opportunity of the Borrower to be
represented at any such discussions. The Bank agrees that the certified
public accountants currently employed by Supertel and HH Trust are
acceptable to the Bank.
(b) Certificates. Contemporaneously with the furnishing of a
copy of each annual audit report and all required interim reports
required by subsection (e) a certificate dated the date of such annual
report and interim reports and signed by either the President or the
Chief Financial Officer of Borrower, to the effect that no Event of
Default has occurred and is continuing or, if there is any such event,
describing it and the steps, if any, being taken to cure it.
(c) Reports to SEC and to Shareholders. Copies of each filing
and report made by HH Trust to any securities exchange or the
Securities and Exchange Commission, except in respect of any single
shareholder, and of each communication from HH Trust to shareholders
generally, promptly upon the filing or making thereof.
(d) Notice of Default, Litigation and ERISA Matters.
Immediately upon learning of the occurrence of any of the following,
written notice describing the same and the steps being taken by the
Borrower or any subsidiary affected in respect thereof: (i) the
occurrence of any Event of Default or any event or condition which with
the passage of time or the giving of notice, or both, might become an
Event of Default; or (ii) the institution of, or any adverse
determination in, any litigation, arbitration or governmental
proceeding which is material to the Borrower, or (iii) the occurrence
of a reportable event under, or the institution of any steps by
Borrower to withdraw from, or the institution of any proceedings to
terminate, any employee benefit plans as to which the Borrower may have
any liability.
(e) Interim Reports. Within forty-five (45) days after the end
of each fiscal quarter, a copy of an internally prepared financial
statement of the Borrower prepared on a basis consistent with the
audited financial statements of the Borrower, signed by an authorized
officer of the Borrower and consisting of at least (i) a balance sheet
as at the close of the preceding quarter, (ii) a statement of earnings
for the preceding quarter, and (iii) operating statements for each of
the Term Loan Properties; provided, however, that such financial
statements will not include footnotes and will be subject to normal
year-end adjustments.
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(f) Annual Limited Partnership Tax Return. A copy of
Borrower's annual tax return promptly after it is submitted to the
Internal Revenue Service.
(g) Capital Expenditure Account. A quarterly report detailing
Borrower's use of the funds in the Capital Expenditure Account created
pursuant to Section 4.25.
(h) Other Information. From time to time such other
information, financial or otherwise, concerning the Borrower as the
Bank may reasonably request.
4.3 INSPECTION. The Borrower will permit the Bank or any officer,
employee or agent of the Bank at any time during the Borrower's regular business
hours to inspect their properties and to inspect and copy their books and
records. Upon the occurrence of an Event of Default, the Bank shall be entitled
to have an independent audit of Borrower's books and records at Borrower's
expense. Borrower shall pay all costs associated with annual inspections of the
real and personal properties described in the Security Documents.
4.4 FINANCIAL REQUIREMENTS. Borrower shall comply with the following
financial covenants to be tested in accordance with GAAP consistently applied:
(a) Term Loan Debt Service Coverage Ratio. Borrower shall
maintain a Term Loan Debt Service Coverage Ratio greater than 1.5 to 1,
to be tested quarterly at the end of each calendar quarter based on the
trailing one-year period.
The Term Loan Debt Service Coverage Ratio shall be measured as
of December 31, 1999, and at quarterly intervals thereafter, and for
any period shall be determined as the quotient obtained by dividing (a)
Adjusted Net Operating Income from the Term Loan Properties for such
period by (b) the amount of debt service payments (principal and
interest) which would be required to be made under this Agreement and
related loan documents during such period.
"Adjusted Net Operating Income" for this and the other
financial covenants is defined as the remainder of the Net Operating
Income after reducing Net Operating Income by an amount equal to the
sum of (a) 4% of gross room revenue for FF&E reserve, plus (b) 4% of
gross room revenue for management fees and expenses.
"Net Operating Income" shall be the net operating income of
the relevant properties determined for this and the other financial
covenants from Borrower's internally generated operating statements
prepared consistently with Borrower's internally prepared 1999 Profit
and Loss Statement.
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(b) Consolidated Debt Service Coverage Ratio. Borrower shall
maintain a Consolidated Debt Service Coverage Ratio greater than 1.5 to
1, to be tested at the end of each calendar quarter based on the
trailing one-year period.
The Consolidated Loan Debt Service Coverage Ratio shall be
measured as of December 31, 1999, and at quarterly intervals
thereafter, and for any period shall be determined as the quotient
obtained by dividing (a) Adjusted Net Operating Income from all of
Borrower's properties for such period by (b) the amount of Borrower's
total debt service payments (principal and interest) which would be
required to be made during such period, including Imputed Debt Service.
"Imputed Debt Service" means the annual payments of principal
and interest that would be required to fully amortize the outstanding
revolving loan balance of Borrower's aggregate revolving loan
indebtedness for the trailing one-year period as if the revolving loans
were loans to be amortized in equal monthly payments of principal and
interest over a 25-year period, with an assumed interest rate of the
yield on U.S. Treasury securities having a 10-year maturity at the time
of the determination, plus 3.0%.
(c) Term Loan to Value Ratio. The ratio of the principal
balance outstanding on the Term Loan to the value of the Term Loan
Properties shall be less than 50% tested at the end of each calendar
quarter.
For purposes of calculation of the Term Loan to Value Ratio as
of December 31, 1999, and at quarterly measurement intervals
thereafter, the value of the Term Loan Properties shall be the sum of
(i) the Adjusted Net Operating Income for the trailing one-year period
from the Term Loan Properties owned throughout that period capitalized
at 12%, plus (ii) the lesser of the acquisition cost or the appraised
value of any of the Term Loan Properties acquired by the Borrower
within the preceding 12 months.
(d) Consolidated Loan to Value Ratio. The ratio of Borrower's
aggregate interest bearing debt to the value of all of Borrower's real
estate assets shall be less than 60% tested at each fiscal year end.
For purposes of calculation of the Consolidated Loan to Value
Ratio as of December 31, 1999, and at yearly intervals thereafter, the
value of all of Borrower's real estate assets shall be the sum of the
Adjusted Net Operating Income for the trailing one-year period from all
of Borrower's real estate assets owned throughout that period
capitalized at 12%, plus (ii) the lesser of the acquisition cost or the
appraised value of any of Borrower's real estate assets acquired within
the preceding 12 months.
(e) IBD/EBITDA Ratio. Borrower shall maintain a ratio of
interest bearing debt divided by earnings before interest, taxes,
depreciation and amortization of less than 4.5 to 1 to be tested at
each fiscal year end.
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4.5 INDEBTEDNESS, LIENS AND TAXES. Without the Bank's prior written
consent, the Borrower and its subsidiaries shall:
(a) Indebtedness. Not incur, permit to remain outstanding,
assume or in any way become committed for indebtedness in respect of
borrowed money, except indebtedness incurred hereunder, indebtedness
related to the transactions described in the Disclosure Schedule and
additional indebtedness provided that Borrower is in compliance with
all of the Financial Requirements of Section 4.4 before and immediately
after incurring any such additional indebtedness.
(b) Liens. Not create, suffer or permit to exist any lien or
encumbrance of any kind or nature upon any of the real and personal
property subject to the Security Documents now or hereafter owned or
acquired, or acquire or agree to acquire any property or assets of any
character under any conditional sale agreement or other title retention
agreement, but this Section shall not be deemed to apply to: (i) liens
for taxes, assessments and other governmental charges not yet due or
which are being contested in good faith and for which such reserves as
shall be required by generally accepted accounting principles shall
have been made therefor; (ii) liens of landlords, vendors, carriers,
warehousemen, mechanics, laborers and materialmen arising at law in the
ordinary course of business for sums not yet due or being contested in
good faith if such reserves as shall be required by generally accepted
accounting principles shall have been made therefor; (iii) pledges or
deposits in connection with or to secure worker's compensation,
unemployment insurance, pensions or other employee benefits; and (iv)
liens and encumbrances arising out of the transactions described on the
attached Disclosure Schedule.
(c) Taxes. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it, upon its income or
profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for labor,
materials and supplies when due, except that no such tax, assessment,
charge, levy or claim need be paid which is being contested in good
faith and by appropriate legal proceedings and as to which adequate
reserves shall have been established, and as to which no foreclosure,
distraint, sale or similar proceedings have commenced.
(d) Guarantee/Indemnity Agreements. Not assume, guarantee,
borrow, indorse or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods
or services, or to supply or advance any funds, assets, goods or
services, or otherwise) with respect to the obligation of any other
person or entity, except by the indorsement of negotiable instruments
for deposit or collection in the ordinary course of business. The Bank
acknowledges that Borrower intends to pay a dividend prior to the
merger of Supertel into HH Trust, as described in the Disclosure
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Schedule, and the Bank agrees that the payment of the dividend will not
violate this covenant.
4.6 INVESTMENT AND LOANS. Borrower shall not make any loan, advance,
extension of credit, or capital contribution to any person or legal entity; nor
purchase or otherwise acquire for a consideration, evidences of indebtedness,
capital stock or other securities of any person or legal entity.
4.7 DIVIDENDS AND TRANSFERS. HH Trust shall not issue any dividends or
other distribution (i) in excess of seventy-five percent (75%) of HH Trust's
funds from operations per year, or such higher amounts as may be required to
maintain the status of HH Trust as a real estate investment trust, or (ii) after
the occurrence of an Event of Default that continues for a period of sixty (60)
days or more.
4.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain, or cause to
be maintained, in good repair, working order and condition (ordinary wear and
tear excepted), all of its properties (whether owned or held under lease), and
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
4.9 INSURANCE. The Borrower shall maintain insurance in responsible
companies in such amounts and against such risks as is required by the Bank and,
at a minimum, insurance on its respective businesses, fixed assets, inventory
and other properties, including specifically, but without limitation, flood and
title insurance, worker's compensation or similar insurance as required by law,
and adequate public liability (including product liability) insurance against
claims for personal injury, death or property damage arising out of its
services, products, facilities or operations, as is usually carried by similar
businesses conducting operations in similar areas, all such policies naming the
Bank as loss payee with respect to the real and personal properties subject to
the Security Documents and the business operations related thereto.
4.10 USE OF PROCEEDS.
(a) The Borrower shall not use or permit any proceeds of the
Term Loan Note to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or
carrying any margin stock" within the meaning of Regulations U or X of
the Board of Governors of the Federal Reserve System, as amended from
time to time. If requested by the Bank, the Borrower will furnish to
the Bank a statement in conformity with the requirements of Federal
Reserve Form U-1 to the foregoing effect. No part of the proceeds of
the Term Loan Note will be used for any purpose which violates or is
inconsistent with the provisions of Regulations U or X of the Board of
Governors.
(b) Tender Offers and Going Private. The Borrower shall not
use (or permit to be used) any proceeds of the Term Loan Note to
acquire any security in any transaction which is subject to Section 13
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or 14 of the Securities Exchange Act of 1934, as amended, or any
regulations or rulings thereunder.
4.11 LIMITATION ON BUSINESS. The Borrower shall not engage in any
business or activity other than the business engaged in as of the date hereof
and in activities related or incidental to such business without the Bank's
prior written consent, which consent shall not be unreasonably withheld.
4.12 MANAGEMENT. The management of Borrower includes Paul J. Schulte
and Steve H. Borgmann and will include Jim Humphrey in the event of the
contemplated merger referred to in Section 2.1(c) ("Management Personnel").
Immediately following the merger, the HH Trust board will include Paul J.
Schulte, Steve H. Borgmann and Jim Humphrey. Until the Term Loan Maturity Date,
at least two of such persons will continue to be on the HH Trust board unless
the Bank consents otherwise in writing, which consent shall not be unreasonably
withheld.
4.13 FEDERAL, STATE, COUNTY AND LOCAL LAWS AND REGULATIONS. The
Borrower shall comply in all respects with any and all applicable state and
federal securities laws and regulations and any and all applicable rules and
regulations of any securities exchange or the Securities and Exchange Commission
as the same relate to the issuance, purchase, sale or registration of
securities. The Borrower shall comply in all respects with any and all
applicable federal, state, county and local laws, statutes, ordinances, court
orders, rules, and regulations with respect to Borrower's businesses, fixed
assets, inventory, employees, corporate structures and properties.
4.14 NOTIFICATION OF LEGAL ACTIONS. The Borrower shall notify the Bank,
in writing, of any material legal action commenced or threatened against the
Borrower within five (5) days of receipt of such information by the Borrower.
For purposes of this Agreement, any material legal action shall be deemed one
where the amount in controversy, either directly or indirectly, exceeds the sum
of Five Hundred Thousand and No/100 Dollars ($500,000).
4.15 ADVERSE CHANGE. The Borrower shall immediately upon obtaining any
knowledge of any material adverse change in the financial condition or position
of the Borrower provide the Bank with written notice describing in detail the
nature of such adverse change.
4.16 LIMITED PARTNERSHIP OFFICES. The chief executive office of
Borrower is in Silver Spring, Maryland. Borrower shall not change the location
of its principal place of business unless Borrower shall give the Bank at least
60 days prior written notice thereof and all actions necessary or advisable in
the Bank's opinion to protect the Bank's liens covered by the Security Documents
shall have been taken.
4.17 LOAN TO EMPLOYEES. Borrower shall not make any loans to any
employees, officers or shareholders of the Borrower after the date of this
Agreement, except with respect to incidental expenses related to the performance
of the duties of the employees and officers such as travel expenses.
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4.18 SELL, CONVEY AND TRANSFER. Borrower shall not sell, convey,
transfer, dispose of or further encumber the Borrower's properties subject to
the liens created by the Security Documents or any part thereof or any interest
therein except as otherwise provided in the Security Documents or this Agreement
covering all or any portion thereof or an undivided interest therein, either
voluntarily, involuntarily or otherwise, or enter into an agreement to do so
without the prior written consent of the Bank, except sales and dispositions of
personal property in the ordinary course of Borrower's business.
4.19 RECORDS. Borrower shall keep and maintain full and accurate
accounts and records of Borrower's operations and businesses according to
generally accepted accounting principles and practices for Borrower's type of
business.
4.20 INDEMNIFICATION. Borrower shall, at Borrower's expense, protect,
defend, indemnify, save and hold Bank harmless against any and all claims,
demands, losses, expenses, damages, causes of action (whether legal or equitable
in nature) asserted by any person or entity arising out of, caused by or
relating to this Agreement, the Term Loan and Security Documents, and Borrower
shall pay Bank upon demand all claims, judgments, damages, losses, and expenses
(including court costs and expenses) incurred by Bank as a result of any legal
or other action arising out of this Agreement, the Term Loan or Security
Documents as aforesaid, except for costs arising out of the Bank's gross
negligence or willful misconduct.
4.21 THIRD PARTY CLAIMS. Bank shall not be liable to, and Borrower
shall save Bank harmless against the claims of, materialmen, contractors,
subcontractors, laborers and others for goods delivered by them to the Borrower
or Borrower's properties or services performed by them in or upon the Borrower's
properties or otherwise in connection with the Borrower. Borrower is not and
shall not be considered to be the agent of Bank for any purpose.
4.22 INSURANCE. Borrower shall not obtain or carry any separate
insurance whatsoever which is concurrent in form, or contributing in the event
of loss, with that required under Section 4.9 hereof unless Bank is also named
therein as an insured, with loss payable as provided in Section 4.9 hereof.
Borrower shall notify Bank at least 30 days before any such separate insurance
is obtained and shall deliver to the Bank the policy or policies or certificates
evidencing such insurance immediately after such policy or policies or such
certificates are issued.
4.23 SUBSIDIARIES. Borrower shall not acquire or create any additional
subsidiaries without the prior written consent of the Bank, which consent shall
not be unreasonably withheld. Borrower shall not assign, pledge or grant a
security interest in the stock of any of its subsidiaries.
4.24 CAPITAL EXPENDITURE ACCOUNT. Borrower shall establish a Capital
Expenditure Account with the Bank upon the execution of this Agreement, and
shall maintain the account until all amounts owed to the Bank have been repaid
and the Bank shall have no remaining obligation to make further advances to the
Borrower. Borrower shall deposit, or shall direct any tenant, lessor or manager
to deposit, 4% of the total revenue from the Term Loan Properties into the
Capital Reserve Account to be used solely for the purpose of maintenance and
capital expenditures relating to properties owned by the Borrower. Until the
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occurrence of an Event of Default, or until otherwise notified by the Bank,
Borrower may use the funds in the Capital Expenditure Account at its discretion
for the purposes set forth herein.
4.25 FRANCHISOR PERFORMANCE REPORTS. Borrower shall comply, and shall
cause any tenant approved by the Bank to comply, with all recommendations of its
franchisors or licensors in any performance reports for the operation and
maintenance of the Term Loan Properties within the time frames required or
recommended by the respective franchisors or licensors.
4.26 HOTEL OPERATOR. Borrower acknowledges that the Bank has agreed to
make this loan in reliance on the expertise of Paul J. Schulte, Steve H.
Borgmann, Jim Humphrey and Randy P. Smith in operating properties such as the
Term Loan Properties. Borrower agrees that unless the Bank otherwise consents in
writing (which consent shall not be unreasonably withheld), one or more of the
individuals listed in the preceding sentence shall be actively involved in the
operation and management of the Term Loan Properties throughout the term of this
Agreement.
