<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 4, 1995
COMMISSION FILE NUMBER 0-20449
PRICE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0628740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4649 MORENA BOULEVARD
SAN DIEGO, CALIFORNIA 92117
(Address of principal executive offices)
(619) 581-4530
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
The registrant had 23,224,028 common shares, par value $.0001, outstanding at
July 17, 1995.
<PAGE>
PRICE ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 2 - CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 5 - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . 15
2
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM I -FINANCIAL STATEMENTS
PRICE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 4, August 31,
1995 1994
----------- ----------
ASSETS (unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,743 $ 1,644
Accounts receivable, net 6,416 20,873
Inventory 8,396 7,895
Prepaid expenses 208 551
--------- ---------
Total current assets 16,763 30,963
Real estate assets:
Land and land improvements 249,694 258,545
Building and improvements 218,874 206,374
Fixtures and equipment 10,567 4,375
Construction in progress 5,095 11,421
--------- ---------
484,230 480,715
Less accumulated depreciation (39,957) (33,328)
--------- ---------
444,273 447,387
Other assets:
City notes receivable 30,024 32,023
Atlas and other notes receivable 43,089 41,000
Deferred income taxes 25,936 23,282
Deferred rents and leasing costs, net 10,863 8,672
Investment in Price Club Mexico joint venture --- 67,226
--------- ---------
109,912 172,203
--------- ---------
Total assets $ 570,948 $ 650,553
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 12,113 $ 20,312
Payable to PriceCostco, net 1,703 6,797
Other current liabilities 3,568 4,015
--------- ---------
Total current liabilities 17,384 31,124
Note payable to PriceCostco 15,425 ---
Minority interest of PriceCostco 5,625 40,641
Stockholders' Equity:
Common stock 2 3
Paid-in capital 545,015 580,468
Retained earnings 2,922 ---
Accumulated foreign currency translation --- (1,683)
Treasury stock, at cost (15,425) ---
--------- ---------
532,514 578,788
--------- ---------
Total liabilities and stockholders' equity $ 570,948 $ 650,553
--------- ---------
--------- ---------
</TABLE>
Note: The balance sheet at August 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
SEE ACCOMPANYING NOTES. 3
<PAGE>
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
(12 weeks) (40 weeks)
------------------------- -------------------------
June 4, June 5, June 4, June 5,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Real estate rentals $13,344 $ 7,045 $38,732 $21,131
Gain (loss) on sale of real estate, net --- 58 (181) 3,988
Merchandise sales 11,467 10,304 55,287 40,692
Other revenues (8) 55 350 111
---------- ---------- ---------- ----------
Total revenues 24,803 17,462 94,188 65,922
OPERATING EXPENSES
Real estate:
Operating, maintenance and administrative 2,682 1,738 7,233 4,328
Property taxes 2,254 1,202 6,943 3,606
Depreciation 2,823 1,792 7,243 5,245
Merchandising:
Cost of sales 10,584 9,585 51,502 37,996
Operating expenses 5,028 1,807 15,254 6,168
General and administrative 505 369 2,468 1,231
---------- ---------- ---------- ----------
Total operating expenses 23,876 16,493 90,643 58,574
---------- ---------- ---------- ----------
Operating income 927 969 3,545 7,348
INTEREST AND OTHER
Interest income, net 1,660 1,039 4,478 3,541
Equity in earnings of real estate joint ventures --- 207 --- 807
Equity in earnings (loss) of Price Club
Mexico joint venture --- 414 (2,338) 2,743
Loss on sale of investment in Price Club
Mexico joint venture --- --- (2,800) ---
Minority interest 1,610 331 5,295 358
---------- ---------- ---------- ----------
Total interest and other 3,270 1,991 4,635 7,449
---------- ---------- ---------- ----------
Income before provision for income taxes 4,197 2,960 8,180 14,797
Provision for income taxes (3,575) (1,357) (5,258) (6,227)
---------- ---------- ---------- ----------
Net income $ 622 $ 1,603 $ 2,922 $ 8,570
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share $ .03 $ .06 $ .12 $ .32
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average number of shares outstanding 23,224 27,000 25,395 27,000
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - amounts in thousands)
<TABLE>
<CAPTION>
Year - to - Date
(40 weeks)
-------------------------
June 4, June 5,
1995 1994
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,922 $ 8,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,260 9,777
Loss (gain) on sale of real estate assets 181 (4,714)
Equity in losses (earnings) of Price Club Mexico
joint venture 2,338 (2,744)
Loss on sale of Price Club Mexico joint venture 2,800 ---
Minority interest of PriceCostco 4,995 17,769
Change in receivables and other assets (33,099) 200
Change in accounts payable and other liabilities 20,009 (1,924)
Deferred rents and leasing costs (2,497) (1,606)
Other --- 251
------------ -----------
Net cash flows provided by operating activities 6,909 25,579
INVESTING ACTIVITIES
Additions to real estate assets (19,690) (61,962)
Proceeds from sale of real estate assets 10,190 46,083
Proceeds from real estate joint ventures --- 11,200
Proceeds from sale of Price Club Mexico joint venture 34,500 ---
Investment in Price Club Mexico joint venture (3,883) (34,095)
Additions to notes receivable --- (43,030)
Payments of notes receivable 4,266 ---
------------ -----------
Net cash flows provided by (used in) investing
activities 25,383 (81,804)
FINANCING ACTIVITIES
Net investment by PriceCostco --- 54,912
Payment of note payable (30,500) ---
Decrease in equity resulting from cash not
transferred in spin-off transaction (1,693) ---
------------ -----------
Net cash flows provided by (used in) financing
activities (32,193) 54,912
------------ -----------
Net increase (decrease) in cash 99 (1,313)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,644 1,655
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,743 $ 342
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURE:
Treasury stock acquired for note payable $45,925
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 4, 1995
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Price Enterprises, Inc. (PEI or the Company) became a publicly-traded company on
December 21, 1994, following an exchange offer in which approximately 23.2
million shares of PriceCostco, Inc. were exchanged for shares of PEI. However,
since August 31, 1994 PEI has operated as a separate company. The accompanying
financial statements have been restated to reflect common stock at par value and
the remaining equity as paid-in capital, effective August 31, 1994. In
accordance with the Amended and Restated Agreement of Transfer and Plan of
Exchange (Exchange Agreement), PriceCostco retained net current assets of PEI
and its subsidiaries amounting to approximately $11 million before allocations
to PriceCostco's minority interest. Accordingly, the net amount is reflected as
a reduction of paid-in capital at the beginning of the 1995 fiscal year.
Also in accordance with the Exchange Agreement, on February 6, 1995, the Company
purchased approximately 3.8 million shares for $45.9 million in return for a
promissory note due December 1996. On April 20, 1995, $30.5 million of proceeds
from the sale of PEI's interest in Price Club Mexico was applied against the
outstanding balance of this note payable.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the 40 weeks ended June 4, 1995 are not necessarily
indicative of the results that may be expected for the year ended September 3,
1995. For further information, refer to the financial statements and footnotes
thereto included in the PriceCostco/Price Enterprises Offering
Circular/Prospectus dated November 21, 1994 as supplemented on December 7, 1994.
FISCAL YEAR
Price Enterprises' fiscal year is on a 52/53 week basis and ends on the Sunday
nearest August 31. Fiscal quarters are as follows: first quarter - 16 weeks;
second and third quarters - 12 weeks and fourth quarter - 12/13 weeks. With
respect to the real estate segment, each quarter includes three calendar months
of operating results. Fiscal 1995 is a 53 week year ending on September 3,
1995.
6
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REAL ESTATE ASSETS
Real estate assets are recorded at their carryover basis from PriceCostco.
Those values were at historical cost adjusted for recognition of impairment
losses. Prior to the fourth quarter of fiscal 1994, impairment loss provisions
were determined using undiscounted estimated future cash flows to calculate the
assets' net realizable value. Beginning in the fourth quarter of fiscal 1994,
Price Enterprises concluded that the net realizable value should be determined
using discounted estimated cash flows. Accordingly, a provision for asset
impairment of $90.2 million was recorded in the fourth quarter of fiscal 1994.
The Exchange Agreement provided that PriceCostco would convey title to the
Company of certain specified real estate assets. As of June 4, 1995,
PriceCostco and the Company have completed the conveyance of approximately 85%
of the aggregate value of such properties. However, the accompanying financial
statements include all such properties as the Company has the rights and
benefits of ownership of such assets which are expected to be conveyed.
The Exchange Agreement further provided that in the event PriceCostco were
unable to convey title to the Company of any transferred real estate assets by
February 28, 1995, then the Company and PriceCostco would agree to either (i) a
long term lease of such property for the annual rent of $1.00 per year or (ii)
PriceCostco would convey to the Company other property satisfactory to the
Company or (iii) if either of these alternatives deprive either party of the
benefits of transferring ownership, then PriceCostco shall remit to the Company
cash in the amount of the stated value of such property. The Company and
PriceCostco have subsequently agreed that, with the exception of five
properties, all remaining properties must be transferred to the Company in
accordance with an agreed-upon schedule; if those conveyances have not occurred
as scheduled, then either (i) PriceCostco will convey to the Company other
property satisfactory to the Company or (ii) if such alternative conveyance
would deprive either party of the benefits of transferring ownership, then
PriceCostco shall remit to the Company cash in the amount of the stated value of
such property. With respect to the aforementioned five properties (whose total
stated value is $6.7 million) the Company and PriceCostco have agreed that
substitute property owned by PriceCostco, or cash equivalent to the stated
values of each property, will be conveyed by PriceCostco to the Company on or
before September 30, 1995.
Real estate assets are depreciated using the straight-line method over their
estimated useful lives, which are as follows:
Land improvements 15 - 25 years
Buildings and improvements 10 - 25 years
Tenant improvements Term of related lease
Furniture, fixtures and equipment 5 years
7
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MERCHANDISE INVENTORIES
Merchandise inventories, which include merchandise for resale and display
samples, are valued at the lower of cost (first-in, first-out) or market.
REAL ESTATE RENTALS AND DEFERRED RENTS
All leases are classified as operating leases. Rentals are recognized using the
straight-line method over the terms of the leases. Deferred rents represent the
excess of real estate rentals recognized on the straight-line basis over cash
received under the applicable lease provisions. Common area maintenance fees
are included in rental income.
DEFERRED LEASING COSTS
Costs incurred in connection with leasing are deferred and amortized using the
straight-line method over the term of the related lease. Unamortized leasing
costs are charged to expense upon early termination of the lease.
INCOME TAXES
Income taxes have been provided for in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109
requires accounting for income taxes based on the asset and liability method
and, accordingly, deferred income taxes are provided to reflect temporary
differences between financial and tax reporting.
The operations of the Company for the first quarter ended December 18, 1994 are
included in the consolidated tax returns of PriceCostco. The provision for
income taxes since that date have been computed for PEI as a stand-alone entity,
therefore, losses incurred by 51% owned subsidiaries are not accorded any tax
benefit.
NOTE 2 - RELATED PARTY TRANSACTIONS
Prior to fiscal 1995, PriceCostco provided services to PEI. Amounts allocated
to PEI for general and administrative expenses were $369,000 for the third
quarter of fiscal 1994, and $1,231,000 for the 40 weeks ended June 5, 1994.
These amounts were charged to PEI by specific identification or allocated based
on total assets or sales revenues.
During the first quarter of fiscal 1994, the Company sold a shopping center to
The Price REIT for $21.7 million, recognizing a pre-tax gain of $4.2 million.
The Price REIT performs certain property management services for the Company, at
a rate which the Company believes approximates the fair value of such services.
8
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company entered into an agreement with K&F Development (K&F), an affiliate
of The Price REIT, under which K&F is to provide strategic and consulting
services from August 29, 1994 until August 28, 1996, and is to receive $500,000
annually for such services. The Company and K&F have agreed to terminate that
arrangement as of September 3, 1995. The Company expects to enter into a new
agreement under which The Price REIT will provide more limited consulting
services to the Company, from September 4, 1995 through February 28, 1996, and
it will receive $90,000 from the Company. In addition, K&F provides real estate
development/construction, leasing and brokerage services to the Company. The
Company believes that the fees charged for these services approximate the fair
value of such services.
NOTE 3 - NOTES RECEIVABLE
Notes receivable are recorded at their carryover basis from PriceCostco. They
include amounts loaned to municipalities and agencies (City Notes) to facilitate
real property acquisitions and improvements. The City Notes bear interest at
rates which vary from 7% to 10%. Repayment of the majority of these notes is
generally based on that municipality's allocation of sales tax revenues
generated by retail businesses located on a particular property associated with
such City Note.
The Company holds a note receivable from Atlas Hotels, Inc. (Atlas) which is
collateralized by hotel property in San Diego, California. On April 3, 1995 the
debt obligation was restructured and now requires repayment after five years of
all outstanding indebtedness, with interest accruing on the outstanding
principal at 10% per annum. Interest is payable monthly at a rate equal to the
six month LIBOR rate plus 2.5% per annum (not to exceed 8% per annum through
December 1, 1996), and the interest not currently payable is added to the
principal amount of the loan.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On December 19, 1994 and January 4, 1995, complaints were filed in United States
District Court, Western District of Washington (entitled SNYDER V PRICE/COSTCO,
INC. ET. AL, Case #C94-1874 and BALSAM V PRICE/COSTCO, INC. ET. AL. Case #C95-
0009, respectively) against several defendants including the Company and certain
of its directors. The two suits have been consolidated for all purposes. The
Complaint alleges violation of certain laws and asserts certain related claims,
arising from the exchange offer transaction. The Company believes that the suit
is without merit and will vigorously defend against the suit. The Company does
not believe that the ultimate outcome of such litigation will have a material
adverse effect on the Company's financial position or results of operations.
9
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 - SALE OF MEXICO CLUBS
As of April 20, 1995, the Company completed the sale of its 51% interest in
Mexico Clubs, L.L.C. ("Mexico Clubs") to PriceCostco. PriceCostco purchased
Price Enterprises' interest in Mexico Clubs by making a $30.5 million reduction
to the outstanding balance of the $45.9 million note receivable from Price
Enterprises referenced in Note 1. In addition, concurrent with the closing,
Price Enterprises received $4 million from Price Club Mexico.
The Company recognized a pre-tax loss of $2.8 million ($2.2 million after-tax or
$0.09 per share) during the second quarter of fiscal 1995 as a result of the
sale of its interest in Mexico Clubs, which included a provision for its share
of estimated operating losses through the transaction closing date.
NOTE 6 - LINE OF CREDIT FACILITIES
The Company has executed a two year unsecured revolving credit facility of $25
million with a commercial bank. Interest is charged at the bank's base rate, or
at rates slightly higher than LIBOR pricing, at the Company's election.
Pursuant to another agreement, PriceCostco provided an $85 million revolving
credit facility (subject to reduction for proceeds of certain real property
sales) to the Company as interim financing to satisfy any cash requirements
during the six months ended June 21, 1995. Under such revolving credit
facility, the Company paid PriceCostco interest at a rate that approximated its
commercial paper rate or the rate charged to Price Costco pursuant to its credit
facility. During the 3rd quarter this commitment was reduced by approximately
$35 million to $50 million as a result of the Company's execution of the bank
revolving credit facility and net proceeds from the sale of property since
August 31, 1994. There were no outstanding borrowings on either of these two
facilities as of June 4, 1995.
NOTE 7 - SUBSEQUENT EVENT
During the fourth quarter of fiscal 1995, the Price Quest subsidiary decided to
significantly reduce the use of display merchandise at the PriceCostco warehouse
locations. As a result, an accounting charge of approximately $2 million is
expected to be recognized in the fourth quarter for inventory markdowns and
disposition of fixtures and equipment, of which $1 million will be recognized by
PEI after taking into account PriceCostco's 49% interest in Price Quest. In
addition, in preparation for the year end financial audit, physical counts of
equipment located at the PriceCostco warehouses and merchandise inventories are
being taken and reconciled to Price Quest's accounting records. Initial results
suggest that an accounting charge of approximately $1 million may be required
during the fourth quarter, of which approximately $0.5 million will be
recognized by PEI.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Price Enterprises operates in several different businesses. The discussion
and analysis below describes the significant changes in real estate rental
operations as well as gains and losses on sale of real estate. Merchandising
operations consists of the operations of Price Quest, Price Global Trading and
Price Ventures. Interest and other income represents the income from notes
receivable, Price Club Mexico joint venture, certain real estate joint ventures,
and PriceCostco's minority interest in the subsidiaries.
The following discussion compares the results of operations for the third
quarter and year-to-date periods of fiscal 1995 ended June 4, 1995 to the third
quarter and year-to-date periods of fiscal 1994 ended June 5, 1994. In those
instances throughout the following discussion where changes are attributed to
more than one factor, such factors have been presented in descending order of
importance. Amounts are in thousands, except percentages. The following
discussion should be read in conjunction with the consolidated financial
statements and the notes thereto.
REAL ESTATE RENTAL OPERATIONS
<TABLE>
<CAPTION>
Revenue Percent Operating Percent
Amount Change Income Change Change
------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
3rd Quarter - FY 1995 $13,344 89% $ 5,585 $ 3,272 141%
3rd Quarter - FY 1994 7,045 --- 2,313 --- ---
Year-to-date - FY 1995 $38,732 83% $17,313 $ 9,361 118%
Year-to-date - FY 1994 21,131 --- 7,952 --- ---
</TABLE>
Each fiscal quarter reflects 3 calendar months of activity for the real
estate segment. Operating income is defined as rental revenue, including common
area expense reimbursements, less the related real estate expenses, including
unreimbursable expenses for unimproved land and certain developed properties
with vacant space and depreciation.
During the 3rd quarter and the 9-month year-to-date periods, the increase
in revenue and operating income was due primarily to the inclusion of the four
Price Club properties whose leases began on August 29, 1994, and the inclusion
of rentals from properties located in Pentagon City (VA), Westbury (NY),
Seekonk (MA) and Maple Shade (NJ), offset by declines in rental income due to
the sale in 1994 of the Glendale (AZ) property to The Price REIT. Additional
depreciation expense was recognized during the 3rd quarter to adjust the year-
to-date amounts into alignment with current fiscal 1995 estimated expense
levels. Property taxes increased at a greater rate than the increase in rental
revenues for the year-to-date period primarily due to the acquisitions mentioned
above and the contribution of non-income producing properties by PriceCostco
during the second half of fiscal 1994. Property taxes have been incurred during
fiscal 1995 for these properties for which no comparable expense was recorded
during the first half of fiscal 1994.
GAINS (LOSSES) ON SALE OF REAL ESTATE
<TABLE>
<CAPTION>
Percent
Amount Change Change
------ ------ ------
<S> <C> <C> <C>
3rd Quarter - FY 1995 -- $(58) (100%)
3rd Quarter - FY 1994 58 -- --
Year-to-date - FY 1995 $(181) $(4,189) (105%)
Year-to-date - FY 1994 3,888 -- --
</TABLE>
The year-to-date comparison reflects a loss on the sale of property located
in Phoenix (AZ) during the 2nd quarter of fiscal 1995, and the sale of the
Glendale (AZ) shopping center to The Price REIT during the 1st quarter of fiscal
1994.
11
<PAGE>
MERCHANDISING OPERATIONS
<TABLE>
<CAPTION>
Sales Percent Gross Percent % of
Amount Change Margin Change Sales
------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
3rd Quarter - FY 1995 $11,467 11.3% $ 883 23% 7.7%
3rd Quarter - FY 1994 10,304 --- 719 --- 7.0%
Year-to-date - FY 1995 $55,287 36% $ 3,785 40% 6.8%
Year-to-date - FY 1994 40,692 --- 2,696 --- 6.6%
</TABLE>
Merchandise sales includes Price Quest and international trading
businesses. Gross margin is defined as merchandise sales less the related
merchandise costs.
During the 12-week period of the 3rd quarter, the increase in merchandising
sales was due primarily to the commencement of international trading through
Price Ventures, and a slight increase in sales for the Price Quest kiosk program
which increased its number of locations from 24 to 40 over the past year. The
Price Quest kiosk program recorded sales of $4.2 million during the 3rd quarter
of fiscal 1995 compared to $4.1 million during the comparable period of the
prior year. These increases more than offset an 8% decline in Price Global
Trading sales which were significantly impacted by reduced sales to customers in
Mexico and Hong Kong. The Company expects a continuation of reduced sales to
these customers for some time; therefore, future results of the international
trading activities through Price Global Trading will most likely reflect
unfavorable comparisons to the fiscal 1994 sales levels. The merchandise gross
margins benefited from the shift in sales from the lower margin trading
activities to the relatively higher margins obtained with the Quest business.
During the 40-week year-to-date period of fiscal 1995, the increase in
merchandising sales was due to expansion of the Price Quest kiosk business,
which resulted in an increase in sales for such business of $7.6 million to
$22.4 million in fiscal 1995 from $14.8 million in fiscal 1994. The
international trading business sales increased 27% primarily due to higher
demand for products during the 1st quarter of fiscal 1995 from Price Global
Trading's Hong Kong customer and the initial Price Ventures sales of $1.6
million in 3rd quarter of fiscal 1995.
MERCHANDISING OPERATING EXPENSES
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ------
<S> <C> <C> <C>
3rd Quarter - FY 1995 $ 5,028 $ 3,221 178%
3rd Quarter - FY 1994 1,807 --- ---
Year-to-date - FY 1995 $ 15,254 $ 9,086 147%
Year-to-date - FY 1994 6,168 --- ---
</TABLE>
During the 3rd quarter and the year-to-date periods, the increases in
merchandising operating expenses were primarily due to the expansion of the
Price Quest businesses and increased expenses of the international activities of
Price Global Trading and Price Ventures. In addition, during the 3rd quarter,
goodwill related to the acquisition of CMI, a wholly owned subsidiary of Price
Global, in fiscal 1992 was expensed and certain accrued expenses were reversed
due to the planned consolidation of the subsidiary into Price Global.
12
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ------
<S> <C> <C> <C>
3rd Quarter - FY 1995 $ 505 $ 136 37%
3rd Quarter - FY 1994 369 --- ---
Year-to-date - FY 1995 $ 2,468 $ 1,237 100%
Year-to-date - FY 1994 1,231 --- ---
</TABLE>
PriceCostco historically provided services to Price Enterprises and charged
these expenses to Price Enterprises by specific identification or by allocations
based on total assets or sales revenues. During the 3rd quarter and the year-to-
date periods, the increases in expenses reflect the continued growth of the
Company and the incremental expenses associated with becoming a separate
publicly held company. In addition, the accruals of certain employee benefits
and insurance programs were reduced in the 3rd quarter to adjust their year-to-
date amounts into alignment with current fiscal 1995 estimated expense levels.
INTEREST INCOME (NET)
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ------
<S> <C> <C> <C>
3rd Quarter - FY 1995 $ 1,660 $ 621 60%
3rd Quarter - FY 1994 1,039 --- ---
Year-to-date - FY 1995 $ 4,478 $ 937 26%
Year-to-date - FY 1994 3,541 --- ---
</TABLE>
During the 3rd quarter the increase in net interest income was due to
higher interest on the notes receivable. The year-to-date increase is a result
of higher interest on the notes receivable and the capitalization of interest on
real estate construction, partially offset by interest expense on the credit
facility and note payable with PriceCostco.
OTHER INCOME
<TABLE>
<CAPTION>
PC Mexico Total
Related Other Other Percent
Income Income Income Change Change
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3rd Quarter - FY 1995 --- $ 1,610 $ 1,610 $ 658 69%
3rd Quarter - FY 1994 277 675 952 --- ---
Year-to-date - FY 1995 $(3,955) $ 4,112 $ 157 $(3,751) (96%)
Year-to-date - FY 1994 1,577 2,331 3,908 --- ---
</TABLE>
During the 3rd quarter the increase in other income was a result of the
favorable impact of allocating 49% of increased losses of Price Quest and Price
Global to PriceCostco's minority interest in those businesses, somewhat offset
by the lack of earnings from Price Club Mexico (PCM) and real estate joint
ventures that existed in 3rd quarter fiscal 1994.
The year-to-date decrease in other income was a result of reduced
profitability of PCM and the $2.8 million loss on the sale of the Company's
interest in PCM during 2nd quarter fiscal 1995. These losses were somewhat
offset by the favorable impact of allocating 49% of increased losses of Price
Quest to PriceCostco's minority interest in that business.
13
<PAGE>
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
EFFECTIVE
PERCENT TAX RATE
AMOUNT CHANGE CHANGE (NOTE)
<S> <C> <C> <C> <C>
3rd Quarter - FY 1995 $ 3,575 $ 2,218 163% ---
3rd Quarter - FY 1994 1,357 --- --- 46%
Year-to-date - FY 1995 $ 5,258 $ (969) (15.6%) 103%
Year-to-date - FY 1994 6,227 --- --- 42%
</TABLE>
Note -- The effective tax rate represents the provision for income taxes
divided by pre-tax earnings (before minority interest), excluding the $2.8
million pre-tax loss from selling the PCM investment and the related $0.6
million income tax benefit.
During fiscal 1995, the provision for income taxes was impacted by the non-
deductibility of losses from Price Quest, Price Global Trading and Price Club
Mexico. In addition, sale of the PCM investment resulted in a book loss that
was significantly higher than the tax loss, and the effective tax benefit
associated with the $2.8 million pre-tax loss was only $0.6 million, or 21% of
the loss. In fiscal 1994, the effective tax rate was likewise impacted by non-
deductible losses; however, these losses were significantly smaller in fiscal
1994 and PCM was generating income during 1994 for which no additional tax
provision was required.
The effective tax rate for the 3rd quarter of fiscal 1995 was higher than
during previous quarters to adjust the year-to-date amount into alignment with
current fiscal 1995 estimated income tax rates.
NET INCOME PER SHARE
<TABLE>
<CAPTION>
PERCENT
AMOUNT CHANGE CHANGE
<S> <C> <C> <C>
3rd Quarter - FY 1995 $0.03 $(0.03) (50%)
3rd Quarter - FY 1994 0.06 --- ---
Year-to-date - FY 1995 $0.12 $(0.20) (63%)
Year-to-date - FY 1994 0.32 --- ---
</TABLE>
During the 3rd quarter of fiscal 1995 the decrease in net income per share
is a result of the increased losses of Price Quest which are not tax deductible,
absence of earnings from Price Club Mexico, and increased expenses associated
with developing the international merchandising business.
For the year-to-date period, the decrease in net income per share was due
primarily to the reduced profitability of PCM and the $2.8 million estimated
loss on the sale of the Company's interest in PCM ($0.17 for the quarter and
$0.18 for year-to-date). In addition, gains on the sale of real estate provided
$0.09 per share of income in 1994 for which no comparable income has been
recorded in fiscal 1995.
In 1995, the number of shares used in the calculation takes into account
the repurchase of 3.8 million shares of common stock as of February 6, 1995.
Shares used in the calculation for the 3rd quarter of fiscal 1995 were 23.2
million, and the year-to-date calculation reflected 25.4 million shares.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Price Enterprises expects to finance its business activities through
several sources. The cash flow generated by its real estate activities, as well
as cash flow that may ultimately be generated by the subsidiaries, is expected
to be reinvested in either additional real estate development efforts or through
capital contributions or loans to the subsidiaries or other business activities.
The Company has executed a two year unsecured revolving credit facility of $25
million with a commercial bank. Interest is charged at the bank's base rate, or
at rates slightly higher than LIBOR pricing, at the Company's election.
Pursuant to another agreement, PriceCostco provided an $85 million revolving
credit facility (subject to reduction for proceeds of certain real property
sales) to the Company as interim financing to satisfy any cash requirements
during the six months ended June 21, 1995. Under such revolving credit
facility, the Company paid PriceCostco interest at a rate that approximated its
commercial paper rate or the rate charged to PriceCostco pursuant to its credit
facility. During the 3rd quarter this commitment was reduced by approximately
$35 million to $50 million as a result of the Company's execution of the bank
revolving credit facility and net proceeds from the sale of property since
August 31, 1994. There were no outstanding borrowings on either of these two
facilities as of June 4, 1995.
In connection with the purchase of PriceCostco's remaining ownership of
approximately 3.8 million shares of Price Enterprises, the Company issued a
promissory note for approximately $46 million due December 1996, which was
subsequently reduced by $30.5 million as a result of selling the Company's
investment in Price Club Mexico. In the future, to the extent that investment
opportunities exceed available cash flow from operations, Price Enterprises will
seek additional funds, as appropriate, through bank credit facilities,
securitized debt and/or public equity offerings.
Consistent with historical trends, operating income from real estate
activities increases as properties are developed and declines as properties are
sold. Price Enterprises' liquidity is primarily affected by the timing and
magnitude of rental property acquisition, development and disposition.
INFLATION
Because a substantial number of Price Enterprises' leases contain
provisions for rent increases based on changes in various consumer price indices
and additional rent if sales exceed certain base amounts, inflation is not
expected to have a significant material impact on future net income or cash flow
from developed and operating properties. In addition, substantially all leases
are "triple net" whereby specified operating expenses and property taxes are
passed through to the tenant.
For undeveloped and under-developed properties, inflation could increase
Price Enterprises' cost of carrying and developing the properties; however,
inflation would likely increase the future sales value of the properties.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRICE ENTERPRISES, INC.
REGISTRANT
Date: July 17, 1995 /s/ Robert E. Price
-------------------
Robert E. Price
PRESIDENT & CHIEF EXECUTIVE OFFICER
Date: July 17, 1995 /s/ Daniel T. Carter
--------------------
Daniel T. Carter
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS --
On December 19, 1994 and January 4, 1995 complaints were filed in United
States District Court, Western District of Washington (entitled SNYDER V
PRICE/COSTCO, INC. ET. AL., Case #C94-1874 and BALSAM V PRICE/COSTCO, INC. ET.
AL. Case #C95-0009, respectively) against several defendants including the
Company and certain of its directors. The two suits have been consolidated for
all purposes. The Complaint alleges violation of certain laws and asserts
certain related claims, arising from the exchange offer transaction. The
Company believes that the suit is without merit and will vigorously defend
against the suit. The Company does not believe that the ultimate outcome of
such litigation will have a material adverse effect on the Company's financial
position or results of operations.
The Company is a party to other routine litigation incident to its business
and to which its property is subject. The Company's management does not believe
that the ultimate resolution of any of these matters will have a material
adverse impact on the financial position of the Company.