4.27 SUPERTEL OR HH TRUST OWNERSHIP OF BORROWER. Until the Term Loan
Maturity Date, Supertel Hospitality, Inc., HH Trust, or HHLP (provided that HH
Trust is the controlling limited partner of HHLP either directly or through its
ownership of HH REIT) shall be the sole limited partner of Borrower.
4.28 ADDITIONAL COLLATERAL. In the event the merger described in the
Disclosure Schedule does not occur on or before October 31, 1999, Borrower shall
provide the Bank with such additional documents as is required by the Bank to
perfect a lien on all personal property, grant an assignment of all rents and
leases, provide a collateral assignment of all franchise rights and provide
agreements from franchisors all relating to or pertaining to the Term Loan
Properties, or assign or transfer interests in the franchises for the Term Loan
Properties. Borrower further covenants and agrees that it shall not transfer or
grant any liens on any of Borrower's personal property relating to or pertaining
to the Term Loan Properties, or assign any of the rents and leases relating to
or pertaining to the Term Loan Properties after the execution of this Agreement
unless the merger described in the Disclosure Schedule occurs on or before
October 31, 1999, and then only as provided in the Disclosure Schedule.
SECTION 5. DEFAULT
5.1 EVENTS OF DEFAULT. Each of the following occurrences is hereby
defined as an "Event of Default."
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(a) Nonpayment. The Borrower shall fail to make any payment of
principal or interest on the Term Loan Note or shall fail to make
payment of other amounts payable by the Borrower hereunder or under the
Security Documents when and as due and such failure shall continue for
a period of three (3) Banking Days after Borrower's receipt of written
notice that the same is due (for the purposes of this Section 5.1(a)
only, and notwithstanding anything to the contrary contained in Section
7.2 below, the Borrower shall be deemed to have received the Bank's
notice of a payment default on the same day such notice is sent to
Borrower via telecopier, provided that the Bank receives a confirmation
upon completion of the Bank's telecopier transmission that the
respective notice has been successfully transmitted to the Borrower at
the telecopier number provided in Section 7.2 below, unless the
transmission cannot be completed because the Borrower has not
maintained the ability to receive telecopier transmissions at the
telecopier number set forth in Section 7.2); or
(b) Nonperformance. There shall occur any default or event of
default, (subject to curative rights, if any) or any event which
requires the prepayment of borrowed money or the acceleration of the
maturity thereof, under the terms of any other evidence of indebtedness
or any other agreement for borrowed money issued or assumed or entered
into by the Borrower with this Bank or with any other bank or third
party, or under the terms of any indenture agreement or instrument
under which any such evidence of indebtedness or other agreement is
issued, assumed, secured or guaranteed, and such event shall continue
beyond any applicable period of grace; or
(c) Dissolutions, etc. The Borrower shall fail to comply with
any prohibition against dissolution, liquidation, merger, consolidation
or sale of assets; or
(d) Warranties. Any representation, warranty, schedule,
certificate, financial statement, report, notice or other writing
furnished by or on behalf of the Borrower to the Bank or any
representation, warranty or covenant contained in this Agreement, the
Term Loan Note or Security Documents, is false or misleading in any
material respect on the date as of which the facts therein set forth
are stated certified or reaffirmed; or
(e) ERISA. Any reportable event shall occur under the Employee
Retirement Income Security Act of 1974, as amended, in respect of any
employee benefit plan maintained for employees of the Borrower or its
subsidiaries; or
(f) Litigation. Any financial judgment, resulting from
judicial or administrative action, shall be entered against the
Borrower, or with respect to any assets of the Borrower, in which the
amount of such judgment exceeds One Hundred Thousand and No/100 Dollars
($100,000), if such judgment remains undischarged for a period of sixty
(60) days or more after the date on which such judgment becomes final,
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without regard to any right of appeal to a higher court of law, unless
Borrower shall have taken whatever action is required, including,
without limitation, posting a supersedeas bond, to stay proceedings to
enforce any such judgment; or any proceeding (judicial or
administrative) could have a material and adverse effect on the future
operations of the Borrower; or
(g) Noncompliance with this Agreement, Term Loan Note or
Security Documents. The Borrower shall fail to comply with any
provision hereof or any provision of the Term Loan Note or any Security
Documents, which failure does not otherwise constitute an Event of
Default under Section 5.1(a), and such failure shall continue for
thirty (30) days after written notice thereof to the Borrower by the
Bank or any other holder, beneficiary, or secured party of the Term
Loan Note or Security Documents; or
(h) Bankruptcy - Filing of Petition. The Borrower shall file a
petition seeking relief, or consent or answer consenting to a petition
seeking relief against Borrower under the federal Bankruptcy Code, as
now constituted or hereafter amended, or any other applicable federal,
state or foreign bankruptcy law or other similar law, or the Borrower
shall consent to the institution of proceedings thereunder or the
filing of any such petition or to the appointment or taking possession
of a receiver, liquidator, assignee, trustee, custodian, sequestrator
or similar official of the Borrower or any subsidiary; or
(i) Bankruptcy - Entry of Order for Relief. There shall be
entered a decree or order by a court constituting an order for relief
in respect of the Borrower, under the federal Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable federal,
state or foreign bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or
similar official of the Borrower or of any substantial part of their
properties, or ordering the winding-up of or liquidation of the affairs
of the Borrower and any such decree or order shall continue unstayed
and in effect for a period of sixty (60) consecutive days; or
(j) Insolvency. The Borrower shall become insolvent or shall
fail or be unable to pay its debts as they mature, or shall admit in
writing its inability to pay its debts as they mature, or shall make a
general assignment for the benefit of its creditors, or shall enter
into any composition or similar agreement, or shall suspend the
transaction of all or a substantial portion of its usual business; or
(k) Environmental Noncompliance. Notice shall be given of any
alleged violation of environmental laws relating to the present or
previously-owned or leased real properties of the Borrower or any of
its subsidiaries, the effect of which could be reasonably expected to
have a material adverse effect on the Borrower; or
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(l) Supertel Default. Supertel Hospitality, Inc., a Delaware
corporation, shall fail to make any payment of principal or interest
due or otherwise default on any other obligations to the Bank beyond
any applicable grace or cure period; or
(m) Franchise Agreement Default. Borrower or any tenant of
Borrower shall default on any franchise or license agreement relating
to any of the Term Loan Properties, and such default shall continue
beyond any applicable grace or cure period provided in the franchise or
license agreement.
5.2 REMEDIES. Time is of the essence. Upon the occurrence of any such
Event of Default and during the continuance thereof, any obligation of the Bank,
or any other holders of the Term Loan Note, with respect to the Term Loan shall
automatically terminate, and the Bank or any other holders of the Term Loan Note
may declare the Term Loan Note to be immediately due and payable, whereupon the
Term Loan Note and any other amounts at the time accrued or payable hereunder
but unpaid, shall immediately become due and payable, which acceleration shall
occur automatically upon the occurrence of the Events of Default provided in
Sections 5.1(h) and (i), without presentment, demand, notice or protest of any
kind, all of which are hereby expressly waived by the Borrower. No delay or
omission on the part of the Bank or any holder of the Term Loan Note in
exercising any power or right hereunder or under the Term Loan Note or Security
Documents shall impair such right or power or be construed to be a waiver of any
Event of Default or any acquiescence therein, nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof, or the exercise of any other power or right.
SECTION 6. CONDITIONS OF LENDING
The obligation of the Bank to make the Term Loan is subject to the
following conditions:
6.1 DOCUMENTATION. In addition to the conditions precedent set forth in
Section 6.2, the obligation of the Bank to make the Term Loan is subject to the
conditions precedent that the Bank shall have received all of the following,
each duly executed and dated the date of the Term Loan in form and substance
satisfactory to the Bank and its counsel, at the expense of the Borrower, and in
such number of signed counterparts as the Bank may request (except for the Term
Loan Note, of which only the original of each shall be signed):
(a) Notes. The duly executed Term Loan Note;
(b) Security Documents. The duly executed or endorsed Deeds of
Trust, Mortgages, Assignments of Leases and Rents, Subordination,
Nondisturbance and Attornment Agreements, Security Agreement(s) and
Financing Statements;
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(c) Insurance. Original insurance policies or certificates
thereof for the insurance required by Section 4.9 hereof;
(d) Taxes. Evidence satisfactory to Bank that all taxes are
fully paid and not delinquent;
(e) Resolution. A certified copy of the resolution or other
appropriate action of the Borrower authorizing or ratifying the
execution, delivery and performance, respectively, of this Agreement,
the Term Loan Note, Security Documents, and the other agreements,
documents and instruments provided for in this Agreement, certified by
the Secretary of the Borrower;
(f) Limited Partnership Documents. A certified copy of the
certificate of limited partnership and limited partnership agreement of
the Borrower certified by the Secretary, a certificate of good standing
issued by the Secretary of State of the State of Maryland;
(g) Certificate of Incumbency. A certificate of the Secretary
of the Borrower certifying the names of the officer or officers of the
Borrower authorized to sign this Agreement, Term Loan Note and Security
Documents and the other agreements, documents, and instruments provided
for in this Agreement, together with a sample of the true signature of
each such officer (the Bank may conclusively rely on such certificate);
(h) Certificate of No Default. A certificate signed by the
Chief Financial Officer of the Borrower to the effect that (i) no Event
of Default has occurred and is continuing or will result from the
making of the Term Loan; and (ii) the representations and warranties of
the Borrower contained herein are true and correct as at the date of
the Term Loan as though made on that date;
(i) Opinion of Counsel for the Borrower. A written opinion of
counsel to the Borrower in form and substance acceptable to the Bank
confirming to Bank the accuracy of the representations and warranties
of Borrower set forth in this Agreement and other matters and things as
Bank shall request;
(j) Collateral Documents.
U.C.C. searches with respect to the Borrower.
Phase I Environmental Reports.
Lender's Title Policies.
Surveys.
Appraisals.
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Comfort Letters or Agreements.
(k) Miscellaneous. Such other documents and certificates as
the Bank may reasonably request.
6.2 REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
(a) Representations and Warranties. At the date of this
Agreement and any advance under the Term Loan, the Borrower's
representations and warranties set forth herein shall be true and
correct as at such date with the same effect as though those
representations and warranties had been made on and as at such date.
(b) No Default. At the time of this Agreement and any advance
under the Term Loan, and immediately after giving effect to the Term
Loan, the Borrower shall be in compliance with all the terms and
provisions set forth herein on its part to be observed or performed,
and no Event of Default shall have occurred and be continuing at the
time of the Term Loan or would result from the making of the Term Loan
or any subsequent advances thereunder.
6.3 SUCCEEDING LOANS. The application or request by the Borrower for
any loan other than the Term Loan, including requests for advances thereunder,
shall be deemed a representation and warranty by the Borrower that the
statements in Sections 3 and 4 are true and correct on and as of the date of
each such loan except with respect to any changes in those statements permitted
by this Agreement, changes of which Borrower has given written notice to Bank
pursuant to the terms of this Agreement and changes agreed upon by the Bank in
writing subsequent to the date of this Agreement.
SECTION 7. MISCELLANEOUS
7.1 WAIVER OF DEFAULT. The Bank may, by written notice to the Borrower,
at any time and from time to time, waive any default in the performance or
observance of any condition, covenant or other term hereof, which shall be for
such period and subject to such conditions as shall be specified in any such
notice. In the case of any such waiver, the Bank and the Borrower shall be
restored to their former position and rights hereunder and under the Term Loan
Note, and any Event of Default so waived shall be deemed to be cured and not
continuing; but no such waiver shall affect, extend or impair any rights of the
Bank with respect to any default, except as specifically set forth in the Bank's
written notice, nor shall it affect Bank's rights with respect to any subsequent
or other Event of Default.
7.2 NOTICES. All notices, communications and distributions hereunder
shall be given or made to the following parties at the following addresses:
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(a) if to the Borrower:
E&P FINANCING LIMITED PARTNERSHIP
Pre-Merger:
c/o SUPERTEL HOSPITALITY, INC.
309 North 5th Street
Norfolk, Nebraska 68702-2520
(402) 371-4229
with a copy thereof to:
MCGRATH, NORTH, MULLIN, KRATZ, P.C.
222 South 15th Street, Suite 1400
Omaha, Nebraska 68102
(402)341-3070
Attention: Ronald L. Comes
Telecopier: (402) 341-0216
Post-Merger:
c/o HUMPHREY HOSPITALITY TRUST, INC.
12301 Old Columbia Pike
Silver Spring, Maryland 20904
Attention: Bethany Hooper
Telecopier: (301) 680-4342
with a copy thereof to:
GALLAGHER, EVELIUS & JONES, LLP
218 North Charles Street, Suite 400
Baltimore, Maryland 21201
(410)727-7702
Attention: Stephen A. Goldberg
Telecopier: (410) 837-3085
(b) if to the Bank:
U.S. BANK NATIONAL ASSOCIATION
233 South 13th Street, Suite 911
Lincoln, Nebraska 68508
Attention: Steven D. Erwin, Senior Vice President
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with a copy thereof to:
CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
1900 U.S. Bank Building
233 South 13th Street
Lincoln, Nebraska 68508
(402) 474-6900
Attention: Stephen H. Nelsen
or in any of the foregoing cases at such other addresses as the addressee may
hereafter specify for such purpose by written notice to the parties. Such
notices and other communications will be effectively given only if and when
given in writing and delivered at the address set forth herein duly deposited in
the mails with first-class postage prepaid, or delivered to a telegraph company
with all charges prepaid, addressed as aforesaid.
7.3 WAIVERS. If the Bank does not require certain conditions precedent
to closing of the Term Loan as described in Section 6, such act shall be
construed only as a conditional waiver of those conditions as to closing on the
Term Loan on the date hereof and shall not be a general waiver of the compliance
with those conditions by the Borrower, and the Borrower shall comply with those
conditions hereafter on demand by the Bank. Any condition precedent to closing
of the Term Loan waived by the Bank under this paragraph shall automatically be
a condition precedent to all other future corresponding loans and disbursements
of the Term Loan.
7.4 NONWAIVER; CUMULATIVE REMEDIES. No failure to exercise, and no
delay in exercising, on the part of the Bank of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies of the Bank
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
7.5 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of this Agreement, the Term
Loan Note and the Security Documents and the making of any loans or advances.
7.6 SUCCESSORS. This Agreement shall, upon execution and delivery by
the Borrower, become effective and shall be binding upon and inure to the
benefit of the Borrower and the Bank, and their respective successors and
assigns, except that the Borrower may not transfer or assign any of its rights
or interest hereunder without the prior written consent of the Bank.
7.7 CAPTIONS. Captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof. Reference herein to Sections without reference to the document in which
they are contained are references to this Agreement.
7.8 SINGULAR AND PLURAL. Unless the context requires otherwise,
wherever used herein the singular shall include the plural and vice versa.
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<PAGE>
7.9 COUNTERPARTS. This Agreement may be executed by the parties on any
number of separate counterparts, and by each party on separate counterparts,
each counterpart shall be deemed an original instrument; and all of the
counterparts taken together shall be deemed to constitute one and the same
instrument.
7.10 FEES. The Borrower agrees, upon written request of the Bank, to
pay or reimburse the Bank for all costs and expenses incurred by the Bank
relating to this Agreement, including, without limitation, the costs and
expenses of seeking advice in regard to preparing and enforcing this Agreement
or the Term Loan Note or Security Documents, or preserving its rights hereunder
or under any document or instrument executed in connection herewith (including
legal fees and reasonable time charges of attorneys who may be employees of the
Bank, whether in or out of court, in original or appellate proceedings or in
bankruptcy), together with all expenses of record searches, environmental
studies, surveys, title insurance policies, appraisals, and filing and closing
fees paid by the Bank with respect to this Agreement and the perfection of the
Bank's liens.
7.11 FURTHER ASSURANCES. From time to time, the Borrower will execute
and deliver to the Bank such additional documents, and will provide such
additional information as the Bank may reasonably require to carry out the terms
of this Agreement and be informed of the Borrower's status and affairs.
7.12 CONSTRUCTION. This Agreement, the Term Loan Note and Security
Documents and any document or instrument or other agreement executed in
connection herewith and except as otherwise specifically provided therein shall
be governed by, and construed and interpreted in accordance with, the internal
laws of the State of Nebraska, and shall be deemed to have been executed in the
State of Nebraska.
7.13 ENTIRE AGREEMENT. This Agreement may not be assigned by Borrower
without the prior written consent of Bank which consent may be withheld. This
Agreement constitutes the entire understanding between the parties hereto with
respect to the subject matter hereof, superseding all prior written or oral
understandings, and may not be modified, amended or terminated except by a
written agreement signed by each of the parties hereto or thereto.
Notwithstanding the foregoing, the provisions of this Agreement are not intended
to supersede the provisions of the Term Loan Note or Security Documents, but
shall be construed as supplemental thereto.
7.14 SEVERABILITY. If any term or provision of this Agreement, or the
Term Loan Note or Security Documents, or any document or instrument executed in
connection therewith, including amendments and modifications or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the terms and provisions or the application of such term or
provision to person or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each form and
provision shall be valid or enforced to the fullest extent possible by law.