ITEM 2. CHANGES IN SECURITIES ---
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ---
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---
None.
ITEM 5. OTHER INFORMATION ---
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ---
(a) The following exhibits are included herein or incorporated by
reference:
10.1 Form of Revolving Credit Agreement between Price Enterprises, Inc. and
First Interstate Bank of California dated as of May 17, 1995.
10.2 Form of Amended and Restated Loan Agreement between Atlas Hotels, Inc.
and Price Enterprises, Inc. dated as of March 31, 1995.
10.3 Form of Amended and Restated Promissory Note Secured by Deed of Trust
dated March 31, 1995 made by Atlas Hotels, Inc. in favor of Price
Enterprises, Inc.
10.4 Form of Amended and Restated Deed of Trust with Assignment of Leases
and Rents and Fixture Filing made as of March 31, 1995 by and among
Atlas Hotels, Inc., Chicago Title Company and Price Enterprises, Inc.
10.5 Form of Amended and Restated Security Agreement made as of March 31,
1995 by Atlas Hotels, Inc. for the benefit of Price Enterprises, Inc.
10.6 Form of Capital Reserve Agreement made as of March 31, 1995 by and
between Atlas Hotels, Inc. and Price Enterprises, Inc.
15.1 Independent Accountant's Review Report
15.2 Letter of Ernst & Young LLP re: Unaudited Interium Financial
Information
27 Financial Data Schedules
(b) No reports on Form 8-K were filed for the 12 weeks ended June 4, 1995.
17
<PAGE>
REVOLVING CREDIT AGREEMENT
BETWEEN
PRICE ENTERPRISES, INC.
AND
FIRST INTERSTATE BANK OF CALIFORNIA
DATED AS OF MAY 17, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
Recital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . 7
2 - Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . 8
2.2 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Conversion of Revolving Loans . . . . . . . . . . . . . . . . . . . 9
2.5 Funding Sources . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.7 Eurodollar Loan Interest Periods; Automatic Conversion . . . . . . 9
2.8 Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . 10
2.9 Principal Payments; Procedures . . . . . . . . . . . . . . . . . 10
(a) Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Voluntary Repayments . . . . . . . . . . . . . . . . . . . . 10
(c) Mandatory Principal Payments, Etc . . . . . . . . . . . . . 10
(d) Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Payment on Business Days . . . . . . . . . . . . . . . . . . 10
(f) Place of Payment . . . . . . . . . . . . . . . . . . . . . . 10
(g) Late Payments . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Application of Payments . . . . . . . . . . . . . . . . . . 11
(i) Designation of Payment . . . . . . . . . . . . . . . . . . . 11
2.10 Survivability . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.13 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.14 Termination of Revolving Loan Commitment . . . . . . . . . . . . 12
3 - Conditions of Lending . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Conditions Precedent to Initial Advance . . . . . . . . . . . . . 12
(a) Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Opinions of Counsel . . . . . . . . . . . . . . . . . . . . 12
(c) Corporate Proceedings . . . . . . . . . . . . . . . . . . . 12
(d) Material Adverse Change . . . . . . . . . . . . . . . . . . 12
(e) Organizational Documentation; Etc . . . . . . . . . . . . . 12
(f) Fees, Costs and Expenses . . . . . . . . . . . . . . . . . . 13
(g) Authority; Board Resolutions . . . . . . . . . . . . . . . . 13
(h) Notice of Borrowing . . . . . . . . . . . . . . . . . . . . 13
3.2 Conditions Precedent to All Advances . . . . . . . . . . . . . . 13
(a) No Breach . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Other Items . . . . . . . . . . . . . . . . . . . . . . . . 13
-i-
<PAGE>
4 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . 13
4.1 Representations and Warranties of Borrower . . . . . . . . . . . 13
(a) Corporate Organization; Structure . . . . . . . . . . . . . 14
(b) Corporate Power; Authorization . . . . . . . . . . . . . . . 14
(c) Enforceability . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Financial Statements . . . . . . . . . . . . . . . . . . . . 14
(e) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 14
(f) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 14
(g) Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . 14
(h) Compliance With Laws, Other Agreements, Etc . . . . . . . . 15
(i) Licenses and Other Rights . . . . . . . . . . . . . . . . . 15
(j) No Subordination . . . . . . . . . . . . . . . . . . . . . . 15
(k) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 15
(l) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(m) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(n) Environmental Matters . . . . . . . . . . . . . . . . . . . 16
(o) Other Regulations . . . . . . . . . . . . . . . . . . . . . 16
5 - Bank's Representations . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Nonreliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . 16
6 - Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . 16
(a) Compliance With Laws, Etc . . . . . . . . . . . . . . . . . 16
(b) Reporting Requirements . . . . . . . . . . . . . . . . . . . 16
(c) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Maintenance of Existence; Conduct of Business . . . . . . . 17
(e) Financial Records, Inspection . . . . . . . . . . . . . . . 18
(f) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Liens, Etc . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Sale of Properties . . . . . . . . . . . . . . . . . . . . . 18
(c) Consolidation or Merger . . . . . . . . . . . . . . . . . . 18
(d) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Consolidated Effective Tangible Net Worth . . . . . . . . . 18
(b) Ratio of Consolidated Total Liabilities to Consolidated
Effective Tangible Net Worth . . . . . . . . . . . . . . . . 19
7 - Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Unmatured Events of Default . . . . . . . . . . . . . . . . . . . 20
8 - Change In Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Inability to Determine Rates; Illegality . . . . . . . . . . . . 20
8.2 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Failure to Charge Not Subsequent Waiver . . . . . . . . . . . . . 22
9 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii-
<PAGE>
9.1 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . 22
9.4 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.5 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . 23
9.6 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . 23
9.7 Binding Effect; Assignments . . . . . . . . . . . . . . . . . . . 23
9.8 Nonliability of Bank . . . . . . . . . . . . . . . . . . . . . . 23
9.9 Choice of Forum; Jury Trial Waiver . . . . . . . . . . . . . . . 23
9.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.13 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 25
9.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.16 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.17 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . 25
EXHIBITS
A Form of Revolving Promissory Note
B Form of Opinion Letter of Counsel to Borrower
SCHEDULES
1.1 List of Existing Liens
4.1(k) List of Subsidiaries
6.2(a) List of Properties
-iii-
<PAGE>
REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement (the "Agreement"), dated as of May 17,
1995, is entered into by and between PRICE ENTERPRISES, INC., a Delaware
corporation (the "Borrower"), and FIRST INTERSTATE BANK OF CALIFORNIA, a banking
corporation organized under the laws of California (the "Bank"), with reference
to the following facts:
RECITAL
A. Borrower has requested Bank to make available to Borrower a revolving
credit facility in order to provide for the corporate needs of Borrower and Bank
is willing to provide Borrower with such a credit facility on the terms and
subject to the conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants contained herein, the parties hereto agree as follows:
SECTION 1 - DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, in the Note or in any
certificate, report or other document made or delivered pursuant to this
Agreement, unless the context otherwise requires, the following terms have the
respective meanings set forth below or set forth in the provision referenced
following such term:
"ADVANCE" means a Loan made pursuant to the terms hereof.
"AFFILIATE" means any Person (i) which directly or indirectly
controls, or is controlled by, or is under common control with a specified
Person, or (ii) ten percent (10%) or more of the voting stock of which is
directly or indirectly beneficially owned or held by a specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Revolving Credit Agreement, as the same may be
amended, restated, modified or supplemented as hereinafter provided.
"BASE RATE" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"BASE RATE LOAN" means a Loan bearing interest computed with reference
to the Base Rate.
"BORROWING" or "BORROWING" means the incurrence of one Type of Loan by
Borrower from Bank on a given date (or resulting from conversions on a given
date).
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in San Diego, California are authorized or
required to close under the laws of the State of California and, if the
applicable
-1-
<PAGE>
day relates to a Eurodollar Loan, an Interest Period or notice with respect to
any Eurodollar Loan, a day of the year on which dealings in Dollar deposits are
carried on in the London interbank market and banks are open for business in
London.
"CHANGE OF LAW" means the adoption of any applicable Law, rule or
regulation, or any change therein, or change in the interpretation or
administration thereof by any Governmental Authority, central bank, comparable
agency or other Person charged with the interpretation or administration
thereof, or compliance by Bank with any request or directive (whether or not
having the force of law) of any such authority.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITMENT PERIOD" means the period from and including the Funding
Date to but not including the Termination Date or such earlier date on which the
Revolving Loan Commitment shall terminate as provided herein.
"CONSOLIDATED INTANGIBLES" means, at a particular date, all assets of
Borrower and its Subsidiaries, determined on a consolidated basis at such date,
that would be classified as intangible assets in accordance with GAAP, but in
any event including, without limitation, unamortized debt discount and expense,
unamortized organization and reorganization expense, costs in excess of the net
asset value of acquired companies, patents, trade or service marks, franchises,
trade names, goodwill and the amount of any write-up in the book value of any
assets resulting from any revaluation (other than revaluations arising out of
foreign currency valuations in accordance with GAAP) thereof made after the
Funding Date.
"CONSOLIDATED SHAREHOLDERS' EQUITY" means, at a particular date, all
amounts which would be included under shareholders' equity on a consolidated
balance sheet of Borrower and its Subsidiaries determined on a consolidated
basis in accordance with GAAP as at such date.
"CONSOLIDATED TOTAL LIABILITIES" means, at a particular date, all
items which would, in conformity with GAAP, be classified as liabilities,
obligations or indebtedness on a consolidated balance sheet of Borrower and its
Subsidiaries as at such date.
"CONTINGENT OBLIGATION" means, as to any Person, any guarantee of
Indebtedness or any other obligation of any other Person or any obligation with
respect to the financial condition of any other Person, whether direct, indirect
or contingent, including without limitation any purchase or repurchase agreement
or keep-well or other arrangement of whatever nature having the effect of
assuring, indemnifying or holding harmless any Person against loss with respect
to any obligation of such other Person; provided, however, that the term
Contingent Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such contingent obligation
is made, or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by Borrower in good faith.
"CREDIT DOCUMENTS" means this Agreement, the Note and any other
agreement or instrument that may hereafter be executed and delivered in favor of
Bank pursuant to this Agreement. Individually, a "CREDIT DOCUMENT."
"DATE HEREOF" or "DATE HEREOF" means the date set forth at the
beginning of this Agreement.
"DOLLAR," DOLLAR" and the sign "$" mean lawful money of the United
States of America.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single employer
under Section 4001 of ERISA.
-2-
<PAGE>
"EURODOLLAR LOAN" means a Loan bearing interest computed with
reference to the Eurodollar Rate.
"EURODOLLAR RATE" means an interest rate per annum (rounded upward or
downward, as the case may be, to the nearest one-hundredth of one percent) equal
at all times during a subject Interest Period for a Eurodollar Loan to (i) the
interest rate at which deposits in Dollars are offered to Bank in the London
interbank market at or about 11:00 a.m. (London time) two Business Days before
the first day of such Interest Period for a period equal to such Interest Period
and for an amount comparable to such deposit divided (and rounded upward to the
nearest one-tenth of one percent) by (ii) a percentage equal to 100% minus the
then stated maximum rate of all reserve requirements if actually incurred by
Bank in connection with this Agreement (including without limitation any
marginal, emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of "Eurocurrency
Liabilities" as defined in Regulation D (or any successor category of
liabilities under Regulation D).
"EVENT OF DEFAULT" means any of the events specified in Section 7.1,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest one-hundredth of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of San Francisco on the Business
Day next succeeding such day, PROVIDED that (i) if such day is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day as so published on the next succeeding
Business Day, and (ii) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted on such day on such transactions as determined by Bank.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"FINANCIAL STATEMENT" means, with respect to any accounting period for
a Person, statements of income, changes in cash flows and shareholders' equity
of said Person for such period, and balance sheets of said Person as of the end
of such period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year if such period is less than a
full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding annual audit, all prepared in reasonable detail and in
accordance with generally accepted accounting principles consistently applied.
"FUNDING DATE" means the date on which Bank makes the initial Advance
hereunder.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise), or (ii) entered into for the purpose of
assuring in any other manner the obligee
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of such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part), PROVIDED
that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"INDEBTEDNESS" means, as to any Person at a particular time, all of
such Person's obligations, liabilities, debts, claims and indebtedness,
contingent, fixed or otherwise, however evidenced, created, incurred, acquired,
owing or arising, whether under written or oral agreement, operation of law, or
otherwise, and includes, without limiting the foregoing: (i) Obligations;
(ii) obligations and liabilities of any third party secured by a lien, claim,
encumbrance or security interest upon property owned by such Person, even though
such Person has not assumed or become liable therefor; (iii) obligations and
liabilities created or arising under any lease (including capital leases and
operating leases) or conditional sales contract or other title retention
agreement with respect to property used or acquired by such Person, even though
the rights and remedies of the lessor, seller or lender are limited to
repossession; (iv) obligations and liabilities for the deferred purchase price
of property or services (other than trade obligations); (v) obligations and
liabilities under or with respect to letters of credit issued for the account of
any Person; (vi) all unfunded pension fund obligations and liabilities;
(viii) deferred taxes; (ix) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business) and other Contingent
Obligations to purchase, to provide funds for payment, to supply funds to or
invest in any Person, or otherwise to assure a creditor against loss; and
(x) delinquent trade obligations to the extent that such delinquent trade
obligations are not being contested in good faith by Borrower or any Subsidiary.
"INTEREST PERIOD" means, with respect to a Eurodollar Loan, the time
period selected by Borrower pursuant to Section 2.7, which commences on the
first day of such time period and ends on the last day of such time period and
thereafter, as to Eurodollar Loans, each subsequent time period selected by
Borrower pursuant to Section 2.7, which commences on the last day of the
immediately preceding time period and ends on the last day of that time period;
provided, however, that whenever the last day of any Interest Period for a
Eurodollar Loan would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall occur on the next succeeding Business
Day, but if such extension of time would cause the last day of such Interest
Period to occur in a new calendar month, then the last day of such Interest
Period shall occur on the immediately preceding Business Day; provided further,
that if any Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such
Interest Period shall end on the last Business Day of such calendar month.
"LAWS" means, collectively, all international, foreign, federal, state
and local statutes, treaties, codes, ordinances, rules, regulations and
precedents of any court or other governmental agency. Individually, a "LAW."
"LIEN" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement or preferential
agreement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any financing lease
having substantially the same economic effect as any of the foregoing).
"LOANS" means Revolving Loans. "LOAN" refers to any one of such
Loans, as applicable.
"MARGIN STOCK" shall have the meaning given to that term in
Regulation U issued by the Federal Reserve Board, as amended from time to time,
and any successor regulation thereto.
"MATURITY" or "MATURITY" shall mean the maturity of the Revolving
Loans, whether such maturity occurs on the Termination Date (which is the stated
maturity date), upon acceleration or otherwise.
"MULTIEMPLOYER PLAN" means a Plan described in Section 4001(a)(3) of
ERISA which covers employees of Borrower or any ERISA Affiliate.
"NOTE" means that certain revolving promissory note referred to in
Section 2.11, the form of which is attached hereto as Exhibit "A," as the same
may be amended, modified, restated or supplemented from time to time.
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"NOTICE OF REVOLVING LOAN BORROWING" shall have the meaning given to
that term in Section 2.2.
"NOTICE OF REVOLVING LOAN CONVERSION" shall have the meaning given to
that term in Section 2.4.
"OBLIGATIONS" means, as to any Person at a particular time, all loans,
advances, Indebtedness, liabilities, obligations, lease payments, guaranties,
covenants and duties, howsoever arising, owed by such Person to any other
Person, of any kind and description, direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising while this Agreement is
in effect, excluding, however, trade obligations which are not delinquent or, if
delinquent, being contested in good faith by such Person or any Subsidiary of
such Person. The term "Obligations" shall also mean and include any and all
renewals and extensions of any said loans, advances, Indebtedness, liabilities,
obligations, lease payments, covenants, duties and any Contingent Obligations.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" means and includes: (i) liens for taxes and
assessments or other governmental charges or levies not at the time delinquent
or thereafter payable without penalty, and if delinquent or payable with a
penalty, only to the extent such lien, charge, tax, assessment or levy is being
contested in good faith by Borrower and by proper proceedings promptly
instituted and diligently conducted to the satisfaction of Bank and Borrower
maintains adequate reserves with respect thereto in accordance with GAAP;
(ii) liens of carriers, warehousemen, mechanics, materialmen, landlords,
suppliers (but, as to suppliers, only liens created in favor of suppliers
pursuant to Sections 2401(1) and 2702(2) of the California Uniform Commercial
Code) and lessors incurred in the ordinary course of business for sums not
overdue, and if any such lien secures any overdue sum, only to the extent such
lien or sum is being contested in good faith by Borrower and by proper
proceedings promptly instituted and diligently conducted to the satisfaction of
Bank and Borrower maintains adequate reserves with respect thereto in accordance
with GAAP; (iii) deposits under workers' compensation, unemployment insurance
and social security laws or to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, or to
secure statutory obligations of surety or appeal bonds or to secure indemnity,
performance or other similar bonds, all of which arise in the ordinary course of
business; (iv) liens incurred prior to the date hereof and disclosed by Borrower
to Bank in Schedule 1.1 attached hereto and future liens consented to in writing
by Bank (which consent shall not be unreasonably withheld); and (v) liens
created to secure the payment of the purchase price of assets (including liens
securing capital leases) on which the lien is created provided that any such
lien attaches only to the asset so purchased.
"PERSON" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"PLAN" means any benefit plans, agreements, arrangements and
practices, and all collective bargaining, labor and employment agreements, and
specifically including any employee benefit plan subject to Title IV of ERISA,
other than a Multiemployer Plan, established, maintained or to which
contributions are made by Borrower or any ERISA Affiliate.
"PRIME RATE" means an index rate which Bank establishes from time to
time in connection with the pricing of its loans. Bank may make loans at, above
or below this stated index rate.
"PROHIBITED TRANSACTION" means any transaction prohibited by Section
406 of ERISA or defined as a "prohibited transaction" in Section 4975 of the
Internal Revenue Code of 1986, as amended from time to time.
"REGULATION D" means Regulation D, as at any time amended, of the
Board of Governors of the Federal Reserve System or any other regulation in
substance substituted therefor.
"REGULATORY DEVELOPMENT" means any or all of the following:
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(a) any change in any law, regulation or the interpretation
thereof by any governmental or other authority (whether or not having the force
of law);
(b) any change in the application of any existing law,
regulation or change in the interpretation thereof by any governmental or other
authority (whether or not having the force of law); and/or
(c) compliance by Bank with any request or directive (whether or
not having the force of law) of any monetary or fiscal agency or authority.
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder.
"REQUIREMENTS OF LAW" means, as to any Person, the certificate or
articles of incorporation and bylaws or other organizational or governing
documents of such Person, and any Law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"REVOLVING CREDIT FACILITY" means that certain revolving credit
facility referred to in Section 2.1.
"REVOLVING LOAN COMMITMENT" shall have the meaning given to that term
in Section 2.1.
"REVOLVING LOANS" shall have the meaning given to that term in
Section 2.1. Individually, a "REVOLVING LOAN."
"SUBORDINATED DEBT" means any unsecured indebtedness of Borrower no
part of the principal of which is required to be paid (whether by way of
mandatory sinking fund, mandatory redemption or mandatory prepayment or
otherwise) during the Commitment Period, and the payment of the principal of and
interest on which and any other obligations of Borrower in respect thereof is
subordinated to the prior payment in full of the principal of and interest
(including post-petition interest) on the Note and all other obligations and
liabilities of Borrower to Bank hereunder on terms and conditions first approved
in writing by Bank.
"SUBSIDIARY" means, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only by
reason of the happening of a contingency) to elect a majority of the Board of
Directors or other managers of such corporations are at the time owned, or the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of Borrower.
"TERMINATION DATE" shall have the meaning given to that term in
Section 2.1.
"TYPE" means, as to any Loan, its nature as a Eurodollar Loan or a
Base Rate Loan, as applicable.
"UNMATURED EVENT OF DEFAULT" shall mean any event or occurrence not
yet constituting an Event of Default but which, with the giving of notice or
with the passage of time, or both, would constitute an Event of Default.
1.2 OTHER DEFINITIONAL PROVISIONS.
(a) As used in this Agreement, the other Credit Documents and any
certificate or other document made or delivered pursuant hereto, accounting
terms relating to Borrower not defined in Section 1.1, and accounting terms
partly defined in Section 1.1 to the extent not defined, shall have the
respective meanings given to them under GAAP.
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(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
SECTION 2 - REVOLVING CREDIT FACILITY
2.1 REVOLVING CREDIT FACILITY. Subject to the terms and conditions of
this Agreement, Bank, from the date of this Agreement to but not including
June 30, 1997 (the "Termination Date"), will make Loans to Borrower in
accordance with this Section II (a "Revolving Loan" and collectively, the
"Revolving Loans") at such times and in such amounts as Borrower may request,
which amounts may be borrowed, repaid and reborrowed subject to the limitations
set forth herein (the "Revolving Credit Facility"); PROVIDED, that the aggregate
principal amount of all outstanding Revolving Loans shall not exceed, in the
aggregate principal amount at any time outstanding, $25,000,000 (the "Revolving
Loan Commitment"). Bank shall make the proceeds of Revolving Loans available to
Borrower by depositing the proceeds of Revolving Loans in Borrower's general
deposit account maintained with Bank. Borrower and Bank acknowledge that Bank
has no obligation to extend or renew the Revolving Loan Commitment.
2.2 NOTICE OF BORROWING. Borrower shall request Bank to make a Revolving
Loan by an irrevocable notice to Bank (a "Notice of Revolving Loan Borrowing")
which specifies:
(a) Whether the requested Revolving Loan is to be (i) a Loan which
bears interest as provided in Section 2.3(a) (a "Base Rate Loan") or (ii) a Loan
which bears interest as provided in Section 2.3(b) (a "Eurodollar Loan");
(b) The amount of the requested Revolving Loan, which must be in an
amount of at least One Hundred Thousand Dollars ($100,000) if the requested
Revolving Loan is to be a Base Rate Loan and at least Five Hundred Thousand
Dollars ($500,000) if the requested Revolving Loan is to be a Eurodollar Loan;
(c) The date of the requested Revolving Loan, which shall be a
Business Day; and
(d) If the requested Revolving Loan is to be a Eurodollar Loan, the
initial Interest Period selected by Borrower for such Revolving Loan in
accordance with Section 2.7(a).
Borrower shall give the Notice of Revolving Loan Borrowing to Bank no later than
three (3) Business Days prior to the Business Day on which a Eurodollar Loan is
requested and no later than 10:00 a.m., San Diego time, on the Business Day on
which a Base Rate Loan is requested. Such notice shall be given in the manner
and during the hours specified as provided in Section 9.2.
2.3 INTEREST RATE OPTIONS. Borrower shall pay interest on the unpaid
principal amount of each Revolving Loan from the date of such Loan until the
maturity thereof, at one of the following rates per annum:
(a) Variable Rate Option - During such periods as a Revolving Loan is
a Base Rate Loan, at a rate equal to the Base Rate, such rate to change from
time to time as the Base Rate shall change. Any such change in interest rate as
a result of a change in the Base Rate shall be effective as of the opening of
business on the day on which such change occurs.
(b) Eurodollar Rate Option - During such periods as a Revolving Loan
is a Eurodollar Loan, at a rate per annum equal at all times during each
Interest Period for such Eurodollar Loan to the Eurodollar Rate for such
Interest Period plus four tenths of one percent (0.4%).
Subject to Section 2.9(g) and Section 8.1, each Revolving Loan shall, at any
given time prior to maturity, bear interest at one of the above rates. All
computations of interest on Revolving Loans shall be based on a year of three
hundred sixty (360) days for the actual number of days elapsed.
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2.4 CONVERSION OF REVOLVING LOANS. Borrower may convert Base Rate Loans
into Eurodollar Loans and Eurodollar Loans into Base Rate Loans or other
Eurodollar Loans; provided, however, that any conversion of a Eurodollar Loan
into another Type of Loan shall be made on, and only on, the last day of an
Interest Period for such Loan; provided further, a Eurodollar Loan must be in an
amount of at least Five Hundred Thousand Dollars ($500,000) and a Base Rate Loan
must be in an amount of at least One Hundred Thousand Dollars ($100,000).
Borrower shall request Bank to make such a conversion by an irrevocable notice
to Bank (a "Notice of Revolving Loan Conversion"), which specifies:
(a) The Revolving Loan to be converted;
(b) The date of the requested conversion, which shall be a Business
Day; and
(c) If any Revolving Loan is to be converted into a Eurodollar Loan,
the Interest Period selected by Borrower for such Loan in accordance with
Section 2.7.
Borrower shall give each Notice of Revolving Loan Conversion to Bank no later
than three (3) Business Days prior to the Business Day on which the conversion
is requested. Each such notice shall be given in the manner and during the
hours specified as provided in Section 9.2.
2.5 FUNDING SOURCES. Nothing herein shall be deemed to obligate Bank to
obtain its funds hereunder in order to make Eurodollar Loans in any particular
place or manner and nothing herein shall be deemed to constitute a
representation by Bank that it has obtained or will obtain its funds hereunder
in order to make Eurodollar Loans in any particular place or manner.
2.6 FACILITY FEE. Borrower shall pay Bank a facility fee in the amount of
$75,000 for making available the Revolving Credit Facility, payable as follows:
(i) $37,500 on the Funding Date; and (ii) $37,500 on June 30, 1996. Such fee
shall be deemed fully earned and not refundable upon Borrower's and Bank's
corresponding execution and delivery of this Agreement; provided, however, in
the event the Revolving Loan Commitment is terminated pursuant to Section 2.14,
the second installment of the facility fee ($37,500) shall be appropriately
prorated and Bank shall refund to Borrower the difference.
2.7 EURODOLLAR LOAN INTEREST PERIODS; AUTOMATIC CONVERSION.
(a) The initial and each subsequent Interest Period selected by
Borrower for a Eurodollar Loan shall be one (1), two (2), three (3) or six (6)
months; provided, however, that (i) any Interest Period which would otherwise
end on a day which is not a Business Day shall be extended to the next
succeeding Business Day, unless such succeeding Business Day falls in a new
calendar month, in which event the last day of such Interest Period shall occur
on the immediately preceding Business Day, (ii) if any Interest Period begins on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month, and (iii) each and every Interest Period
must end on or before the Termination Date.
(b) Borrower shall notify Bank by an irrevocable notice no later than
the three (3) Business Days prior to the end of each Interest Period for a
Eurodollar Loan of the Interest Period selected by Borrower for the next
succeeding Interest Period for such Loan. Each such notice shall be given in
the manner and during the hours specified as provided in Section 9.2. If
Borrower fails to notify Bank of a new Interest Period for a Eurodollar Loan in
accordance with this Section 2.7(b), such Eurodollar Loan shall automatically
convert into a Base Rate Loan on the last day of the then existing Interest
Period for such Eurodollar Loan.
2.8 INTEREST PAYMENTS. Borrower shall pay accrued interest on the unpaid
principal amount of Base Rate Loans in arrears on the last Business Day of the
calendar month in which occurred the date hereof, at three (3) calendar month
intervals thereafter and at maturity. Borrower shall pay accrued interest on
each Eurodollar Loan on the last day
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of the Interest Period of such Loan and, in the case of an Interest Period with
respect to a Eurodollar Loan greater than three (3) months, at three (3) month
intervals after the first day of the Interest Period for such Eurodollar Loan.
2.9 PRINCIPAL PAYMENTS; PROCEDURES.
(a) MATURITY. Borrower shall pay in full the then aggregate
outstanding principal amount of all Revolving Loans on the Termination Date or
at maturity, if earlier.
(b) VOLUNTARY REPAYMENTS. Borrower may, at its option, repay the
aggregate outstanding amount of Revolving Loans, in whole or in part, upon three
(3) Business Days' prior written notice, provided that (i) Borrower accompanies
such repayment with the amount of interest which has accrued on the amount
repaid, (ii) each partial repayment of Revolving Loans shall be in an aggregate
principal amount of $500,000 or integral multiples thereof, and (iii) Borrower
shall reimburse Bank for its costs and losses in accordance with Section 2.9(d)
if any repayment of a Eurodollar Loan is made on a day other than the last day
of an Interest Period for such Loan.
(c) MANDATORY PRINCIPAL PAYMENTS, ETC. Borrower shall prepay the
outstanding principal amount of Revolving Loans on any date on which the
aggregate outstanding principal amount of Revolving Loans (after giving effect
to any other repayments or prepayments on such day) exceeds the Revolving Loan
Commitment then in effect, in the amount of such excess. All such prepayments
shall include payment of accrued interest on the principal amount so prepaid and
shall be applied to payment of interest before application of principal.
(d) BREAKAGE COSTS. If any repayment of a Eurodollar Loan is made on
a day other than the last day of an Interest Period for such Loan (whether such
repayment is made at the option of Borrower, is mandatory, upon acceleration or
otherwise), Borrower shall, upon demand by Bank, reimburse Bank for all costs
and losses incurred by Bank as a result of such repayment. Bank shall deliver
to Borrower a certificate setting forth the amount of any loss for which Bank
demands payment pursuant to the preceding sentence of this Section 2.9(d). Such
a certificate so delivered to Borrower shall be prima facie evidence as to the
amount of such loss for all purposes.
(e) PAYMENT ON BUSINESS DAYS. Whenever any payment due under this
Agreement shall fall due on a day other than a Business Day, the due date of
such payment shall be extended to the next succeeding Business Day and such
payment shall be made on such Business Day, and such extension of time shall be
included in the computation of interest; provided, however, if any Eurodollar
Loan which would otherwise become due on a day other than a Business Day shall
instead become due or expire on the next preceding or succeeding Business Day as
determined by Bank in accordance with the then current banking practice in the
London interbank market, then such Eurodollar Loan shall become due and payable
on such preceding or succeeding Business Day, as applicable, and such adjustment
shall be reflected in the computation of interest.
(f) PLACE OF PAYMENT. Borrower shall make all payments under this
Agreement and the other Credit Documents to Bank at Bank's San Diego, California
main office located at the address shown in Section 9.2, in lawful money of the
United States and in immediately available funds no later than 1:00 p.m., San
Diego time, on the day of payment (which must be a Business Day). All payments
received after 1:00 p.m., San Diego time, on any Business Day, shall be deemed
received on the next succeeding Business Day. Borrower authorizes Bank to
charge from time to time against any or all deposit accounts of Borrower
maintained with Bank any amount payable by Borrower hereunder not paid when due.
(g) LATE PAYMENTS. If any amount required to be paid by Borrower
under this Agreement or the other Credit Documents (including without
limitation, accrued interest and fees) is not paid when due, Borrower shall pay
interest on the unpaid amount until such amount is paid in full at a per annum
rate equal to the Base Rate plus two percent (2%), such rate to change from time
to time as the Base Rate shall change.
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(h) APPLICATION OF PAYMENTS. Except as specifically set forth
herein, all payments under this Agreement shall be credited first to all
interest then due, to all fees and other expenses then due, and lastly to all
principal then due.
(i) DESIGNATION OF PAYMENT. When making a payment under this
Agreement, Borrower shall clearly specify which Loan, Advance or expense such
payment relates to and the nature of the payment.
2.10 SURVIVABILITY. All of Borrower's obligations under this Agreement
shall survive until such time as all obligations of Borrower to make payments to
Bank under all Credit Documents are fully satisfied and Bank's obligation to
make Revolving Loans under the Revolving Credit Facility expires or is
terminated. Notwithstanding anything in this Agreement, the other Credit
Documents or implied by law to the contrary, Borrower's obligations set forth in
Sections 2.13, 8.2, 8.3, 8.4, 9.4, 9.5, 9.9, 9.10 and 9.13 shall survive
Borrower's payment of all obligations under the Credit Documents, the expiration
of Bank's obligations to make Revolving Loans under the Revolving Credit
Facility and the termination of this Agreement.
2.11 PROMISSORY NOTE. The obligation of Borrower to repay Revolving Loans
and to pay interest at the rates provided in Section 2.3 shall be evidenced by a
revolving promissory note in the form of Exhibit "A" attached hereto, with
appropriate insertions (the "Note"). The Note shall be in the amount of the
Revolving Loan Commitment, shall be dated the date of this Agreement, shall
mature on the Termination Date, and shall be duly executed and delivered by
Borrower. Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Revolving Loan made by Bank under the Note and the amount of each
payment or prepayment of principal of each such Revolving Loan received by Bank;
it being understood, however, that failure to make any such endorsement (or any
errors in notation) shall not affect the obligations of Borrower with respect to
Revolving Loans made hereunder, and payments of principal by Borrower shall be
credited to Borrower notwithstanding the failure to make a notation (or any
errors in notation) thereof on such books and records. Borrower agrees that all
such notations and such other books and records maintained by Bank to evidence
such matters shall be prima facie evidence of the matters noted.
2.12 NET PAYMENTS. All payments made by Borrower pursuant to or in
connection with this Agreement will be made free and clear of, and without
reduction by reason of, any taxes and without setoff or counterclaim.
2.13 COMPENSATION. Borrower shall compensate Bank, upon Bank's written
request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by Bank to fund
its Eurodollar Loans) which Bank may sustain: (i) if for any reason (other than
a default by Bank) a Eurodollar Loan does not occur on a date specified therefor
in a Notice of Revolving Loan Borrowing or a Notice of Revolving Loan Conversion
(by reason of a withdrawal by Borrower or any other circumstances over which
Bank has no control); (ii) if any conversion of any Eurodollar Loan occurs on a
date which is not the last day of the Interest Period applicable thereto;
(iii) if any repayment of any Eurodollar Loan is not made on any date specified
in a notice of repayment given by Borrower; or (iv) as a consequence of any
other default by Borrower to repay Revolving Loans when required by the terms of
this Agreement or an election made pursuant to Section 8.1.
2.14 TERMINATION OF REVOLVING LOAN COMMITMENT. Borrower shall have the
right, upon not less than thirty (30) days' prior written notice from Borrower
to Bank, to terminate the Revolving Loan Commitment effective at any time on or
after June 30, 1996; provided, however, that no such termination shall be
permitted if, after giving effect thereto and to any repayments of Revolving
Loans made on the effective date thereof, the then outstanding principal amount
of Revolving Loans exceeds $0.00. Any such termination shall reduce the
Revolving Loan Commitment to $0.00, and any such termination shall reduce
permanently the amount of the Revolving Loan Commitment. Any such notice shall
be irrevocable.
SECTION 3 - CONDITIONS OF LENDING
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3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank to
make the initial Advance to Borrower is subject to the satisfaction of the
following conditions:
(a) NOTE. On or prior to the Funding Date, there shall have been
delivered to Bank the Note executed by Borrower in the form attached hereto as
Exhibit "A", in the amount, with the maturity and as otherwise provided herein.
(b) OPINIONS OF COUNSEL. On or prior to the Funding Date, Bank shall
have received an opinion, or opinions, in form and substance satisfactory to
Bank, and dated the date hereof, from Latham & Watkins, counsel to Borrower,
which opinion shall cover the matters contained in Exhibit "B" attached hereto.
(c) CORPORATE PROCEEDINGS. All corporate and legal proceedings and
all instruments and agreements in connection with the transactions contemplated
by this Agreement and the other Credit Documents shall be satisfactory in form
and substance to Bank, and Bank shall have received all information and copies
of all certificates, documents and papers, including records of corporate
proceedings and governmental approvals, if any, which Bank may have requested in
connection therewith, such documents and papers where appropriate to be
certified by proper corporate officers or governmental authorities.
(d) MATERIAL ADVERSE CHANGE. At the time of making the initial
Advance, nothing shall have occurred which Bank shall reasonably determine has,
or is reasonably expected to have, a material adverse effect on the rights or
remedies of Bank, or on the ability of Borrower to perform its obligations to
Bank, or which has, or may have, a materially adverse effect on the business,
properties, assets, operations or condition (financial or otherwise) of Borrower
and its Subsidiaries, taken as a whole.
(e) ORGANIZATIONAL DOCUMENTATION; ETC. On or prior to the Funding
Date, Bank shall have received copies of the certificate of incorporation and
bylaws of Borrower and any agreements entered into by Borrower governing the
terms and relative rights of its capital stock, certified as of the date hereof
as true and complete by an appropriate corporate officer of Borrower.
(f) FEES, COSTS AND EXPENSES. On or prior to the Funding Date,
Borrower shall have paid to Bank (i) the $37,500 portion of the facility fee
referred to in Section 2.6 and (ii) all costs, fees and expenses (including
legal fees and expenses as provided for in Section 9.5) payable to Bank to the
extent due.
(g) AUTHORITY; BOARD RESOLUTIONS. On or prior to the Funding Date,
Bank shall have received resolutions of Borrower's Board of Directors approving
and authorizing the execution, delivery and performance of the Credit Documents
to which Borrower is a party and the transactions contemplated thereby, in form
and substance satisfactory to Bank and its counsel, such resolutions certified
as of the Funding Date by Borrower's corporate Secretary or an Assistant
Secretary as being in full force and effect without modification or amendment
and such resolutions shall be in full force and effect as of the Funding Date.
(h) NOTICE OF BORROWING. Bank shall have received a Notice of
Revolving Loan Borrowing in accordance with Section 2.2.
The acceptance of the proceeds of the initial Advance shall constitute a
representation and warranty by Borrower to Bank that all of the applicable
conditions specified above exist as of that time.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to make
any Advance shall be subject to the further conditions precedent that:
(a) NO BREACH. On the date of such Advance the following statements
shall be true:
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(i) The representations and warranties contained in Section 4.1
of this Agreement are correct on and as of the date of such Advance as though
made on and as of such date (except for any representation or warranty that
speaks only as of a specific date, which representation or warranty shall be
true and correct in all material respects as of such date); and
(ii) No Event of Default or Unmatured Event of Default has
occurred and is continuing as of such date.
(b) NOTICE. For a Eurodollar Loan, three Business Days prior to the
date such Loan is requested to be funded, and for a Base Rate Loan, on the
Business Day on which such Loan is requested to be funded, respectively, Bank
shall have received an effective Notice of Revolving Loan Borrowing; and
(c) OTHER ITEMS. Bank shall have received such other approvals,
opinions or documents as Bank may reasonably request.
The submission by Borrower to Bank of each Notice of Revolving Loan
Borrowing shall include and shall be deemed to be a representation and warranty
by Borrower as to those items set forth in Section 3.2(a) above as of the date
of each such notice.
SECTION 4 - REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower makes the
following representations and warranties to Bank in order to induce Bank to
enter into this Agreement and provide Revolving Loans hereunder:
(a) CORPORATE ORGANIZATION; STRUCTURE. Each of Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its state of incorporation, has the power and
authority to own its property and carry on its business as now being conducted,
and, to the best of Borrower's knowledge, is qualified as a foreign corporation
and in good standing in each jurisdiction where the nature of its business or
assets requires such qualification. All of the issued and outstanding shares of
capital stock of Borrower are fully paid and non-assessable.
(b) CORPORATE POWER; AUTHORIZATION. The execution, delivery and
performance by Borrower of each Credit Document to which it is or will be a
party are within Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and do not (i) contravene Borrower's certificate of
incorporation or bylaws, (ii) violate any law or any contractual restriction
binding on or affecting Borrower or any Subsidiary, or (iii) result in or
require the creation of any Lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
(c) ENFORCEABILITY. This Agreement is, and each other Credit
Document to which Borrower is or will be a party when delivered hereunder will
be, legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms, provided that the
enforceability of any of such documents may be subject to or limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws relating to or affecting the rights of creditors generally.
(d) FINANCIAL STATEMENTS. The consolidated Financial Statements of
Borrower and its Subsidiaries as of August 28, 1994, and the unaudited
consolidated Financial Statements of Borrower and its Subsidiaries as of
March 12, 1995, copies of which have been furnished to Bank, fairly present the
financial condition of Borrower and its Subsidiaries as at such dates and the
results of the operations of Borrower and its Subsidiaries for the periods ended
on such dates, all in accordance with GAAP.
(e) LITIGATION. Except as disclosed to Bank in writing prior to the
date hereof, there is no pending or threatened action, suit, investigation or
proceeding against Borrower or any Subsidiary or against any of its or their
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respective properties or revenues before any court, governmental department,
commission, board, bureau, instrumentality or agency or arbitrator (i) which
might, if determined adversely against Borrower or any Subsidiary, be in an
amount of Three Million Dollars ($3,000,000) or more (net of the reasonably
anticipated proceeds of existing insurance coverages), or (ii) which might have
a material adverse effect on the rights or remedies of Bank or on the ability of
Borrower to perform Borrower's obligations to Bank hereunder and under the other
Credit Documents.
(f) USE OF PROCEEDS. The proceeds of Revolving Loans shall be used
solely (i) to pay fees, costs and expenses associated with this Agreement, and
(ii) for working capital and general corporate purposes of Borrower, including
development of unimproved properties. Except in connection with Borrower's
purchases of Borrower's own stock, no proceeds of any Loan or Advance hereunder
will be used to acquire any security in any transaction which is subject to
Sections 13 and 14 of the Securities Exchange Act of 1934.
(g) MARGIN STOCK. Not more than twenty-five percent (25%) of the
value of Borrower's or any Subsidiary's assets consists of Margin Stock, and
neither Borrower nor any Subsidiary is engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and, except in
connection with Borrower's purchases of Borrower's own stock, no proceeds of any
Loan or Advance made hereunder will 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.
(h) COMPLIANCE WITH LAWS, OTHER AGREEMENTS, ETC. Neither Borrower
nor any Subsidiary is in violation or default with respect to its certificate or
articles of incorporation or its bylaws or any applicable laws, rules or
regulations where such violation or default might have a material adverse affect
on the operations or condition (financial or otherwise) of Borrower and its
Subsidiaries, taken as a whole, nor is Borrower or any Subsidiary in violation
of or in default with respect to any order, writ, decree or judgment of any
court or administrative agency or in violation or default (nor is there any
waiver in effect which, if not in effect, would result in a violation or
default) under any mortgage, indenture, lease, contract or other agreement or
instrument binding upon Borrower or any Subsidiary, where such violation or
default might have a material adverse effect on the operations or condition
(financial or otherwise) of Borrower and its Subsidiaries, taken as a whole.
Each of Borrower and its Subsidiaries is in compliance with the Fair Labor
Standards Act of 1938, as amended, 29 U.S.C. Sections 201 ET SEQ. No Event of
Default or Unmatured Event of Default has occurred. The terms of the Credit
Documents will not conflict or be inconsistent with or result in any breach of
any of the terms, covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition of (or the obligation to
create or impose) any Lien upon any of the property or assets of Borrower or any
other Person pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument to which Borrower or Subsidiary is a party or by
which it, any Subsidiary or any of its or their property or assets is bound or
to which Borrower or any Subsidiary may be subject.
(i) LICENSES AND OTHER RIGHTS. Each of Borrower and its Subsidiaries
possesses, or has the right to use, all patents, licenses, trademarks, trade
names, trade secrets, service marks and copyrights, and all applications for any
of the foregoing, and all permits, grants and licenses or other rights with
respect thereto, which are required to conduct its business as now conducted,
without conflict with the rights of others which might materially adversely
affect the operation or condition (financial or otherwise) of Borrower and its
Subsidiaries, taken as a whole.
(j) NO SUBORDINATION. The obligations of Borrower under this
Agreement and/or under any other contracts or instruments executed by Borrower
in connection therewith are not subordinated in right of payment to any other
obligation of Borrower.
(k) SUBSIDIARIES. Borrower does not have any Subsidiaries other than
those disclosed on Schedule 4.1(k) attached hereto.
(l) TAXES. Each of Borrower and its Subsidiaries has filed or has
caused to be filed all tax returns which it is required to file and each of
Borrower and its Subsidiaries has paid (i) all taxes shown to be due and payable
on said returns or on any assessments made against it or against any of its
property (other than those the amount or
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validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of Borrower or its Subsidiaries, as the case may be) and
(ii) all other taxes, fees or other charges imposed on it or imposed on any of
its property by any Governmental Authority (other than those the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of Borrower or its Subsidiaries, as the case may be) and
no claims are being asserted with respect to any such taxes, fees or other
charges (other than those the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of Borrower or
its Subsidiaries, as the case may be).
(m) ERISA. Each of Borrower and its Subsidiaries is in compliance in
all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan; no notice of intent to terminate a Plan has been filed
nor has any Plan been terminated; no circumstances exist which constitute
grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings
to terminate, or appoint a trustee to administrate, a Plan, nor has the PBGC
instituted any such proceedings; neither Borrower nor any ERISA Affiliate has
completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a
Multiemployer Plan; Borrower and each ERISA Affiliate have met their respective
minimum funding requirements under ERISA with respect to all of their respective
Plans and the present value of all vested benefits under each Plan does not
exceed the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of Borrower or any ERISA Affiliate to the PBGC or the Plan
under Title IV of ERISA.
(n) ENVIRONMENTAL MATTERS. Each of Borrower and its Subsidiaries are
in material compliance with all material laws and regulations relating to
pollution and environmental control in all jurisdictions in which Borrower or
any of its Subsidiaries are doing business, other than those the non-compliance
with which would not have a material adverse effect on the business, assets,
properties or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole.
(o) OTHER REGULATIONS. Borrower is not, and after the application by
Borrower of the proceeds of any Loan or Advance made hereunder, Borrower will
not be, subject to any statute, code or regulation which limits its ability to
incur Indebtedness, including any statute, code or regulation, as the case may
be, under the Investment Company Act of 1940, the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state
public utilities code or any other federal or state statute, code or regulation.
SECTION 5 - BANK'S REPRESENTATIONS
5.1 NONRELIANCE. Bank is not relying on or looking to any capital stock
or other security (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) now or hereafter owned by Borrower for the repayment of
the Loans provided for herein.
5.2 INVESTMENT INTENT. Bank is making the Loans provided for herein and
receiving the Note for its own account and not with a view to the further
distribution thereof.
SECTION 6 - COVENANTS OF BORROWER
6.1 AFFIRMATIVE COVENANTS. So long as the Note shall remain unpaid or
Borrower has any other obligation to Bank hereunder or Bank shall have any
commitment hereunder (whichever is later), Borrower will at all times:
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(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each Subsidiary to
comply, in all respects with all applicable laws, rules, regulations, orders and
contractual obligations where any failure to so comply might reasonably be
expected to have a material adverse effect on the operation or condition
(financial or otherwise) of Borrower and its Subsidiaries, taken as a whole.
(b) REPORTING REQUIREMENTS. Furnish to Bank:
(i) As soon as available and in any event within sixty (60) days
of the end of each of Borrower's first three fiscal quarters, unaudited
consolidated Financial Statements of Borrower and its Subsidiaries for the
accounting period then ended, accompanied by a compliance certificate, in form
and content reasonably satisfactory to Bank, signed by the Chief Financial
Officer of Borrower, certifying that such officer is familiar with the terms of
this Agreement and that no Event of Default or Unmatured Event of Default has
occurred or is continuing under this Agreement, or if such an Event of Default
or Unmatured Event of Default has occurred and is continuing, a statement as to
the nature thereof;
(ii) As soon as available and in any event within ninety (90)
days after the end of each fiscal year of Borrower, audited consolidated
Financial Statements of Borrower and its Subsidiaries for the immediately
preceding fiscal year, certified in a manner acceptable to Bank by a nationally
recognized accounting firm reasonably satisfactory to Bank, and an unqualified
opinion of such accountants relating to such Financial Statements, accompanied
by (x) a compliance certificate, in form and content satisfactory to Bank,
signed by the Chief Financial Officer of Borrower, certifying that such officer
is familiar with the terms of this Agreement and that no Event of Default or
Unmatured Event of Default has occurred or is continuing under this Agreement,
or if such an Event of Default or Unmatured Event of Default has occurred and is
continuing, a statement as to the nature thereof, and (y) a certificate of such
accountants to Bank stating that in making the examination necessary for their
certification they have obtained no knowledge of any Event of Default which has
occurred and is continuing, or if, in the opinion of such accountants, an Event
of Default has occurred and is continuing, a statement as to the nature thereof;
(iii) As soon as available and in any event within sixty (60) days
of the end of each of Borrower's first three fiscal quarters, a copy of
Borrower's quarterly report (Form 10-Q) filed with the Securities and Exchange
Commission; as soon as available and in any event within ninety (90) days of the
end of each fiscal year of Borrower, a copy of Borrower's annual report (Form
10-K) filed with the Securities and Exchange Commission; and promptly after the
sending or filing thereof, copies of all reports which Borrower sends to any of
its security holders pursuant to either the Securities Act of 1933, as amended,
or the Securities and Exchange Act of 1934, as amended, and copies of all other
reports and registration statements which Borrower files with the Securities and
Exchange Commission (or successor agency) or any national securities exchange;
(iv) Immediately after it appears reasonably likely to counsel
for Borrower that any litigation or other judicial or administrative proceeding
involving Borrower or any Subsidiary will be determined adversely against
Borrower or any Subsidiary in an amount of Three Million Dollars ($3,000,000) or
more (net of the reasonably anticipated proceeds of existing insurance
coverages) or involving the Credit Documents, a statement of the Chief Financial
Officer of Borrower setting forth details of such litigation or proceeding;
(v) Promptly after Borrower knows of the occurrence of any Event
of Default which is continuing on the date of such statement, the statement of
the Chief Financial Officer of Borrower setting forth details of such Event of
Default and the action which Borrower proposes to take with respect thereto; and
(vi) Such other information respecting the condition or
operations (financial or otherwise) of Borrower or its Subsidiaries as Bank may
from time to time reasonably request.
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(c) INSURANCE. Self-insure, and cause each Subsidiary to self-
insure, or maintain, and cause each Subsidiary to maintain, insurance, in each
instance in a manner satisfactory to Bank. Borrower shall provide Bank with
evidence of such self-insurance and insurance upon the request of Bank.
(d) MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. In all material
respects and except as permitted by Section 6.2(c), preserve and maintain, and
cause each of its Subsidiaries to preserve and maintain, its corporate
existence, its business as presently conducted and as anticipated to be
conducted, and all of its rights, licenses, privileges and franchises necessary
or desirable in the normal conduct of said business.
(e) FINANCIAL RECORDS, INSPECTION. Keep and maintain, and cause each
of its active Subsidiaries to keep and maintain, accurate books of record and
account in accordance with GAAP. Borrower will permit and cause each Subsidiary
to permit Bank or representatives thereof, during customary business hours and
as often as Bank may reasonably request upon reasonable prior notice, to
inspect, audit and examine its books and records, to take extracts therefrom, to
inspect its properties and assets and to discuss its affairs, finances and
accounts with its representatives and its independent public accountants.
(f) USE OF PROCEEDS. Use the proceeds of Revolving Loans solely for
the purposes described in Section 4.1(f). No part of the proceeds of any
Advances or Loans will be used, directly or indirectly, for the purpose of
purchasing or carrying or trading in any securities under such circumstances as
to involve either Borrower or Bank in a violation of Regulations G, T, U or X
issued by the Board of Governors of the Federal Reserve System.
6.2 NEGATIVE COVENANTS. So long as the Note shall remain unpaid or
Borrower has any other obligations to Bank hereunder or Bank shall have any
commitment hereunder (whichever is later), Borrower will not, and shall cause
each of its Subsidiaries not to, at any time:
(a) LIENS, ETC. Except in favor of Bank and for Permitted Liens,
create, incur, assume or suffer to exist any Lien of any nature, upon or with
respect to any of its (i) real property described on Schedule 6.2(a) attached
hereto, and (ii) now owned fixtures located thereon, or sign or file under the
Uniform Commercial Code of any jurisdiction a financing statement listing any of
such above-described real or personal property which names Borrower or any
Subsidiary as a debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, or make or suffer to exist
any agreement with any Person similar to the covenant contained in this
Section 6.2(a).
(b) SALE OF PROPERTIES. Without the prior written consent of Bank
(which consent of Bank will not be unreasonably withheld), sell or otherwise
transfer any real property described on Schedule 6.2(a) attached hereto.
(c) CONSOLIDATION OR MERGER. Without the prior written consent of
Bank, consolidate with or merge into any other Person or permit any other Person
to merge into it, except that those Subsidiaries of Borrower set forth on
Schedule 4.1(k) may merge into it or may merge into or consolidate with any
other such Subsidiary.
(d) GUARANTIES. Suffer to exist any Guarantee of or Guarantee any
Indebtedness with respect to the Obligations of any other Person; provided,
however, (i) Borrower and its Subsidiaries may assume, create, incur, suffer to
exist or Guarantee any such Indebtedness of any Subsidiary or Borrower,
respectively, and (ii) Borrower and its Subsidiaries, taken as a whole, may
assume, create, incur, suffer to exist or Guarantee Indebtedness with respect to
the Obligations of any other Person so long as the aggregate amount, at any one
time, of such Obligations does not exceed $10,000,000.
6.3 FINANCIAL COVENANTS. So long as the Note shall remain unpaid or
Borrower has any other obligation to Bank hereunder or Bank shall have any
commitment hereunder (whichever is later):
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(a) CONSOLIDATED EFFECTIVE TANGIBLE NET WORTH. Borrower shall cause
to be maintained at all times an excess of (i) Consolidated Shareholders' Equity
PLUS Subordinated Debt minus (ii) Consolidated Intangibles, equal to
$515,000,000, as determined within forty-five (45) days of the end of each of
Borrower's fiscal quarters.
(b) RATIO OF CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED EFFECTIVE
TANGIBLE NET WORTH. Borrower shall not permit the ratio of (i) Consolidated
Total Liabilities MINUS Subordinated Debt to (ii) Consolidated Shareholders'
Equity PLUS Subordinated Debt MINUS Consolidated Intangibles, at any time to be
greater than one-half to one (.5 to 1).
SECTION 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. Each of the following events shall constitute an
event of default (an "Event of Default"; collectively, "Events of Default")
hereunder:
(a) Borrower shall fail to pay when due any principal of, or interest
on, the Note, or Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under this Agreement, and any such amount shall
remain unpaid for five Business Days after the date when due; or
(b) Any representation or warranty made by or on behalf of Borrower
(or any of its officers) or any Subsidiary (or any of its officers) under or in
connection with this Agreement or any other Credit Document shall prove to have
been incorrect in any material respect when made or deemed made; or
(c) Borrower or any of its Subsidiaries shall fail to perform or
observe any covenant contained in Sections 6.2 and 6.3, inclusive, on its part
to be performed or observed for ten Business Days after written notice thereof
has been given to Borrower by Bank; or
(d) Borrower or any of its Subsidiaries shall fail to perform or
observe any term, covenant or agreement contained in this Agreement (other than
those covered by Sections 7.1(a) or 7.1(c) above) or any other Credit Document
on its part to be performed or observed, for twenty Business Days after written
notice thereof has been given to Borrower by Bank; or
(e) Borrower or any of its Subsidiaries shall (i) apply for or
consent to the appointment of a receiver, trustee, liquidator or custodian of
itself or of all or a substantial part of its property, (ii) be unable, or admit
in writing its inability, to pay its debts generally as they mature, (iii) make
a general assignment for the benefit of its or any of its creditors, (iv) be
dissolved or liquidated in full or in part, (v) become insolvent (as such term
may be defined or interpreted under any applicable statute), (vi) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vi) take any
action for the purpose of effecting any of the foregoing; or
(f) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of Borrower or of all or a substantial part of its
property, or of any of its Subsidiaries or of all or a substantial part of any
Subsidiary's property, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to Borrower or any of
its debts, or with respect to any Subsidiary or any debts of any Subsidiary
under any bankruptcy, insolvency or other similar law now or hereafter in effect
shall be commenced and an order for relief entered or such proceeding shall not
be dismissed or discharged within sixty (60) days of commencement; or
(g) There shall occur a materially adverse change in the business,
operations or assets of Borrower and its Subsidiaries, taken as a whole; or
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(h) Other than for Sol Price, any Person or "group" of Persons (the
term "group" having the meaning provided therefor under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) (i) shall acquire, after the date
hereof, beneficial ownership of or otherwise hold more than thirty percent (30%)
of the issued and outstanding securities of Borrower entitling the owner or
holder thereof to vote for the election of directors of Borrower and such Person
or "group" of Persons shall control Borrower or (ii) shall acquire, after the
date hereof, beneficial ownership of or otherwise hold more than fifty percent
(50%) of such issued and outstanding voting securities of Borrower; or
(i) Borrower or any of its Subsidiaries shall fail to pay any of its
material Indebtedness (excluding Indebtedness evidenced by the Note or incurred
under this Agreement) when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness (unless such failure or default is
being contested in good faith by it and to the satisfaction of Bank); or any
other default under any agreement or instrument relating to any such material
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such material Indebtedness (unless such failure
or default is being contested in good faith by it and to the satisfaction of
Bank); or any such material Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly schedule required
prepayment), prior to the stated maturity thereof (unless the subject
declaration is being contested in good faith by it and to the satisfaction of
Bank). As used in this Section 7.1(i), "material Indebtedness" shall mean any
Indebtedness in excess of Three Million Dollars ($3,000,000).
7.2 REMEDIES. Immediately and without notice upon the occurrence of an
Event of Default specified in Section 7.1(e) or Section 7.1(f), or, at the
option of Bank, upon the occurrence and during the continuance of any other
Event of Default, (i) all amounts and obligations owed to Bank pursuant to this
Agreement, the Note and the other Credit Documents shall immediately become due
and payable (including without limitation any commitment or facility fees), and
(ii) the obligation of Bank to make any Loan or Advance under this Agreement or
the other Credit Documents and all commitments hereunder shall be terminated,
all without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, and Bank may immediately, and without the expiration of
any other period of grace, enforce payment of the amounts owed it hereunder and
exercise any and all other rights and remedies granted to it by this Agreement,
any of the other Credit Documents or at law, in equity or otherwise.
7.3 UNMATURED EVENTS OF DEFAULT. Upon the occurrence of any Unmatured
Event of Default, the obligation of Bank to make any Loans or Advances under
this Agreement or the other Credit Documents shall be suspended until such event
is either waived by Bank or, to the extent allowed hereunder, cured by Borrower.
SECTION 8 - CHANGE IN CIRCUMSTANCES
8.1 INABILITY TO DETERMINE RATES; ILLEGALITY. Notwithstanding any other
provision in this Agreement:
(a) If, on or before the first day of any Interest Period for a
Eurodollar Loan, Bank determines that the Eurodollar Rate for such Interest
Period cannot be adequately and reasonably determined due to the unavailability
of funds in or other circumstances affecting the London interbank market, Bank
shall promptly give notice thereof to Borrower. After the giving of any such
notice and until Bank shall otherwise notify Borrower that the circumstances
giving rise to such condition no longer exist, Borrower's right to request the
making of or conversion to, and Bank's obligation to make or convert to, a
Eurodollar Loan shall be suspended, and any Notice of Revolving Loan Borrowing
or Notice of Revolving Loan Conversion given by Borrower with respect to the
incurrence of a Eurodollar Loan which have not yet been incurred shall be deemed
rescinded by Borrower. Any Eurodollar Loan outstanding at the commencement of
any such suspension which affects Loans of this Type shall be converted at the
end of the then current Interest Period for that Loan to a Base Rate Loan,
unless such suspension has then ended; and
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(b) If it shall become unlawful or impractical for Bank to obtain
funds in the London interbank market in order to fund or maintain Eurodollar
Loans or otherwise to perform its obligations hereunder with respect to any such
Eurodollar Loans, upon notice by Bank to Borrower, the rate of interest payable
on all such Loans shall thereupon be a variable rate of interest applicable to
Base Rate Loans.
8.2 INCREASED COSTS. If, after the date of this Agreement, any Change of
Law, any violation by Borrower of the terms of this Agreement or any other
circumstances over which Bank has no control relating to the London interbank
market:
(a) Shall subject Bank to any tax, duty or other charge with respect
to Eurodollar Loans or its obligation to make Eurodollar Loans, or shall change
the basis of taxation of payments by Borrower to Bank on Eurodollar Loans or in
respect to Eurodollar Loans under this Agreement (except for changes in the rate
of taxation on the overall net income of Bank); or
(b) Shall impose, modify or hold applicable any reserve, special
deposit or other requirement against assets held by, deposits or other
liabilities in or for the account of, advances or loans by, or any other
acquisition of funds by Bank for any Eurodollar Loans (except for any reserve,
special deposit or other requirement included in the determination of the
Eurodollar Rate); or
(c) Shall impose on Bank any other condition directly related to any
Eurodollar Loan;
and the effect of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining Eurodollar Loans beyond any adjustment made by
Bank in determining the applicable interest rate for any such Eurodollar Loan,
or to reduce any amount receivable by Bank hereunder; then Borrower shall from
time to time, upon demand by Bank, pay to Bank additional amounts sufficient to
reimburse Bank for such increased costs or to compensate Bank for such reduced
amounts. Bank shall, as promptly as reasonably practical, provide Borrower with
notice of any such increased costs or reduced amounts. A certificate as to the
amount of such increased costs or reduced amounts submitted by Bank to Borrower
shall be prima facie evidence of the amount of such increased costs or reduced
amounts for all purposes.