7.15 SUBMISSION TO JURISDICTION; VENUE. To induce the Bank to make the
Term Loan, as evidenced by the Term Loan Note and Security Documents and this
Agreement, the Borrower irrevocably agrees that, subject to the Bank's sole and
absolute election, all suits, actions or other proceedings in any way, manner or
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respect, arising out of or from or related to this Agreement, the Term Loan Note
and Security Documents, or any document executed in connection herewith, shall
be subject to litigation in courts having situs within Nebraska. The Borrower
hereby consents and submits to the jurisdiction of any local, state or federal
court located within Nebraska. The Borrower hereby waives any right it may have
to transfer or change the venue of any suit, action or other proceeding brought
against the Borrower by the Bank in accordance with this section.
7.16 WAIVER OF TRIAL BY JURY. BANK BY ITS ACCEPTANCE HEREOF AND
BORROWER HEREBY VOLUNTARILY, KNOWINGLY AND INTENTIONALLY WAIVE ANY AND ALL
RIGHTS TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS
AGREEMENT OR CONCERNING THE OBLIGATIONS OR ANY REAL OR PERSONAL PROPERTY PLEDGED
AS COLLATERAL UNDER THE SECURITY DOCUMENTS, REGARDLESS OF WHETHER SUCH ACTIONS
OR PROCEEDINGS CONCERN ANY CONTRACTUAL OR TORTIOUS OR OTHER CLAIM. BORROWER
ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL TO BANK IN EXTENDING
CREDIT TO BORROWER, THAT BANK WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS
JURY TRIAL WAIVER, AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS
HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY
TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
7.17 CREDIT AGREEMENT NOTICE. A credit agreement must be in writing to
be enforceable under Nebraska law. To protect you and us from any
misunderstandings or disappointments, any contract, promise, undertaking, or
offer to forebear repayment of money or to make any other financial
accommodation in connection with this loan of money or grant or extension of
credit, or any amendment of, cancellation of, waiver of, or substitution for any
or all of the terms or provisions of any instrument or document executed in
connection with this loan of money or grant or extension of credit, must be in
writing to be effective.
7.18 APPLICATION OF PROCEEDS. The Bank shall have sole discretion
regarding the application of any payments or proceeds received from the
Borrower, voluntary or involuntary, including, without limitation, any proceeds
from the sale or other disposition of any of the collateral or security
described in Section 2.
7.19 CONSENT TO TRANSACTIONS. Notwithstanding any provisions of this
Agreement or the Security Documents to the contrary, the Bank hereby consents to
the transactions described in the Disclosure Schedule attached hereto as Exhibit
"I", provided that the transactions are consummated on or before October 31,
1999 and strictly in accordance with the Disclosure Schedule. The Disclosure
Schedule was prepared by the Borrower, and the Borrower represents and warrants
the truth and accuracy of information provided in the Disclosure Schedule, which
representation and warranty shall survive the execution of this Agreement.
"BORROWER"
E&P FINANCING LIMITED PARTNERSHIP,
a Maryland limited partnership
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By: E&P REIT Trust, General Partner
By:______________________________________
Paul J. Schulte, President
"BANK"
U.S. BANK NATIONAL ASSOCIATION
By:______________________________________
Steven D. Erwin
Senior Vice President
STATE OF _____________)
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
October, 1999, by Paul J. Schulte, President of E&P REIT Trust, the General
Partner of E&P Financing Limited Partnership, a Maryland limited partnership, on
behalf of said limited partnership.
______________________________________
Notary Public
STATE OF _____________)
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
October, 1999, by Steven D. Erwin, Senior Vice President of U. S. Bank National
Association, a national banking association, on behalf of said association.
______________________________________
Notary Public
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EXHIBITS
Exhibit A Term Loan Note
Exhibit B Real Estate Descriptions and Recording Offices
Exhibit C Assignment of Leases and Rents
Exhibit D Lease Subordination Agreements
Exhibit E Collateral Assignments
Exhibit F Agreements with Franchisors
Exhibit G Security Agreement
Exhibit H Financing Statement
Exhibit I Disclosure Schedule
Exhibit J Subsidiaries
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Exhibit 10.28
LOAN AGREEMENT
FOR
REVOLVING CREDIT FACILITY
THIS AGREEMENT is made as of this 20th day of October, 1999, by and
between Supertel Hospitality, Inc., a Delaware corporation ("Borrower"), and
U.S. Bank National Association, a national banking association ("Bank"). In
consideration of the promises and mutual agreements hereinafter contained, and
other good and valuable consideration, the Borrower and the Bank agree as
follows:
SECTION 1. REVOLVING LOAN
1.1 REVOLVING LOAN. Upon the execution of this Agreement, the Bank
agrees to loan to the Borrower, and Borrower may borrow, repay and reborrow, up
to the maximum principal sum outstanding at any time of the lesser of (i) Seven
Million and No/100 Dollars ($7,000,000) from the date of this Agreement to
October 15, 2000, and Five Million and No/100 Dollars ($5,000,000) from October
15, 2000 to October 15, 2001, or (ii) fifty percent (50%) of the then current
Borrowing Base as determined on the basis of the information contained in the
most recent Borrowing Base Certificate (herein the "Revolving Loan Commitment"
or "Revolving Loan").
1.2 REVOLVING LOAN NOTE. The loan to the Borrower under this Section 1
shall be evidenced by a certain Revolving Loan Note (herein, together with any
and all extensions, renewals, modifications and substitutions thereof or
exchanges therefor, referred to as the "Revolving Loan Note") dated the date of
issuance, payable to the order of the Bank, in the maximum principal amount of
the Revolving Loan Commitment, and with the amounts borrowed and repaid and the
balance indorsed or recorded on the grid attached to or on the reverse side of
the Revolving Loan Note. As long as the Bank is the holder of the Revolving Loan
Note it may, at its option, in lieu of indorsing the grid, record the amounts
borrowed and repaid and enter the balance due on the Revolving Loan Note in its
books and records, which books and records may treat each borrowing as a
separate loan; such indorsement or recording on the grid or by the Bank in its
books shall be presumptive evidence of the principal balance due on the
Revolving Loan Note. A copy of the Revolving Loan Note is attached hereto as
Exhibit "A" and is incorporated herein by this reference.
1.3 INTEREST. The unpaid principal amount of the Revolving Loan Note
outstanding from time to time shall bear interest at the following rates per
year:
(a) Variable Rate. Borrower may elect to have interest on the
Revolving Loan at the "Reference Rate" or at the "Adjusted LIBOR Rate"
by giving the Bank telephonic, telecopier or telex notice (which notice
shall be promptly confirmed in writing) no later than two (2) Banking
Days prior to the date of any requested change in the interest rate.
Interest at the Reference Rate shall be adjusted at the time of any
change in the Reference Rate. Interest at the Adjusted LIBOR Rate shall
<PAGE>
be adjusted monthly based on the LIBOR Rate, as determined by the Bank
on the last business day of the preceding month.
"Reference Rate" shall mean the rate of interest per annum
which has been publicly announced by U.S. Bank National Association in
Minneapolis, Minnesota (USBNA) as its "Reference Rate," which is not
necessarily the lowest rate charged by the Bank or USBNA on loans and
is set by the Bank in its sole discretion.
"LIBOR Rate" shall mean the London Interbank Offered Rate per
annum for a 30-day period as obtained by the Bank from the Reuters
Service. In the event the Reuters Service shall discontinue quoting
LIBOR rates, the Bank shall designate an alternate method to determine
the LIBOR rates. The Bank's designation shall be binding on the
undersigned.
"Adjusted LIBOR Rate" shall mean the LIBOR Rate obtained by
the Bank from the Reuters Service as of the close of business on the
last banking day of each month; plus any reserves the Bank determines
it is required to maintain with respect to LIBOR or Eurodollar currency
loans; and plus 1 3/4%. Each determination of the Adjusted LIBOR Rate
made by the Bank in accordance with this paragraph shall be conclusive
and binding on the Borrower.
"Banking Day" shall mean a day on which banks are open for
business in London, England and Lincoln, Nebraska, and dealing in
United States dollar deposits in London, England.
"Revolving Loan-to-Value Ratio" shall be determined as
provided in Section 4.4(c).
(b) LIBOR Rate Lock-In. Borrower may elect to have the
Adjusted LIBOR Rate fixed for periods of 60, 90 or 180 days (the "LIBOR
Interest Period") by giving the Bank telephonic, telecopier or telex
notice (which notice shall be promptly confirmed in writing) no later
than three (3) Banking Days prior to the effective date of any such
request; provided that (i) Borrower may only elect to have the Adjusted
LIBOR Rate fixed with respect to advances in increments of $1,000,000,
(ii) such advances shall not be repaid by the Borrower until the
expiration of the applicable LIBOR Interest Period elected by the
Borrower, (iii) the Borrower shall pay an additional 0.10% interest on
90 or 180-day periods, and (iv) the LIBOR Interest Period shall not
extend beyond the Revolving Loan Maturity Date.
(c) Funding Indemnity. In the event the Bank shall incur any
loss, cost, expense or premium (including, without limitation, any loss
of profit and any loss, cost, expense or premium incurred by reason of
the liquidation or re-employment of deposits or other funds acquired by
the Bank to fund or maintain any advance to Borrower under Section
1.3(b) or the relending or reinvesting of such deposits or amounts paid
or prepaid to the Bank as a result of:
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<PAGE>
(i) any payment or prepayment of an advance on a date other
than the last day of the applicable LIBOR Interest Period; or
(ii) any failure by the Borrower to borrow any amount on the
date specified in the notice given pursuant to Section 1.3(b) hereof;
or
(iii) the occurrence of any Event of Default;
then, upon the demand of the Bank, the Borrower shall pay the Bank such
amount as will reimburse the Bank for any such loss, cost or expense.
If the Bank makes a claim for compensation under this Section
1.3(c), it shall provide to the Borrower a certificate setting forth
the amount of such loss, cost or expense in reasonable detail and such
certificate shall be conclusive and binding on the Borrower as to the
amount thereof except in the case of manifest error.
(d) Default Rate. After maturity, whether by lapse of time,
default, acceleration or otherwise, at a rate equal to the Reference
Rate plus three percent (3%) per annum (the "Default Rate").
(e) Late Fees. The Borrower shall pay the Bank a late fee of
5% of the amount of any payment received 15 days or more after its due
date.
1.4 INTEREST AND PRINCIPAL DATES. The principal shall be paid at
maturity on October 15, 2001 (the "Revolving Loan Maturity Date").
Accrued interest on the outstanding and unpaid principal shall be paid
monthly with the first payment due on October 31, 1999 and continuing on the
last day of each month thereafter to October 15, 2001, upon which date the total
unpaid principal balance and all accrued but unpaid interest shall be due and
payable.
1.5 REQUESTS FOR ADVANCES. Advances hereunder may be effected in
writing, in person, or by telephone notification to the Bank Officer named below
or such other loan officer as the Bank may from time to time designate for
purposes of receiving such notifications, and the advances of funds to the
Borrower by the Bank shall be conclusive evidence of an authorized notification
and request by the Borrower for further advances. Notification must be received
by the Bank Officer named below or such other loan officer as the Bank may from
time to time designate for purposes of receiving such notifications on or before
10:00 a.m. for an advance to be made on the day of the notification. Requests
for advances by the Borrower shall be made only by the Chief Financial Officer
or Chief Executive Officer or such other persons designated by Borrower in
writing from time to time as persons authorized to request advances on behalf of
Borrower.
1.6 BORROWING BASE. The maximum amount of the Revolving Loan shall be
determined by the most recent quarterly Borrowing Base Certificate submitted by
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Borrower and shall not exceed the lesser of (a) the aggregate appraised value of
the Revolving Loan Properties listed on Exhibit "B", as that list may be amended
from time to time by adding or substituting properties approved by the Bank, or
(b) the sum of (i) the Adjusted Net Operating Income for the trailing one-year
period from the Revolving Loan Properties owned throughout that period
capitalized at 12%, plus (ii) the lesser of the acquisition cost or the
appraised value of any of the Revolving Loan Properties acquired by the Borrower
within the preceding 12 months.
"Adjusted Net Operating Income" is defined as the remainder of the Net
Operating Income after reducing Net Operating Income by an amount equal to the
sum of (a) 4% of gross room revenue for FF&E reserve, plus (b) 4% of gross room
revenue for management fees and expenses.
1.7 FUNDS. Payments and prepayments of principal and interest shall be
made in immediately available funds to the Bank by payment at its main office at
233 South 13th Street, Lincoln, Nebraska 68508, or at such other place as the
Bank or the holder hereof may designate in writing to the Borrower.
1.8 PERMISSIBLE BORROWING PURPOSES. The Revolving Loan extended by the
Bank to the Borrower hereunder shall be used for the purpose of meeting general
corporate needs of the Borrower.
1.9 COMMITMENT FEE. Upon the execution of this Agreement, Borrower
shall pay the Bank a commitment fee in the amount of Seven Thousand and No/100
Dollars ($7,000).
1.10 UNUSED COMMITMENT FEE. The Borrower shall pay the Bank a
commitment fee equal to one-quarter percent (0.25%) per annum (computed on the
basis of a year of 360 days and actual days elapsed) on the unused portion of
the maximum Revolving Loan Commitment payable quarterly in arrears on the last
day of each quarter from the date hereof until the Revolving Loan Commitment
terminates, on which date the final payment will be made.
1.11 LATE FEES. Borrower shall pay a late fee of 5% of the amount of
any payment received 10 days or more after its due date.
1.12 TERMINATION OF REVOLVING LOAN. Borrower and the Bank are currently
parties to that Revolving Term Promissory Note and Loan Agreement (Modified and
Extended) dated December 30, 1996, as amended or modified, which provides for a
revolving loan from the Bank to Borrower as set forth therein. Upon the
execution of this Agreement, Borrower agrees to pay all amounts due thereunder,
and Borrower and Bank agree that the Revolving Term Promissory Note and Loan
Agreement (Modified and Extended) is hereby terminated.
SECTION 2. COLLATERAL AND SECURITY
2.1 SECURITY. As security for the payment of the Revolving Loan Note,
which Revolving Loan Note is executed in connection herewith (including any and
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all extensions, renewals, modifications and substitutions thereof or exchanges
therefor), any and all future advances of credit to the Borrower, the
performance of this Agreement and any other agreement executed in connection
herewith, the payment of any and all amounts advanced by the Bank hereunder or
otherwise on behalf of the Borrower, any legal fees and all other fees, charges,
expenses, or costs incurred by the Bank in connection herewith, (herein
collectively called the "Obligations"), the Borrower will execute and deliver to
the Bank certain documents in connection with this Agreement as follows:
(a) Deeds of Trust or Mortgages, in form and substance
satisfactory to the Bank, on all of the real estate described on
Exhibit "B" attached hereto and incorporated herein by this reference,
and any additions thereto or substitutions therefor approved by the
Bank giving the Bank a first lien on all of the real estate described
on Exhibit "B" to secure the Obligations.
(b) Assignments of Leases and Rents, in the form attached
hereto as Exhibit "C", assigning the rights of the Borrower as lessor
of each of the Revolving Loan Properties that are leased by the
Borrower, together with resolutions of authority as applicable to
Borrower. The foregoing provision notwithstanding, Borrower shall not
lease any of the Revolving Loan Properties without the Bank's prior
written consent. The Bank consents to the lease of the Term Loan
Properties to Supertel Hospitality Management, Inc. provided that the
merger between Supertel Hospitality, Inc. ("Supertel") and Humphrey
Hospitality Trust, Inc. ("HH Trust") described in the Disclosure
Schedule has been consummated and all conditions of this Agreement have
been satisfied.
(c) Lease Subordination Agreements, in the form attached
hereto as Exhibit "D", from the lessees of each of the Revolving Loan
Properties.
(d) Collateral Assignments from Supertel Hospitality
Management, Inc. in form and substance satisfactory to the Bank and in
substantially the form attached hereto as Exhibit "E" assigning the
franchises for each of the Revolving Loan Properties.
(e) Agreements from the franchisors or licensors of all of the
Revolving Loan Properties in form and substance satisfactory to the
Bank providing the Bank with assurances in substantially the form
attached hereto as Exhibit "F" to the effect that they will not
terminate the franchises with Borrower in the event the Bank enforces
its rights under the Security Documents or in the event of a default
under the franchises.
(f) Security Agreement(s) and Financing Statement(s) on all
the personal property now owned or held or hereafter acquired, and any
proceeds thereof together with resolutions of authority as applicable
to Borrower giving the Bank a first lien on all personal property of
Borrower relating to or pertaining to the Revolving Loan Properties. A
copy of the Security Agreement is attached hereto as Exhibit "G" and is
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incorporated herein by this reference. A copy of the form of Financing
Statement to be used is attached hereto as Exhibit "H" and is
incorporated herein by this reference.
Borrower hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Bank the attorney-in-fact
of Borrower coupled with an interest, to execute, deliver, and if
appropriate, to file with the appropriate filing officer or office such
security agreements, financing statements or other instruments as Bank
may request or require in order to impose or perfect the lien or
security interest hereof more specifically thereon.