8.3 CAPITAL REQUIREMENTS. If Bank determines that compliance with any Law
effective after the date hereof or compliance with any guideline or request from
any Governmental Authority (whether or not having the force of Law) has or would
have the effect of reducing the rate of return on the capital of Bank or any
corporation controlling Bank as a consequence of or with reference to Bank's
making or maintaining any commitment, credit, advance or other transaction
hereunder below the rate which Bank or such other corporation could have
achieved but for such introduction, change or compliance (taking into account
the policies of Bank or such other corporation with regard to capital), then
Borrower shall from time to time, upon demand by Bank, pay to Bank additional
amounts sufficient to compensate Bank or other corporation for such reduction.
Bank shall deliver to Borrower with any such demand a certificate setting forth
the basis for the calculation of such additional amounts for which such demand
is given, which certificate shall be prima facie evidence of the amount of such
additional amounts for all purposes.
8.4 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Borrower hereby agrees that
any decision by Bank not to require payment of any fees and/or compensation for
costs, or to reduce the amount of such fees and/or compensation for costs, for
any particular Eurodollar Loan, the Revolving Credit Facility or any portions
thereof, shall in no way limit Bank's right to require full payment of any fees
and/or compensation for costs for any other Eurodollar Loan or for the Revolving
Credit Facility or any portions thereof.
SECTION 9 - MISCELLANEOUS
9.1 AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement or any of the other Credit Documents, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same
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<PAGE>
shall be in writing and signed by Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
9.2 NOTICES, ETC. Except as to those notices and other communications
which are expressly authorized to be sent telephonically, all notices and other
communications provided for hereunder shall be in writing (including telegraphic
and facsimile communication) and sent by certified mail, telegraphed, facsimiled
or delivered, if to Borrower, at its address at 4649 Morena Boulevard,
San Diego, California 92117, Attention: Daniel T. Carter, Chief Financial
Officer (facsimile No. 619-581-4707), and if to Bank, at its address at 401 B
Street, Suite 2201, San Diego, California 92101, Attention: Corporate Banking
Center -- Manager (facsimile No. 619-699-3020), or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other party. Except as set forth below, all such notices and communications
shall, when mailed, telegraphed or facsimiled, be effective, if deposited in the
mails, two (2) Business Days after deposit in the mails, if telegraphed, upon
delivery by the telegraph company, or if facsimiled, upon being telecopied, with
receipt telephonically confirmed by sender, respectively, addressed as
aforesaid; provided, however, that notices to Bank pursuant to the provisions of
Section II shall not be effective, as of a given Business Day, unless actually
received by Bank prior to 10:00 a.m. on said Business Day. Notices given to
Bank pursuant to the provisions of Section II which are received after
10:00 a.m. on a Business Day shall be considered effective as of the next
succeeding Business Day. Each of such notices specified in Section II shall be
given by telephone, facsimile or delivery of such notice. Bank shall not incur
any liability to Borrower in acting upon any telephonic or facsimile notice
referred to in Section II which Bank believes in good faith to have been given
by a duly authorized officer or other person authorized to borrow on behalf of
Borrower. Each such telephonic or facsimile notice shall be irrevocable and
binding on Borrower.
9.3 NO WAIVER; REMEDIES. No failure on the part of Bank to exercise, and
no delay in exercising, any right under any Credit Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any right under any
Credit Document preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided in the Credit Documents are
cumulative and not exclusive of any remedies provided by law.
9.4 APPLICABLE LAW. The Credit Documents, all documents provided for
herein and the rights and obligations of the parties thereto shall be governed
by the laws of the State of California. Bank retains all of its rights under
federal law, including those relating to the charging of interest rates.
9.5 COSTS, EXPENSES AND TAXES. Borrower agrees to pay Bank on demand,
whether or not any Loan or Advance is made hereunder, (i) all fees, costs and
expenses incurred by Bank in connection with the negotiation, preparation,
execution, delivery and consummation of, and the making of the initial Loans and
Advances under, this Agreement and the other Credit Documents, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for Bank with respect thereto; provided, however, that the portion of such costs
and expenses in connection with the Bank's attorneys' fees regarding the
negotiation, preparation, execution and delivery of the Credit Documents and the
consummation of and the making of the initial Loan under this Agreement shall
not be in excess of $10,000; (ii) all reasonable fees and expenses (subject to
Borrower's review and written approval, which shall be done promptly and in good
faith), including attorneys' fees, incurred by Bank after the Funding Date in
connection with the negotiation of and/or the preparation of amendments to and
waivers under the Credit Documents; (iii) all costs and expenses, if any
(including reasonable counsel fees and expenses), incurred by Bank after the
Funding Date in connection with the enforcement and administration of the Credit
Documents and the other documents to be delivered under the Credit Documents,
whether or not suit is brought thereon; and (iv) any and all recording and
filing fees. In addition, Borrower shall pay any and all present and future
stamp, excise and other similar taxes and fees incurred with respect to the
foregoing matters, and Borrower agrees to indemnify and hold Bank harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission to pay Bank any such taxes. As used herein, "attorneys' fees" shall
include, without limitation, allocable costs of Bank's in-house legal counsel
and staff, provided, however, that the amount of any fees of in-house counsel
shall not exceed an amount which would have been incurred had Bank utilized
outside legal counsel in connection with the subject matter.
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<PAGE>
9.6 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of
any Event of Default, Bank is hereby authorized at anytime and from time to
time, to the fullest extent permitted by law, to set-off and apply any and all
deposits (general or special, time or demand) at any time held and other
indebtedness at any time owing by Bank to or for the credit or the account of
Borrower against any and all of the obligations of Borrower now or hereafter
existing under any Credit Document, irrespective of whether or not Bank shall
have made any demand under such Credit Document and although such obligations
may be unmatured. Bank agrees promptly to notify Borrower after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of Bank under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Bank may have.
9.7 BINDING EFFECT; ASSIGNMENTS. This Agreement and the other Credit
Documents shall be binding upon and inure to the benefit of Borrower and Bank
and their respective successors and assigns, provided that Borrower shall not
have the right to assign its rights or delegate its duties hereunder or any
interest herein without the prior written consent of Bank.
9.8 NONLIABILITY OF BANK. The relationship between Borrower and Bank is,
and shall at all times remain, solely that of borrower and lender, and Bank
neither undertakes nor assumes any responsibility or duty to Borrower to review,
inspect, supervise, pass judgment upon, or inform Borrower of any matter in
connection with any phase of Borrower's business, operations, or condition,
financial or otherwise. Borrower shall rely entirely upon its own judgment with
respect to such matters, and any review, inspection, supervision, exercise of
judgment, or information supplied to Borrower by Bank in connection with any
such matter is for the protection of Bank, and neither Borrower nor any third
party is entitled to rely thereon.
9.9 CHOICE OF FORUM; JURY TRIAL WAIVER. Except as otherwise expressly
provided in any Credit Document, the parties hereto and thereto agree and intend
that the proper and exclusive forum for any litigation of any disputes or
controversies arising out of or related to the Credit Documents shall be the
Superior Court of the State of California for the County of San Diego or the
United States District Court for the Southern District of California.
Notwithstanding the foregoing, the parties agree that, with respect to any
collateral, Bank shall be entitled to commence actions in such states or
jurisdictions, or in such counties of California, against Borrower or other
Persons for the purpose of seeking provisional remedies or actions to foreclose
upon liens granted to Bank. Each party to any Credit Document hereby EXPRESSLY
WAIVES THE RIGHT TO TRIAL BY JURY, expressly waives any defense or objection to
the jurisdiction or venue based on the doctrine of FORUM NON CONVENIENCE, and
stipulates that the Superior Court of the State of California for the County of
San Diego or the United States District Court for the Southern District of
California shall have IN PERSONAM jurisdiction and venue over such party for the
purpose of litigating any dispute or controversy arising out of or related to
the Credit Documents. Except as provided above, in the event any party
commences or maintains any action or proceeding arising out of or related to the
Credit Documents in a forum other than the Superior Court of the State of
California for the County of San Diego or the United States District Court for
the Southern District of California, any party shall be entitled to request the
dismissal or stay of such action or proceeding, and each party stipulates that
such action or proceeding shall be dismissed or stayed.
9.10 INDEMNIFICATION. Borrower agrees to indemnify, save, and hold
harmless Bank and its directors, officers, agents, attorneys and employees
(collectively, the "indemnitees") from and against: (i) any and all claims,
demands, actions, or causes of action that are asserted against any indemnitee
by any Person if the claim, demand, action, or cause of action arises out of or
relates to a claim, demand, action, or cause of action that the Person asserts
or may assert against Borrower, or any officer, director or shareholder of
Borrower in their capacity as such, (ii) any and all claims, demands, actions or
causes of action that are asserted against any indemnitee (other than by
Borrower or by another indemnitee) if the claim, demand, action or cause of
action arises out of or relates to the Advances, the use of proceeds of any
Advances, or the relationship of Borrower and Bank or its agents, officers or
employees under this Agreement or any transaction contemplated pursuant to this
Agreement, (iii) any administrative or investigative proceeding by any
governmental agency arising out of or related to a claim, demand, action or
cause of action described in clauses (i) or (ii) above; and (iv) any and all
liabilities, losses, costs, or expenses (including outside attorneys' fees and
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<PAGE>
disbursements) that any indemnitee suffers or incurs as a result of any of the
foregoing; PROVIDED, that Borrower shall have no obligation under this Section
to Bank with respect to any of the foregoing arising out of the negligence or
willful misconduct of Bank or to the allocable extent any such claim, demand,
action or cause of action arises as a result of Bank's failure to comply with
any federal or state regulatory requirements applicable to Bank or to the extent
any such claim, demand, action or cause of action is being asserted by Bank's
shareholders.
9.11 HEADINGS. Headings in this Agreement are for convenience of reference
only and are not part of the substance hereof.
9.12 COUNTERPARTS. This Agreement may be executed in identical original
counterparts, each of which will be deemed to be an original and taken together
shall constitute one and the same instrument.
9.13 CONFIDENTIALITY. Bank agrees that it shall maintain confidentiality
with regard to non-public information concerning Borrower obtained from
Borrower, provided that Bank shall not be precluded from making disclosure
regarding such information (i) to Bank's counsel, accountants, professional
advisors, consultants, agents and other representatives, which other
representatives, in the reasonable judgment of Bank, need to know such
information and agree to keep such information confidential, (ii) in response to
a subpoena or order of a court or governmental agency, (iii) to any assignee or
any entity considering taking an assignment of any credit made under this
Agreement, provided Bank has given Borrower prior notice of Bank's intention to
disclose any such information to such an entity, and provided that such entity
agrees to be bound by the provisions of this Section 9.13, (iv) to any entity
participating or considering participating in any credit made under this
Agreement, provided Bank has given Borrower prior notice of Bank's intention to
disclose any such information to such an entity, and provided that such
participant agrees to be bound by the provisions of this Section 9.13, (v) to
any guarantor or subordinated lender with respect to this Agreement, provided
Bank has given Borrower prior notice of Bank's intention to disclose any such
information to any such guarantor or subordinated lender, (vi) as required by
law or applicable regulation, or (vii) as required or requested by any of the
agencies or other governmental entities which regulate Bank's ability to engage
in any of its businesses or that of any of its affiliates under state or federal
law; provided, further, that, unless specifically prohibited by applicable law
or court order, Bank shall, prior to disclosure thereof, notify Borrower of any
request for disclosure of any such non-public information (x) by any
governmental agency or representative thereof (other than any such request in
connection with an examination of the financial condition of Bank by such
governmental agency) or (y) pursuant to legal process. For the purposes of this
Section 9.13, the term "information" shall not include such information which
(i) is or becomes generally available to the public other than as a result of a
disclosure by Bank, and (ii) is or becomes available to Bank on a non-
confidential basis from a third party.
9.14 FURTHER ASSURANCES. At any time or from time to time upon the request
of Bank, Borrower will execute and deliver such further documents and do such
other acts and things as Bank may reasonably request in order to effect fully
the purposes of the Credit Documents and to provide for the payment of the
credit made hereunder and interest thereon in accordance with the terms of the
Credit Documents.
9.15 SEVERABILITY. In case any provision in any Credit Document shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of such contract and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9.16 SURVIVAL. All agreements, representations, warranties and indemnities
made herein shall survive the execution and delivery of this Agreement and the
Note and the making of all Revolving Loans.
9.17 EFFECTIVENESS. This Agreement shall become effective on the date on
which Borrower and Bank shall have signed a copy hereof and shall have delivered
the same to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized, as of the date
first above written.
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PRICE ENTERPRISES, INC., FIRST INTERSTATE BANK OF CALIFORNIA
a Delaware corporation
By:
By: --------------------------------
-------------------------------- David T. Bruen,
Vice President
Title:
------------------------
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AMENDED AND RESTATED LOAN AGREEMENT
BETWEEN
ATLAS HOTELS, INC., A DELAWARE CORPORATION,
AS BORROWER
AND
PRICE ENTERPRISES, INC., A
DELAWARE CORPORATION,
AS LENDER
MARCH 31, 1995
<PAGE>
TABLE OF CONTENTS
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Page
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 DEFINITIONS, ACCOUNTING TERMS AND EXHIBITS . . . . . . . . . . 3
1.1 Definitions of Terms . . . . . . . . . . . . . . . . . . . . . 3
1.1.1 Additional Advance . . . . . . . . . . . . . . . . . . 3
1.1.2 Aetna . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1.3 Aetna Deed of Trust . . . . . . . . . . . . . . . . . 3
1.1.4 Affiliate . . . . . . . . . . . . . . . . . . . . . . 3
1.1.5 Agreement . . . . . . . . . . . . . . . . . . . . . . 3
1.1.6 Amended Security Agreement . . . . . . . . . . . . . . 4
1.1.7 Annual Operating Budget . . . . . . . . . . . . . . . 4
1.1.8 Assignment of Contracts . . . . . . . . . . . . . . . 4
1.1.10 Borrower . . . . . . . . . . . . . . . . . . . . . . . 4
1.1.11 Borrower's Fiscal Year or Fiscal Year of Borrower . . 4
1.1.12 Business Day . . . . . . . . . . . . . . . . . . . . . 4
1.1.13 Cannery Row . . . . . . . . . . . . . . . . . . . . . 4
1.1.14 Cannery Row Letter of Credit . . . . . . . . . . . . . 4
1.1.15 Cannery Row Letter of Credit Agreement . . . . . . . . 4
1.1.16 Cannery Row Payment . . . . . . . . . . . . . . . . . 4
1.1.17 Cannery Row Settlement . . . . . . . . . . . . . . . . 5
1.1.18 Capital Repair Schedule . . . . . . . . . . . . . . . 5
1.1.19 Capital Reserve Agreement . . . . . . . . . . . . . . 5
1.1.20 Capital Reserve Amount . . . . . . . . . . . . . . . . 5
1.1.21 Collateral . . . . . . . . . . . . . . . . . . . . . . 5
1.1.22 Contingent Liabilities . . . . . . . . . . . . . . . . 5
1.1.23 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1.24 Deed of Trust . . . . . . . . . . . . . . . . . . . . 6
1.1.25 Default . . . . . . . . . . . . . . . . . . . . . . . 6
1.1.26 Dollars . . . . . . . . . . . . . . . . . . . . . . . 6
1.1.27 Effective Date . . . . . . . . . . . . . . . . . . . . 6
1.1.28 Environmental Indemnity . . . . . . . . . . . . . . . 6
1.1.29 ERISA . . . . . . . . . . . . . . . . . . . . . . . . 6
1.1.30 Events of Default . . . . . . . . . . . . . . . . . . 6
1.1.31 Financing Statement . . . . . . . . . . . . . . . . . 6
1.1.32 Fixed Assets . . . . . . . . . . . . . . . . . . . . . 6
1.1.33 Gross Income From Operations . . . . . . . . . . . . . 6
1.1.34 Guarantors . . . . . . . . . . . . . . . . . . . . . . 7
1.1.35 Guaranty . . . . . . . . . . . . . . . . . . . . . . . 7
1.1.36 Hotel . . . . . . . . . . . . . . . . . . . . . . . . 7
1.1.37 Indebtedness . . . . . . . . . . . . . . . . . . . . . 7
1.1.38 Index Rate . . . . . . . . . . . . . . . . . . . . . . 7
1.1.39 Law(s) . . . . . . . . . . . . . . . . . . . . . . . . 7
1.1.40 Lien . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.1.41 Loan . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.1.42 Loan Rate . . . . . . . . . . . . . . . . . . . . . . 8
(i)
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(Continued)
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1.1.43 Loan Documents . . . . . . . . . . . . . . . . . . . . 8
1.1.44 Note . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.1.45 Obligations . . . . . . . . . . . . . . . . . . . . . 8
1.1.46 Palmilla Hotel . . . . . . . . . . . . . . . . . . . . 8
1.1.47 Palmilla Lots . . . . . . . . . . . . . . . . . . . . 8
1.1.48 Palmilla Pledge Agreement . . . . . . . . . . . . . . 8
1.1.49 Palmilla Pledged Documents . . . . . . . . . . . . . . 9
1.1.50 Per Annum . . . . . . . . . . . . . . . . . . . . . . 9
1.1.51 Person . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1.52 Personal Property Collateral . . . . . . . . . . . . . 9
1.1.53 Price . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1.54 Price Loan . . . . . . . . . . . . . . . . . . . . . . 9
1.1.55 Price Loan Documents . . . . . . . . . . . . . . . . . 9
1.1.56 Principal Payment Amount . . . . . . . . . . . . . . . 9
1.1.57 Projected Operating Budget . . . . . . . . . . . . . . 10
1.1.58 Ranch Property . . . . . . . . . . . . . . . . . . . . 10
1.1.59 Real Property . . . . . . . . . . . . . . . . . . . . 10
1.1.60 Real Property Collateral . . . . . . . . . . . . . . . 10
1.1.61 Real Property Tax Amount . . . . . . . . . . . . . . . 10
1.1.62 Responsible Official . . . . . . . . . . . . . . . . . 10
1.1.63 Special Capital Reserve . . . . . . . . . . . . . . . 10
1.1.64 SunBurst Property . . . . . . . . . . . . . . . . . . 10
1.1.65 Title Insurer . . . . . . . . . . . . . . . . . . . . 11
1.1.66 T&C, Inc. . . . . . . . . . . . . . . . . . . . . . . 11
1.1.67 T&C, Inc. Documents . . . . . . . . . . . . . . . . . 11
1.1.68 T&C, Inc. Guaranty . . . . . . . . . . . . . . . . . . 11
1.1.69 T&C, Inc. Lease . . . . . . . . . . . . . . . . . . . 11
1.1.70 T&C, Inc. Management Agreement . . . . . . . . . . . . 11
1.1.71 T&C, Inc. Security Agreement . . . . . . . . . . . . . 11
1.1.72 Wells Fargo Settlement . . . . . . . . . . . . . . . . 11
1.2 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . 11
1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . 12
1.4 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 2 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 12
2.1 Approval of Lender's Counsel and Boards of Directors . . . . . 12
2.2 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Documentation . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3.1 Loan Documents . . . . . . . . . . . . . . . . . . . . 12
2.3.2 T&C, Inc. Documents . . . . . . . . . . . . . . . . . 12
2.3.3 Title Insurance . . . . . . . . . . . . . . . . . . . 12
2.3.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . 13
2.3.5 Financial Statements . . . . . . . . . . . . . . . . . 13
2.3.6 Authorization . . . . . . . . . . . . . . . . . . . . 13
2.3.7 Officer's Certificate . . . . . . . . . . . . . . . . 13
(ii)
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2.3.8 Articles of Incorporation . . . . . . . . . . . . . . 13
2.3.9 Good Standing Certificates . . . . . . . . . . . . . . 13
2.3.10 Insurance . . . . . . . . . . . . . . . . . . . . . . 13
2.3.11 Global Hospitality Agreement. . . . . . . . . . . . . 14
2.3.12 Letter of Credit Agreement. . . . . . . . . . . . . . 14
2.3.13 Other Documents . . . . . . . . . . . . . . . . . . . 14
2.4 Payment of Costs . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Concurrent Closing of Price Loan . . . . . . . . . . . . . . . 14
2.6 Cannery Row . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.7 Wells Fargo Settlement . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 3 THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Restatement of Original Loan . . . . . . . . . . . . . . . . . 15
3.2 Additional Advance . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Payment of Loan . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 4 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 17
4.1 Punctual Payments . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Accounting Records . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . 18
4.4 Existence, Compliance With Law . . . . . . . . . . . . . . . . 19
4.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Operations and Maintenance of Hotel . . . . . . . . . . . . . . 20
4.7 Taxes and Other Liabilities . . . . . . . . . . . . . . . . . . 20
4.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 Financial Condition . . . . . . . . . . . . . . . . . . . . . . 21
4.10 Discharge of Judgment . . . . . . . . . . . . . . . . . . . . . 21
4.11 Notice to Lender . . . . . . . . . . . . . . . . . . . . . . . 21
4.12 Compliance With Agreements, Duties and Obligations . . . . . . 21
4.13 The Ranch . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.14 Cannery Row Settlement . . . . . . . . . . . . . . . . . . . . 22
4.15 Sale of Palmilla Lots and Additional Palmilla Security . . . . 22
ARTICLE 5 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 23
5.2 Lease Expenditures . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Merger; Consolidation; Transfer of Assets . . . . . . . . . . . 23
5.5 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.6 Loans, Advances, Investments . . . . . . . . . . . . . . . . . 23
5.7 Dividends, Distributions . . . . . . . . . . . . . . . . . . . 24
5.8 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(iii)
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TABLE OF CONTENTS
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(Continued)
Page
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ARTICLE 6 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 24
6.1 Legal Status . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Authorization and Validity . . . . . . . . . . . . . . . . . . 25
6.4 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . 25
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Correctness of Financial Statements . . . . . . . . . . . . . . 25
6.7 Income Tax Returns . . . . . . . . . . . . . . . . . . . . . . 26
6.8 No Subordination . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Permits, Franchises . . . . . . . . . . . . . . . . . . . . . . 26
6.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 Other Obligations . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . 26
6.13 Title to Property . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Other Conditions . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Survival of Warranties and Representations . . . . . . . . . . 27
ARTICLE 7 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 8 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1 Release of Claims . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.4 Costs, Expenses and Attorneys' Fees . . . . . . . . . . . . . . 32
8.5 Successors and Assignment . . . . . . . . . . . . . . . . . . . 33
8.6 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . 33
8.7 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Severability of Provisions . . . . . . . . . . . . . . . . . . 33
8.9 California Law Applicable . . . . . . . . . . . . . . . . . . . 33
8.10 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.11 Venue; Inconvenient Forum . . . . . . . . . . . . . . . . . . . 34
8.12 Survival of Representations; Covenants . . . . . . . . . . . . 34
8.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.15 Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.16 WAIVERS BY BORROWER . . . . . . . . . . . . . . . . . . . . . . 34
(iv)
<PAGE>
EXHIBITS
Exhibit "A" . . . . . . . . . . . . . . . . . . . . . . Annual Operating Budget
Exhibit "B" . . . . . . . . . . . . . . . Cannery Row Letter of Credit Agreement
Exhibit "C" . . . . . . . . . . . . . . . . . . . . . . Capital Repair Schedule
Exhibit "D" . . . . . . . . . . . . . . . . . . Contingent Liabilities Schedule
Exhibit "E" . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan Documents
Exhibit "F" . . . . . . . . . . . . . . . . . . . . . Projected Operating Budget
Exhibit "G" . . . . . . . . . . . . . . Legal Description of the Ranch Property
Exhibit "H" . . . . . . . . . . . . . . . . . Legal Description of Real Property
Exhibit "I" . . . . . . . . . . . . . Legal Description of the SunBurst Property
Exhibit "J" . . . . . . . . . . . . . . . . . . Palmilla Hotel Legal Description
Exhibit "K" . . . . . . . . . . . . . . . . . . Palmilla Lots Legal Description
(v)
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and entered
into as of this 31st day of March, 1995, between ATLAS HOTELS, INC., a Delaware
corporation ("Borrower"), and PRICE ENTERPRISES, INC., a Delaware corporation
("Lender"), with reference to the facts set forth below.
RECITALS
A. Borrower and Wells Fargo Bank, N.A., a National Banking Association
("Wells Fargo") entered into that certain Credit Agreement dated May 8, 1990, as
modified by that certain First Amendment to Credit Agreement dated September 30,
1991 and that certain Second Amendment to Credit Agreement dated September 30,
1991 (collectively, the "Original Loan Agreement"). Pursuant to the Original
Loan Agreement, Wells Fargo made available to Borrower a revolving line of
credit in the principal amount of Forty-One Million Dollars ($41,000,000)
("Original Loan").
B. The Original Loan was evidenced by that certain Note dated May 8, 1990
("Original Note"), and was secured by (i) that certain Deed of Trust With
Assignment of Rents and Fixture Filing dated March 15, 1988 and recorded on
April 5, 1988 as File No. 88-155874 in the Official Records of San Diego County,
California, as modified by that certain Amendment to Deed of Trust with
Assignment of Rents and Fixture Filing recorded on January 4, 1989 as File No.
89-004177 in the Official Records of San Diego County, and as further modified
by that certain Modification of Deed of Trust With Assignment of Rents and
Fixture Filing recorded on May 8, 1990 as File No. 90-251157 in the Official
Records of San Diego County and (ii) that certain Deed of Trust With Assignment
of Rents and Fixture Filing dated March 15, 1988 and recorded on April 5, 1988
as File No. 88-155875 in the Official Records of San Diego County, California,
as modified by that certain Amendment to Deed of Trust With Assignment of Rents
and Fixture Filing recorded on January 4, 1989 as File No. 89-004178 in the
Official Records of the San Diego County Recorder (collectively, the "Original
Deed of Trust"). Certain obligations with respect to the Original Loan were
guarantied by The Price Company, a California corporation ("TPC") pursuant to
that certain Continuing Guaranty dated May 8, 1990 ("Original Guaranty"). The
Original Loan Agreement, the Original Note, and the Original Deed of Trust, and
all other documents and agreements executed by Borrower in favor of Wells Fargo
with respect to the Original Loan are sometimes collectively referred to herein
as the "Original Loan Documents."
C. In connection with TPC's execution of the Original Guaranty, TPC and
Borrower executed that certain Agreement to Execute Guaranty and Security
Agreement dated May 8, 1990 ("Agreement to Execute Guaranty") and that certain
Option Agreement dated May 8, 1990 ("Option Agreement"), both of which were
secured
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by that certain Deed of Trust With Assignment of Rents, Security Agreement and
Fixture Filing dated May 8, 1990, and recorded on May 8, 1990 as Instrument No.
90-251160 in the Official Records of San Diego County Recorder ("TPC Deed of
Trust"). A Short Form of Option Agreement dated May 8, 1990 was recorded on May
8, 1990 as Instrument No. 90-251159 in the Official Records of the San Diego
County Recorder ("Short Form of Option"). The Agreement to Execute Guaranty,
Option Agreement, TPC Deed of Trust and Short Form of Option are sometimes
referred to herein as the "Original Guaranty Loan Documents."
D. Pursuant to the terms and conditions of that certain Purchase
Agreement by and between TPC and Wells Fargo dated August 23, 1993, TPC acquired
the rights and interests of Wells Fargo with respect to, in and under the
Original Loan Documents, which purchase became effective on October 18, 1993.
As of such effective date, TPC succeeded to the rights of Wells Fargo under the
Loan Documents.
E. The current balance of the Original Note is Forty-One Million Dollars
($41,000,000).
F. At the time of TPC's acquisition of the Original Loan and Original
Loan Documents, certain continuing defaults by Borrower existed under the
Original Loan Documents, as described in that certain Estoppel Certificate and
Agreement dated October 15, 1993 executed by Borrower in favor of TPC ("Estoppel
Certificate"). Borrower has represented to Lender that all of the defaults set
forth in the Estoppel Certificate have been cured.
G. TPC has assigned all of its right, title and interest under the
Original Loan Documents and the Original Guaranty Loan Documents to Lender,
effective as of August 29, 1994.
H. Borrower and Lender have agreed to restructure the terms and
conditions of the Original Loan and to amend and restate the Original Loan
Documents as provided in this Agreement and the other Loan Documents (as defined
below).
NOW, THEREFORE, in consideration of these premises, the agreements of the
parties set forth herein, and other valuable consideration, the receipt and
sufficiency is hereby acknowledged, Lender and Borrower hereby agree as set
forth below.
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ARTICLE 1
DEFINITIONS, ACCOUNTING TERMS AND EXHIBITS
------------------------------------------
1.1 DEFINITIONS OF TERMS. As used in this Agreement, the following
terms shall have the meanings set forth below.
1.1.1 ADDITIONAL ADVANCE. The term "Additional Advance," as used
herein, shall mean an amount equal to up to Four Million One Hundred Thousand
and No/100 Dollars ($4,100,000) to be advanced by Lender to Borrower and applied
as set forth in this Agreement, and evidenced by the Note.
1.1.2 AETNA. The term "Aetna" means Aetna Life Insurance
Company.
1.1.3 AETNA DEED OF TRUST. The term "Aetna Deed of Trust" means
that certain deed of trust on the Real Property on March 4, 1976 as File No. 76-
064383 in the Official Records of the San Diego County Recorder securing a
promissory note in the original principal balance of Nine Million Nine Hundred
Seventy-Five Thousand Dollars ($9,975,000.00) dated August 8, 1975, in favor of
Aetna.
1.1.4 AFFILIATE. The term "Affiliate" means any other person,
who directly or indirectly, controls, or is controlled by or under common
control of Borrower immediately prior to and immediately after such transaction;
and as used in this definition "control" and "controlled by" and "under common
control" mean possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise) provided
that, in any event (i) any person that owns directly or indirectly, 50% or more
of the securities having ordinary voting power for the election of directors or
other governing body of a corporation (other than securities having such power
only by reason of a happening of a contingency) will be deemed to control such
corporation; (ii) any person who is a general partner or an Affiliate of such
partnership will be deemed to control such partnership, and (iii) any person who
owns or controls 50% or more of either the voting power as to any matters on
which owners are permitted to vote or of the value of the ownership interests of
any other person (including a corporation or partnership), will be deemed to
control such other person).
1.1.5 AGREEMENT. The term "Agreement" means this Amended and
Restated Loan Agreement, either as originally executed or as the same may from
time to time be supplemented, modified, amended or extended by mutual agreement
of Lender and Borrower.
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1.1.6 AMENDED SECURITY AGREEMENT. The term "Amended Security
Agreement" means the Amended and Restated Security Agreement of even date
herewith to be executed by Borrower in favor of Lender and delivered as provided
herein.
1.1.7 ANNUAL OPERATING BUDGET. The term "Annual Operating
Budget" means that certain budget relating to Borrower's business and operations
for Borrower's Fiscal Year for 1995, attached hereto as EXHIBIT "A", as the same
may be approved by Lender each succeeding Fiscal Year of Borrower during the
term of the Loan, as provided herein.
1.1.8 ASSIGNMENT OF CONTRACTS. The term "Assignment of
Contracts" means the Assignment of Contracts to be executed by Borrower in favor
of Lender and delivered as provided herein, either as originally executed or as
the same may be supplemented, modified, or extended by mutual agreement of
Borrower and Lender.
1.1.9 BANKRUPTCY CODE. The term "Bankruptcy Code" means Title 11
of the United States Code, as it may from time to time be supplemented,
modified, amended or recodified.
1.1.10 BORROWER. The term "Borrower" means Atlas Hotels, Inc., a
Delaware corporation.
1.1.11 BORROWER'S FISCAL YEAR OR FISCAL YEAR OF BORROWER. The
terms "Borrower's Fiscal Year" or "Fiscal Year of Borrower" mean the period
commencing on October 1 and ending on September 30 of the following year.
1.1.12 BUSINESS DAY. The term "Business Day" means any day except
a Saturday, Sunday and any day specified as a holiday by Federal or California
statute or regulation.
1.1.13 CANNERY ROW. The term "Cannery Row" means the Cannery Row
Company, a California limited partnership.
1.1.14 CANNERY ROW LETTER OF CREDIT. The term "Cannery Row Letter
of Credit" means the letter of credit in the amount of Five Hundred Thousand
Dollars ($500,000) in the form attached to the Cannery Row Letter of Credit
Agreement that may be posted by Lender as provided herein with respect to
certain obligations of Borrower under the Cannery Row Settlement.
1.1.15 CANNERY ROW LETTER OF CREDIT AGREEMENT. The term "Cannery
Row Letter of Credit Agreement" means that certain Letter of Credit Agreement of
even date herewith by and among the parties to the Cannery Row Settlement,
Borrower, and Lender, in the form of EXHIBIT "B" attached hereto and
incorporated herein.
1.1.16 CANNERY ROW PAYMENT. The term "Cannery Row Payment" means
the total amount payable by Borrower on an annual
4
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basis to Cannery Row in connection with the Cannery Row Settlement Agreement, as
further provided in this Agreement.
1.1.17 CANNERY ROW SETTLEMENT. The term "Cannery Row Settlement
Agreement" means that certain Settlement Agreement by and among Borrower, C.
Terry Brown, Atlas Pacific Equity Development, a California general partnership,
Cannery Row, Pacific Equity Development, a Hawaii limited partnership, and Rohr
Pacific, Ltd., a Hawaii corporation, effective March 31, 1995 and the documents
executed pursuant thereto.
1.1.18 CAPITAL REPAIR SCHEDULE. The term "Capital Repair
Schedule" means that certain schedule of capital repairs to be made to the Hotel
by Borrower during Borrower's Fiscal Year for 1995 and the estimated cost and
time for completion thereof in the form attached hereto as EXHIBIT "C" and to be
submitted by Borrower to Lender for each Fiscal Year of Borrower as provided in
SECTION 4.3 hereof.
1.1.19 CAPITAL RESERVE AGREEMENT. The term "Capital Reserve
Agreement" means the Capital Reserve Agreement to be executed by Borrower and
Lender and delivered as provided herein.
1.1.20 CAPITAL RESERVE AMOUNT. The term "Capital Reserve Amount"
means an amount equal to four percent (4%) of Gross Income from Operations,
which shall be reserved on a monthly basis by Borrower and applied as provided
herein and in the Capital Reserve Agreement.
1.1.21 COLLATERAL. The term "Collateral" means collectively, all
property, real or personal, on or in which the Lender has a Lien or security
interest pursuant to any of the Loan Documents.
1.1.22 CONTINGENT LIABILITIES. The term "Contingent Liabilities"
means certain obligations or liabilities of Borrower existing as of the
Effective Date that are or have been asserted by a third party to be, or may
otherwise in the future become, legally binding on Borrower, and are set forth
on the "Contingent Liabilities Schedule" attached hereto as EXHIBIT "D".
1.1.23 DEBT. The term "Debt" means debt, indebtedness or
obligations created, issued, guaranteed (whether directly or indirectly),
incurred or assumed (a) for money borrowed or for the deferred purchase price of
property or services purchased; (b) under leases which have been or should be,
in accordance with generally accepted accounting principles, recorded as capital
leases; or (c) secured by any Lien on property or other assets owned subject to
such Lien, whether or not the obligations secured thereby have been assumed.
5
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1.1.24 DEED OF TRUST. The term "Deed of Trust" means that certain
Amended and Restated Deed of Trust, Assignment of Leases and Rents, and Fixture
Filing to be executed by Borrower, as trustor, for the benefit of Lender, as
beneficiary, and delivered to Lender as provided herein, evidencing the Lien and
security interest of Lender on portions of the Collateral, either as originally
executed or as the same may be supplemented, modified, amended or extended by
mutual agreement of Borrower and Lender.
1.1.25 DEFAULT. The term "Default" (as defined in ARTICLE 7)
means any event that with the giving of notice or the passage of time or both
would be an Event of Default as that term is defined in SECTION 7.1 hereof.
1.1.26 DOLLARS. The term "Dollars" or "$" means United States
dollars.
1.1.27 EFFECTIVE DATE. The term "Effective Date" means the later
to occur of the date of this Agreement or the date upon which all of the
conditions precedent set forth in ARTICLE 2 hereof are satisfied.
1.1.28 ENVIRONMENTAL INDEMNITY. The term "Environmental
Indemnity" means the Environmental Indemnity Agreement, to be executed and
delivered by Borrower and Guarantors as provided herein in favor of Lender,
either as originally executed or as the same may be, from time-to-time,
supplemented, modified, amended or extended by mutual agreement of Lender and
Borrower.
1.1.29 ERISA. The term "ERISA" means the Employment Retirement
Income Security Act of 1974, as amended and as in effect from time to time.
1.1.30 EVENTS OF DEFAULT. The term "Events of Default" shall have
the meaning provided in SECTION 7.1 hereof.
1.1.31 FINANCING STATEMENT. The term "Financing Statement" means
the UCC-1 Financing Statement(s) to be executed by Borrower in favor of Lender
and delivered as provided herein, as the same may be extended by Lender.
1.1.32 FIXED ASSETS. The term "Fixed Assets" shall have the
meaning ascribed by generally accepted accounting principles.
1.1.33 GROSS INCOME FROM OPERATIONS. The term "Gross Income From
Operations" shall mean all income, computed on an accrual basis in accordance
with generally-accepted accounting practices and principles consistency applied,
derived for each full or partial month during Borrower's Fiscal Year until the
Loan is paid in full from the ownership and operation of the Hotel from
6
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whatever source, including, but not limited, all guest room revenues, all food,
beverages, and merchandise sales receipts, all interest income, if any, rent,
utility charges, forfeited security deposits, net service fees or charges,
license fees, net parking fees, rents, concessions or credit, and any business
interruption insurance proceeds, but excluding sales, use and occupancy or other
taxes on receipts required to be accounted for by Borrower to any government or
governmental agency, refunds and uncollectible accounts, sales of furniture,
fixtures and equipment, and proceeds of casualty insurance and condemnation
awards, as reflected in the "Town & Country Hotel" revenue line item of the
Annual Operating Budget.
1.1.34 GUARANTORS. The term "Guarantors" shall mean Charlene
Brown and C. Terry Brown.
1.1.35 GUARANTY. The term "Guaranty" means the Guaranty, executed
by Guarantors and delivered as provided herein, guaranteeing repayment and
performance of the Debts and Obligations of Borrower owed to Lender under this
Agreement as described therein, either as originally executed or as the same may
be supplemented, modified, amended, or extended by mutual agreement of Lender
and Guarantors.
1.1.36 HOTEL. The term "Hotel" shall mean that portion of the
Collateral commonly known as the Town and Country Hotel.
1.1.37 INDEBTEDNESS. The term "Indebtedness" means all amounts
owing under the Note and the other Loan Documents.
1.1.38 INDEX RATE. The term "Index Rate" means an interest rate
equal to the six (6) month London Interbank Offered Rate ("LIBOR") quoted in the
West Coast edition of the WALL STREET JOURNAL on the last Business Day of the
immediately preceding calendar month, plus two and 50/100 percent (2.50%) Per
Annum, or such other interest rate as may be applicable from time-to-time under
the Note.
1.1.39 LAW(S). The term "Law(s)" means, individually or
collectively, as the case may be, all international, foreign, federal, state and
local laws, treaties, rules, regulations, ordinances, codes and administrative
or judicial precedent.
1.1.40 LIEN. The term "Lien" means any mortgage, deed of trust,
pledge, security interest, encumbrance, lien or charge of any kind, affecting
any property, real or personal, including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or the agreement to give any financing
statement under the Uniform Commercial Code in any jurisdiction.
7
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1.1.41 LOAN. The term "Loan" means the loan in the amount of up
to Forty-Five Million One Hundred Thousand Dollars ($45,100,000) evidenced by
the Note, which is the subject of this Agreement.
1.1.42 LOAN RATE. The term "Loan Rate" means the rate of the ten
percent (10%) Per Annum.
1.1.43 LOAN DOCUMENTS. The term "Loan Documents" means
collectively, the documents listed on EXHIBIT "E" attached hereto and
incorporated herein, to be executed and delivered as provided herein, either as
originally executed or as the same may from time to time be supplemented,
modified, amended or extended by mutual agreement of Borrower and Lender.
1.1.44 NOTE. The term "Note" means the Amended and Restated
Promissory Note Secured by Deed of Trust in the amount of the Loan, to be
executed by Borrower in favor of Lender, and delivered to Lender as provided
herein, either as originally executed or as the same may from time to time be
supplemented, modified, amended or extended by mutual agreement of Lender and
Borrower (and any promissory note that may be issued in substitution, renewal,
extension or exchange therefor).
1.1.45 OBLIGATIONS. The term "Obligations" means all present or
future obligations of every kind or nature whatsoever of Borrower at any time or
from time to time owed to Lender under the Loan Documents whether due or to come
due, mature or unmatured, liquidated or unliquidated, or contingent or
non-contingent, and includes obligations of performance as well as obligations
of payment.
1.1.46 PALMILLA HOTEL. The term "Palmilla Hotel" means all of the
improvements, facilities, and personal property associated with the Punta
Palmilla, commonly known as the Hotel Palmilla, together with that certain real
property located in San Jose del Cabo, Baja California Sur, Mexico described in
EXHIBIT "J", attached hereto and incorporated herein, upon which such
improvements and property are located.
1.1.47 PALMILLA LOTS. The term "Palmilla Lots" means that certain
real property located generally between the cities of San Jose del Cabo and Cabo
San Lucas in Baja California Sur, Mexico, described in EXHIBIT "K", attached
hereto and incorporated herein.
1.1.48 PALMILLA PLEDGE AGREEMENT. The term "Palmilla Pledge
Agreement" means the Pledge Agreement executed by in favor of Lender, and
delivered to Lender as provided herein either as originally executed or as the
same may from time to time be supplemented, modified, amended or extended by
mutual agreement of Lender and Borrower, whereby Borrower shall grant to Lender
a
8
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security interest in and to the Palmilla Pledged Documents, as provided therein.
1.1.49 PALMILLA PLEDGED DOCUMENTS. The term "Palmilla Pledged
Documents" means (a) that certain Redemption Agreement dated March 15, 1991
among Palmilla Partners by and among Palmilla Partners ("Palmilla"), Donald M.
Koll ("Koll"), C. Terry Brown ("Brown") and Borrower; (b) that certain
Promissory Note in the face amount of Ten Million Dollars ($10,000,000) dated
March 15, 1991 executed by Palmilla in favor of Brown; (c) that certain
Assignment of Pre-paid Interest Lots dated March 15, 1991 by and between
Palmilla and Brown excluding lots 24, 25 and 27 as described therein; (d) that
certain Assignment of Sale Lots dated March 15, 1991 between Palmilla and Brown;
and (e) that certain Guaranty dated March 15, 1991 between Palmilla San Jose
Inmobiliaria, S.A. de C.V. and Brown, and as more particularly described in the
Palmilla Pledge Agreement, to be assigned by Borrower to Lender and delivered to
Lender as provided in the Palmilla Pledge Agreement.
1.1.50 PER ANNUM. The term "Per Annum" means a calculation based
on a year having 365 days, for the actual days elapsed.
1.1.51 PERSON. The term "Person" means any entity, whether an
individual, trustee, corporation, partnership, joint stock company, trust,
unincorporated organization, bank, business association or firm, joint venture,
governmental agency or otherwise.
1.1.52 PERSONAL PROPERTY COLLATERAL. The term "Personal Property
Collateral" means all personal property on which Lender has a Lien or security
interest pursuant to any Loan Document.
1.1.53 PRICE. The term "Price" means Sol Price, Trustee of the
Sol and Helen Price Trust created Under Declaration of Trust dated 2/20/70.
1.1.54 PRICE LOAN. The term "Price Loan" means the loan in the
amount of Two Million Dollars ($2,000,000.00) previously made by Price, to be
evidenced by the Price Loan Documents.
1.1.55 PRICE LOAN DOCUMENTS. The term "Price Loan Documents"
means documents to be executed by Borrower in favor of Price with respect to the
Price Loan concurrently with the execution by Borrower of the Loan Documents.
1.1.56 PRINCIPAL PAYMENT AMOUNT. The term "Principal Payment
Amount" means the actual amount of cash held by Borrower on the last Business
Day of each Fiscal Year of Borrower during the
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term of the Loan calculated as set forth in the Annual Operating Budget, and
consisting of the sum of the "Net Cash Surplus (Deficit)" and the "Cash Balance"
line items, less the amount of One Million Dollars ($1,000,000) which may be
retained by Borrower as working capital, to be paid to Lender as provided herein
and in the Note.
1.1.57 PROJECTED OPERATING BUDGET. The term "Projected Operating
Budget" means that certain projected operating and cash flow statement relating
to Borrower's business and operations for Borrower's Fiscal Years for 1996
through 1999 attached hereto as EXHIBIT "F".
1.1.58 RANCH PROPERTY. The term "Ranch Property" means that
certain real property described in EXHIBIT "G" attached hereto and all
improvements hereon.
1.1.59 REAL PROPERTY. The term "Real Property" means the real
property described in EXHIBIT "H" attached hereto and all improvements thereon.
1.1.60 REAL PROPERTY COLLATERAL. The term "Real Property
Collateral" means all real property, fixtures, improvements, and rents on which
Lender has a Lien or security interest pursuant to any Loan Document.
1.1.61 REAL PROPERTY TAX AMOUNT. The term "Real Property Tax
Amount" means the amount of real property taxes against the Real Property by the
San Diego Tax Collector and due and payable on a non-delinquent basis during
Borrower's Fiscal Year.
1.1.62 RESPONSIBLE OFFICIAL. The term "Responsible Official"
means (a) when used with reference to Borrower, the Chairman of the Board of
Directors, the President or the Designated Vice President of Borrower; and (b)
when used with reference to any other Person, any officer or general partner or
any other responsible official thereof.
1.1.63 SPECIAL CAPITAL RESERVE. The term "Special Capital
Reserve" means the amount of One Million Dollars ($1,000,000) that shall be
advanced by Lender to Borrower as provided herein and in the Capital Reserve
Agreement and reserved and applied by Borrower as provided herein and in the
Capital Reserve Agreement, as the same may be increased by any amount remaining
undisbursed from the Aetna Advance as provided in SECTION 3.2 hereof.
1.1.64 SUNBURST PROPERTY. The term "SunBurst Property" shall mean
the combined fee and leasehold interests in that certain real property described
in EXHIBIT "I" attached hereto and improvements thereon located in the City of
Scottsdale,
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Arizona, commonly known as the SunBurst Hotel, owned by Borrower Guarantors, and
certain other parties.
1.1.65 TITLE INSURER. The term "Title Insurer" shall mean Chicago
Title Company or such other title insurer acceptable to Lender.
1.1.66 T&C, INC.. The term "T&C, Inc." shall mean Town and
Country Hotel, Inc., a California corporation, a wholly-owned subsidiary of
Borrower.
1.1.67 T&C, INC. DOCUMENTS. The term "T&C, Inc. Documents" means
collectively the T&C, Inc. Guaranty, the T&C, Inc. Lease, the T&C, Inc.
Management Agreement, and the T&C, Inc. Security Agreement.
1.1.68 T&C, INC. GUARANTY. The term "T&C, Inc. Guaranty" means
that certain Guaranty to be executed by T&C, Inc. and delivered as provided
herein, either as originally executed or as the same may from time to time be
supplemented, modified, amended, or extended by mutual agreement by T&C, Inc.
and Lender.
1.1.69 T&C, INC. LEASE. The term "T&C, Inc. Lease" means that
certain Lease dated April 28, 1994 between Borrower as lessor and T&C, Inc. as
lessee, with respect to certain premises described therein.
1.1.70 T&C, INC. MANAGEMENT AGREEMENT. The term "T&C, Inc.
Management Agreement" means that certain Management Agreement dated April 28,
1994 between T&C, Inc. and Borrower.
1.1.71 T&C, INC. SECURITY AGREEMENT. The term "T&C, Inc. Security
Agreement" means that certain Security Agreement executed by T&C, Inc. and
delivered as provided herein either as originally executed or as the same may
from time to time be supplemented, modified, amended, or extended by mutual
agreement of T&C, Inc. and Lender.
1.1.72 WELLS FARGO SETTLEMENT. The term "Wells Fargo Settlement"
means that certain Third Agreement to Credit Agreement dated February 14, 1994
by and between Borrower and Wells Fargo, and acknowledged and agreed to by C.
Terry Brown, concerning that certain Credit Agreement dated July 30, 1990, as
amended by that certain First Amendment to Credit Agreement dated January 14,
1991 and that certain Second Amendment to Credit Agreement dated September 30,
1991.
1.2 USE OF DEFINED TERMS. Any defined term used in the plural shall
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any one or more of the members of the relevant class.
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1.3 ACCOUNTING TERMS. All accounting terms not specifically defined in
this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis.
1.4 EXHIBITS. All exhibits to this Agreement, either as now existing or
as the same may, from time to time, be supplemented, modified, or amended, are
incorporated herein by this reference.
ARTICLE 2
CONDITIONS PRECEDENT
--------------------
The effectiveness of this Agreement is subject to the fulfillment of the
conditions precedent set forth below, to the satisfaction of Lender in its sole
discretion, unless another time period is provided for satisfaction, on or
before March 31, 1995 (the "Closing Date").
2.1 APPROVAL OF LENDER'S COUNSEL AND BOARDS OF DIRECTORS. All legal
matters incidental to the Loan shall be satisfactory to counsel for Lender. The
Boards of Directors of both Lender and Price/Costco, a Delaware corporation,
shall have adopted resolutions approving the Loan and the Loan Documents.
2.2 COMPLIANCE. The representations and warranties contained herein
shall be true on and as of the date that this Agreement is executed and the
Effective Date, and on each such date, no defaults shall then exist under the
Original Loan Documents other than the fact that the Original Note matured and
became all due and payable on May 8, 1994, and no Default or Event of Default
shall have occurred and be continuing or shall then exist under this Agreement.
2.3 DOCUMENTATION. Borrower (or other applicable parties) shall have
delivered to Lender, in form and substance satisfactory to Lender, duly executed
and acknowledged by the parties thereto all of the following documents:
2.3.1 LOAN DOCUMENTS. This Agreement and the other Loan
Documents;
2.3.2 T&C, INC. DOCUMENTS. The T&C, Inc. Guaranty and the T&C,
Inc. Security Agreement, and any amendments to the T&C, Inc. Lease and T&C, Inc.
Management Agreement required by Lender;
2.3.3 TITLE INSURANCE. Irrevocable commitments from the Title
Insurer to issue an ALTA extended coverage lender's policy of title insurance
with coverage in the amount of the Note,
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insuring that the Deed of Trust is a first priority lien, subject only to the
Aetna Deed of Trust and the exceptions consented to by Lender, and such
endorsements thereto as may be requested by Lender.
2.3.4 OPINION OF COUNSEL. An opinion of Borrower's legal counsel
in a form requested by Lender with respect to the Loan and the Loan Documents;
2.3.5 FINANCIAL STATEMENTS. The most recent set of financial
statements requested by Lender to be delivered by Borrower under ARTICLE 4
hereof;
2.3.6 AUTHORIZATION. Certified copies, dated no earlier than
five (5) Business Days prior to the Closing Date, of all corporate resolutions,
certificates of incumbency, and other documents necessary or appropriate to
authorize the borrowings hereunder and the execution, delivery and performance
of the Loan Documents and the T&C, Inc. Documents;
2.3.7 OFFICER'S CERTIFICATE. A certificate, dated no earlier
than five (5) Business Days prior to the Closing Date, signed by a Responsible
Official of Borrower stating that:
(a) Except as disclosed therein in writing and as is
approved by Lender (including the matters referred in SECTION 2.6 below), no
Default or Event of Default has occurred and is then continuing; and
(b) Except as disclosed therein in writing and as is
approved by Lender, the representations and warranties contained in ARTICLE 6 of
this Agreement are true as of the date of this Certificate;
2.3.8 ARTICLES OF INCORPORATION. Certified copies, dated no
earlier than five (5) Business Days prior to the Closing Date, of the Articles
of Incorporation of Borrower and T&C, Inc. certified by the Secretary of State
of Delaware and the State of California, respectively;
2.3.9 GOOD STANDING CERTIFICATES. Good standing certificates (or
the equivalent) for Borrower and T&C, Inc. issued by the Secretary of State (or
comparable authority) of each jurisdiction in which Borrower does business,
dated no earlier than five (5) Business Days prior to the Closing Date;
2.3.10 INSURANCE. Written evidence, dated no earlier than five
(5) Business Days prior to the Closing Date, that all insurance policies
required under this Agreement and the Deed of Trust have been issued and are in
full form and effect;
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2.3.11 GLOBAL HOSPITALITY AGREEMENT. A copy of the executed
services agreement between Borrower and Don Stephenson of Global Hospitality
described in SECTION 4.3 hereof; and
2.3.12 LETTER OF CREDIT AGREEMENT. The Letter of Credit
Agreement.
2.3.13 OTHER DOCUMENTS. All other documents as Lender, in its
sole discretion, deems necessary to perfect its interest in the Collateral, or
otherwise to carry out the terms of this Agreement.
2.4 PAYMENT OF COSTS. Borrower shall have paid all costs associated
with or incurred in connection with the Loan, including, but not limited to, all
recording fees and costs, escrow fees, title insurance premiums and fees,
Lender's attorneys' fees and costs incurred by Lender after August 2, 1994,
survey costs, accountant's fees and costs, and all other costs and expenses
incurred by Borrower in accordance with the provisions of this Agreement and by
Lender in connection with the preparation and closing of this Loan, in excess of
the Cost Advance (as defined below).
2.5 CONCURRENT CLOSING OF PRICE LOAN. All terms and conditions
associated with the funding and closing of the Price Loan shall have been
satisfied in full so that it can be funded concurrently and closed with the
Loan.
2.6 CANNERY ROW. Borrower shall have delivered to Lender and Lender
shall have reviewed and approved of all documentation associated with the
Cannery Row Settlement, in Lender's sole discretion, and all conditions to the
effectiveness of the Cannery Row Settlement to be performed on the execution of
the Cannery Row Settlement shall have been satisfied, and no default shall then
exist thereunder.
2.7 WELLS FARGO SETTLEMENT. Borrower shall have delivered to Lender
written confirmation from Wells Fargo that all obligations under the Wells Fargo
Settlement to be performed by Borrower have been performed in full, and that
upon the sale of the SunBurst Property, a "Release Event" as set forth in
Sections 1 and 6 and Annex "B" of that certain Release and Purchase Agreement
dated December 13, 1993, executed by and among Borrower, Wells Fargo, and C.
Terry Brown has occurred, such that all obligations "Guaranties" (as defined in
SECTION 1 thereof), have been released.
In the event that the conditions precedent set forth in this ARTICLE 2 are not
satisfied on or before the Closing Date, unless such Closing Date is extended by
Lender in its sole discretion, this Agreement shall become null and void, Lender
shall not have further obligations hereunder, and the Original Loan Documents
shall continue in full force and effect.
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ARTICLE 3
THE LOAN
3.1 RESTATEMENT OF ORIGINAL LOAN. Upon the Effective Date, Borrower
acknowledges and agrees that this Agreement and the other Loan Documents
constitute a complete restatement of and amendment to the Original Loan
Documents and all of Borrower's obligations and indebtedness thereunder. Upon
the execution of this Agreement and the other Loan Documents, the delivery
thereof to Lender, and the satisfaction by Borrower of all other conditions set
forth herein, this Agreement and the other Loan Documents shall replace the
Original Loan Documents in their entirety. Notwithstanding the foregoing,
nothing herein shall act as a release or termination of that UCC-1 Financing
Statement filed on May 9, 1990, as File No. 90118949. In addition to the
foregoing, Lender acknowledges and agrees that so long as Lender is not required
to perform any obligations under the Original Guaranty, including, but not
limited to, making any payments thereunder, from and after the Effective Date,
Lender shall forbear from collecting and Borrower shall not be required to pay
to Lender the monthly payment of Seventeen Thousand Thirty-Eight Dollars and
33/100 ($17,038.33) as set forth in Section 2 under the Agreement to Execute
Guaranty; provided, however, that this agreement to forbear shall not limit,
modify or release any rights of Lender or obligations of Borrower under the
Agreement to Execute Guaranty.
3.2 ADDITIONAL ADVANCE. Provided that no Event of Default or any
condition that with notice or the passage of time or both would give rise to an
Event of Default then exists hereunder, Lender shall upon the satisfaction of
all of the conditions set forth below, make the Additional Advance to Borrower
as set forth herein.
(a) COST ADVANCE. As used herein, the term "Cost Advance"
means the amount of up to One Hundred Thousand Dollars ($100,000) to be
disbursed by Lender as provided herein. As of the Effective Date, Lender has
incurred attorneys' fees and costs and other expenses associated with the
transaction evidenced by the Loan Documents that have not been reimbursed by
Borrower in an amount that exceeds the Cost Advance. On the Effective Date, the
amount of the Cost Advance shall be included in the outstanding balance of the
Loan. Borrower shall pay all other costs and expenses incurred by Lender in
excess of the Cost Advance as provided in SECTION 2.4 hereof.
(b) CANNERY ROW LETTER OF CREDIT. At the request of Borrower
on or before the Closing Date, Lender shall, at the sole cost and expense of
Borrower, obtain the Cannery Row Letter of Credit to be delivered to Cannery Row
on the Closing Date pursuant to the provisions of paragraph 4 of the Cannery Row
Settlement. So long as the Cannery Row Letter of Credit is outstanding and
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unexpired, the amount of the Aetna Advance (as defined below) shall be reduced
in the face amount of the Cannery Row Letter of Credit. In the event that the
Cannery Row Letter of Credit is drawn by Cannery Row, requiring Lender to
reimburse the issuing bank in the amount of such draw, the amount of such
payment by Lender shall be added to the principal balance of the Loan and the
amount of the Aetna Advance (as defined below) shall be permanently reduced in
such amount.
(c) AETNA ADVANCE. Subject to the satisfaction of the
following terms and conditions in a manner acceptable to Lender, and any
reduction thereof so long as the Cannery Row Letter of Credit is outstanding as
provided above, Lender shall disburse an amount not to exceed Three Million
Dollars ($3,000,000) to Aetna (the "Aetna Advance") in payment of the
outstanding balance of Aetna's loan to Borrower secured by the Aetna Deed of
Trust:
(i) the concurrent reconveyance of the Aetna Deed of
Trust; and
(ii) Delivery of written confirmation by Cannery Row to
Lender that all conditions to the effectiveness of the Cannery Row Settlement
and all provisions permitting the rescission or termination of the Cannery Row
Settlement, including, but not limited to, the provisions of paragraphs 4, 6, 7,
8, 10, 11, and 13 thereof, have been satisfied in full, waived, or expired, such
that the Cannery Row Settlement is fully effective and that no default then
exists thereunder.
Upon the satisfaction of all of the foregoing conditions and the repayment of
the Aetna Loan, any funds remaining undisbursed with respect to the Aetna
Advance shall be added to the amount of the Special Capital Reserve to be
disbursed by Lender with respect to Borrower's obligations relating to the
monthly deposit of the Capital Reserve Amount, pursuant to the provisions of
SECTION 3.2(C) below and the Capital Reserve Agreement.
(d) SPECIAL CAPITAL RESERVE. Lender shall disburse portions of
the Special Capital Reserve into an account of Borrower to be held and applied
as provided in the Capital Reserve Agreement.