(f) Guaranties, in the form attched hereto as Exhibit "I",
from Steve H. Borgmann and Paul J. Schulte.
2.2 RIGHTS IN PROPERTY HELD BY BANK. As further security for the prompt
satisfaction of all the Obligations of the Borrower to the Bank, the Borrower
hereby assigns, transfers, and sets over to the Bank all of its right, title and
interest in and to, and grants the Bank a lien on and a security interest in,
and agrees that the Bank may set off against, all amounts that may be owing from
time to time by the Borrower to the Bank in any capacity, including, but without
limitation, any balances, credits, deposits, accounts, monies, or any other
property of the Borrower, now or hereafter in the possession of the Bank.
2.3 SECURITY DOCUMENTS. The executed Deeds of Trust, Mortgages,
Assignments of Leases and Rents, Subordination, Nondisturbance and Attornment
Agreements, Security Agreement(s) and Financing Statements described in Section
2.1 and the rights, liens and security interests and setoff described in Section
2.2 are collectively and individually referred to as "Security Documents."
2.4 NORFOLK, NEBRASKA AND BULLHEAD CITY, ARIZONA. Borrower and Bank
have agreed that the office building in Norfolk, Nebraska owned by Simplex,
Inc., a wholly-owned subsidiary of Borrower, and Borrower's property in Bullhead
City, Arizona will be included as part of the Revolving Loan Properties.
Borrower agrees that it will provide the Bank with any and all information and
documentation requested by the Bank to include those properties in the Revolving
Loan Properties, including, without limitation, information and documentation
substantially similar to that provided with respect to the existing Revolving
Loan Properties. Borrower agrees to provide such information and documentation
as soon as possible after the execution of this Agreement, but no later than
thirty (30) days thereafter.
2.5 SUBSTITUTION AND ADDITION TO TERM LOAN PROPERTIES. Subject to the
approval of the Bank, as hereinafter set forth, Borrower may request permission
for any reason to substitute real estate and obtain the release of real estate
that is a part of the Revolving Loan Properties, and Borrower may also request
permission to add real estate to the Revolving Loan Properties to maintain
compliance with, or cure any failure to maintain compliance with, any of the
ratios set forth in Section 4.4 of this Agreement. At the time of making any
such request, the Borrower shall provide the Bank with such information and
documents as the Bank may require, including, without limitation, the following:
an appraisal, a title insurance commitment, an ALTA survey, an environmental
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report, a U.C.C. search, flood hazard certification, evidence of insurance,
zoning information, the franchise agreement, tax and judgment lien searches, and
a building inspection report. The Bank shall have thirty (30) days after the
request by the Borrower to determine, in its sole discretion, if the real estate
proposed to be substituted or added is of appropriate character, quality and
value. Any request to add real estate to the Revolving Loan Properties to cure a
failure to comply with any ratios set forth in Section 4.4 shall be made within
the thirty-day period provided herein to cure any noncompliance with this
Agreement.
If the Bank determines in its sole discretion that it will permit the
substitution and release or addition of real estate to the Revolving Loan
Properties, Borrower shall provide the Bank with documentation, in form and
substance acceptable to the Bank, to provide the Bank with the same rights with
respect to the substituted or added real estate and related personal property
and franchise rights as are provided by the Security Documents described herein
with respect to the existing Revolving Loan Properties. The documentation shall
be provided by the Borrower within the time required by the Bank. The
documentation relating to the substituted or additional real estate and related
personal property and franchise rights shall thereafter be considered to be a
part of the Security Documents for purposes of this Agreement and all other
documents relating to or pertaining to this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Revolving Loan, the Borrower represents
and warrants to the Bank that:
3.1 ORGANIZATION. Borrower is a corporation existing and in good
standing under the laws of the State of Delaware. The Borrower is duly
qualified, in good standing and authorized to do business in each jurisdiction
where, because of the nature of its activities or properties, such qualification
is required, and where a failure to so qualify would have a material adverse
effect on the Borrower; and the Borrower has the corporate power and authority
to own its properties and to carry on its business as now being conducted.
3.2 AUTHORIZATION; NO CONFLICT. The borrowings hereunder, the execution
and delivery of the Revolving Loan Note and the Security Documents and the
performance by the Borrower of its obligations under this Agreement, the
Revolving Loan Note and Security Documents are within the Borrower's corporate
powers, have been authorized by all necessary corporate action, have received
all necessary governmental approval (if any shall be required) and do not and
will not contravene or conflict with any provision of law or of the articles of
incorporation or bylaws of the Borrower or of any agreement binding upon the
Borrower and are and will continue to be enforceable under the laws of the State
of Nebraska in accordance with their respective terms, except as such
enforcement may be qualified or limited by bankruptcy, insolvency, or other
similar laws affecting creditors rights in general.
3.3 FINANCIAL STATEMENTS; CONTINGENT LIABILITIES. The financial
statements of the Borrower dated June 30, 1999, copies of which have been
furnished to the Bank, were prepared in conformity with generally accepted
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accounting principles applied on a basis consistent with that of said Borrower's
preceding fiscal year, and accurately present the financial condition of said
Borrower as at such dates and the results of their operations for the respective
period then ended. Since the date of such financial statements, no material
adverse change in the business, properties, assets, operations, conditions or
prospects of said Borrower has occurred. There are no contingent liabilities of
said Borrower in an amount in excess of $100,000 individually, or $1,000,000 in
the aggregate, which is known to the Borrower or which should reasonably be
known to the Borrower, which is not reflected in such financial statements or
which is not disclosed in the Disclosure Schedule attached hereto at Exhibit "J"
(the "Disclosure Schedule") and incorporated herein by this reference. The Bank
hereby acknowledges that it is aware of the proposed merger of Supertel into HH
Trust, as described in the Disclosure Schedule.
3.4 TAXES. The Borrower has filed or caused to be filed all federal,
state, county and local tax returns which are required to be filed, and has paid
or caused to be paid all personal property taxes, real estate taxes, income
taxes, other taxes, special assessments, assessments, withholding, contributions
and governmental charges or levies (collectively and individually referred to as
"Taxes") as shown on such returns and reports, or on any assessment received by
them, to the extent that such Taxes have become due (except for current Taxes
not delinquent and Taxes being contested as provided by law, in good faith and
by appropriate legal proceedings for which adequate reserves have been provided
on the books of the Borrower, and as to which no foreclosure, distraint, sale or
similar proceedings have been commenced).
3.5 TITLE AND LIENS. Borrower has good and marketable title to all of
the assets described in the Security Documents, including, without limitation,
the Revolving Loan Properties. None of the assets of the Borrower described in
the Security Documents are subject to any mortgage, pledge, title retention
lien, or other lien, encumbrance or security interest, except for: (a) liens in
favor of the Bank granted hereunder; (b) current Taxes not delinquent or Taxes
being contested as provided by law in good faith and by appropriate legal
proceedings; (c) liens arising in the ordinary course of business for sums not
due or sums being contested in good faith and by appropriate legal proceedings,
but not involving any deposits or advances of borrowed money or the deferred
purchase price of property or services; (d) to the extent specifically shown in
the financial statements referred to above; and (e) to the extent reflected in
the attached Disclosure Schedule.
3.6 ADVERSE CONTRACTS. The Borrower is not a party to any agreement or
instrument, or subject to any charter or other corporate restriction, nor is it
subject to any judgment, decree or order of any court or governmental body,
which Borrower knows or reasonably should know may have a material and adverse
effect on the business, assets, liabilities, financial condition, operations or
business obligations under this Agreement or the Revolving Loan Note or Security
Documents. Except as disclosed in the Disclosure Schedule, the Borrower has no,
nor with reasonable diligence should have had, knowledge of or notice that it is
in default on the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement, instrument,
charter or other corporate restriction, judgment, decree or order of any court
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or governmental body that might have a material adverse impact on the Borrower.
The Bank hereby acknowledges that it is aware of the proposed merger of Supertel
into HH Trust, as described in the Disclosure Schedule.
3.7 REGULATION U. The Borrower is not engaged principally in, nor is
one of the Borrower's important activities, the business of extending credit for
the purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereinafter in effect.
3.8 LITIGATION. No litigation (including derivative actions),
arbitration proceedings or governmental proceedings are pending or threatened
against the Borrower which would (singly or in the aggregate), if adversely
determined, have a material and adverse effect on the financial condition,
continued operations or prospects of the Borrower, except as set forth
(including estimates of the dollar amounts involved) in the Disclosure Schedule.
3.9 SELL, CONVEY AND TRANSFER. Except in the ordinary course of
business, the Borrower has not sold, conveyed, transferred, disposed of, or
otherwise further encumbered, any of the Borrower's assets within the last
ninety (90) days that is not disclosed in the Disclosure Schedule.
3.10 LAWFUL INTEREST. The amounts to be received by Bank as interest
payments under the Revolving Loan Note shall constitute lawful interest and
shall be neither usurious nor illegal under the laws of the State of Nebraska.
3.11 SECURITY DOCUMENTS. The provisions of the Security Documents as
provided herein, are effective to create, in favor of the Bank, legal, valid and
enforceable liens on all of the real estate and personal property described
therein. The Deeds of Trust, Mortgages and Assignments of Leases and Rents when
filed with the recording offices listed on Exhibit "B" and the Financing
Statements when filed with the Secretaries of State (or other appropriate
recording office) in Nebraska, Texas, Illinois, Wisconsin, Iowa, Arizona,
Virginia and Maryland will constitute fully perfected first security interests
and liens on all right, title and interest of the Borrower in the real estate
and personal property described therein, prior and superior to all other liens.
3.12 PLACE OF BUSINESS. Borrower's principal place of business and
chief executive offices are located in Norfolk, Nebraska. In the event of the
merger described in Section 4.1, Borrower's principal place of business and
chief executive offices shall be located in Silver Spring, Maryland.
3.13 ENVIRONMENTAL COMPLIANCE. Except as set forth in the Disclosure
Statement, the Borrower and its subsidiaries are in material compliance with all
environmental protection laws in each jurisdiction where they are presently
doing business, the violation of which would have a material, adverse effect on
the use, operation or value of the Revolving Loan Properties. The Borrower is
not subject to any liabilities nor have they received any notice from any
governmental agency regarding any action, pending or contemplated, pertaining to
any alleged violation of any environmental protection laws with respect to any
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of the present or previously owned real properties of the Borrower where the
effect of which could be reasonably expected to have a material adverse effect
on the Borrower or any of its properties.
3.14 ERISA. Borrower has fulfilled all obligations under the Employee
Retirement Income Security Act of 1974, as amended, in respect of any employee
benefit plan maintained for employees of the Borrower, and no reportable event
or prohibited transaction has occurred with respect to any such employee benefit
plan.
3.15 DEFAULTS. The Borrower is not in default, nor has any event or
circumstance occurred which, but for the passage of time or the giving of
notice, or both, would constitute an Event of Default, as defined herein.
3.16 COMPLIANCE WITH THE LAW. Borrower (a) is not in violation of any
federal, state or county governmental rule, regulation or ordinance; and (b) has
not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of Borrower's properties or the conduct
of its business; which violation or failure (in the event that such violation or
failure were asserted by any person or entity by appropriate action) would
result in a material impediment to the conduct of the Borrower's regular
business generally or at any of its properties.
3.17 INVESTMENT COMPANY ACT. The Borrower is not a "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.18 SUBSIDIARIES. Exhibit "K", attached hereto lists all of the
subsidiaries and affiliates of Borrower. Borrower represents that all of its
subsidiaries and affiliates are duly organized and existing under the laws of
their respective jurisdictions of their creation, and are duly qualified, in
good standing and authorized to do business in each jurisdiction where, because
of the nature of its activities or properties, such qualification is required,
and where a failure to so qualify would have a material adverse effect on the
Borrower; and the Borrower has the corporate power and authority to own its
properties and to carry on its business as now being conducted.
3.19 YEAR 2000 COMPLIANCE. Borrower has reviewed and assessed its
business operations and computer systems and applications to address the "year
2000 problem" (that is, that computer applications and equipment used by
Borrower, directly or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1,
2000). Borrower reasonably believes that the year 2000 problem will not result
in a material adverse change in Borrower's business condition (financial or
otherwise), operations, properties or prospects or ability to repay the Bank.
Borrower agrees that this representation will be true and correct on and shall
be deemed made by Borrower on each date Borrower requests any advance under this
Agreement or the Revolving Loan Note or delivers any information to the Bank.
Borrower will promptly deliver to the Bank such information relating to this
representation as the Bank requests from time to time.
3.20 FRANCHISES, PATENTS, COPYRIGHTS, ETC. The Borrower possesses, and
will at all times possess, all franchises, including, without limitation, motel
franchises or licenses, patents, copyrights, trademarks, trade names, licenses
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and permits, and rights in respect of the foregoing, adequate for the conduct of
its business substantially as now conducted or as it is intended to be
conducted, without known conflict with any rights of others.
3.21 SALE TO SUPERTEL HOSPITALITY MANAGEMENT, INC. Borrower represents
that all personal property assets relating to or pertaining to the Revolving
Loan Properties, excluding furniture, fixtures and equipment, will, immediately
prior to the merger, be sold to Supertel Hospitality Management, Inc., as
described in the Disclosure Schedule.
SECTION 4. COVENANTS
Until all Obligations of the Borrower hereunder and under the Revolving
Loan Note are paid and fulfilled in full, the Borrower agrees that they shall
comply with the following covenants, unless the Bank consents otherwise in
writing:
4.1 CORPORATE EXISTENCE. The Borrower shall preserve and maintain its
corporate existence, rights, franchises and licenses, and will not liquidate,
dissolve, or merge, or consolidate with or into any other corporation, or sell,
lease, transfer or otherwise dispose of all or a substantial part of its assets
without the Bank's prior written consent. The Bank hereby consents to the
contemplated merger of Borrower into Humphrey Hospitality Trust, Inc. ("HH
Trust"), a Virginia corporation, and the transfer of the real and personal
property of Borrower subject to the Security Documents into Humphrey Hospitality
Limited Partnership ("HHLP"), a Virginia limited partnership; provided that HH
Trust, HHLP and Humphrey Hospitality REIT Trust, a Maryland real estate
investment trust ("HH REIT") (HH Trust, HHLP and HH REIT are collectively
referred to herein as the "HH Parties"); agree to assume and perform the
Obligations of Borrower under this Agreement, the Revolving Loan Note, Security
Documents, and to execute such documents as are required by the Bank to evidence
said assumption and agreement to perform by the HH Parties. The Bank further
consents to any merger after which HH Trust is the surviving entity; provided
that the surviving entity is otherwise in compliance with the provisions of this
Agreement.
4.2 REPORTS, CERTIFICATES AND OTHER INFORMATION. The Borrower shall
furnish to the Bank:
(a) Audit Report. Within one hundred-twenty (120) days after
the end of each fiscal year of the Borrower, a copy of an unqualified
annual consolidated audit report of the Borrower prepared on a basis
and in conformity with generally accepted accounting principles
("GAAP") applied on a basis consistent with the audited financial
statement of the Borrower duly certified by independent certified
public accountants of recognized standing reasonably satisfactory to
the Bank, and including, without limitation, footnotes required by GAAP
regarding any defaults on the Revolving Loan identified in the audit,
and including any management letter provided to the Borrower by its
accountants.
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(b) Certificates. Contemporaneously with the furnishing of a
copy of each annual audit report and all required interim reports
required by subsection (e) a certificate dated the date of such annual
report and interim reports and signed by either the President or the
Chief Financial Officer of Borrower, to the effect that no Event of
Default has occurred and is continuing or, if there is any such event,
describing it and the steps, if any, being taken to cure it.
(c) Reports to SEC and to Shareholders. Copies of each filing
and report made by the Borrower to any securities exchange or the
Securities and Exchange Commission, except in respect of any single
shareholder, and of each communication from the Borrower to
shareholders generally, promptly upon the filing or making thereof.
(d) Notice of Default, Litigation and ERISA Matters.
Immediately upon learning of the occurrence of any of the following,
written notice describing the same and the steps being taken by the
Borrower or any subsidiary affected in respect thereof: (i) the
occurrence of any Event of Default or any event or condition which with
the passage of time or the giving of notice, or both, might become an
Event of Default; or (ii) the institution of, or any adverse
determination in, any litigation, arbitration or governmental
proceeding which is material to the Borrower, or (iii) the occurrence
of a reportable event under, or the institution of any steps by
Borrower to withdraw from, or the institution of any proceedings to
terminate, any employee benefit plans as to which the Borrower may have
any liability.
(e) Interim Reports. Within forty-five (45) days after the end
of each fiscal quarter, a copy of an internally prepared financial
statement of the Borrower prepared on a basis consistent with the
audited financial statements of the Borrower, signed by an authorized
officer of the Borrower and consisting of at least (i) a balance sheet
as at the close of the preceding quarter, (ii) a statement of earnings
for the preceding quarter, and (iii) operating statements for each of
the Revolving Loan Properties; provided, however, that such financial
statements will not include footnotes and will be subject to normal
year-end adjustments.
(f) Borrowing Base Certificate. A quarterly Borrowing Base
Certificate in the form attached hereto as Exhibit " L" within
forty-five (45) days of each fiscal quarter end.
(g) Annual Corporate Tax Return. A copy of Borrower's annual
tax return promptly after it is submitted to the Internal Revenue
Service.
(h) Capital Expenditure Account. A quarterly report detailing
Borrower's use of the funds in the Capital Expenditure Account created
pursuant to Section 4.25.
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(i) Other Information. From time to time such other
information, financial or otherwise, concerning the Borrower as the
Bank may reasonably request.
4.3 INSPECTION. The Borrower will permit the Bank or any officer,
employee or agent of the Bank at any time during the Borrower's regular business
hours to inspect their properties and to inspect and copy their books and
records. Upon the occurrence of an Event of Default, the Bank shall also be
entitled to have an independent audit of Borrower's books and records. Borrower
shall pay all costs associated with annual inspections of the real and personal
properties described in the Security Documents.
4.4 FINANCIAL REQUIREMENTS. Borrower shall comply with the following
financial covenants to be tested in accordance with GAAP consistently applied:
(a) Revolving Loan Debt Service Coverage Ratio. Borrower shall
maintain a Revolving Loan Debt Service Coverage Ratio greater than 1.5
to 1, to be tested quarterly at the end of each calendar quarter based
on the trailing one-year period.
The Revolving Loan Debt Service Coverage Ratio shall be
measured as of December 31, 1999, and at quarterly intervals
thereafter, and for any period shall be determined as the quotient
obtained by dividing (a) Adjusted Net Operating Income from the
Revolving Loan Properties for such period by (b) the Imputed Debt
Service during such period.
"Adjusted Net Operating Income" for this and the other
financial covenants is defined as the remainder of the Net Operating
Income after reducing Net Operating Income by an amount equal to the
sum of (a) 4% of gross room revenue for FF&E reserve, plus (b) 4% of
gross room revenue for management fees and expenses.
"Net Operating Income" shall be the net operating income of
the relevant properties determined for this and the other financial
covenants from Borrower's internally generated operating statements
prepared consistently with Borrower's internally prepared 1999 Profit
and Loss Statement.
"Imputed Debt Service" means the annual payments of principal
and interest that would be required to fully amortize the outstanding
Revolving Loan for the trailing one-year period as if the Revolving
Loan was a loan to be amortized in equal monthly payments of principal
and interest over a 25-year period, with an assumed interest rate of
the yield on U.S. Treasury securities having a 10-year maturity at the
time of the determination, plus 3.0%.
(b) Consolidated Debt Service Coverage Ratio. Borrower shall
maintain a Consolidated Debt Service Coverage Ratio greater than 1.5 to
1, to be tested at the end of each calendar quarter based on the
trailing one-year period.
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The Consolidated Debt Service Coverage Ratio shall be measured
as of December 31, 1999, and at quarterly intervals thereafter, and for
any period shall be determined as the quotient obtained by dividing (a)
Adjusted Net Operating Income from all of Borrower's properties for
such period by (b) the amount of Borrower's total debt service payments
(principal and interest) which would be required to be made during such
period, including Aggregate Imputed Debt Service.
"Aggregate Imputed Debt Service" means the annual payments of
principal and interest that would be required to fully amortize the
outstanding revolving loan balance of Borrower's aggregate revolving
loan indebtedness for the trailing one-year period as if the revolving
loans were loans to be amortized in equal monthly payments of principal
and interest over a 25-year period, with an assumed interest rate of
the yield on U.S. Treasury securities having a 10-year maturity at the
time of the determination, plus 3.0%.
(c) Revolving Loan to Value Ratio. The ratio of the principal
balance outstanding on the Revolving Loan to the value of the Revolving
Loan Properties shall be less than 50% tested at the end of each
calendar quarter.
For purposes of calculation of the Revolving Loan to Value
Ratio as of December 31, 1999, and at quarterly measurement intervals
thereafter, the value of the Revolving Loan Properties shall be the sum
of (i) the Adjusted Net Operating Income for the trailing one-year
period from the Revolving Loan Properties owned throughout that period
capitalized at 12%, plus (ii) the lesser of the acquisition cost or the
appraised value of any of the Revolving Loan Properties acquired by the
Borrower within the preceding 12 months.
(d) Consolidated Loan to Value Ratio. The ratio of Borrower's
aggregate interest bearing debt to the value of all of Borrower's real
estate assets shall be less than 60% tested at each fiscal year end.
For purposes of calculation of the Consolidated Loan to Value
Ratio as of December 31, 1999, and at yearly intervals thereafter, the
value of all of Borrower's real estate assets shall be the sum of (i)
the Adjusted Net Operating Income for the trailing one-year period from
all of Borrower's real estate assets capitalized at 12%, plus (ii) the
lesser of the acquisition cost, or the appraised value of any of
Borrower's real estate assets acquired within the preceding 12 months.
(e) IBD/EBITDA Ratio. Borrower shall maintain a ratio of
interest bearing debt divided by earnings before interest, taxes,
depreciation and amortization of less than 4.5 to 1 to be tested at
each fiscal year end.
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4.5 INDEBTEDNESS, LIENS AND TAXES. Without the Bank's prior written
consent, the Borrower and its subsidiaries shall:
(a) Indebtedness. Not incur, permit to remain outstanding,
assume or in any way become committed for indebtedness in respect of
borrowed money, except indebtedness incurred hereunder, indebtedness
related to the transactions described in the Disclosure Schedule and
additional indebtedness provided that Borrower is in compliance with
all of the Financial Requirements of Section 4.4 before and immediately
after incurring any such additional indebtedness.
(b) Liens. Not create, suffer or permit to exist any lien or
encumbrance of any kind or nature upon any of the real and personal
property subject to the Security Documents now or hereafter owned or
acquired, or acquire or agree to acquire any property or assets of any
character under any conditional sale agreement or other title retention
agreement, but this Section shall not be deemed to apply to: (i) liens
for taxes, assessments and other governmental charges not yet due or
which are being contested in good faith and for which such reserves as
shall be required by generally accepted accounting principles shall
have been made therefor; (ii) liens of landlords, vendors, carriers,
warehousemen, mechanics, laborers and materialmen arising at law in the
ordinary course of business for sums not yet due or being contested in
good faith if such reserves as shall be required by generally accepted
accounting principles shall have been made therefor; (iii) pledges or
deposits in connection with or to secure worker's compensation,
unemployment insurance, pensions or other employee benefits; and (iv)
liens and encumbrances arising out of the transactions described on the
attached Disclosure Schedule.
(c) Taxes. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it, upon its income or
profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for labor,
materials and supplies when due, except that no such tax, assessment,
charge, levy or claim need be paid which is being contested in good
faith and by appropriate legal proceedings and as to which adequate
reserves shall have been established, and as to which no foreclosure,
distraint, sale or similar proceedings have commenced.
(d) Guarantee/Indemnity Agreements. Not assume, guarantee,
borrow, indorse or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods
or services, or to supply or advance any funds, assets, goods or
services, or otherwise) with respect to the obligation of any other
person or entity, except by the indorsement of negotiable instruments
for deposit or collection in the ordinary course of business, and
except with respect to the acquisition of motels in the ordinary course
of Borrower's business. The Bank acknowledges that Borrower intends to
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pay a dividend prior to the merger of Supertel into HH Trust, as
described in the Disclosure Schedule, and the Bank agrees that the
payment of the dividend will not violate this covenant.
4.6 INVESTMENT AND LOANS. Borrower shall not make any loan, advance,
extension of credit, or capital contribution to any person or legal entity; nor
purchase or otherwise acquire for a consideration, evidences of indebtedness,
capital stock or other securities of any person or legal entity, and except with
respect to the acquisition of motels in the ordinary course of Borrower's
business.
4.7 DIVIDENDS AND TRANSFERS. Borrower shall not issue any dividends or
other distribution (i) in excess of seventy-five percent (75%) of Borrower's
funds from operations per year, or such higher amounts as may be required to
maintain the status of Borrower as a real estate investment trust, or (ii) after
the occurrence of an Event of Default that continues for a period of sixty (60)
days or more.
4.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain, or cause to
be maintained, in good repair, working order and condition (ordinary wear and
tear excepted), all of its properties (whether owned or held under lease), and
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
4.9 INSURANCE. The Borrower shall maintain insurance in responsible
companies in such amounts and against such risks as is required by the Bank and,
at a minimum, insurance on its respective businesses, fixed assets, inventory
and other properties, including specifically, but without limitation, flood and
title insurance, worker's compensation or similar insurance as required by law,
and adequate public liability (including product liability) insurance against
claims for personal injury, death or property damage arising out of its
services, products, facilities or operations, as is usually carried by similar
businesses conducting operations in similar areas, all such policies naming the
Bank as loss payee with respect to the real and personal properties subject to
the Security Documents and the business operations related thereto.
4.10 USE OF PROCEEDS.
(a) The Borrower shall not use or permit any proceeds of the
Revolving Loan Note to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or
carrying any margin stock" within the meaning of Regulations U or X of
the Board of Governors of the Federal Reserve System, as amended from
time to time. If requested by the Bank, the Borrower will furnish to
the Bank a statement in conformity with the requirements of Federal
Reserve Form U-1 to the foregoing effect. No part of the proceeds of
the Revolving Loan Note will be used for any purpose which violates or
is inconsistent with the provisions of Regulations U or X of the Board
of Governors.
(b) Tender Offers and Going Private. The Borrower shall not
use (or permit to be used) any proceeds of the Revolving Loan Note to
acquire any security in any transaction which is subject to Section 13
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or 14 of the Securities Exchange Act of 1934, as amended, or any
regulations or rulings thereunder.
4.11 LIMITATION ON BUSINESS. The Borrower shall not engage in any
business or activity other than the business engaged in as of the date hereof
and in activities related or incidental to such business without the Bank's
prior written consent, which consent shall not be unreasonably withheld.
4.12 MANAGEMENT. The management of Borrower includes Paul J. Schulte
and Steve H. Borgmann and will include Jim Humphrey in the event of the
contemplated merger described in Section 4.1 ("Management Personnel"). Until the
Revolving Loan Maturity Date, at least two of such persons will continue to be
on the Board of Directors of Borrower or HH Trust unless the Bank consents
otherwise in writing, which consent shall not be unreasonably withheld.
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4.13 FEDERAL, STATE, COUNTY AND LOCAL LAWS AND REGULATIONS. The
Borrower shall comply in all respects with any and all applicable state and
federal securities laws and regulations and any and all applicable rules and
regulations of any securities exchange or the Securities and Exchange Commission
as the same relate to the issuance, purchase, sale or registration of
securities. The Borrower shall comply in all respects with any and all
applicable federal, state, county and local laws, statutes, ordinances, court
orders, rules, and regulations with respect to Borrower's businesses, fixed
assets, inventory, employees, corporate structures and properties.
4.14 NOTIFICATION OF LEGAL ACTIONS. The Borrower shall notify the Bank,
in writing, of any material legal action commenced or threatened against the
Borrower within five (5) days of receipt of such information by the Borrower.
For purposes of this Agreement, any material legal action shall be deemed one
where the amount in controversy, either directly or indirectly, exceeds the sum
of Five Hundred Thousand and No/100 Dollars ($500,000).
4.15 ADVERSE CHANGE. The Borrower shall immediately upon obtaining any
knowledge of any material adverse change in the financial condition or position
of the Borrower provide the Bank with written notice describing in detail the
nature of such adverse change.
4.16 CORPORATE OFFICES. The chief executive office of Borrower is in
Norfolk, Nebraska. Borrower shall not change the location of its principal place
of business unless Borrower shall give the Bank at least 60 days prior written
notice thereof and all actions necessary or advisable in the Bank's opinion to
protect the Bank's liens covered by the Security Documents shall have been
taken.
4.17 LOAN TO EMPLOYEES. Borrower shall not make any loans to any
employees, officers or shareholders of the Borrower after the date of this
Agreement, except with respect to incidental expenses related to the performance
of the duties of the employees and officers such as travel expenses.
4.18 SELL, CONVEY AND TRANSFER. Borrower shall not sell, convey,
transfer, dispose of or further encumber the Borrower's properties subject to
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the liens created by the Security Documents or any part thereof or any interest
therein except as otherwise provided in the Security Documents or this Agreement
covering all or any portion thereof or an undivided interest therein, either
voluntarily, involuntarily or otherwise, or enter into an agreement to do so
without the prior written consent of the Bank, except sales and dispositions of
personal property in the ordinary course of Borrower's business. The Bank hereby
consents to the transaction contemplated by Section 4.1, provided that the HH
Parties agree to assume and perform the Obligations of Borrower under this
Agreement, the Revolving Loan Note and Security Documents, and to execute such
documents as are required by the Bank to evidence said assumption and agreement
to perform by the HH Parties.
4.19 RECORDS. Borrower shall keep and maintain full and accurate
accounts and records of Borrower's operations and businesses according to
generally accepted accounting principles and practices for Borrower's type of
business.
4.20 INDEMNIFICATION. Borrower shall, at Borrower's expense, protect,
defend, indemnify, save and hold Bank harmless against any and all claims,
demands, losses, expenses, damages, causes of action (whether legal or equitable
in nature) asserted by any person or entity arising out of, caused by or
relating to this Agreement, the Revolving Loan and Security Documents, and
Borrower shall pay Bank upon demand all claims, judgments, damages, losses, and
expenses (including court costs and expenses) incurred by Bank as a result of
any legal or other action arising out of this Agreement, the Revolving Loan or
Security Documents as aforesaid, except for costs arising out of the Bank's
gross negligence or willful misconduct.
4.21 THIRD PARTY CLAIMS. Bank shall not be liable to, and Borrower
shall save Bank harmless against the claims of, materialmen, contractors,
subcontractors, laborers and others for goods delivered by them to the Borrower
or Borrower's properties or services performed by them in or upon the Borrower's
properties or otherwise in connection with the Borrower. Borrower is not and
shall not be considered to be the agent of Bank for any purpose.
4.22 INSURANCE. Borrower shall not obtain or carry any separate
insurance whatsoever which is concurrent in form, or contributing in the event
of loss, with that required under Section 4.9 hereof unless Bank is also named
therein as an insured, with loss payable as provided in Section 4.9 hereof.
Borrower shall notify Bank at least 30 days before any such separate insurance
is obtained and shall deliver to the Bank the policy or policies or certificates
evidencing such insurance immediately after such policy or policies or such
certificates are issued.
4.23 SUBSIDIARIES. Borrower shall not assign, pledge or grant a
security interest in the stock of any of its subsidiaries.
4.24 CAPITAL EXPENDITURE ACCOUNT. Borrower shall establish a Capital
Expenditure Account with the Bank upon the execution of this Agreement, and
shall maintain the account until all amounts owed to the Bank have been repaid
and the Bank shall have no remaining obligation to make further advances to the
Borrower. Borrower shall deposit, or shall direct any tenant, lessor or manager
to deposit, 4% of the total revenue from the Revolving Loan Properties into the
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Capital Reserve Account to be used solely for the purpose of maintenance and
capital expenditures relating to properties owned by the Borrower. Until the
occurrence of an Event of Default, or until otherwise notified by the Bank,
Borrower may use the funds in the Capital Expenditure Account at its discretion
for the purposes set forth herein.
4.25 FRANCHISOR PERFORMANCE REPORTS. Borrower shall comply, and shall
cause any tenant approved by the Bank to comply, with all recommendations of its
franchisors or licensors in any performance reports for the operation and
maintenance of the Revolving Loan Properties within the time frames required or
recommended by the respective franchisors or licensors.
4.26 HOTEL OPERATOR. Borrower acknowledges that the Bank has agreed to
make this loan and to consent to the merger with HH Trust and the transfer of
real estate to HHLP in reliance on the expertise of Paul J. Schulte, Steve H.
Borgmann, Jim Humphrey and Randy P. Smith in operating properties such as the
Revolving Loan Properties. Borrower agrees that unless the Bank otherwise
consents in writing (which consent shall not be unreasonably withheld) one or
more of the individuals listed in the preceding sentence shall be actively
involved in the operation and management of the Revolving Loan Properties
throughout the term of this Agreement.
4.27 ADDITIONAL COLLATERAL. In the event the merger described in the
Disclosure Schedule does not occur on or before October 31, 1999, Borrower shall
provide the Bank with such additional documents as is required by the Bank to
perfect a lien on all personal property and grant an assignment of all rents and
leases relating to or pertaining to the Revolving Loan Properties. Borrower
further covenants and agrees that it shall not transfer or grant any liens on
any of Borrower's personal property relating to or pertaining to the Revolving
Loan Properties, or assign any of the rents and leases relating to or pertaining
to the Revolving Loan Properties after the execution of this Agreement unless
the merger described in the Disclosure Schedule occurs on or before October 31,
1999, and then only as provided in the Disclosure Schedule.
SECTION 5. DEFAULT
5.1 EVENTS OF DEFAULT. Each of the following occurrences is hereby
defined as an "Event of Default."