3.3 PAYMENT OF LOAN. The Loan shall be paid by Borrower to Lender as
provided in the Note. In addition, on the twenty-fifth (25th) Business Day
after the end of Borrower's Fiscal Year until the Loan is paid in full, Borrower
shall make a principal payment to Lender in the Principal Payment Amount, which
payment shall be accompanied by a written statement of Borrower setting forth
the calculation of the Principal Payment Amount, and such other supporting
documentation evidencing such calculation as may be requested by Lender. The
Principal Payment Amount is expected to be Zero Dollars ($0.00) for Borrower's
Fiscal Year for 1995, but
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shall be not less than Two Hundred Fifty Thousand Dollars ($250,000) for
Borrower's Fiscal Year for 1996, Five Hundred Thousand Dollars ($500,000) for
Borrower's Fiscal Year for 1997, One Million Two Hundred Thousand Dollars
($1,200,000) for Borrower's Fiscal Year for 1998, and One Million Seven Hundred
Thousand Dollars ($1,700,000) for Borrower's Fiscal Year for 1999. Borrower
intends to pay all Deferred Interest (as defined in the Note) on an annual basis
as provided in the Annual Operating Budget, which payments may be made at the
option of Borrower or added to the principal balance of the Loan as provided in
the Note; provided, however, that if Borrower elects not to make such Deferred
Interest payment to Lender during any Fiscal Year of Borrower, all amounts
budgeted for such payments shall be paid to Lender as part of the next Principal
Payment Amount due. In addition to the forgoing, Borrower shall make principal
payments to Lender as provided in SECTION 4.15 hereof upon any sale of the
Palmilla Lots. Lender acknowledges that as of the Effective Date, it has
received funds in the amount of Two Million Fifty Thousand Three Hundred Eighty-
One Dollars and 41/100 ($2,050,381.41) in proceeds from the sale of the SunBurst
Property. Lender shall apply such proceeds as a principal reduction of the
balance of the Loan as of the Effective Date.
ARTICLE 4
AFFIRMATIVE COVENANTS
As a material inducement to Lender in executing this Agreement, Borrower
covenants that so long as any Obligations or Indebtedness (whether direct or
contingent, liquidated or unliquidated) of Borrower to Lender hereunder or under
any Loan Documents remain outstanding, and until payment in full of the Note,
Borrower shall perform each of the covenants set forth below, the performance of
each of which is considered material to the parties.
4.1 PUNCTUAL PAYMENTS. Borrower shall timely pay the interest and
principal of the Note and the Price Loan Documents, together with all amounts
due under this Agreement and the Cannery Row Settlement, at the times and places
and in the manner specified therein and the Annual Operating Budget.
4.2 ACCOUNTING RECORDS. Borrower shall maintain adequate books and
accounts as may be required or necessary to permit the preparation of the
financial statements required hereunder in accordance with both sound business
practices and generally accepted accounting principles consistently applied, and
shall permit any representative of Lender, at any reasonable time, to inspect,
audit and examine such books, records, and any underlying financial records
supporting such books and records, and to inspect the properties of Borrower.
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4.3 FINANCIAL STATEMENTS. Borrower shall furnish Lender:
(a) Not later than one hundred twenty (120) days after and as of
the end of each Fiscal Year of Borrower, an audited consolidated financial
statement of Borrower, to include all exhibits required by generally accepted
accounting principles prepared by certified public accountants acceptable to
Lender and Borrower;
(b) Not later than thirty (30) days after and as of the end of each
quarter of Borrower's Fiscal Year, a financial statement prepared by Borrower
and satisfactory to Lender, to include a balance sheet, statement of cash flow,
and operating statements;
(c) Not later than the twenty-fifth (25th) day of each calendar
month, a financial statement prepared by Borrower and satisfactory to Lender, to
include a balance sheet, statement of cash flow, and a monthly operating
statement for the previous calendar month and a current accounts payable aging
schedule with respect to Borrower;
(d) Not later than sixty (60) days before the end of each of Fiscal
Year of Borrower, beginning with Borrower's Fiscal Year for 1995, an Annual
Operating Budget for the next Fiscal Year of Borrower that is materially
consistent with the applicable portion of the Projected Operating Budget, for
review and approval by Lender, which Annual Operating Budget, once approved by
Lender in its sole discretion, shall supplement the Annual Operating Budget
under this Agreement;
(e) Not later than sixty (60) days before the end of each Fiscal
Year of Borrower, an updated Capital Repair Schedule for the upcoming Fiscal
Year of Borrower for review and approval by Lender in its sole discretion;
(f) From time to time upon request by Lender, a certificate of
compliance with this Agreement in a form provided by Lender signed by the
President and Chief Financial Officer of Borrower; and
(g) From time to time such other information as Lender may
reasonably request.
All financial statements delivered in accordance with this SECTION shall be
presented in a format consistent with the Annual Operating Budget and shall
include a comparison to the applicable period of the Annual Operating Budget and
shall include explanatory notes detailing any significant variance from the
applicable period of the Annual Operating Budget as requested by Lender.
Borrower and Lender shall meet on a monthly basis throughout the term of the
Loan at a mutually acceptable time and place, to review the
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financial statements and other information to be delivered by Borrower as
provided in this SECTION. With respect to the Capital Repair Schedule, Lender
shall not unreasonably withhold its consent to changes to the Capital Repair
Schedule proposed in writing by Borrower that do not result in a change to the
overall amounts budgeted for capital repairs that are necessitated by a change
in circumstances that were not reasonably foreseeable to Borrower at the time
the Capital Repair Schedule was prepared. In addition, in the event of an
emergency where it is not reasonably possible to obtain Lender's prior consent,
Borrower may expend amounts for a capital repair purpose not identified in the
Capital Repair Schedule, so long as Borrower gives Lender prompt written notice
thereof. In connection with the financial reporting requirements of Borrower
set forth in this SECTION 4.3, Borrower shall retain Don Stephenson of Global
Hospitality or, at the request of Lender, such other financial advisor as may be
designated by Lender, at the sole cost and expense of Borrower, to act as an
independent consultant to review the foregoing financial statements and related
books and records, inspect the Hotel and the application of the Special Capital
Reserve and the completion of items under the Capital Repair Schedule, and such
other monitoring purposes as may be required by Lender from time to time, and to
report to Lender at its request with respect to such review, inspection, and
monitoring. Borrower shall enter into a services agreement with Mr. Stephenson
or such other advisor designated by Lender, which shall provide for the
performance of the foregoing services at a cost of no more than Sixty Thousand
Dollars ($60,000) per year, which agreement shall be provided to Lender for its
review and approval.
4.4 EXISTENCE, COMPLIANCE WITH LAW. Borrower shall preserve and
maintain its existence and all of its licenses, permits, governmental approvals,
rights, privileges and franchises; conduct its business in a manner consistent
with ordinary and sound business practices applicable to Borrower's regular
business; comply with the provisions of all documents pursuant to which Borrower
is organized and/or which govern Borrower's continued existence; and comply with
the requirements of all applicable Laws, rules, regulations, orders of any
governmental authority including without limitation any law, statute, ordinance,
or regulation pertaining to health, safety, industrial hygiene, or the
environment, existing as of the date of this Agreement or hereafter enacted and
as amended from time to time and comply with all requirements for the
maintenance of Borrower's insurance, licenses, permits, governmental approvals,
rights, privileges and franchises. Borrower shall also comply in all respects
with the requirement of the Internal Revenue Code and ERISA with respect to all
"employee benefit plans" maintained for its employees, as defined in SECTION 3
of ERISA and furnish to Lender, promptly upon Lender's request therefor, such
information concerning any such employee benefit plan as may be reasonably
requested by Lender.
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4.5 INSURANCE. As further provided in the Deed of Trust, Borrower shall
maintain and keep in force insurance of the types and in amounts customarily
carried in lines of business similar to Borrower's on all real and personal
property owned or leased by Borrower, including but not limited to fire,
extended coverage, public liability, property damage and worker's compensation,
carried in companies and in amounts satisfactory to Lender, naming Lender as
loss payee. Borrower shall deliver to Lender from time to time at Lender's
request schedules setting forth all insurance then in effect, including loss
payee endorsements.
4.6 OPERATIONS AND MAINTENANCE OF HOTEL. Borrower shall operate the
Hotel and related Collateral continuously throughout the term of the Loan only
as a hospitality property of the type, class and quality such as existed as of
the Effective Date and shall not cause, suffer or permit the cessation of
operation or diminution or deterioration of the quality thereof. Borrower shall
constantly maintain, preserve, protect, renew, replace and keep in a first-class
condition the Hotel and all personal property useful and necessary for the
proper operation of the Hotel and in a manner consistent with the Annual
Operating Budget, the Capital Repair Schedule and the Capital Reserve Agreement;
provided, however, that except with respect to the door lock and fire sprinkler
systems, which shall be completed by Borrower by the specified dates, the times
for performance set forth in the Capital Repair Schedule are for informational
purposes only and Borrower shall not be in default hereunder for failure to
complete such repairs within such time periods, so long as Borrower complies
with the general standards set forth in this Section. Borrower shall not
diminish in any respect or materially alter the Improvements (including
landscaped and recreation areas) or the on-site paved parking area and/or
structures or erect any new structures of any kind or addition to existing
buildings or other structures on the Real Property without the prior written
consent of Lender, which consent may be granted or withheld in Lender's sole
discretion. The overall management and operation of the Hotel by Borrower shall
be supervised by C. Terry Brown and Borrower shall not retain a management
company for the Hotel and related Collateral without the prior written consent
of Lender.
4.7 TAXES AND OTHER LIABILITIES. Borrower shall reserve for, pay when
due, and discharge when due any and all Debt, indebtedness, obligations,
assessments and taxes, both real or personal and including federal and state
income taxes, and insurance obligations under the Deed of Trust, and shall at
all times comply with the terms, requirements, except such as Borrower may in
good faith contest or as to which a bona fide dispute may arise, provided
provision is made to the satisfaction of Lender for eventual payment thereof in
the event that it is found that the same is an obligation or Debt of Borrower;
provided that Lender is provided with prompt written notice of any such dispute
that may arise.
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4.8 LITIGATION. Borrower shall promptly give notice in writing to
Lender of any litigation or any proceeding before any governmental or regulatory
agency pending, threatened against or effecting Borrower in excess of One
Hundred Thousand Dollars ($100,000), of which Borrower has actual knowledge.
4.9 FINANCIAL CONDITION. Borrower shall operate the Hotel and maintain
its finances with respect thereto in accordance with the Annual Operating Budget
and ordinary and sound business practices. In the event that during any Fiscal
Year of Borrower, the amount reflected under the "Net Cash Surplus (Deficit)"
line item of Borrower's year end financial statement described in SECTION 4.3(a)
hereof is more than Three Hundred Fifty Thousand Dollars ($350,000) below the
amount set forth for such line item in the Annual Operating Budget, an Event of
Default shall arise hereunder; provided, however, that in the event that Lender
determines in its sole discretion based on its review of the Borrower's
financial statements for the second half of any Fiscal Year of Borrower to be
provided under SECTIONS 4.3(B) or (c) hereof that an Event of Default will arise
under this SECTION 4.9, an Event of Default shall arise hereunder.
4.10 DISCHARGE OF JUDGMENT. Borrower shall provide Lender with notice of
and shall thereafter promptly discharge any judgment or levy of any attachment,
execution or other process against the assets of Borrower unless the enforcement
of the judgment or levy is currently stayed or except as may otherwise be
approved in writing by Lender.
4.11 NOTICE TO LENDER. Borrower shall promptly (but in no event more
than five (5) Business Days after the occurrence of each such event or matter)
give notice in writing to Lender of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute such an Event of Default; (b) any
change in the name of Borrower; or (c) any uninsured or partially uninsured loss
through fire, theft, liability or property damage in excess of an aggregate of
One Hundred Thousand Dollars ($100,000) in any twelve-month period immediately
preceding and including the date of an uninsured or partially insured loss.
4.12 COMPLIANCE WITH AGREEMENTS, DUTIES AND OBLIGATIONS. Borrower shall
promptly and fully comply with all agreements, duties and obligations under any
material agreements, indentures, leases or instruments or all of the above to
which Borrower is a party, whether such other agreements, indentures, leases or
instruments or all of the above are with Lender or another Person.
4.13 THE RANCH. Borrower shall make no further payments with respect to
any Debt or other obligations or expenses associated with the Ranch Property
after the date of this Agreement.
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4.14 CANNERY ROW SETTLEMENT. Borrower shall perform all of its
obligations under the Cannery Row Settlement, including, but not limited to,
proceeding with due diligence to accomplish the transfer of its interest in Lots
24, 25 and 27 of the Palmilla "Pre-paid Interest Lots" (as defined in the
Cannery Row Settlement) to Cannery Row as provided therein.
4.15 SALE OF PALMILLA LOTS AND ADDITIONAL PALMILLA SECURITY. Borrower
agrees that an amount equal to any and all sales proceeds paid to Borrower,
Guarantor or any affiliate of Borrower with respect to the sale of the Palmilla
Lots during the term of the Loan shall be paid to Lender as a principal
reduction of the Loan at the time that the Principal Payment Amounts provided
for in SECTION 3.3 hereof are paid to Lender. Borrower shall pursue the
following actions with all due diligence: (a) the obtaining of a mortgage on the
Palmilla Hotel from Palmilla Development Partners and Palmilla San Jose
Inmobiliaria, S.A. de C.V. under the Redemption Agreement and Guaranty, both
dated March 15, 1991, as the same may be modified or amended ("Redemption
Agreement"), to secure its interest under the Palmilla Pledged Documents and
shall execute and provide such documents in addition to the Palmilla Pledge
Agreement as may be required by Lender to perfect such security interest and to
assign a valid security interest therein to Lender; (b) its remedies under the
Redemption Agreement with respect thereto; and (c) the modification of the
Palmilla Pledged Documents in such a manner as may be required to evidence a
valid interest therein in favor of Borrower. Any mortgage or other
documentation obtained by Borrower in connection with the foregoing
requirements, including any documents assigning to Lender a collateral interest
in Borrower's security interests therein, shall be in forms acceptable to
Lender. At Lender's request, Borrower shall provide to Lender a legal opinion
from counsel acceptable to Lender, with respect to the due execution and
enforceability of any such documents.
ARTICLE 5
NEGATIVE COVENANTS
As a material inducement to Lender in executing this Agreement, Borrower
further covenants that so long as any Obligations or Indebtedness (whether
direct or contingent, liquidated or unliquidated) of Borrower to Lender remain
outstanding, and until payment in full of the Note, Borrower will not do any of
the acts set forth below without prior written consent of Lender, the compliance
with each of which is considered material by the parties.
5.1 CAPITAL EXPENDITURES. Borrower shall not make any investment in
Fixed Assets in any one Fiscal Year of Borrower in excess of the amount
specified under the "R & M Capital Reserve"
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line item of the Annual Operating Budget for the items set forth in the Capital
Repair Schedule.
5.2 LEASE EXPENDITURES. Borrower shall not incur new obligations for
the lease or hire of real or personal property requiring payments in any one
Fiscal Year of Borrower in excess of Fifty Thousand Dollars ($50,000).
5.3 OTHER INDEBTEDNESS. Borrower shall not create, incur, assume or
permit to exist any Debt or indebtedness or liabilities resulting from
borrowings, loans or advances, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, except: (i)
Indebtedness to Lender incurred under the Loan Documents; (ii) the Price Loan as
evidenced by the Price Loan Documents; (iii) liability for income and real
property taxes not yet due and payable; (iv) trade payables, other payables, and
expense accruals incurred in the aggregate amount specified in the Annual
Operating Budget incurred in the ordinary course of Borrower's regular business;
and (v) contingent liabilities arising from indebtedness or liabilities
resulting from borrowings, loans or advances specified in the Annual Operating
Budget. Borrower shall not grant or permit to exist any Lien, attachment or
other security interest or encumber or hypothecate any real or personal property
described in the Loan Documents or any other of Borrower's assets now or
hereafter acquired or any portion of the Collateral except purchase money
security interests incurred in the ordinary and necessary course of Borrower's
regular business.
5.4 MERGER; CONSOLIDATION; TRANSFER OF ASSETS. Borrower shall not merge
into or consolidate with any corporation or other entity; make any substantial
change in the nature of Borrower's business; acquire all or substantially all of
the assets of any corporation or other entity; or liquidate, sell, lease,
assign, transfer, exchange (whether in one transaction or a series of related
transactions), or otherwise dispose of all or substantially all of its assets.
5.5 GUARANTEES. Borrower shall not guarantee or become liable in any
way as surety, endorser (other than as endorser of negotiable instruments for
deposit or collection in the ordinary course of business), accommodation
endorser or otherwise for, or pledge or hypothecate any assets of Borrower as
security for, any liabilities or obligations of any other Person.
5.6 LOANS, ADVANCES, INVESTMENTS. Borrower shall not make in any Fiscal
Year of Borrower, loans or advances to or investments in any Person in excess of
the amount specified in the Annual Operating Budget.
5.7 DIVIDENDS, DISTRIBUTIONS. Until the Obligations are satisfied in
full, Borrower shall not declare or pay, directly or indirectly, any dividend or
distribution either in cash, stock or
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any other property on Borrower's stock now or hereafter outstanding or redeem,
retire, purchase or otherwise acquire any shares of any class of Borrower's
stock now or hereafter outstanding. Borrower has informed Lender that it is
required to pay for certain of the shares of its stock acquired in the February
22, 1988 merger of AH MergerCo into Borrower and that such payments shall not
exceed the amount of Ninety Thousand Six Hundred Dollars ($90,600.00) or be made
to Guarantors or any relative or affiliate of Guarantors. Provided that any
such payments are made only in accordance with these terms, and Borrower
provides Lender with prompt written notice thereof, Lender's consent shall not
be required.
5.8 SALARIES. Borrower shall not pay during any Fiscal Year of Borrower
any salary, bonus or other direct or indirect renumeration to Guarantors, or any
consultant, shareholder, or Affiliate of Borrower or any Person related to an
Affiliate, shareholder or partner of Borrower, except as specified in the Annual
Operating Budget. Notwithstanding the foregoing SECTION 5.8, Borrower shall not
pay any salary, bonus or other direct or indirect renumeration to Guarantors
during any Fiscal Year of Borrower on an aggregate basis an amount (or value of
property) in excess of Three Hundred Seventy-Eight Thousand Dollars ($378,000),
which may be increased by no more than Twenty-Eight Thousand Dollars ($28,000)
per year on an annual basis during the term of the Loan at the beginning of each
Fiscal Year of Borrower.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
------------------------------
As a material inducement to Lender in executing this Agreement, Borrower
makes the following representations and warranties to Lender, each of which are
considered material to the parties and shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment of all Indebtedness and the satisfaction and discharge of all
Obligations.
6.1 LEGAL STATUS. Borrower is a corporation duly organized and existing
and in good standing under the Laws of the State of Delaware, and is qualified
or licensed to do business, and is in good standing as a foreign corporation, if
applicable, in all jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so licensed could have a
material adverse effect on Borrower.
6.2 NO VIOLATION. The execution, delivery and performance by Borrower
of the Loan Documents are all within Borrower's powers, have been duly
authorized by all necessary corporate action, have received all requisite
approvals by the federal government and by the governmental authorities in each
state in which Borrower does business, do not violate any provision of any Law,
or result in a
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breach of or constitute a default under any contract, obligation, indenture or
other instrument to which Borrower is a party or by which Borrower may be bound.
6.3 AUTHORIZATION AND VALIDITY. The Loan Documents and the T&C
Documents have been duly authorized, and upon their execution and delivery in
accordance with the provisions of this Agreement, will constitute legal, valid
and binding agreements of Borrower and/or the other parties (other than Lender)
executing such documents, enforceable in accordance with their respective terms.
6.4 CONTINGENT LIABILITIES. The Contingent Liabilities Schedule is
complete in all material respects and represents a true and accurate list of all
contingent liabilities of Borrower in excess of One Hundred Thousand Dollars
($100,000).
6.5 LITIGATION. There are no pending or, to Borrower's actual
knowledge, threatened, actions, claims, investigations, suits or proceedings
before any governmental authority, court or administrative agency which may
materially and adversely affect the financial condition or operation of Borrower
other than those heretofore disclosed by Borrower to Lender in writing.
6.6 CORRECTNESS OF FINANCIAL STATEMENTS. The audited consolidated
financial statement of Borrower dated September 30, 1994, heretofore delivered
by Borrower to Lender are complete and correct and fairly present the financial
condition of Borrower; disclose all liabilities of Borrower, whether liquidated
or unliquidated, fixed, contingent or inchoate in accordance with generally
accepted accounting principles; and have been prepared in accordance with
generally accepted accounting principles. As of the dates of such financial
statements, and since such dates, there has been no material adverse change in
the condition or operation of Borrower, nor has Borrower mortgaged, pledged or
granted a security interest or encumbered any of its assets or properties except
as permitted by this Agreement. The Annual Operating Budget, the Projected
Operating Budget, and the Capital Repair Schedule, all of which have been
prepared by Borrower and provided to Lender, are complete in all material
respects and represent a true and accurate budget for the operation of the Hotel
and related property. Borrower acknowledges and agrees that Lender has
materially relied upon all of the foregoing in entering into this Agreement and
agreeing to the financial accommodations contained herein and in the other Loan
Documents, including, but not limited to, Borrower's ability to make payments in
the amount of the Principal Payments Amounts reflected therein.
6.7 INCOME TAX RETURNS. Borrower is not now being and has not within a
period of seven (7) years prior to the Effective Date been, audited with respect
to its income tax filings, and has not received written notification of any
proposed or actual assessments or adjustments of Borrower's income tax payable
with respect to any
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year. Borrower has filed all Federal and other tax returns and statements which
are required to be filed, and has reserved for and paid when due all taxes and
assessments, except such as are being contested in good faith and as to which
adequate reserves have been provided.
6.8 NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's Obligations
under this Agreement, the Note, or the Loan Documents, to any other obligation
or Debt of Borrower.
6.9 PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, memberships, franchises, contracts and licenses required
in and material to Borrower's business and all trademark rights, trade names,
trade name rights, and fictitious name rights necessary to enable it to conduct
the business in which Borrower is now engaged without conflict with the rights
of others.
6.10 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of ERISA, and no "Reportable Event," as defined in ERISA,
has occurred and is continuing with respect to any plan initiated by Borrower
thereunder.
6.11 OTHER OBLIGATIONS. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation, except as previously disclosed
to Lender in writing. Except as approved by Lender in writing, Borrower has not
entered into any management or consulting agreements, and no such agreements are
contemplated, with any Persons, nor have any management consultants been
retained by Borrower with respect to the operation of the Hotel or otherwise.
6.12 COMPLIANCE WITH LAWS. Borrower has preserved and maintained its
existence and all of its licenses, permits, governmental approvals, rights,
privileges and franchises; has conducted its business in a commercially
reasonable manner; has complied with the provisions of all documents pursuant to
which Borrower is organized and/or which govern Borrower's continued existence;
and, to the best knowledge of Borrower, has complied with the requirements of
all applicable Laws, rules, regulations, orders of any governmental authority,
including without limitation, any law, statute, ordinance, or regulation
pertaining to health, industrial hygiene, or the environment, existing at the
date of this Agreement or hereafter enacted and as amended from time to time,
and has complied with all regulations for the maintenance of Borrower's
insurance, licenses, permits, governmental approvals, rights, privileges and
franchises.
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6.13 TITLE TO PROPERTY. Except with respect to Borrower's Interest in
the Palmilla Lots, Borrower has good, indefeasible and marketable title to,
ownership of, or an interest in the Collateral, free and clear of all liens,
claims, security interests, encumbrances and adverse claims, except for (a)
those in favor of Lender and Price and (b) liability heretofore disclosed in
writing to and approved by Lender; all of the personal property collateral is
located at the Real Property and the Deed of Trust and any other security
document delivered by Borrower to Lender in connection with the Loan create
valid and perfected security interests in the Collateral.
6.14 OTHER CONDITIONS. There exists no other condition or stated facts
or circumstances that would materially, adversely affect Borrower's businesses
or prevent Borrower from conducting such businesses after the consummation of
the transactions contemplated under this Agreement on a basis no less favorable
to Borrower and that in which they have theretofore been conducted.
6.15 SURVIVAL OF WARRANTIES AND REPRESENTATIONS. Borrower agrees that
all representations and warranties contained in this Agreement and the other
Loan Documents shall be true as of the Effective Date, and shall survive the
execution, delivery and acceptance hereof and thereof by the parties thereto and
the closing of the transactions described herein and therein or related thereto
and shall remain in full force and effect until payment of the Loan in full.
ARTICLE 7
EVENTS OF DEFAULT
-----------------
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute a "Default," and upon the expiration of any period for cure set
forth below, or if no such cure period is specified, shall constitute an "Event
of Default" under this Agreement:
7.1.1 Borrower shall fail to pay when due any principal,
interest, fees or other amounts payable under this Agreement, the Note, or any
other Loan Document within three (3) Business Days of the date any such payment
is due; provided, however, such grace period shall not be applicable if the
failure to timely pay any amount due hereunder results in the forfeiture of any
interest of Borrower or Lender with respect thereto;
7.1.2 Borrower shall fail to cure any default arising under the
Aetna Deed of Trust or any obligation secured thereby, the Price Loan Documents,
the Cannery Row Settlement, or the Wells Fargo Settlement, whether monetary or
non-monetary, or as provided herein, within the period for cure specified
therein or
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any of the foregoing shall be rescinded, set aside, or shall otherwise become
unenforceable;
7.1.3 Any representation or warranty made by Borrower hereunder
shall prove to be at any time incorrect in any material respect;
7.1.4 Borrower fails to deliver the financial statements required
under SECTION 4.3 hereof or fails to satisfy the requirements of SECTION 4.9
hereof;
7.1.5 Borrower fails to comply with any of the negative covenants
set forth in ARTICLE 5 hereof;
7.1.6 (a) C. Terry Brown ceases to be active in the business of
the Borrower and primarily responsible for the management and operation of the
Hotel ceases to be the President of Borrower, or (b) upon the death of C. Terry
Brown, Borrower fails to appoint a manager or management company acceptable to
Lender in its sole discretion within thirty (30) days thereafter;
7.1.7 Unless another period for cure is provided hereunder,
Borrower shall fail to observe or perform any other Obligation, agreement or
other provision contained herein or in any of the Loan Documents, if such
Default is not cured within thirty (30) days from the giving of notice of
Default to Borrower by Lender (or, if in Lender's sole discretion Lender
reasonably believes that such failure cannot be corrected within said thirty
(30) days but it can be cured, in Lender's sole opinion within a reasonable time
thereafter, then such failure to cure within thirty (30) days shall not be an
Event of Default, and Lender shall not exercise its rights hereunder, if
Borrower promptly commences to cure such failure and diligently pursues the same
to completion and does in fact cure the same within the time period determined
by Lender to be reasonable, but in no event shall such period for cure be
greater than one hundred twenty (120) days);
7.1.8 Except as may otherwise be approved by Lender in its sole
discretion, Borrower shall fail immediately to pay and discharge any judgment or
levy of any attachment, execution or other process in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate against any assets of Borrower, and
such judgment shall not be satisfied, or such levy or other process shall not be
removed within twenty (20) days after the entry or levy thereof, (excluding any
days when such judgment or levy or other process is stayed), or at least five
(5) days prior to the time of any proposed sale under any such judgment or levy;
7.1.9 Borrower or Guarantors shall suspend the transaction of
business, become insolvent, or shall suffer or consent to or apply for the
appointment of a receiver, trustee, custodian or liquidator of itself or any of
its property, or shall
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generally fail to pay their debts as they become due, or shall make a general
assignment for the benefit of creditors; Borrower or Guarantors shall file a
voluntary petition in bankruptcy, or seek reorganization, in order to effect a
plan or other arrangement with creditors or any other relief under Bankruptcy
Code, or under any state or federal law granting relief to debtors, whether now
or hereafter in effect, or any involuntary petition or proceeding pursuant to
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower or Guarantors or Borrower or Guarantors shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition, or Borrower or Guarantors shall be adjudicated a bankrupt,
or an order for relief shall be entered by any court of competent jurisdiction
under the Bankruptcy Code or any other applicable state or federal law relating
to bankruptcy, reorganization or other relief for debtors;
7.1.10 Either the dissolution or liquidation of Borrower, or the
taking of an action by the directors or shareholders of Borrower to effect the
dissolution or liquidation of Borrower;
7.1.11 The filing by the United States Internal Revenue Service or
any other governmental agency of any claim or action against Borrower's assets
unless such claim or action is being contested in good faith and subject to the
maintenance of adequate reserves for such purpose;
7.1.12 The revocation or purported revocation of the Guaranty by
the Guarantors or any of them or any default or breach under the Guaranty;
7.1.13 The revocation or purported revocation of the T&C, Inc.
Guaranty by T&C, Inc. or the occurrence of an event of default by any party
under the T&C, Inc. Documents; or
7.1.14 An uncured default or event of default shall exist under
any Loan Document.
7.2 REMEDIES. If an Event of Default shall occur, under this Agreement,
the Note, or any other Loan Document, the Obligations, including without
limitation the Indebtedness, shall at Lender's option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by Borrower; and Lender shall
have all rights, powers and remedies available under the Loan Documents, or
accorded by Law, including without limitation the right to resort to any or all
security for the Loan and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable Law, all of which rights, powers and
remedies may be exercised at any time by Lender and from time to time after the
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occurrence of an Event of Default. All rights, powers and remedies of Lender in
connection with any of the Loan Documents on which Borrower may be obligated to
Lender (or any holder of the Note) are cumulative and not exclusive and shall be
in addition to any other rights, powers or remedies provided by Law or equity,
including without limitation the right to set off any liability owing by Lender
to Borrower (including any sums deposited in any impound account of Borrower
with Lender) against any liability of Borrower to Lender.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 RELEASE OF CLAIMS. Borrower acknowledges and agrees that as of the
Effective Date, none of the obligations under the Loan Documents are subject to
any right of offset, defense or counterclaim of any kind or nature whatsoever.