(a) Nonpayment. The Borrower shall fail to make any payment of
principal or interest on the Revolving Loan Note or shall fail to make
payment of other amounts payable by the Borrower hereunder or under the
Security Documents when and as due and such failure shall continue for
a period of three (3) Banking Days after Borrower's receipt of written
notice that the same is due (for the purposes of this Section 5.1(a)
only, and notwithstanding anything to the contrary contained in Section
7.2 below, the Borrower shall be deemed to have received the Bank's
notice of a payment default on the same day such notice is sent to
Borrower via telecopier, provided that the Bank receives a confirmation
upon completion of the Bank's telecopier transmission that the
respective notice has been successfully transmitted to the Borrower at
the telecopier number provided in Section 7.2 below, unless the
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transmission cannot be completed because the Borrower has not
maintained the ability to receive telecopier transmissions at the
telecopier number set forth in Section 7.2); or
(b) Nonperformance. There shall occur any default or event of
default, (subject to curative rights, if any) or any event which
requires the prepayment of borrowed money or the acceleration of the
maturity thereof, under the terms of any other evidence of indebtedness
or any other agreement for borrowed money issued or assumed or entered
into by the Borrower with this Bank or with any other bank or third
party, or under the terms of any indenture agreement or instrument
under which any such evidence of indebtedness or other agreement is
issued, assumed, secured or guaranteed, and such event shall continue
beyond any applicable period of grace; or
(c) Dissolutions, etc. The Borrower shall fail to comply with
any prohibition against dissolution, liquidation, merger, consolidation
or sale of assets; or
(d) Warranties. Any representation, warranty, schedule,
certificate, financial statement, report, notice or other writing
furnished by or on behalf of the Borrower to the Bank or any
representation, warranty or covenant contained in this Agreement, the
Revolving Loan Note or Security Documents, is false or misleading in
any material respect on the date as of which the facts therein set
forth are stated certified or reaffirmed; or
(e) ERISA. Any reportable event shall occur under the Employee
Retirement Income Security Act of 1974, as amended, in respect of any
employee benefit plan maintained for employees of the Borrower or its
subsidiaries; or
(f) Litigation. Any financial judgment, resulting from
judicial or administrative action, shall be entered against the
Borrower, or with respect to any assets of the Borrower, in which the
amount of such judgment exceeds One Hundred Thousand and No/100 Dollars
($100,000), if such judgment remains undischarged for a period of sixty
(60) days or more after the date on which such judgment becomes final,
without regard to any right of appeal to a higher court of law, unless
Borrower shall have taken whatever action is required, including,
without limitation, posting a supersedeas bond, to stay proceedings to
enforce any such judgment; or any proceeding (judicial or
administrative) could have a material and adverse effect on the future
operations of the Borrower; or
(g) Noncompliance with this Agreement, Revolving Loan Note or
Security Documents. The Borrower shall fail to comply with any
provision hereof or any provision of the Revolving Loan Note or any
Security Documents, which failure does not otherwise constitute an
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Event of Default under Section 5.1(a), and such failure shall continue
for thirty (30) days after written notice thereof to the Borrower by
the Bank or any other holder, beneficiary, or secured party of the
Revolving Loan Note or Security Documents; or
(h) Bankruptcy - Filing of Petition. The Borrower shall file a
petition seeking relief, or consent or answer consenting to a petition
seeking relief against Borrower under the federal Bankruptcy Code, as
now constituted or hereafter amended, or any other applicable federal,
state or foreign bankruptcy law or other similar law, or the Borrower
shall consent to the institution of proceedings thereunder or the
filing of any such petition or to the appointment or taking possession
of a receiver, liquidator, assignee, trustee, custodian, sequestrator
or similar official of the Borrower or any subsidiary; or
(i) Bankruptcy - Entry of Order for Relief. There shall be
entered a decree or order by a court constituting an order for relief
in respect of the Borrower, under the federal Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable federal,
state or foreign bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or
similar official of the Borrower or of any substantial part of their
properties, or ordering the winding-up of or liquidation of the affairs
of the Borrower and any such decree or order shall continue unstayed
and in effect for a period of sixty (60) consecutive days; or
(j) Insolvency. The Borrower shall become insolvent or shall
fail or be unable to pay its debts as they mature, or shall admit in
writing its inability to pay its debts as they mature, or shall make a
general assignment for the benefit of its creditors, or shall enter
into any composition or similar agreement, or shall suspend the
transaction of all or a substantial portion of its usual business; or
(k) Environmental Noncompliance. Notice shall be given of any
alleged violation of environmental laws relating to the present or
previously-owned or leased real properties of the Borrower or any of
its subsidiaries, the effect of which could be reasonably expected to
have a material adverse effect on the Borrower; or
(l) E&P Financing Default. E&P Financing Limited Partnership,
a Maryland limited partnership, shall fail to make any payment of
principal or interest due or otherwise default on any other obligations
to the Bank beyond any applicable grace or cure period; or
(m) Franchise Agreement Default. Borrower or any tenant of
Borrower shall default on any franchise or license agreement relating
to any of the Revolving Loan Properties, and such default shall
continue beyond any applicable grace or cure period provided in the
franchise or license agreement.
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5.2 REMEDIES. Time is of the essence. Upon the occurrence of any such
Event of Default and during the continuance thereof, any obligation of the Bank,
or any other holders of the Revolving Loan Note, with respect to the Revolving
Loan shall automatically terminate, and the Bank or any other holders of the
Revolving Loan Note may declare the Revolving Loan Note to be immediately due
and payable, whereupon the Revolving Loan Note and any other amounts at the time
accrued or payable hereunder but unpaid, shall immediately become due and
payable, which acceleration shall occur automatically upon the occurrence of the
Events of Default provided in Sections 5.1(h) and (i), without presentment,
demand, notice or protest of any kind, all of which are hereby expressly waived
by the Borrower. No delay or omission on the part of the Bank or any holder of
the Revolving Loan Note in exercising any power or right hereunder or under the
Revolving Loan Note or Security Documents shall impair such right or power or be
construed to be a waiver of any Event of Default or any acquiescence therein,
nor shall any single or partial exercise of any power or right hereunder
preclude other or further exercise thereof, or the exercise of any other power
or right.
SECTION 6. CONDITIONS OF LENDING
The obligation of the Bank to make the Revolving Loan is subject to the
following conditions:
6.1 DOCUMENTATION. In addition to the conditions precedent set forth in
Section 6.2, the obligation of the Bank to make the Revolving Loan is subject to
the conditions precedent that the Bank shall have received all of the following,
each duly executed and dated the date of the Revolving Loan in form and
substance satisfactory to the Bank and its counsel, at the expense of the
Borrower, and in such number of signed counterparts as the Bank may request
(except for the Revolving Loan Note, of which only the original shall be
signed):
(a) Notes. The duly executed Revolving Loan Note;
(b) Security Documents. The duly executed or endorsed Deeds of
Trust, Mortgages, Assignments of Leases and Rents, Subordination,
Nondisturbance and Attornment Agreements, Security Agreement(s) and
Financing Statements;
(c) Insurance. Original insurance policies or certificates
thereof for the insurance required by Section 4.9 hereof;
(d) Taxes. Evidence satisfactory to Bank that all taxes are
fully paid and not delinquent;
(e) Resolution. A certified copy of the resolution of the
Board of Directors of the Borrower authorizing or ratifying the
execution, delivery and performance, respectively, of this Agreement,
the Revolving Loan Note, Security Documents, and the other agreements,
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documents and instruments provided for in this Agreement, certified by
the Secretary of the Borrower;
(f) Articles of Incorporation and Bylaws. A certified copy of
the articles of incorporation and bylaws of the Borrower certified by
the Secretary and a certificate of good standing issued by the
Secretary of State of the states of Delaware;
(g) Certificate of Incumbency. A certificate of the Secretary
of the Borrower certifying the names of the officer or officers of the
Borrower authorized to sign this Agreement, the Revolving Loan Note and
Security Documents and the other agreements, documents, and instruments
provided for in this Agreement, together with a sample of the true
signature of each such officer (the Bank may conclusively rely on such
certificate);
(h) Certificate of No Default. A certificate signed by the
Chief Financial Officer of the Borrower to the effect that (i) no Event
of Default has occurred and is continuing or will result from the
making of the Revolving Loan; and (ii) the representations and
warranties of the Borrower contained herein are true and correct as at
the date of the Revolving Loan as though made on that date;
(i) Opinion of Counsel for the Borrower. A written opinion of
counsel to the Borrower in form and substance acceptable to the Bank
confirming to Bank the accuracy of the representations and warranties
of Borrower set forth in this Agreement and other matters and things as
Bank shall request;
(j) Collateral Documents.
U.C.C. searches with respect to the Borrower.
Phase I Environmental Reports.
Lender's Title Policies.
Surveys.
Appraisals.
Comfort Letters or Agreements.
(k) Miscellaneous. Such other documents and certificates as
the Bank may reasonably request.
6.2 REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
(a) Representations and Warranties. At the date of this
Agreement and any advance under the Revolving Loan, the Borrower's
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representations and warranties set forth herein shall be true and
correct as at such date with the same effect as though those
representations and warranties had been made on and as at such date.
(b) No Default. At the time of this Agreement and any advance
under the Revolving Loan, and immediately after giving effect to the
Revolving Loan, the Borrower shall be in compliance with all the terms
and provisions set forth herein on its part to be observed or
performed, and no Event of Default shall have occurred and be
continuing at the time of the Revolving Loan or would result from the
making of the Revolving Loan or any subsequent advances thereunder.
6.3 SUCCEEDING LOANS. The application or request by the Borrower for
any loan other than the Revolving Loan, including requests for advances
thereunder, shall be deemed a representation and warranty by the Borrower that
the statements in Sections 3 and 4 are true and correct on and as of the date of
each such loan except with respect to any changes in those statements permitted
by this Agreement, changes of which Borrower has given written notice to Bank
pursuant to the terms of this Agreement and changes agreed upon by the Bank in
writing subsequent to the date of this Agreement.
SECTION 7. MISCELLANEOUS
7.1 WAIVER OF DEFAULT. The Bank may, by written notice to the Borrower,
at any time and from time to time, waive any default in the performance or
observance of any condition, covenant or other term hereof, which shall be for
such period and subject to such conditions as shall be specified in any such
notice. In the case of any such waiver, the Bank and the Borrower shall be
restored to their former position and rights hereunder and under the Revolving
Loan Note, and any Event of Default so waived shall be deemed to be cured and
not continuing; but no such waiver shall affect, extend or impair any rights of
the Bank with respect to any default, except as specifically set forth in the
Bank's written notice, nor shall it affect Bank's rights with respect to any
subsequent or other Event of Default.
7.2 NOTICES. All notices, communications and distributions hereunder
shall be given or made to the following parties at the following addresses:
(a) if to the Borrower:
Pre-Merger:
SUPERTEL HOSPITALITY, INC.
309 North 5th Street
Norfolk, Nebraska 68702-2520
(402) 371-4229
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with a copy thereof to:
MCGRATH, NORTH, MULLIN, KRATZ, P.C.
222 South 15th Street, Suite 1400
Omaha, Nebraska 68102
(402)341-3070
Attention: Ronald L. Comes
Telecopier: (402) 341-0216
Post-Merger:
c/o HUMPHREY HOSPITALITY TRUST, INC.
12301 Old Columbia Pike
Silver Spring, Maryland 20904
Attention: Bethany Hooper
Telecopier: (301) 680-4342
with a copy thereof to:
GALLAGHER, EVELIUS & JONES, LLP
218 North Charles Street, Suite 400
Baltimore, Maryland 21201
(410)727-7702
Attention: Stephen A. Goldberg
Telecopier: (410) 837-3085
(b) if to the Bank:
U.S. BANK NATIONAL ASSOCIATION
233 South 13th Street, Suite 911
Lincoln, Nebraska 68508
Attention: Steven D. Erwin, Senior Vice President
with a copy thereof to:
CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
1900 U.S. Bank Building
233 South 13th Street
Lincoln, Nebraska 68508
(402) 474-6900
Attention: Stephen H. Nelsen
or in any of the foregoing cases at such other addresses as the addressee may
hereafter specify for such purpose by written notice to the parties. Such
notices and other communications will be effectively given only if and when
given in writing and delivered at the address set forth herein duly deposited in
the mails with first-class postage prepaid, or delivered to a telegraph company
with all charges prepaid, addressed as aforesaid.
7.3 WAIVERS. If the Bank does not require certain conditions precedent
to closing of the Revolving Loan as described in Section 6, such act shall be
construed only as a conditional waiver of those conditions as to closing on the
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Revolving Loan on the date hereof and shall not be a general waiver of the
compliance with those conditions by the Borrower, and the Borrower shall comply
with those conditions hereafter on demand by the Bank. Any condition precedent
to closing of the Revolving Loan waived by the Bank under this paragraph shall
automatically be a condition precedent to all other future corresponding loans
and disbursements of the Revolving Loan.
7.4 NONWAIVER; CUMULATIVE REMEDIES. No failure to exercise, and no
delay in exercising, on the part of the Bank of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies of the Bank
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
7.5 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of this Agreement, the
Revolving Loan Note and the Security Documents and the making of any loans or
advances.
7.6 SUCCESSORS. This Agreement shall, upon execution and delivery by
the Borrower, become effective and shall be binding upon and inure to the
benefit of the Borrower and the Bank, and their respective successors and
assigns, except that the Borrower may not transfer or assign any of its rights
or interest hereunder without the prior written consent of the Bank.
7.7 CAPTIONS. Captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof. Reference herein to Sections without reference to the document in which
they are contained are references to this Agreement.
7.8 SINGULAR AND PLURAL. Unless the context requires otherwise,
wherever used herein the singular shall include the plural and vice versa.
7.9 COUNTERPARTS. This Agreement may be executed by the parties on any
number of separate counterparts, and by each party on separate counterparts,
each counterpart shall be deemed an original instrument; and all of the
counterparts taken together shall be deemed to constitute one and the same
instrument.
7.10 FEES. The Borrower agrees, upon written request of the Bank, to
pay or reimburse the Bank for all costs and expenses incurred by the Bank
relating to this Agreement, including, without limitation, the costs and
expenses of seeking advice in regard to preparing and enforcing this Agreement
or the Revolving Loan Note or Security Documents, or preserving its rights
hereunder or under any document or instrument executed in connection herewith
(including legal fees and reasonable time charges of attorneys who may be
employees of the Bank, whether in or out of court, in original or appellate
proceedings or in bankruptcy), together with all expenses of record searches,
environmental studies, surveys, title insurance policies, appraisals, and filing
and closing fees paid by the Bank with respect to this Agreement and the
perfection of the Bank's liens.
7.11 FURTHER ASSURANCES. From time to time, the Borrower will execute
and deliver to the Bank such additional documents, and will provide such
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additional information as the Bank may reasonably require to carry out the terms
of this Agreement and be informed of the Borrower's status and affairs.
7.12 CONSTRUCTION. This Agreement, the Revolving Loan Note and Security
Documents and any document or instrument or other agreement executed in
connection herewith and except as otherwise specifically provided therein shall
be governed by, and construed and interpreted in accordance with, the internal
laws of the State of Nebraska, and shall be deemed to have been executed in the
State of Nebraska.
7.13 ENTIRE AGREEMENT. This Agreement may not be assigned by Borrower
without the prior written consent of Bank which consent may be withheld. This
Agreement constitutes the entire understanding between the parties hereto with
respect to the subject matter hereof, superseding all prior written or oral
understandings, and may not be modified, amended or terminated except by a
written agreement signed by each of the parties hereto or thereto.
Notwithstanding the foregoing, the provisions of this Agreement are not intended
to supersede the provisions of the Revolving Loan Note or Security Documents,
but shall be construed as supplemental thereto.
7.14 SEVERABILITY. If any term or provision of this Agreement, or the
Revolving Loan Note or Security Documents, or any document or instrument
executed in connection therewith, including amendments and modifications or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the terms and provisions or the application of such term or
provision to person or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each form and
provision shall be valid or enforced to the fullest extent possible by law.
7.15 SUBMISSION TO JURISDICTION; VENUE. To induce the Bank to make the
Revolving Loan, as evidenced by the Revolving Loan Note and Security Documents
and this Agreement, the Borrower irrevocably agrees that, subject to the Bank's
sole and absolute election, all suits, actions or other proceedings in any way,
manner or respect, arising out of or from or related to this Agreement, the
Revolving Loan Note and Security Documents, or any document executed in
connection herewith, shall be subject to litigation in courts having situs
within Nebraska. The Borrower hereby consents and submits to the jurisdiction of
any local, state or federal court located within Nebraska. The Borrower hereby
waives any right it may have to transfer or change the venue of any suit, action
or other proceeding brought against the Borrower by the Bank in accordance with
this section.
7.16 WAIVER OF TRIAL BY JURY. BANK BY ITS ACCEPTANCE HEREOF AND
BORROWER HEREBY VOLUNTARILY, KNOWINGLY AND INTENTIONALLY WAIVE ANY AND ALL
RIGHTS TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS
AGREEMENT OR CONCERNING THE OBLIGATIONS OR ANY REAL OR PERSONAL PROPERTY PLEDGED
AS COLLATERAL UNDER THE SECURITY DOCUMENTS, REGARDLESS OF WHETHER SUCH ACTIONS
OR PROCEEDINGS CONCERN ANY CONTRACTUAL OR TORTIOUS OR OTHER CLAIM. BORROWER
ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL TO BANK IN EXTENDING
CREDIT TO BORROWER, THAT BANK WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS
JURY TRIAL WAIVER, AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS
HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY
TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
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7.17 CREDIT AGREEMENT NOTICE. A credit agreement must be in writing to
be enforceable under Nebraska law. To protect you and us from any
misunderstandings or disappointments, any contract, promise, undertaking, or
offer to forebear repayment of money or to make any other financial
accommodation in connection with this loan of money or grant or extension of
credit, or any amendment of, cancellation of, waiver of, or substitution for any
or all of the terms or provisions of any instrument or document executed in
connection with this loan of money or grant or extension of credit, must be in
writing to be effective.