Borrower, on behalf of itself and its legal representatives, successors and
assigns, hereby fully and forever waive, release, acquit, and discharge Lender
and TPC, and their respective legal representatives, parent corporations,
affiliates, predecessors-in-interest, successors-in-interest, agents, attorneys,
assigns, shareholders, officers, and directors (collectively, "Releasees"), of
and from any and all liabilities, claims, demands, defenses, actions, causes of
action, rights (contingent, accrued, inchoate, or otherwise), or whatsoever kind
and nature (collectively, "Claims"), known or unknown, which Borrower may now or
hereafter have against any Releasee, existing or occurring prior to or as of the
execution and delivery of this Agreement by Lender and Borrower, and which in
any way, directly or indirectly, relate to, result from or arise out of the Loan
Documents or the Original Loan Documents or the transactions related thereto or
contemplated thereunder, including, without limitation, any Claims relating to,
resulting from or arising out of the making, funding, administration, or
collection of the loans made thereunder by any Relessee or any lender liability
claims. In connection with the foregoing release, Borrower hereby waives any
and all rights which exist or may exist under Section 1542 of the California
Civil Code and any other comparable provisions or principals of state or Federal
law, or the common law. Civil Code Section 1542 provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
It is understood and agreed that the release set forth herein is a full and
final release of any and all Claims of every nature and kind whatsoever arising
out of the facts and circumstances
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described herein and that the foregoing release extinguishes all such Claims
whether known, unknown, foreseen or unforeseen. Borrower understands and
acknowledges the significance and consequences of this specific waiver of
California Civil Code Section 1542 and any other comparable provision or
principal of State or Federal law, or the common law, and hereby assume full
responsibility for any injuries, damages, losses or liabilities that any of them
may hereafter incur by virtue of this waiver.
8.2 WAIVER. No delay, failure or discontinuance of Lender, or any
holder of the Note, in exercising any right, power or remedy under the Loan
Documents on which Borrower may be obligated to Lender (or any holder of the
Note) shall affect or operate as a waiver of such right, power or remedy, nor
shall any single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power or remedy. Any waiver, permit, consent or
approval of any kind by Lender, or any holder of the Note, of any breach of or
default under any of the Loan Documents on which Borrower may be obligated to
Lender (or any holder of the Note) must be in writing and shall be effective
only to the extent set forth in such writing.
8.3 NOTICES. All notices, requests and demands given to or made upon
any party hereto must be in writing and shall be deemed to have been given or
made when personally delivered, when actually received by first class or
certified mail addressed as follows or when delivery of certified mail addressed
as follows is attempted and delivery is refused:
Borrower:
Atlas Hotels, Inc.
500 Hotel Circle North
San Diego, CA 92108
Attn: Mr. C. Terry Brown
With a copy to:
Weiss, Scolney, Spees, Danker & Shinderman
10100 Santa Monica Boulevard, Suite 1095
Los Angeles, CA 90067
Attn: Ashleigh A. Danker, Esq.
Lender:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, CA 92117
Attn: Mr. Daniel T. Carter
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And:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, CA 92117
Attn: Robert M. Gans, Esq.
With a copy to:
Luce, Forward, Hamilton & Scripps
600 West Broadway, Suite 2600
San Diego, CA 92101
Attn: Marjorie J. Floyd, Esq.
or to such other address as any party may designate by written notice to all
other parties.
8.4 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower agrees to reimburse
Lender immediately upon demand for all costs and expenses of Lender incurred in
connection with the preparation, execution, amendment, and delivery of the Loan
Documents, and with the transactions contemplated by the Loan Documents,
including, but not limited to, fees of counsel for Lender. Borrower also agrees
to pay immediately upon demand and to hold Lender harmless from and against any
liability for, any and all losses, liabilities, damages, claims, suits,
expenses, fees and costs, including but not limited to, court costs and
attorneys' fees arising out of Lender's entering into or carrying out the terms
and conditions of this Agreement or any other Loan Document, and any and all
documentary fees, recording fees and taxes, if any, which may be assessed in
connection with the execution and delivery of the Loan Documents. Borrower will
reimburse Lender immediately upon demand for all costs and expenses, including
reasonable attorneys' fees, expended or incurred by Lender in the enforcement of
this Agreement (whether or not an action is brought thereon), in actions for
declaratory relief in any way related to this Agreement, in the collection of
any sum which becomes due to Lender under any of the Loan Documents, in the
protection, preservation or enforcement of any rights of Lender in connection
with any Liens granted by Borrower to Lender to secure the Indebtedness or
Obligations, or in the enforcement of any judgment or order filed or issued with
respect to such actions. Such fees shall include, but not be limited to, fees
and costs incurred in connection with any proceeding under the Bankruptcy Code,
or any creditor's suits, third party claims or bonds, or all of the above,
related thereto, appearing at and preparing for third party examinations, and
preparation of garnishee's memorandum. Until paid to Lender, all such sums will
bear interest from the date billed at the rate of ten percent (10%) Per Annum.
8.5 SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding on and
inure to the benefit of the successors and assigns
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of the parties; provided however, that neither this Agreement nor any rights or
obligations hereunder may be assigned by Borrower without the prior written
consent of Lender, which consent will may be withheld in Lender's sole and
absolute discretion. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Lender's rights and benefits under any of the Loan Documents. In connection
therewith Lender may, subject to an agreement of confidentiality from the
recipient thereof, disclose all documents and information which Lender now has
or may hereafter acquire relating to the Loan or the Note, Borrower or its
business, any guarantor of any of the Loan or the business of any such
guarantor, or any Collateral.
8.6 ENTIRE AGREEMENT; AMENDMENT. The Loan Documents executed by Borrower
as required by this Agreement constitute the entire agreement between Borrower
and Lender; supersede all prior negotiations, communications, discussions and
correspondence concerning the subject matter hereof; and may be amended or
modified only by a written instrument executed by each party hereto.
8.7 TIME. Time is of the essence of each and every provision of the Loan
Documents.
8.8 SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be prohibited by or invalid under applicable Law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
8.9 CALIFORNIA LAW APPLICABLE. The Loan Documents shall be governed by
and construed in accordance with the laws of the State of California.
8.10 JURISDICTION. The parties hereto agree and intend that the proper and
exclusive forum for any litigation of any disputes or controversies arising out
of or related to this Agreement shall be the United States District Court for
the Southern District of California or the Superior Court of the State of
California for the County of San Diego. In the event Borrower commences or
maintains any action arising out of or related to this Agreement in a forum
other than the Superior Court of the State of California for the County of San
Diego or the United States District Court for the Southern District of
California, Lender shall be entitled to request a dismissal of such action and
Borrower shall stipulate that such action shall be dismissed. Notwithstanding
the foregoing, the parties agree that, with respect to Collateral given by
Borrower to Lender located in states other than California, Lender shall be
entitled to commence actions in such states against Borrower or other Persons
for the purpose of seeking provisional remedies, including by way of
illustration, but not limited to, actions for claim and delivery, or for
injunctive relief or
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appointment of a receiver, or actions to foreclose upon security interests or
Liens given by Borrower to Lender.
8.11 VENUE; INCONVENIENT FORUM. Borrower hereby irrevocably waives any
objection which it now or hereafter may have to the laying of venue of any
action or proceeding arising out of or relating to any of the Loan Documents
brought before the Superior Court of the State of California for the County of
San Diego or in the United States District Court for the Southern District of
California, and any objection on the ground that any action or proceeding
brought in such forum has been brought in an inconvenient forum.
8.12 SURVIVAL OF REPRESENTATIONS; COVENANTS. Representations, warranties,
conditions, covenants and other terms herein shall survive the execution hereof
and shall continue in full force and effect until full and final payment of all
Indebtedness hereunder and the satisfaction of all Obligations.
8.13 HEADINGS. Descriptive headings used herein are used for convenience
only and shall not be deemed to affect the meaning or construction of any
provisions hereof.
8.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one of the same instrument. This
Agreement shall become effective upon receipt by Lender of at least one
counterpart executed by each of the parties hereto.
8.15 ASSURANCES. Borrower will promptly provide to Lender all such
documents, instruments, further assurances and other materials as Lender may
reasonably request, and shall, at its own expense, execute, file and record all
such financing statements, memoranda of leases, and other documents and
instruments, and perform such other acts as may be necessary or desirable to
carry into full effect the transactions contemplated herein and to preserve and
perfect or give notice of Lender's interest under the Loan Documents and in the
Collateral.
8.16 WAIVERS BY BORROWER. BORROWER WAIVES TRIAL BY JURY IN ANY ACTION
BROUGHT ON, UNDER OR BY VIRTUE OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
WAIVES ANY RIGHT TO REQUIRE LENDER AT ANY TIME TO PURSUE ANY REMEDY IN LENDER'S
POWER WHATSOEVER. BORROWER
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ALSO HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE UNDER CALIFORNIA CIVIL
CODE SECTION 2822, UPON THE PAYMENT OF ANY
OBLIGATION IN CONNECTION WITH THE LOAN, TO DESIGNATE THAT ANY PORTION OF ANY
OBLIGATION HAS BEEN SATISFIED AS A RESULT OF SUCH PAYMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
BORROWER: LENDER:
ATLAS HOTELS, INC., a Delaware PRICE ENTERPRISES, INC., a Delaware
corporation corporation
By:___________________________ By:___________________________
Its:_______________________ Its:_______________________
By:___________________________ By:___________________________
Its:_______________________ Its:_______________________
35
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE SECURED BY DEED OF TRUST
$45,100,000 San Diego, California
March 31, 1995
FOR VALUE RECEIVED, the undersigned ATLAS HOTELS, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of PRICE ENTERPRISES,
INC., a Delaware corporation ("Lender"), at its office at 4649 Morena Boulevard,
San Diego, California 92117, or at such other place as the holder hereof may
designate, in lawful money of the United States of America, the principal sum of
Forty-Five Million One Hundred Thousand Dollars ($45,100,000), or so much
thereof as may from time to time be advanced (the "Loan") with interest thereon
to be computed on amounts due under the Wells Fargo Note (as defined below) as
of March 1, 1995 from March 1, 1995, and on additional amounts otherwise
advanced by Lender under this Note from the date of this Note or the date of
advances made after the date of this Note, at a rate and payable as set forth
below. This Note is issued by Lender in accordance with the terms, conditions,
and provisions of that certain Amended and Restated Loan Agreement executed by
Borrower and Lender with respect to the Loan, as the same may be amended from
time to time (the "Loan Agreement"). Repayment of this Note is secured by the
Deed of Trust and certain other documents described in the Loan Agreement
executed by Borrower in favor of Lender. Any capitalized terms used in this
Note that are not otherwise defined herein shall have the meanings set forth in
the Loan Agreement.
1. RATE, CALCULATION, AND PAYMENT OF INTEREST.
1.1 The principal balance of the Loan outstanding from time to time
hereunder shall bear interest at a rate equal to ten percent (10%) Per Annum
computed on the basis of a 365-day year on actual days elapsed (the "Loan
Rate").
1.2 Interest in the amount of Two Hundred Eighty- Seven Thousand
Two Hundred Eighty Dollars and 82/100 ($287,280.82) accrued from December
1, 1994 to December 31, 1994 under that certain Note dated May 8, 1990
executed by Borrower in favor of Wells Fargo Bank, N.A. ("Wells Fargo Note"),
which was assigned to and is now held by Lender, shall be added to the
amount of the Deferred Interest (as defined below) and shall be payable in
the same manner as such Deferred Interest. Interest accrued on this Note
shall be payable monthly in arrears commencing on April 1, 1995, at a rate
equal to the six (6) month London Interbank Offered Rate as quoted in the
West Coast edition of the WALL STREET JOURNAL on the last Business Day of the
immediately preceding calendar month ("LIBOR"), plus two and 50/100 percent
(2.50%) Per Annum (the "Index Rate"); provided, however, that notwithstanding
the actual Index Rate, until December 1, 1996, the amount of interest to be
paid currently by Borrower hereunder shall not exceed eight percent
<PAGE>
(8%) Per Annum. Notwithstanding the foregoing provisions of Paragraph 1.2,
interest payable hereunder shall in no event exceed the Loan Rate.
1.3 Interest accrued under this Note, including but not limited to
interest accrued under Paragraph 1.1 above, but not due and payable under
Paragraph 1.2 above ("Deferred Interest"), if any, that is not otherwise paid by
Borrower as provided in the Loan Agreement, shall be added to the principal
balance of the Loan on each anniversary date of this Note and shall thereafter
bear interest as principal and shall be due and payable as provided in Paragraph
2 below; further provided, that interest on Deferred Interest shall similarly be
added to the principal balance of the Loan on each anniversary date and shall be
payable at the time the Deferred Interest is payable.
1.4 In the event that LIBOR becomes unavailable during the term of
this Note or any portion thereof, Lender may designate a reasonably comparable
substitute reference rate for the calculation of interest in place of LIBOR
after notice to Borrower.
1.5 Interest not paid when due hereunder shall
thereafter bear interest like principal.
2. TERM OF NOTE. The outstanding principal balance of this Note,
together with all accrued and unpaid interest thereon (including Deferred
Interest and interest on Deferred Interest) and all other amounts due and unpaid
hereunder, shall be due and payable in full on December 1, 1999. Borrower shall
make certain additional principal payments during the term of this Note pursuant
to the terms of the Loan Agreement.
3. PREPAYMENT. Borrower may from time to time during the term of this
Note, partially or wholly repay the Loan subject to all of the limitations,
terms and conditions of this Note and the Loan Agreement without penalty. Any
amounts prepaid under this Note shall be applied by Lender in the same manner as
other amounts paid under this Note.
4. LATE PAYMENT. Borrower acknowledges that if any payment required
under this Note is not paid when the same becomes due and payable, Lender will
incur extra administrative expenses, (i.e., in addition to expenses incident to
receipt of timely payment), and the loss of the use of funds in connection with
the delinquency in payment. Because, from the nature of the case, the actual
damages suffered by Lender by reason of such extra administrative expenses and
loss of use of funds would be impracticable or extremely difficult to ascertain,
Borrower agrees that five percent (5%) of the amount of the delinquent payment
shall be the amount of damages to which Lender is entitled, upon such breach, in
compensation therefore. Therefore, Borrower shall, in such event, without
further notice, and on or before ten (10) days after the date on
2
<PAGE>
which such payment became delinquent, pay to Lender as Lender's sole monetary
recovery to cover such extra administrative expenses and loss of use of funds,
liquidated damages in the amount of five percent (5%) of the amount of such
delinquent payment. The provisions of this paragraph are intended to govern
only the determination of damages in the event of a breach and the performance
of the obligation of Borrower to make timely payments hereunder. Nothing in this
Note shall be construed as an express or implied agreement by Lender to forbear
in the collection of any delinquent payment, or be construed as in any way
giving Borrower the right, express or implied, to fail to make timely payments
hereunder, whether upon payment of such damages or otherwise, or in any manner
to limit the remedies of Lender hereunder. The right of Lender to receive
payment of such liquidated and actual damages, and receipt thereof, is without
prejudice to the right of Lender to collect such delinquent payments and any
other amounts provided to be paid hereunder or under any security for this Note
or to declare a default hereunder or under any security for this Note.
5. DUE ON SALE. The Deed of Trust contains the following provisions as
Section A.18 thereof:
"A.18 TRANSFER OR ENCUMBRANCE OF THE TRUST
ESTATE.
(a) Trustor acknowledges that Beneficiary has examined
and relied on the creditworthiness and experience of
Trustor in owning and operating properties such as the
Trust Estate in agreeing to make the loan secured hereby,
and that Beneficiary will continue to rely on Trustor's
ownership of the Trust Estate as a means of maintaining
the value of the Trust Estate as security for repayment
of the Obligations. Trustor acknowledges that Beneficiary
has a valid interest in maintaining the value of the Trust
Estate so as to ensure that, should Trustor default in the
repayment of the Obligations, Beneficiary can recover the
Obligations by a sale of the Trust Estate. Trustor shall
not, without the prior written consent of Beneficiary,
sell, convey, alienate, mortgage, encumber, pledge or
otherwise transfer the Trust Estate or any part thereof,
or permit the Trust Estate or any part thereof to be sold,
conveyed, alienated, mortgaged, encumbered, pledged or
otherwise transferred, which consent may be granted or
withheld in Beneficiary's sole and absolute discretion.
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<PAGE>
(b) A sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer within the meaning of
this Section A.18 shall be deemed to include (i) an
installment sales agreement wherein Trustor agrees to
sell the Trust Estate or any part thereof for a price
to be paid in installments; (ii) an agreement by Trustor
leasing all or a substantial part of the Trust Estate
for other than actual occupancy by a space tenant
thereunder or a sale, assignment or other transfer of,
or the grant of a security interest in, Trustor's right,
title and interest in and to any leases or any rents
relating to the Trust Estate; (iii) if Trustor, any
guarantor of Trustor ("Guarantor"), or any general
partner of Trustor or Guarantor is a corporation, the
voluntary or involuntary sale, conveyance or transfer
of such corporation's stock (or the stock of any
corporation directly or indirectly controlling such
corporation by operation of law or otherwise) or the
creation or issuance of new stock in one or a series of
transactions by which an aggregate of more than 10% of
such corporation's stock shall be vested in a party or
parties who are not now stockholders or change in
control of such corporation; and (iv) if Trustor, any
Guarantor or any general partner of Trustor or any
Guarantor is a limited or general partnership or joint
venture, the change, removal, resignation or addition
of a general partner, managing partner or joint
venturer or the transfer of the partnership interest
of any general partner, managing partner or joint
venturer.
(c) Beneficiary may predicate its decision to grant
or withhold consent hereunder on Beneficiary's
satisfaction with factors which may include, but not be
limited to, the creditworthiness of the proposed
transferee and such proposed transferee's management
experience, and upon the execution of an assumption
agreement in form and substance acceptable to Beneficiary,
the payment of an assumption fee equal to one percent (1%)
of the then unpaid principal balance of the Note and the
payment of all costs and expenses incurred by Beneficiary
in connection with the assumption including reasonable
attorneys' fees and disbursements. Beneficiary shall not
<PAGE>
be required to demonstrate any actual impairment of its
security or any increased risk of default hereunder in
order to declare the Obligations immediately due and
payable upon Trustor's sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Trust
Estate without Beneficiary's consent. This provision
shall apply to every sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Trust
Estate regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance,
pledge or transfer of the Trust Estate.
(d) Beneficiary's consent to one sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of
the Trust Estate shall not be deemed to be a waiver of
Beneficiary's right to require such consent to any
future occurrence of same. Any sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of
the Trust Estate made in contravention of this Section
shall be null and void and of no force and effect.
(e) Trustor agrees to bear and shall pay or reimburse
Beneficiary on demand for all reasonable expenses
(including, without limitation, reasonable attorney's
fees and disbursements, title search costs and title
insurance endorsement premiums) incurred by Beneficiary
in connection with the review, approval and documentation
of any such sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer."
6. DEFAULT.
6.1 Upon the occurrence of any Event of Default as defined in the
Loan Agreement, the Deed of Trust, or any other Loan Document, this Note shall
be in default, and the holder of this Note, at holder's option, may declare all
sums of principal and interest outstanding hereunder to be immediately due and
payable without presentment, demand, protest or notice of dishonor, all of which
are expressly waived by Borrower.
6.2 Failure to exercise the foregoing option shall not constitute a
waiver of the right to exercise the same at any subsequent time in respect to
the same event or any other event. The acceptance by Lender of any payment
hereunder which is less
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<PAGE>
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to exercise any of the foregoing
options at that time or at any subsequent time or nullify any prior exercise of
any such option without the express consent of Lender, except as and to the
extent otherwise provided by Law.
7. MISCELLANEOUS.
7.1 All payments on this Note are to be made or given to Lender
whose address for this purpose is specified in the Loan Agreement, or to such
other person or at such other place as Lender from time to time directs by
written notice to Borrower. Borrower agrees to pay all reasonable costs and
expenses, including reasonable attorneys' fees, expended or incurred by the
holder in connection with the enforcement of this Note, the collection of any
sums due hereunder, any actions for declaratory relief in any way related to
this Note, or the protection or preservation of any rights of the holder
hereunder.
7.2 Borrower waives any right of offset it now has or may hereafter
have against Lender and its successors and assigns, and agrees to make the
payments called for hereunder in accordance with the terms hereof. Borrower
further waives diligence, demand, presentation, protest, and notice of non-
payment, and the pleading of any statute of limitations as a defense under this
Note. Lender and all successors thereof shall have all the rights of a holder
in due course as provided in the California Uniform Commercial Code and other
laws of the State of California.
7.3 Notwithstanding anything herein to the contrary, all payments
made on this Note shall, at the option of Lender, be applied first to the
payment of any late charges or costs due hereunder, then to the payment of
accrued interest then delinquent or otherwise due hereunder, and after all such
charges and interest have been paid, any remainder shall be applied to reduce
the principal balance hereof. Borrower waives the right to direct the
applications of any amounts paid under this Note.
7.4 This Note shall not be modified or changed orally, but in each
instance, only by an instrument in writing signed by the party against which
enforcement of such change, modification or waiver is sought.
7.5 It is agreed that time is of the essence as to every term,
condition, and provision of this Note.
7.6 Should more than one person or entity sign this Note as a
Borrower, the obligations of each such Borrower shall be joint and several.
6
<PAGE>
7.7 This Note shall be construed in accordance with the laws of the
State of California, (excluding conflict of law provisions), except to the
extent Lender has greater rights or remedies under Federal law, in which case
such choice of California law shall not be deemed to deprive Lender of such
rights and remedies as may be available under Federal law.
7.8 All agreements between Borrower and Lender are expressly limited
so that in no contingency or event whatsoever, whether by reason or advancement
of the proceeds hereof, acceleration of maturity of the unpaid balance hereof,
or otherwise, shall the amount paid or agreed to be paid to Lender for the use,
forbearance or detention of the money to be advanced hereunder exceed the
highest lawful rate permissible under the applicable usury laws. If, for any
circumstances whatsoever, failure of any provision hereof or any other agreement
relating to this Note, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law which a court
of competent jurisdiction may deem applicable hereto, then IPSO FACTO, the
obligation to be fulfilled shall be reduced to the limit of such validity, and
if from any circumstance, Lender shall ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the unpaid principal balance due
hereunder as of the date such amount is received or deemed to be received by
Lender and not to the payment of interest. This provision shall control every
other provision of all agreements between Borrower and Lender.
7.9 Borrower acknowledges and agrees that this Note, the Loan
Agreement and all other documents executed in connection with the Loan
constitute a complete restatement of and amendment to the Original Loan
Documents (as defined in the Loan Agreement) and all of Borrower's obligations
and indebtedness thereunder. Upon the execution of this Note and the other Loan
Documents, the delivery thereof to Lender, and the satisfaction by Borrower of
all other conditions set forth in the Loan Agreement, this Note shall replace
the Original Note (as defined in the Loan Agreement) in its entirety.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
7.10 BORROWER WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON, UNDER OR
BY VIRTUE OF THIS NOTE OR ANY OTHER LOAN DOCUMENT AND WAIVES ANY RIGHT TO
REQUIRE LENDER AT ANY TIME TO PURSUE ANY REMEDY IN LENDER'S POWER WHATSOEVER.
IN WITNESS WHEREOF, this Note is executed by Borrower on the date
first-above written.
ATLAS HOTELS, INC.,
a Delaware corporation
By:_____________________________
Its:_________________________
By:_____________________________
Its:_________________________
8
<PAGE>
RECORDING REQUESTED BY: )
)
WHEN RECORDED MAIL TO: )
)
Luce, Forward, Hamilton & Scripps )
600 West Broadway, Suite 2600 )
San Diego, CA 92101 )
Attn: Marjorie J. Floyd, Esq. )
)
INSTRUCTIONS TO COUNTY RECORDER: )
)
Index this instrument as: )
(i) a Deed of Trust and (ii) as )
a Fixture Filing )
- -------------------------------------------------------------------------------
AMENDED AND RESTATED DEED OF TRUST WITH ASSIGNMENT
OF LEASES AND RENTS AND FIXTURE FILING
THIS AMENDED AND RESTATED DEED OF TRUST WITH ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FILING ("Deed of Trust") is made as of the 31st day of March, 1995,
by and among ATLAS HOTELS, INC., a Delaware corporation ("Trustor"), whose
address is 500 Hotel Circle North, San Diego, CA 92108, Attn: Mr. C. Terry
Brown, CHICAGO TITLE COMPANY, a California corporation ("Trustee"), and PRICE
ENTERPRISES, INC., a California corporation ("Beneficiary"), whose address is
4649 Morena Boulevard, San Diego, CA 92117, Attn: Mr. Daniel T. Carter.
RECITALS
WHEREAS, Trustor and Beneficiary have entered into that certain Loan
Agreement of even date herewith (the "Loan Agreement"), which provides for a
loan by Beneficiary to Trustor (the "Loan");
WHEREAS, pursuant to the Loan Agreement, for value received, Trustor has
executed and delivered to Beneficiary that certain Amended and Restated
Promissory Note Secured by Deed of Trust (the "Note") of even date herewith
payable to Beneficiary in the principal amount of Forty-Five Million One Hundred
Thousand and No/100 Dollars ($45,100,000.00) and Trustor has agreed to execute
and deliver to Beneficiary, as security for the payment of the Note, and any and
all extensions, modifications, substitutions, replacements, and/or renewals
thereof, a Deed of Trust respecting the Trust Estate (as hereinafter defined);
WHEREAS, Trustor is the owner of fee title to that certain real property
described in EXHIBIT "A" attached hereto and incorporated herein (the "Real
Property").
<PAGE>
WHEREAS, all things necessary have been done and performed to make the Note
the duly authorized, valid and legally binding obligation of Trustor and to
constitute this instrument the duly authorized and, when executed and delivered
by Trustor, valid and legally binding Deed of Trust on the Trust Estate, in
order to secure the Note as hereinafter provided; and
WHEREAS, Trustor has agreed to execute and deliver to Beneficiary this Deed
of Trust as security (except as expressly provided herein) for performance of
all of its obligations under, among other things, the Loan Agreement, the Note
and all other Loan Documents (as defined in the Loan Agreement), and all
extensions, modifications, substitutions, replacements and renewals of any kind
thereof (collectively, the "Obligations"), but specifically not the
Environmental Indemnity (as defined in the Loan Agreement);
NOW, THEREFORE, for the purposes and upon the terms and conditions of this
Deed of Trust, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of these
premises, Trustor irrevocably GRANTS, TRANSFERS, SETS OVER, CONVEYS AND ASSIGNS
to Trustee, its successors and assigns, in trust for the benefit of Beneficiary,
with power of sale and right of entry and possession, all of its present and
future estate, right, title and interest in and to all of the following
described property, now owned or hereafter acquired (the "Trust Estate"):
1. The Real Property and all of Trustor's rights and interests in and to
the Real Property, including but not limited to, all present and future options
of any kind, right of first refusal and other similar benefits; and
2. All present and future structures, buildings, improvements,
appurtenances, and fixtures of any kind now or hereafter located in, on or
attached or affixed to, or used or intended to be used in connection with the
operation, occupancy, development or improvement of the Real Property,
including, but not limited to, all rights of Trustor to all apparatus, equipment
and appliances used in connection with the operation or occupancy of the Real
Property or in any development of the Real Property, such as heating and air-
conditioning systems and facilities used to provide any utility services,
refrigeration, ventilation, laundry, drying, dishwashing, garbage disposal,
recreation or other services on the Real Property, and all window coverings,
drapes and rods, carpeting and floor coverings, it being intended and agreed
that all such items will be conclusively considered to be a part of the Real
Property, whether or not attached or affixed thereto (herein the property which
is the subject of this Section is referred to as the "Improvements"); and
2
<PAGE>
3. All interest and estate or other rights, in law or in equity, all
appurtenances of the Real Property, and all rights of the Trustor in and to any
streets, roads, navigable waters, public places, easements or rights of way
relating to the Real Property, which Trustor now has or may hereafter acquire in
the Real Property; and
4. All of the rents, issues, accounts, royalties, profits and income of
the Real Property or the Improvements, and all rights of the Trustor under all
present and future leases and subleases affecting the Real Property or the
Improvements, including but not limited to, any security deposits); and
5. All guarantees, warranties and agreements regarding the quality of
construction or other performance, and the quality of workmanship and supplies,
furnishings, equipment and fixtures supplied to, installed by or on the Real
Property or otherwise associated with the Trust Estate, whether or not such
guarantees, warranties and agreements are set forth in any contracts relating to
the Improvements, together with any and all claims or demands to enforce them;
and
6. All proceeds, including insurance proceeds, and claims arising on
account of any damage to or taking of the Real Property, the Improvements, and
all causes of action and recoveries for any loss or diminution in value of the
Real Property, the Improvements; and all deposits made by Trustor with third
parties in connection with the development of the Real Property, and refunds
received by the Trustor with respect to payments made in connection with the
development of the Real Property; and
7. All oil and gas and other mineral rights in or pertaining to the Real
Property, and all royalty, and other rights of Trustor pertaining thereto, and
all water, water rights, water stock, parking, parking rights and general
intangibles relating to the Real Property and all proceeds, including insurance
proceeds thereof and all damages, royalties and revenue of every kind, nature
and description whatsoever that Trustor may be entitled to receive from any
person or entity owning or having or hereafter acquiring a right to any oil, gas
or mineral rights and reservations of the Real Property; and
8. All rights under any reciprocal easement agreements or documents of
membership in any owners' or members' association or similar group having
responsibility for managing or operating any part of the Real Property and the
proceeds, including insurance proceeds thereof; and
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<PAGE>
9. Any and all claims, damages, awards, or payments, including interest
thereon, at law or in equity, which may arise or be made with respect to the
Real Property, including, as a result of the exercise of the right of eminent
domain, against suppliers of labor, materials or services to the Real Property,
arising in tort, contract or based on fraud or concealment of a material fact,
or any other damage or injury to or decrease in the value of the Real Property
or the Trust Estate; and
10. All deposits made with or other security given to utility companies by
Trustor with respect to the Trust Estate or any part thereof, and all advance
payments of insurance premiums made by Trustor with respect thereto and all
claims or demands with respect to insurance; and
11. All substitutions, renewals, improvements, attachments, accessions,
additions and replacements to any of the foregoing; and
12. All collections, proceeds, insurance proceeds and products of any of
the foregoing, including without limitation, proceeds of any voluntary or
involuntary disposition, conversion or claim respecting any part thereof
(pursuant to judgment, condemnation award or otherwise) and all documents,
instruments, general intangibles, goods, equipment, inventory, chattel paper,
monies, accounts, deposit accounts and other personal property that may arise
from the sale, liquidation, conversion, or disposition of any of the foregoing,
all guaranties of and security for any of the foregoing, and all books and
records, including, without limitation, all computer records, computer tapes and
electronic and electromagnetic representations and reproductions thereof,
relating to any of the foregoing.