7.18 APPLICATION OF PROCEEDS. The Bank shall have sole discretion
regarding the application of any payments or proceeds received from the
Borrower, voluntary or involuntary, including, without limitation, any proceeds
from the sale or other disposition of any of the collateral or security
described in Section 2.
7.19 CONSENT TO TRANSACTIONS. Notwithstanding any provisions of this
Agreement or the Security Documents to the contrary, the Bank hereby consents to
the transactions described in the Disclosure Schedule attached hereto as Exhibit
"J", provided that the transactions are consummated on or before October 31,
1999 and strictly in accordance with the Disclosure Schedule. The Disclosure
Schedule was prepared by the Borrower, and the Borrower represents and warrants
the truth and accuracy of information provided in the Disclosure Schedule, which
representation and warranty shall survive the execution of this Agreement.
"BORROWER"
SUPERTEL HOSPITALITY, INC.
By:___________________________
Paul J. Schulte, President
"BANK"
U.S. BANK NATIONAL ASSOCIATION
By:___________________________
Steven D. Erwin
Senior Vice President
STATE OF _____________ )
) ss.
COUNTY OF ___________ )
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The foregoing instrument was acknowledged before me this ___ day of
October, 1999, by Paul J. Schulte, President of Supertel Hospitality, Inc., a
Delaware corporation, on behalf of said corporation.
______________________________
Notary Public
STATE OF _____________ )
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
October, 1999, by Steven D. Erwin, Senior Vice President of U. S. Bank National
Association, a national banking association, on behalf of said Association.
______________________________
Notary Public
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EXHIBITS
Exhibit A Revolving Loan Note
Exhibit B Revolving Loan Properties and Recording Offices
Exhibit C Assignment of Leases and Rents
Exhibit D Lease Subordination Agreements
Exhibit E Collateral Assignment of Franchise
Agreements
Exhibit F Agreements with Franchisors
Exhibit G Security Agreement
Exhibit H Financing Statement
Exhibit I Guaranties
Exhibit J Disclosure Schedule
Exhibit K Subsidiaries
Exhibit L Borrowing Base Certificate
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Exhibit 10.29
10/22/99
LOAN AGREEMENT
This loan agreement (this "Agreement") is made and entered
into as of the 22nd day of October, 1999, by and among Marquette Capital Bank,
N. A. ("Marquette") and Bremer Bank, National Association ("Bremer")
(collectively, the "Lender") and Supertel Hospitality, Inc., a Delaware
corporation (including its subsidiaries, the "Borrower").
In consideration of the mutual agreements set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the parties, the Borrower and the Lender agree
as follows:
1. Loan. Subject to the provisions of this Agreement, upon
satisfaction of the conditions herein contained, the Lender shall make one or
more loans to the Borrower in an aggregate amount equal to $26,000,000.00
(collectively, the "Loan"). The Loan is not a revolving line of credit. The
Borrower shall use all proceeds of the Loan solely for refinancing existing
indebtedness on existing properties owned by Borrower and for other corporate
purposes in anticipation of the merger of Borrower into Humphrey Hospitality
Trust, Inc., a Virginia corporation ("Humphrey") contemplated by the Plan of
Merger dated June 11, 1999 (the "Humphrey Merger"). Pursuant to and following
the Humphrey Merger, Humphrey, as the surviving entity, will be responsible for
all liabilities and obligations of Borrower with respect to the Loan under the
Loan Documents (defined below) and Humphrey Hospitality Limited Partnership, a
Virginia limited partnership ("HHLP") will assume and agree to pay and perform
all such liabilities and obligations; from and after such time as the Humphrey
Merger becomes effective, Humphrey shall be and become the Borrower hereunder
and for all purposes hereof.
a. Conditions. Lender's obligation to make the Loan is
contingent upon the following:
(i) Borrower's repayment, either prior to funding of the
Loan or out of the proceeds of the Loan, of certain
existing loans to Borrower by Marquette affiliates in
the approximate aggregate amount of $11,300,000.00;
(ii) Lender's receipt of the Notes, Mortgages, Assignment
of Leases, Franchise Assignments, Indemnity and
Financing Statements, in each case duly executed by
Borrower;
(iii) Lender's approval of environmental assessments,
engineering reports, quality inspections, surveys and
title work of the Multi-State Collateral, franchisor
consents, organizational documents and resolutions,
and supporting opinions; and
<PAGE>
(iv) Lender's approval of a Year 2000 Readiness survey
completed by Borrower and its affiliates.
b. Notes. Borrower's obligation to repay the Loan and to pay
interest and other charges, fees and expenses thereon is evidenced by the
Borrower's promissory note of even date herewith payable to the order of
Marquette in the principal amount of Sixteen Million and No/100 Dollars
($16,000,000.00) and by Borrower's promissory note of even date herewith payable
to the order of Bremer in the principal amount of Ten Million and No/100 Dollars
($10,000,000.00) (together with any amendments, extensions, renewals and
replacements thereof, collectively called the "Notes"). Unless and until
Borrower shall receive written notice from either of Marquette or Bremer
instructing Borrower to make separate payments to each of Marquette and Bremer
under the Notes, Borrower shall make all payments due under the Notes to
Marquette, and Marquette shall remit the appropriate portion of such payments to
Bremer for application against the Note held by it.
c. Mortgages. The Notes are secured by the mortgages and deeds
of trust of even date herewith encumbering the Multi-State Collateral executed
by Borrower in favor of Lender described on Exhibit A hereto (collectively, the
"Mortgages").
d. Assignment of Leases and Rents. The Notes are further
secured by assignments of leases and rents of even date herewith executed by
Borrower in favor of Lender with respect to the same property encumbered by the
Mortgages (the "Assignment of Leases").
e. Franchise Assignments. The Notes are further secured by
Collateral Assignments of Franchise Agreements of even date herewith executed by
Borrower in favor of Lender (the "Franchise Assignments").
f. Environmental, ADA and ERISA Indemnification Agreement. To
induce Lender to enter into this Loan Agreement, Borrower has also executed and
delivered in favor of Lender an Environmental, ADA and ERISA Indemnification
Agreement (the "Indemnity").
g. Financing Statements. To further evidence Lender's interest
in the Multi-State Collateral, Borrower shall deliver Financing Statements in
such form as Lender may request (the "Financing Statements").
2. Fees. In consideration of Lender's agreement to make the
Loan, Borrower shall pay the following fees to Lender:
a. Due Diligence Fee. Lender acknowledges receipt of a
non-refundable Due Diligence Fee in the amount of $65,000.
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b. Commitment Fee. Borrower has paid or concurrently with the
execution of this Agreement will pay to Lender a non-refundable Commitment Fee
in an amount equal to $65,000.
c. Closing Fee. Borrower shall pay Lender a Closing Fee in the
amount of 1.50% of the Loan on the date on which the Loan closes (the "Closing
Date"). The Due Diligence Fee and the Commitment Fee shall be credited against
the Closing Fee at closing.
3. Take-Out Broker. Borrower has retained Northland/Marquette
Capital Group ("Northland") to attempt to obtain take-out financing for the
Loan; provided, however, that Borrower shall be under no obligation to accept
any financing proposed by Northland, and Northland need not be Borrower's
exclusive source of take-out financing during the term of the Loan.
4. Covenants. As long as any now existing or hereafter arising
debt, obligation or liability of the Borrower to the Lender (including but not
limited to any debt, obligation or liability relating to any letter of credit)
shall remain outstanding, the Borrower shall comply with the following
requirements:
a. Reporting. Borrower shall deliver to each of Marquette and
Bremer, in form and substance acceptable to the Lender, the following:
(i) within 120 days after the close of each fiscal year
of Borrower, a consolidated and consolidating
statement of Borrower's (and, following the Humphrey
Merger, Humphrey's) equity and a consolidated and
consolidating statement of cash flow of the Borrower
(and Humphrey) and any subsidiaries for such fiscal
year--all such statements to be in reasonable detail,
including all supporting schedules and comments; the
consolidated statements to be audited by independent
certified public accountants selected by Borrower and
certified by such accountants to have been prepared
in accordance with GAAP and accompanied by such
unqualified accountants' opinion thereon that such
documents have been audited in compliance with the
American Institute of Certified Public Accounts
Statements of Auditing standards in effect as of the
execution hereof;
(ii) within 120 days after the close of each fiscal year
of Borrower, consolidated and consolidating income
statements and balance sheets of the Borrower (and,
following the Humphrey Merger, Humphrey and HHLP) and
any subsidiaries as of the end of such fiscal
year--all such statements to be in reasonable detail,
including all supporting schedules and comments; the
consolidated income statements and balance sheets of
the Borrower (and Humphrey) to be audited by
independent certified public accountants selected by
Borrower and certified by such accountants to have
been prepared in accordance with GAAP and to present
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fairly the consolidated financial position and
results of operations of the Borrower (and Humphrey)
and any subsidiaries (including HHLP) and accompanied
by such unqualified accountants' opinion thereon that
such documents have been audited in compliance with
the American Institute of Certified Public Accounts
Statements of Auditing standards in effect as of the
execution hereof; the Lender shall have the right,
from time to time, to discuss the affairs of the
Borrower (and Humphrey) directly with such
independent certified public accountants after notice
to the Borrower (and Humphrey) and opportunity of the
Borrower (and Humphrey) to be represented at such
discussions;
(iii) As soon as available, and in any event within 45 days
after the end of each fiscal quarter of Borrower,
quarterly operating statements for each hotel
encumbered by the Mortgages, together with a summary
of key statistics relating to such operations,
including average daily rates, occupancy levels, and
revenue per available room, all in substantially the
form as such statements have previously been
furnished to Lender, and such other information as
Lender may request;
(iv) As soon as available, and in any event within 45 days
after the end of each fiscal quarter of Borrower, its
quarterly 10-Q with consolidated financials; and
(v) As soon as available, and in any event within 120
days after the end of each fiscal year of Borrower,
its annual 10-K with consolidated financials.
b. Financial. The Borrower (and, following the Humphrey
Merger, Humphrey) shall maintain:
(i) A Combined Debt Service Coverage Ratio of more than
1.5:1 for the Multi-State Collateral on a combined
basis. The Combined Debt Service Coverage Ratio shall
be measured as of December 31, 1999, and at quarterly
intervals thereafter.
(ii) A Consolidated Debt Service Coverage Ratio of more
than 1.5:1 for all of Borrower's properties and
obligations on a consolidated basis. The Consolidated
Debt Service Coverage Ratio shall be measured as of
December 31, 1999, and at quarterly intervals
thereafter.
(iii) A Combined Loan to Value Ratio not in excess of 65%,
to be tested on a quarterly basis, with respect to
the Multi-State Collateral and the outstanding
balance of the Loan and a Consolidated Loan to Value
Ratio not in excess of 60%, to be tested on a
quarterly basis, with respect to all properties owned
by Borrower and all debt obligations of Borrower on a
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<PAGE>
consolidated basis. For purposes of calculation of
the Combined Loan to Value Ratio and the Consolidated
Loan to Value Ratio, respectively, as of December 31,
1999, and at quarterly measurement intervals
thereafter the value of the Multi-State Collateral
and of all properties owned by Borrower,
respectively, shall be determined by applying a
capitalization rate of 12% to the trailing twelve
(12) months Adjusted Net Operating Income determined
with respect to the Multistate Collateral and all
properties owned by Borrower, respectively.
(iv) After the Humphrey Merger, the foregoing ratios
continue to be applicable to Humphrey (including HHLP
and all Humphrey affiliates).
(v) The failure of Borrower to maintain the Consolidated
Debt Service Coverage Ratio or the Consolidated Loan
to Value Ratio shall constitute an Event of Default
hereunder. The failure of Borrower to maintain the
Combined Debt Service Coverage Ratio or the Combined
Loan to Value Ratio shall constitute an Event of
Default hereunder, unless (A) within 30 days of such
failure the Borrower shall deliver to the Lender, and
the Lender shall agree to accept, additional security
for the Loan (together with supporting documents,
title policies, opinions and other materials required
by Lender) acceptable in all respects to the Lender
in its sole discretion, and (B) the additional
security would cause the Borrower (on a pro forma
basis, as if the additional security had been
included as part of the Multi-State Collateral on the
relevant covenant measurement date) to be in
compliance with the relevant ratio.
c. Compliance with Other Agreements. Borrower will take all
necessary steps to preserve its existence and franchises, will permit no uncured
event of default to exist under any loan or loan document with any other lender,
and will comply with all present and future laws applicable to it in the
operation of its business, and all material agreements to which it is subject.
If Supertel Hospitality Management, Inc., as tenant, shall be in default of its
obligations under the Lease (referred to in the Mortgages), Borrower shall,
unless Lender otherwise agrees, promptly institute and pursue appropriate
enforcement action. The Borrower will cause all franchise and license agreements
which are the subject of the Franchise Assignments to be and remain in full
force and effect.
d. Litigation. Borrower will give immediate notice to Lender
of (i) any litigation or proceeding in which it is a party if an adverse
decision therein would require it to pay more than $100,000 or deliver assets,
the value of which exceeds such sum (whether or not the claim is considered to
be covered by insurance); and (ii) the institution of any other suit or
proceeding involving it that might materially and adversely affect its
operation, financial condition, property, or business prospects.
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<PAGE>
e. Debt Service. Borrower will pay when due all of its
material indebtedness due third Persons within any applicable grace and or cure
periods except when the amount thereof is being contested in good faith by
appropriate proceedings and with adequate reserves therefor being set aside on
its books; for purposes hereof, indebtedness of the Borrower aggregating
$100,000 or less shall not be deemed material.
f. Lender Notification. Borrower will notify Lender
immediately (i) if it becomes aware of the occurrence of any Event of Default or
of any fact, condition, or event that only with the giving of notice or passage
of time, or both, could become an Event of Default; (ii) if it becomes aware of
any material adverse change in the business prospects, financial condition
(including, without limitation, proceedings in bankruptcy, insolvency, or
reorganization), or results of operations of the Borrower; or (iii) upon the
failure of the Borrower to observe any of its respective undertakings hereunder
or under any one or more of the Loan Documents.
g. ERISA. Borrower will (i) fund any of its Employee Pension
Benefit Plans in accordance with no less than the minimum funding standards of
29 U.S.C. Sec. 1082 (Section 302 of ERISA) and (ii) furnish the Lender, promptly
after the filing of the same, with copies of any reports or other statements
filed with any applicable governmental agency.
h. Year 2000 Compliance. "Year 2000 Compliance" means, with
regard to any person or entity, that all software, embedded microchips, and
other processing capabilities utilized by, and material to the business
operations or financial condition of, such person or entity are able to
interpret and manipulate data on and involving all calendar dates correctly and
without causing any abnormal ending scenario, including but not limited to all
dates in and after the year 2000. The Borrower represents and warrants to the
Lender and agrees that: (a) the Borrower has made due inquiry to determine
whether the computer applications and hardware the Borrower and the Borrower's
material suppliers and customers will be Year 2000 Compliant by January 1, 2000;
and (b) the Borrower has a plan to become Year 2000 compliant. By January 1,
2000, and the Borrower agrees to devote adequate resources toward, diligently
pursue, and take all actions necessary to complete such plan and become Year
2000 Compliant by January 1, 2000; and (c) to the best of the Borrower's
knowledge, all of the Borrower's material suppliers and customers will be Year
2000 Compliant by January 1, 2000; and (d) the Borrower agrees to deliver to the
Lender such information regarding the plans and progress of the Borrower and the
Borrower's material suppliers and customers toward becoming Year 2000 Compliant
as the Lender may reasonably request from time to time, including but not
limited to any assessment by a third party of the Borrower's efforts to become
Year 2000 Compliant; (e) at the Lender's request from time to time, the Borrower
shall order, obtain, and deliver to the Lender a copy of audits of the
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<PAGE>
Borrower's plans and progress to become Year 2000 Compliant by January 1, 2000,
and the Borrower shall permit the Lender and the Lender's representatives to
conduct audits of the Borrower's operations for such purpose, and (f) the
Borrower has substantially completed implementation of the Borrower's plan and
remediation of material Year 2000 problems. Breach of any representation,
warranty or agreement in this paragraph, or failure of the Borrower or a
significant portion of the Borrower's material suppliers and customers to become
Year 2000 Compliant by January 1, 2000 shall constitute an Event of Default
hereunder, if such breach or failure would have a material, adverse effect on
the operations of Borrower.
i. Inspection. Borrower shall keep accurate books and records
in which true and complete entries will be made in accordance with GAAP. Upon
request of Lender, Borrower, during normal business hours, shall give any
representatives of Lender access to and permit such representatives to examine
and copy all books, records and other writings in its possession, to inspect its
property and to discuss its finances, accounts, property and business with any
of its officers and directors. Borrower will permit the Lender, or its
employees, accountants, attorneys or agents, to examine and inspect any of the
Multi-State Collateral, other collateral covered by any other document securing
the Loan or any other property of the Borrower at any time during ordinary
business hours.
j. Sale or Transfer of Assets; Suspension of Business
Operations. Except as permitted by the Mortgages, Borrower will not sell, lease,
assign, transfer or otherwise dispose of (i) the stock of any Subsidiary (except
that, after the Humphrey Merger, Simplex, Inc., and Motel Developers Inc., may
be merged into Borrower), (ii) all or a substantial part of its assets, or (iii)
any Multi-State Collateral or any interest therein (whether in one transaction
or in a series of transactions) to any other Person and will not liquidate,
dissolve or suspend business operations. Borrower may purchase and sell personal
property in the ordinary course of its business, provided Lender shall be given
a first priority security interest in any replacement property relating to the
Multi-State Collateral. Borrower will not in any manner transfer any property
without prior or present receipt of full and adequate consideration.
k. Consolidation and Merger; Asset Acquisitions. Borrower will
not consolidate with or merge into any Person without the prior written approval
of Lender, except for any consolidation or merger which occurs in connection
with Borrower's acquisition of additional hotel properties (provided, however,
that Lender's approval shall nonetheless be required if the merger or
consolidation occurs in connection with a single transaction or series of
related transactions by which Borrower seeks to acquire more than 10 additional
hotel properties).
l. Sale and Leaseback. Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
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<PAGE>
m. Restrictions on Nature of Business. Borrower will not
engage in any line of business materially different from that presently engaged
in by Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
n. Accounting. Borrower will not adopt any material change in
accounting principles other than as required by GAAP. Borrower will not adopt,
permit or consent to any change in its fiscal year.
o. Place of Business; Name. Except in connection with the
Humphrey Merger, Borrower will not transfer its chief executive office or
principal place of business, or move, relocate, close or sell any business
location, unless Borrower gives Lender 30 days prior written notice of such
change, together with such amendments to financing statements as Lender may
request. Borrower will not permit any tangible Multi-State Collateral or any
records pertaining to the Multi-State Collateral to be located in any state or
area in which, in the event of such location, a financing statement covering
such Multi-State Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. Borrower will not change its
name.
p. Organizational Documents. Except in connection with the
Humphrey Merger, Borrower will not amend its certificate of incorporation,
articles of incorporation or bylaws.
q. REIT Status. Upon completion of the Humphrey Merger,
Humphrey will be a Real Estate Investment Trust within the meaning of the
Internal Revenue Code of 1986, as amended, and shall not change or rescind its
status as a Real Estate Investment Trust.
r. Capital Expenditure Account. Borrower shall establish an
interest-bearing Capital Expenditure Account with Marquette (for the benefit of
both Marquette and Bremer) upon the execution of this Agreement, and shall
maintain the account until all amounts owed to the Lender have been repaid.
Borrower shall deposit, or shall direct any tenant, lessor or manager to
deposit, 4% of the room revenue from the Multi-State Collateral into the Capital
Reserve Account to be used solely for the purpose of maintenance and capital
expenditures relating to properties owned by the Borrower. Until the occurrence
of an Event of Default, or until otherwise notified by the Lender, Borrower may
use the funds in the Capital Expenditure Account at its discretion for the
purposes set forth herein.
s. Covenant Compliance. As soon as available, and in any event
within 45 days after the end of each fiscal quarter of Borrower, Borrower shall
execute and deliver to Lender a Covenant Compliance Certificate in the form of
Exhibit B attached hereto.
5. Definitions. In this Agreement:
a. "Adjusted Net Operating Income" means the remainder of the
Net Operating Income from the Multi-State Collateral or all properties owned by
Borrower, as the case may be, after reducing Net Operating Income by an amount
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equal to the sum of (i) 4% of gross room revenue for FF&E reserve, plus (ii) 4%
of gross room revenue for management fees and expenses.
b. "Combined Debt Service Coverage Ratio" for any period shall
be determined as the quotient obtained by dividing (i) Adjusted Net Operating
Income derived from the Multi-State Collateral for the most recent trailing
12-month period by (ii) the amount of debt service payments (principal and
interest) (computed on an annualized basis, based upon the loan terms in effect
on the date of determination) which would be required to be made under this
Agreement and related Loan Documents during such period.
c. "Consolidated Debt Service Coverage Ratio" for any period
shall be determined by dividing (i) the Adjusted Net Operating Income derived
from all properties of Borrower for the most recent trailing 12-month period by
(ii) the required debt service for all of the Borrower's indebtedness (computed
on an annualized basis, based upon the loan terms in effect on the date of
determination). For purposes of determining this ratio, the debt service on any
non-amortizing indebtedness shall be assumed to equal the monthly payment
required to fully amortize such indebtedness over a 25-year term at the interest
rate in effect at the end of each quarter.
d. "Debt" means (i) all items of indebtedness or liability of
the Borrower which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of the Borrower's balance
sheet on the date as of which Debt is to be determined, plus (ii) indebtedness
secured by any mortgage, pledge, lien or security interest on property of the
Borrower, whether or not the indebtedness secured thereby shall have been
assumed, plus (iii) guaranties, endorsements (other than for purposes of
collection in the ordinary course of business) and other contingent obligations
of the Borrower in respect of, or to purchase or otherwise acquire indebtedness
of others.
e. "Events of Default" means the occurrence and continuance of
any of the following events shall constitute an "Event of Default" hereunder:
(i) the Borrower shall fail to pay any installment of
principal on the Loan when due, whether at stated
maturity, upon acceleration or otherwise, or pay when
due any interest, fees or other amounts payable
hereunder or under the other Loan Documents, and such
failure shall continue for ten (10) days after the
due date thereof; or
(ii) any representation or warranty made by the Borrower
herein or in any other Loan Document shall at the
time made be incorrect in any material respect; or
(iii) the Borrower shall fail to perform or observe any
term, covenant or agreement contained in this Loan
Agreement or any other Loan Document, and such
failure shall remain unremedied for thirty (30) days
after written notice thereof from the Lender to the
Borrower; or
9
<PAGE>
(iv) any event of default (however described) under any
other Loan Document shall occur and not be cured
within the applicable grace period, if any; or
(v) the Borrower shall fail to comply with any of the
financial covenants set forth in Paragraph 4(b); or
(vi) a material event of default shall occur under any
loan or credit agreement relating to Debt in excess
of $100,000 of the Borrower; or
(vii) both Paul Schulte is no longer the Chief Executive
Officer of Borrower and Steve Borgmann is no longer a
senior officer of Borrower; provided, however, that
if Paul Schulte and Steve Borgmann no longer hold
such positions due to death or disability, it shall
not be an Event of Default hereunder if Lender has
approved in writing (which approval will not be
unreasonably withheld) the replacement officers; or
(viii) the Humphrey Merger has not occurred pursuant to the
Plan of Merger referred to in Section 1 hereof within
90 days of the date hereof.
f. "GAAP" means generally accepted accounting principles
consistently applied. Except as otherwise approved by the Lender in writing, all
financial reporting, financial record keeping, and financial calculations in
connection with this Agreement shall be made on the basis of accounting
principles, methods, elections and estimates that are consistent and that are
consistent with the accounting principles, methods, elections and estimates used
in the last annual financial statements of the Borrower delivered by the
Borrower to the Lender before or upon the execution of this Agreement, and that
fairly present the financial condition or results of operations for the period
then ended.
g. "Loan Documents" means, collectively, all documents
executed by Borrower in connection with or as security for the Loan.
h. "Multi-State Collateral" means, collectively, all property
encumbered by the Mortgages.
i. "Net Operating Income" means gross income generated by or
at the property in question from whatever source, less the direct operating
expenses (not including depreciation or other non-cash items) for such property.
j. "Person" means any individual, corporation, partnership,
joint venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
10
<PAGE>
6. Jurisdiction; Choice of Law. The Borrower consents to the
personal jurisdiction of the state and federal courts located in the State of
Minnesota in connection with any controversy relating in any way to this
Agreement or to any transaction or matter relating to this Agreement, waives any
argument that venue in such forums is not convenient, and agrees that any
litigation initiated by the Borrower against the Lender relating in any way to
this Agreement or to any transaction or matter relating to this Agreement shall
be venued in either the Minnesota District Court of the county where the Lender
is located, or the United States District Court, District of Minnesota. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Minnesota.
7. Modifications; Successors and Assigns. No provision of this
Agreement can be amended, modified, waived or terminated, except by a writing
executed by the Borrower and the Lender. This Agreement shall bind and benefit
the parties and their respective successors and assigns; provided, the Borrower
shall not assign any of its rights or obligations under this Agreement without
the prior written consent of the Lender, and any assignment in violation of this
sentence shall be null and void. Lender consents to the Humphrey Merger and the
assignment of Borrower's rights and obligations under this Agreement in
connection therewith.
8. Lender's Expenses. Regardless of whether the Loan closes,
the Borrower shall pay to the Lender on demand all of the Lender's costs and
expenses, (including legal expenses, appraisals, and environmental assessments)
to perform due diligence and to document and close the transaction contemplated
by this Agreement.
9. Further Assurances.
a. Borrower will, at its sole cost and expense, do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further acts, conveyances, notes, mortgages, deeds of trust,
assignments, security agreements, financing statements and assurances as Lender
shall from time to time reasonably require (a) to carry into effect the purposes
of this Agreement and the other Loan Documents, (b) for the better assuring,
conveying, mortgaging, assigning and confirming unto Lender of all property and
rights mortgaged, granted, bargained, alienated, confirmed, pledged,
hypothecated, conveyed or assigned by this Agreement, or any of the other Loan
Documents or property intended now or hereafter to be, or which Borrower may be
or may hereafter become bound to convey or assign to Lender, (c) for the
perfection of any such lien or security interest granted herein or in the other
Loan Documents, and (d) for the better assuring and confirming of all of
Lender's rights, powers and remedies hereunder. Borrower, within ten (10) days
after Lender's request, will execute and deliver and hereby authorizes Lender to
execute in the name of Borrower or without the signature of Borrower to the
extent Lender may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Lender in the Multi-State Collateral and the other collateral under
the Loan Documents.
11
<PAGE>
b. Borrower forthwith upon the execution and delivery of this
Agreement and thereafter, from time to time, will cause the Mortgages and any
security instrument creating a lien or security interest or evidencing the lien
of the Mortgages and the other applicable Loan Documents upon the Multi-State
Collateral or other property and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required in order to publish notice of and fully to protect the lien or security
interest of, and the priority of, each of the Mortgages and the other Loan
Documents upon, and the interest of Lender in, the Multi-State Collateral or
other applicable property. Borrower will pay all filing, registration or
recording fees, and all expenses incidental to the foregoing and all taxes,
duties, assessments and charges arising out of or in connection with the
execution and delivery of the Mortgages, any other security instrument, any
instrument of further assurance or any other Loan Document. Upon Lender's
request, Borrower shall, from time to time, furnish Lender with evidence
reasonably satisfactory to Lender that such property is free of liens and
security interests (except as permitted hereunder), including searches of
applicable public records.
c. Upon any failure by Borrower to do so as provided in this
Paragraph 9, Lender may make, execute, record, file, re-record or refile any and
all such mortgages, deeds of trust, instruments, certificates and documents for
and in the name of Borrower, and Borrower hereby irrevocably appoints (which
appointment is coupled with an interest and with full power of substitution)
Lender the agent and attorney-in-fact of Borrower to do so; and Borrower shall
reimburse Lender, on demand, for all costs and expenses (including reasonable
attorneys' fees) incurred by Lender in connection therewith.
10. Prior Agreements Superseded. This Agreement supersedes and
replaces all prior commitment letters, proposal letters, term sheets, and other
statements of loan terms issued by the Lender to the Borrower, and all such
letters and term sheets are terminated.
12
<PAGE>
[Signature Page to Loan Agreement]
Sincerely,
<TABLE>
<S> <C>
Marquette Capital Bank, National Association Bremer Bank, National Association
By By
-------------------------------- ----------------------------------
Title Title
----------------------------- -------------------------------
</TABLE>
The Borrower agrees to this Agreement.
THE BORROWER REPRESENTS AND WARRANTS TO THE LENDER AND AGREES
THAT THE BORROWER HAS READ ALL OF THIS AGREEMENT AND UNDERSTANDS ALL OF THE
PROVISIONS OF THIS AGREEMENT.
Supertel Hospitality, Inc. Date: October __, 1999
By
------------------------------------
Title
---------------------------------
13
<PAGE>
EXHIBIT A
[List of Mortgages]
Mortgages and Deeds of Trust executed by Borrower in favor of
Lender and encumbering the following properties:
<TABLE>
<CAPTION>
PROPERTY LOCATION TITLE
-------- -------- -----
<S> <C> <C>
Creston Super 8 Motel 804 W Taylor St. CTIC NBU 180981260
Creston, IA 50801 (Union Co.) 2601642
O'Neill Super 8 Motel 309 N 5th Street CTIC NBU 180 981287
Norfolk, NE 68792-1448 (Holt Co.) TC 2962
Keokuk Super 8 Motel 3511 Main Street CTIC NBU 180 981262
Keokuk, IA (Lee Co.) 2601638
Iowa City Super 8 Motel 611 First Avenue CTIC NBU 180 981261
Coralville, IA 52241 (Johnson Co.) 2601637
Burlington Super 8 Motel 3100 Kirkwood Street CTIC NBU 180 981258
Burlington, IA (Des Moines Co.) 2601644
Pittsburgh Super 8 Motel 3108 N Broadway CTIC NBU
Pittsburg, KS (Crawford Co.) T-19137
Clinton Super 8 Motel 1711 Lincoln Way CTIC NBU 180 981259
Clinton, IA 52732 (Clinton Co.) 2601643
Mt. Pleasant Super 8 Motel 1000 N Grand Ave CTIC NBU 180 981286
Mt. Pleasant, IA (Henry Co.) 9851017264
Pella Super 8 Motel 105 E Oskaloosa Street CTIC NBU 180 981264
Pella, IA 50219 (Marion Co.) 2601640
Storm Lake Super 8 Motel 101 W Milwaukee Ave CTIC NBU 180 981265
Storm Lake, IA 50588 (Buena Vista Co.) 2601639
McKinney Super 8 Motel 910 N Central Expressway CTIC NBU 180 990140
McKinney, TX 75070 (Collin Co.) GF# 236793-H
Denton Super 8 Motel 620 South I-35 East CTIC GF# 236793-D
Denton, TX 76205 (Denton Co.) 44-901-80-236793-D
Grapevine Super 8 Motel 250 E Hwy 114 CTIC GF# 236793-C
Grapevine, TX 76051 (Tarrant Co.) 44-901-80-236793-C
Menomonie Super 8 Motel 1622 N Broadway CTIC NBU 180 990147
Menomonie, WI (Dunn Co.) DUN00311
Las Colinas Wingate Inn 850 W Walnut Hill Lane CTIC NBU 180 990139
Irving, TX 75038 (Dallas Co.) GF# 236793-I
Houston Wingate Inn ________________________________ CTIC NBU 180 990137
Houston, TX (Harris Co.) GF# 236793-A
Portage Super 8 Motel 3000 New Pinery Road CTIC NBU 180 990149
Portage, WI 53901 (Columbia Co.) CP-168456
</TABLE>
A-1
<PAGE>
EXHIBIT B
COVENANT COMPLIANCE CERTIFICATE
-------------------------------
I,_________________, the ___________of ____________ , a ______________
(the "Borrower"), pursuant to the letter agreement dated (the "Agreement"),
hereby certify to Marquette Bank, National Association and to Bremer Bank,
National Association (the "Lender") as follows:
As of the close of business on __________________, the
following was true and correct:
[Borrower to confirm compliance with each covenant contained in
Section 4 of Agreement]
AS OF THE DATE OF THIS CERTIFICATE, NO EVENT HAS OCCURRED
WHICH CONSTITUTES AN EVENT OF DEFAULT AS DEFINED IN THE AGREEMENT.
Date of Certificate:
--------------------------------------
Signature
-------------------------------------------------
B-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 895,580
<SECURITIES> 0
<RECEIVABLES> 3,393,903
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 197,325,218
<DEPRECIATION> 32,241,274
<TOTAL-ASSETS> 171,737,471
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 119,641,743
0
0
<COMMON> 111,735
<OTHER-SE> 45,073,412
<TOTAL-LIABILITY-AND-EQUITY> 171,737,471
<SALES> 7,559,525
<TOTAL-REVENUES> 7,609,788
<CGS> 0
<TOTAL-COSTS> 5,919,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,671,218
<INCOME-PRETAX> 1,568,807
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,568,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,568,807
<EPS-BASIC> .14
<EPS-DILUTED> .14
<FN>
<F1> Humphrey Hospitality Trust, Inc. is in the specialized real
estate industry for which the current/noncurrent distinction is
deemed in practice to have little or no relevance. Therefore, it prepares
unclassified balance sheets which do not report current assets or current
liabilities.
</FN>
</TABLE>