FOR THE PURPOSE OF SECURING, in such order of priority as Beneficiary, in
its absolute discretion, may determine:
I. Payment by Trustor of the Obligations, including, but not limited to,
the indebtedness as evidenced by the Note, and any and all modifications,
extensions or renewals of the Note (whether evidenced by the Note or otherwise);
together with the payment of interest on said indebtedness and the payment of
all other sums (with interest as therein provided) according to the terms of the
Note (and any and all modifications, extensions, or renewals thereof); and
II. Payment of all other sums, with interest as herein provided, becoming
due or payable, under the provisions of this Deed of Trust, to Trustee or
Beneficiary or under the Loan Agreement or any other Loan Document; and
III. Due, prompt, and complete observance, performance and discharge of
each and every condition, obligation, covenant and agreement contained in this
Deed of Trust, the Loan Agreement, the
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<PAGE>
Note, any document or instrument modifying or amending this Deed of Trust or the
Note, or any instrument or agreement given to evidence or further secure the
payment and performance of any obligation secured hereby; and
IV. Payment of such additional sums (with interest thereon) as may
hereafter be borrowed from Beneficiary, or its successors or assigns, by Trustor
or the then record owner of the Real Property and evidenced by one or more
promissory notes (other than the Note) which are by their terms secured by this
Deed of Trust.
TO PROTECT AND MAINTAIN THE SECURITY OF THIS DEED OF TRUST, TRUSTOR AND
BENEFICIARY AGREE AS FOLLOWS:
A. AGREEMENTS OF TRUSTOR WITH BENEFICIARY
A.1 OWNERSHIP OF TRUST ESTATE. Trustor is the sole owner of the Real
Property and the Improvements. This Deed of Trust is lawfully executed and
delivered and is and will be a valid lien on all right, title and interest of
Trustor in and to the Trust Estate.
A.2 PAYMENT; MAINTENANCE OF TRUST ESTATE.
(a) Trustor shall promptly pay when due and in lawful money of
the United States of America, which shall be legal tender for public and private
debts at the time of payment, each and every indebtedness and obligation for
which this Deed of Trust has been given as security as provided hereinabove; and
Trustor shall promptly perform, observe and discharge each and every condition,
obligation, covenant and agreement for which this Deed of Trust has been given
as security as provided herein.
(b) Trustor shall maintain and keep the Trust Estate in good
condition and repair and shall not commit or permit waste of the whole or part
or any item consisting of a part of the Trust Estate. Trustor shall promptly
repair, replace or restore (in good, workmanlike manner and in compliance with
all laws, ordinances, governmental rules and regulations, easements, agreements,
covenants, conditions and restrictions affecting the Trust Estate) all
buildings, improvements, machinery, equipment, appliances and fixtures now or
hereafter comprising a portion of the Trust Estate, in the event of damage to or
destruction of such buildings, improvements, machinery, equipment, appliances
and fixtures. Trustor shall cultivate, irrigate, fertilize, fumigate, prune and
do any other acts which from the character or use of the Trust Estate may be
reasonably necessary.
(c) In the performance of all acts required of Trustor under the
above paragraphs describing maintenance of the Trust Estate, Trustor shall
promptly pay when due all expenses incurred therefor and shall promptly pay,
discharge or otherwise
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release all claims for labor performed and materials furnished therefor, subject
to Trustor's right to contest such matters set forth in SECTION E.4 below.
(d) Trustor shall promptly comply with all laws, ordinances and
regulations of all governmental authorities applicable to the use or occupancy
of the Trust Estate. Trustor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Beneficiary's interest in the Trust Estate is
not jeopardized.
(e) The Beneficiary and/or the Trustee will have the right to
appear in and participate in all proceedings, including any arbitration
proceedings, which could affect the Beneficiary's security or which relate to
the Trust Estate. Trustor agrees to pay promptly upon demand all reasonable
costs and expenses of the Beneficiary and the Trustee (including but not limited
to legal fees and disbursements) incurred in any such proceedings. Beneficiary
and its agents and representatives may enter upon the Real Property in a
reasonable manner at all reasonable times to attend to Beneficiary's interest
and to inspect the Trust Estate.
A.3 ALTERATION OF IMPROVEMENTS.
(a) Except as may be permitted under the Loan Agreement, Trustor
shall not remove, demolish or structurally alter any portion of the Trust
Estate, or permit or suffer the same to be done, except such alterations as may
be required by laws, ordinances, rules, regulations or orders of governmental
authorities or by the terms hereof, without the prior written consent of
Beneficiary. Trustor shall complete promptly and in a good and workmanlike
manner any Improvement which may now or hereafter be constructed on the Real
Property and promptly restore in like manner any Improvement which may be
damaged or destroyed by any cause whatsoever.
(b) Except as may be permitted under the Loan Agreement, Trustor
shall not commit or permit waste of the Trust Estate, not alter the occupancy of
all or any part of the Improvements without the prior written consent of
Beneficiary; and shall execute and acknowledge and deliver, as appropriate, all
further documents, instruments and other papers as Beneficiary or Trustee deems
reasonably necessary or appropriate to preserve, continue, perfect and enjoy the
security of this Deed of Trust and perform Trustor's obligations hereunder.
A.4 LIENS. Except as provided herein or in the Loan Agreement,
Trustor shall not suffer any liens or encumbrances to attach to the Trust
Estate, and shall promptly pay and promptly discharge, at Trustor's sole cost
and expense, all liens,
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encumbrances and charges now or hereafter affecting the Trust Estate or any part
thereof or interest therein, except taxes and assessments not yet due or not
delinquent. The existence of any mechanic's, laborer's, materialman's,
supplier's, vendor's or statutory lien or right thereto shall not constitute a
violation of this Section if payment is not yet due under the contract,
obligation, or statute which is the foundation thereof or if Trustor is
contesting in good faith the validity of any such lien, encumbrance or charge as
provided herein.
A.5 COMPLIANCE WITH LAWS. Trustor shall comply with all laws,
ordinances, rules, regulations and orders of any governmental authority now or
hereafter affecting the Real Property or requiring any alterations or
improvements to be made thereon; Trustor may contest in good faith any such law,
ordinance or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Beneficiary's interest in the Trust Estate is
not jeopardized. Trustor shall not commit, suffer or permit any act to be done
in, upon or to the Real Property or the Improvements in violation of any law or
ordinance, or any covenant, condition or restriction now or hereafter affecting
the Real Property or the Improvements.
A.6 DEFENSE OF ACTIONS AND COSTS. Trustor shall appear in and defend
any action or proceeding purporting to affect the security of this Deed of Trust
and/or any additional or other security for the obligations secured hereby, the
interest of Beneficiary or the rights, powers and duties of Trustee hereunder.
Trustor shall pay all reasonable costs, fees and expenses, including costs of
evidence of title and trustees' fees and attorneys' fees, paid or incurred in
any action or proceeding in which Beneficiary and/or Trustee may appear or be
made a party, whether or not pursued to final judgment, and in any exercise of
the power of sale contained herein, whether or not such sale is actually
consummated.
A.7 ACTIONS BY TRUSTEE AND/OR BENEFICIARY TO PRESERVE SECURITY.
Should Trustor fail to make any payment as and when provided in the Note, this
Deed of Trust, or the other Loan Documents, or to do any act as and in the
manner provided in any of the Loan Documents, Beneficiary and/or Trustee, each
in its own discretion, without obligation to do so and following notice to
Trustor (except in the event of an emergency, when no notice shall be required)
and without releasing Trustor from any obligation, may make or do the same in
such manner and to such extent as either may deem necessary to protect the
security hereof. In connection therewith (without limiting their general
powers), Beneficiary and/or Trustee shall have and are hereby given the right,
but not the obligation (i) to enter upon and take possession of the Trust
Estate, (ii) to make additions, alterations, repairs and improvements to the
Trust Estate which they or either of them may consider necessary or proper to
keep the Trust Estate in good
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condition and repair, (iii) to appear and participate in any action or
proceeding affecting or which may affect the security hereof or the rights or
powers of Beneficiary or Trustee hereunder, (iv) to pay, purchase, contest or
compromise any encumbrance, claim, charge, lien or debt which in the judgment of
either may affect or appear to affect the security of this Deed of Trust or be
or appear to be prior or superior hereto, and (v) in exercising such powers, to
pay necessary expenses and employ necessary or desirable consultants.
A.8 REIMBURSEMENT. Trustor shall pay upon demand, after expenditure,
all reasonable sums expended for expenses paid or incurred by Trustee and/or
Beneficiary, including, without limitation, court costs, expenses for evidence
of title, appraisals and surveys and trustees' and attorneys' fees, under any of
the terms of this Deed of Trust, including, without limitation, the provisions
of SECTIONS A.6 and A.7 hereof, together with interest on the amount of each
expenditure from the date of such demand at the rate in effect under the Note.
A.9 TAXES AND IMPOSITIONS.
(a) Except as may otherwise be provided in the Loan Agreement,
Trustor shall pay, prior to delinquency, all real and personal property taxes
and assessments, general and special, and all other taxes and assessments of any
kind or nature whatsoever, including, without limitation, state and federal
income, withholding and social security taxes, non-governmental levies or
assessments such as maintenance charges, owner association dues or charges or
fees, levies or charges resulting from covenants, conditions and restrictions
affecting the Trust Estate, which are assessed or imposed upon the Trust Estate,
or become due and payable, and which create, may create or appear to create a
lien upon the Trust Estate, or any part thereof, or upon any personal property,
equipment or other facility used in the operation or maintenance of the Trust
Estate (all of which taxes, assessments and other governmental charges of like
nature are hereinafter referred to as "Impositions"); provided, however, that
if, by law, any such Imposition is payable, or may at the option of the taxpayer
be paid, in installments, Trustor may pay the same together with any accrued
interest on the unpaid balance of such Imposition in installments as the same
become due and before any fine, penalty, interest or cost may be added thereto
for the nonpayment of any such installment.
(b) If at any time after the date hereof there shall be assessed
or imposed (i) a tax or assessment on the Trust Estate in lieu of or in addition
to the Impositions payable by Trustor pursuant to SECTION A.9 (a) hereof, or
(ii) a license fee, tax or assessment imposed on Beneficiary and measured by or
based in whole or in part upon the amount of the outstanding obligations secured
hereby (but excluding any state or federal income or
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franchise tax), then all such taxes, assessments or fees shall be deemed to be
included within the term "Impositions" as defined in SECTION A.9 (a) hereof, and
Trustor shall pay and discharge the same as herein provided with respect to the
payment of Impositions or, at the option of Beneficiary, all obligations secured
hereby, together with all accrued interest thereon, shall immediately become due
and payable. Anything to the contrary herein notwithstanding, Trustor shall
have no obligation to pay any franchise, estate, inheritance, income, excess
profits or similar tax levied on Beneficiary or on the obligations secured
hereby.
(c) If requested by Beneficiary, Trustor shall furnish
Beneficiary prior to the date upon which any Imposition is delinquent, official
receipts of the appropriate taxing authority, or other proof satisfactory to
Beneficiary, evidencing the payments thereof.
(d) Trustor shall not suffer, permit or initiate the joint
assessment of the real and personal property, or any other procedure whereby the
lien of the real property taxes and the lien of the personal property taxes
shall be assessed, levied or charged to the Trust Estate as a single lien,
except as may be required by law.
(e) If requested by Beneficiary, Trustor shall cause to be
furnished to Beneficiary a tax reporting service covering the Trust Estate of a
type, duration and with a company satisfactory to Beneficiary.
(f) If requested by Beneficiary, Trustor shall deposit with
Beneficiary, in monthly installments, an amount equal to one-twelfth of the
estimated aggregate annual Impositions. Beneficiary is hereby granted a
security interest in such deposits. In such event, Trustor shall cause all
bills, statements or other documents relating to Impositions to be sent or
mailed directly to Beneficiary. Upon receipt of such bills, statements or other
documents, and providing Trustor has deposited sufficient funds with Beneficiary
pursuant to this Section and no event of default then exists under this Deed of
Trust, Beneficiary shall pay such amounts as may be due thereunder out of the
funds so deposited with Beneficiary. If at any time and for any reason the funds
deposited with Beneficiary are or will be insufficient to pay such amounts as
may then or subsequently be due, Beneficiary shall notify Trustor and Trustor
shall immediately deposit an amount equal to such deficiency with Beneficiary.
Notwithstanding the foregoing, nothing contained herein shall cause Beneficiary
to be deemed a trustee of said funds or to be obligated to pay any amounts in
excess of the amount of funds deposited with Beneficiary pursuant to this
Section. Beneficiary shall deposit said reserve into a separate interest-
bearing account, which interest shall be added to the amount of such funds, for
application by Beneficiary as provided herein.
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A.10 UTILITIES. Trustor shall pay when due all utility charges which
are incurred by Trustor for the benefit of the Trust Estate or which may become
a charge or lien against the Trust Estate, including, without limitation, all
charges for gas, electricity, water or sewer services furnished to the Trust
Estate and all other assessments or charges of a similar nature, whether public
or private, affecting the Trust Estate or any portion thereof, whether or not
such taxes, assessments or charges are liens thereon.
A.11 LOAN STATEMENT FEES. Trustor shall pay the reasonable amount
demanded by Beneficiary or its authorized loan servicing agent for any statement
regarding the obligations secured hereby; provided, however, that such amount
may not exceed the maximum amount allowed by law at the time request for the
statement is made.
A.12 LATE CHARGE. If Trustor defaults in the payment of any amount
when due and payable under or secured by this Deed of Trust, a late charge
specified in the Note, or, if no such charge is so specified, a late charge of
five percent (5.00%) of the amount of such delinquent payment may be charged by
Beneficiary for the purpose of defraying the extra administrative expenses
incident to handling such delinquent payment and the loss of the use of funds
resulting from Trustor's nonpayment when due. Such late charge represents a
fair and reasonable estimate by Beneficiary and Trustor of a fair average
compensation for the loss that may be sustained by the Beneficiary due to the
failure of Trustor to make timely payments, the parties recognizing that the
damages caused by such extra administrative expenses and loss of use of funds is
impracticable or extremely difficult to ascertain. Such late charge shall be
paid without prejudice to the rights of the Beneficiary to collect any other
amounts provided to be paid hereunder or to declare a default under the Note,
this Deed of Trust or any other Loan Document.
A.13 BOOKS AND RECORDS. Trustor shall keep and maintain or cause to
be kept and maintained at such place or places as Beneficiary shall reasonably
designate, proper and accurate books, records and accounts reflecting all items
of income and expense in connection with the operation of the Trust Estate,
whether such income and expenses are realized by Trustor or by any other person
or entity whatsoever. Beneficiary or its designees shall have the right, from
time to time and at all times during normal business hours, to examine such
books, records and accounts at the office of Trustor or other person or entity
maintaining such books, records and accounts and to make copies thereof.
A.14 FURTHER ASSIGNMENTS. Upon demand of Beneficiary, Trustor shall
assign to Beneficiary, in addition to the assignment of rents, issues and
profits provided hereinbelow and any other grant, transfer or assignment
effected under this Deed of Trust, a
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specific assignment of Trustor's interest in any or all development agreements,
ground leases, building leases, subleases, contracts, licenses and permits
affecting the Trust Estate, such assignments to be made by instruments in form
satisfactory to Beneficiary; provided, however, that no such assignment shall be
construed as imposing upon Beneficiary any obligations with respect thereto. A
default by Trustor in the performance of any covenant of any lease or other
instrument so assigned to Beneficiary, by reason of which default the lessee or
other party thereunder has the right to cancel such lease or other instrument or
to claim any diminution or offset against future rents, issues or profits shall,
at the option of Beneficiary, constitute a default hereunder and under the Loan
Documents, and Beneficiary shall have all the rights and remedies herein as if
such default had occurred under this Deed of Trust. Beneficiary may, at its
option, exercise its rights hereunder or under such specific assignment, and
such exercise shall not constitute a waiver of any rights hereunder or under
such specific assignment.
A.15 INSURANCE.
(a) Trustor shall at all times provide, maintain, deliver to
Beneficiary and keep in full force and effect:
(1) Policies of insurance insuring the Trust Estate
against loss or damage by risks embraced in coverage of the type now known as
the broad form of all-risk, extended coverage, including without limitation,
coverage against loss by fire, vandalism, and malicious mischief in an amount
not less than the lesser of (i) the original amount of the Note or (ii) the full
replacement cost of the Improvements (exclusive of the cost of excavations,
foundations, and footings below the lowest basement floor, but including any
Improvements hereafter made); and with not more than Twenty-Five Thousand
Dollars ($25,000.00) deductible from the loss payable for any casualty. The
policies of insurance carried in accordance with this SUBSECTION (a) shall
contain the "Replacement Cost Endorsement";
(2) Comprehensive public liability insurance, including
coverage for completed operations for two years after the construction of the
Improvements (as defined in the Loan Agreement) has been completed, on an
"occurrence basis" against claims for "personal injury," including, without
limitation, bodily injury, death or property damage, occurring on, in or about
the Real Property and the adjoining streets and sidewalks, or arising from or
connected with the use, conduct or operation of Trustor's business or interest,
in an amount of not less than One Million Dollars ($1,000,000) per occurrence
and Five Million Dollars ($5,000,000) in the aggregate, with respect to personal
injury or death of one or more persons and with respect to damage to property.
Such policy of insurance shall name Beneficiary as an additional insured.
Beneficiary shall have the
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right from time to time to require an increase in the amount of coverage based
on the standard practices in the industry and the risks involved in Trustor's
business, operations or interest;
(3) Insurance against damage by flood or similar
occurrences in the event such insurance is available pursuant to the provisions
of the Flood Disaster Protection Act of 1973 or other applicable legislation,
such insurance to be in an amount equal to the lesser of one hundred percent
(100%) of the insurable value of the Trust Estate or the maximum amount
obtainable under such legislation;
(4) Insurance against damage by earthquake or similar
occurrences, such insurance to be in an amount equal to the lesser of one
hundred percent (100%) of the insurable value of the Trust Estate or the maximum
amount of such insurance obtainable by Trustor at a commercially reasonable
cost, in Beneficiary's reasonable determination.
(5) Appropriate worker's compensation insurance coverage
against liability arising from claims of workers with respect to and during the
period of any work on or about the Trust Estate, and also after completion of
construction of the Improvements. Without prior request by Beneficiary, Trustor
shall require each of its contractors and subcontractors employed to perform
work on the Trust Estate to furnish a certificate of workers' compensation
insurance prior to the commencement of any work;
(6) Rental loss and/or business interruption insurance
(including rental value if any of the Trust Property is leased in whole or in
part) in an amount equal to all rents or estimated Gross Income from the
Operations of the Trust Property (as defined in the Loan Agreement), as may be
applicable, all real property taxes and any other continuing expenses for a
period of at least one (1) year after the date of the fire or casualty in
question. The amount of such insurance shall be increased from time to time
during the term of the Loan as and when new leases and renewal leases are
entered into and the rents increase or the annual estimate of (or the actual)
gross revenue, as may be applicable, increases.
(7) Such other insurance against such risks or hazards,
or other risks and hazards, and in such amounts, as may from time to time be
reasonably required by Beneficiary, including, without limitation, or policies
insuring against other specified hazards affecting Lender's security as may be
required by governmental regulations, or as may be reasonably available for
improvements similar to the Improvements located in the same locality as the
Trust Estate.
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(b) All policies of insurance shall be issued by companies
approved by Beneficiary in its sole discretion and licensed to do business in
California, shall contain the Standard Non-Contributory Mortgagee Clause and the
Standard Lenders' Loss Payable Clause, or their equivalents, in favor of
Beneficiary, and shall provide that the proceeds thereof shall be payable to
Beneficiary to the extent of its interest. All forms of such policies and
amounts of any deductibles thereunder shall be acceptable to Beneficiary in its
sole discretion. In the event of the foreclosure of this Deed of Trust or other
transfer of title to the Trust Estate in extinguishment, in whole or in part, of
the indebtedness secured hereby, all right, title and interest of Trustor in and
to any insurance policy then in force shall pass to the purchaser or grantee.
Beneficiary shall be furnished with the original of each policy required to be
provided by Trustor hereunder, which policy shall provide that it shall not be
modified or cancelled without thirty (30) days' written notice to Beneficiary.
Trustor shall furnish Beneficiary with receipts for the payment of premiums on
such insurance policies or other evidence of such payment reasonably
satisfactory to Beneficiary. In the event Trustor does not deposit with
Beneficiary a new policy of insurance (or a binder in a form satisfactory to
Beneficiary) with evidence of payment of premium thereon prior to the expiration
of any expiring policy, then Beneficiary may, but shall not be obligated to,
procure such insurance and Trustor shall pay the premiums thereon promptly upon
demand. Beneficiary shall not by the fact of approving, disapproving,
accepting, preventing, obtaining or failing to obtain any such insurance, incur
any liability for the form or legal sufficiency of insurance contracts, solvency
of insurers, or payment of losses, and Trustor hereby expressly assumes full
responsibility therefor and all liability, if any, thereunder.
(c) If requested by Beneficiary, Trustor shall deposit with
Beneficiary, in monthly installments, an amount equal to one-twelfth of the
estimated aggregate annual insurance premiums on all policies of insurance
required by this Deed of Trust. Beneficiary is hereby granted a security
interest in such deposits. In such event, Trustor shall cause all bills,
statements or other documents relating to such insurance premiums to be sent or
mailed directly to Beneficiary. Upon receipt of such bills, statements or other
documents evidencing that a premium for a required policy is then payable, and
providing Trustor has deposited sufficient funds with Beneficiary pursuant to
this Section and no event of default then exists under this Deed of Trust,
Beneficiary shall pay such amounts as may be due thereunder out of the funds so
deposited with Beneficiary. If at any time and for any reason the funds
deposited with Beneficiary are or will be insufficient to pay such amounts as
may then or subsequently be due, Beneficiary shall notify Trustor and Trustor
shall immediately deposit an amount equal to such deficiency with Beneficiary.
Notwithstanding the foregoing, nothing contained herein shall cause Beneficiary
to be deemed a trustee of
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said funds or to be obligated to pay any amounts in excess of the amount of
funds deposited with Beneficiary pursuant to this Section, nor shall anything
contained herein modify the obligation of Trustor to maintain and keep such
insurance in force at all times. Beneficiary shall deposit said reserve into a
separate interest-bearing account, which interest shall be added to the amount
of such funds, for application by Beneficiary as provided herein.
A.16 CASUALTIES; INSURANCE PROCEEDS. Trustor shall give prompt
written notice to Beneficiary of any material casualties to the Improvements or
any part thereof, whether or not covered by insurance. In the event of such a
casualty, all proceeds of insurance shall be payable to Beneficiary and Trustor
hereby authorizes and empowers Beneficiary, at Beneficiary's option and in
Beneficiary's sole discretion as attorney-in-fact for Trustor, to make proof of
loss, to adjust and compromise any claim under insurance policies, to appear in
and prosecute any action arising from such insurance policies, to collect and
receive insurance proceeds, and to deduct therefrom Beneficiary's expenses
incurred in the collection of such proceeds. In the event of any damage to or
destruction of the Improvements, Beneficiary shall have the option, in its sole
discretion, to:
(a) Apply all or any part of such proceeds to any indebtedness
secured hereby in such order as Beneficiary may determine, whether or not such
indebtedness is then due; or
(b) Release all or any part of such proceeds to Trustor upon
such conditions as Beneficiary may impose.
Notwithstanding the foregoing, Beneficiary shall hold the balance of such
proceeds to be used to reimburse Trustor for the costs of reconstruction of the
Improvements if Beneficiary determines in its sole discretion that all of the
following conditions can be satisfied within a reasonable time following the
date of damage or destruction, but in no event later than the maturity date
under the Note:
(i) Trustor satisfies Beneficiary that after the
reconstruction is completed, the value of the Trust Estate as determined by
Beneficiary in its reasonable discretion, will be not less than the appraised
value of the Real Property and the Improvements determined by Beneficiary as the
Real Property and Improvements existed prior to the event of the damage or
destruction of the Improvements;
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(ii) In Beneficiary's sole opinion, such insurance
proceeds, together with any applicable undisbursed portion of the Loan, are
sufficient to pay all costs of reconstruction of the Improvements; or if such
proceeds are not sufficient, Trustor deposits additional funds with Beneficiary
sufficient to pay such additional costs of reconstructing the Improvements;
(iii) Trustor has delivered to Beneficiary a construction
contract for the work of reconstruction in form and content acceptable to
Beneficiary with a contractor acceptable to Beneficiary;
(iv) Beneficiary in its sole discretion has determined
that after the work of reconstruction is completed, the Improvements will
produce income sufficient to pay all costs of operations and maintenance of the
Real Property and Improvements with a reasonable reserve for repairs, and to
service any debts secured by the Improvements; and
(v) Trustor is not in default hereunder and no event has
occurred which with notice and/or lapse of time would constitute a default
hereunder.
If the insurance proceeds are held by Beneficiary to be used to reimburse
Trustor for the cost of reconstruction of the Improvements, the Improvements
shall be promptly and diligently restored by Trustor to the equivalent of their
condition immediately prior to the casualty or to such other condition as
Beneficiary may approve in writing, and disbursements of such insurance proceeds
shall be in accordance with disbursement procedures acceptable to Beneficiary.
Failure of Trustor to satisfy such conditions within such time period shall
constitute an event of default hereunder and shall entitle Beneficiary to apply
any remaining proceeds held by Beneficiary as provided in SECTION A.16(a)
hereof. Any proceeds not required to reconstruct the Improvements or to satisfy
the conditions set forth in of SECTION A.16 (i) through (iv) of above, shall be
applied in accordance with SECTION A.16(a) or (b) above. If after applying the
insurance proceeds to the payment of the sums secured by this Deed of Trust,
Beneficiary determines in its sole discretion that the remaining security is
inadequate to secure the remaining indebtedness, Trustor shall upon written
demand from Beneficiary prepay on principal such an amount as will reduce the
remaining indebtedness to a balance for which adequate security is present.
A.17 CONDEMNATION AND OTHER AWARDS. Promptly upon its obtaining
knowledge of the institution or the threatened institution of any proceeding for
the condemnation of the Trust Estate or any part thereof, Trustor shall notify
Trustee and Beneficiary of such fact. Trustor shall then, if requested by
Beneficiary, file or defend its rights thereunder and prosecute the
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same with due diligence to its final disposition and shall cause any awards or
settlements to be paid over to Beneficiary for disposition pursuant to the terms
of this Deed of Trust. Trustor may be the nominal party in such proceeding but
Beneficiary shall be entitled to participate in and to control the same and to
be represented therein by counsel of its choice, and Trustor will deliver, or
cause to be delivered, to Beneficiary such instruments as may be requested by it
from time to time to permit such participation. If the Trust Estate or any part
thereof is taken or diminished in value, or if a consent settlement is entered,
by or under threat of such proceeding, the award or settlement payable to
Trustor by virtue of its interest in the Trust Estate shall be and hereby is
assigned, transferred and set over unto Beneficiary to be held by it, in trust,
subject to the lien and security interest of this Deed of Trust. Any such award
or settlement shall be first applied to reimburse Trustee and Beneficiary for
all costs and expenses, including reasonable attorneys' fees, incurred in
connection with the collection of such award or settlement. The balance of such
award or settlement shall be:
(a) Applied to any indebtedness secured hereby in such order as
Beneficiary may determine, whether or not such indebtedness is then due; or
(b) In the event that, notwithstanding any condemnation, the
portion of the Trust Estate affected is susceptible to reconstruction or
restoration, if Beneficiary determines in its reasonable discretion that all of
the conditions set forth in SECTION A.16 (i) through (v) can be satisfied within
a reasonable time from the date of such award or settlement, but in no event
later than the earlier of the completion date for the Project set forth in the
Loan Agreement or the maturity date under the Note, such proceeds shall be held
by Beneficiary to be used in accordance with such provisions to reimburse
Trustor for the costs of rebuilding, reconstruction or repair of the
Improvements; provided, however, Trustor's failure to satisfy such conditions
within such time period shall, at the option of Beneficiary, constitute an event
of default hereunder, and shall entitle Beneficiary to apply any remaining
proceeds held by Beneficiary as provided in SECTION A.17(a) hereof.
If after applying the award or settlement to the payment of the indebtedness
secured by this Deed of Trust, Beneficiary determines in its sole discretion
that the remaining security to be inadequate to secure the remaining
indebtedness, Trustor shall upon written demand from Beneficiary prepay an
amount of principal as will reduce the remaining indebtedness to a balance for
which adequate security is present.
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A.18 TRANSFER OR ENCUMBRANCE OF THE TRUST ESTATE.
(a) Trustor acknowledges that Beneficiary has examined and relied on
the creditworthiness and experience of Trustor in owning and operating
properties such as the Trust Estate in agreeing to make the loan secured hereby,
and that Beneficiary will continue to rely on Trustor's ownership of the Trust
Estate as a means of maintaining the value of the Trust Estate as security for
repayment of the Obligations. Trustor acknowledges that Beneficiary has a valid
interest in maintaining the value of the Trust Estate so as to ensure that,
should Trustor default in the repayment of the Obligations, Beneficiary can
recover the Obligations by a sale of the Trust Estate. Trustor shall not,
without the prior written consent of Beneficiary, sell, convey, alienate,
mortgage, encumber, pledge or otherwise transfer the Trust Estate or any part
thereof, or permit the Trust Estate or any part thereof to be sold, conveyed,
alienated, mortgaged, encumbered, pledged or otherwise transferred, which
consent may be granted or withheld in Beneficiary's sole and absolute
discretion.
(b) A sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer within the meaning of this SECTION A.18 shall be deemed to include
(i) an installment sales agreement wherein Trustor agrees to sell the Trust
Estate or any part thereof for a price to be paid in installments; (ii) an
agreement by Trustor leasing all or a substantial part of the Trust Estate for
other than actual occupancy by a space tenant thereunder or a sale, assignment
or other transfer of, or the grant of a security interest in, Trustor's right,
title and interest in and to any leases or any rents relating to the Trust
Estate; (iii) if Trustor, any guarantor of Trustor ("Guarantor"), or any general
partner of Trustor or Guarantor is a corporation, the voluntary or involuntary
sale, conveyance or transfer of such corporation's stock (or the stock of any
corporation directly or indirectly controlling such corporation by operation of
law or otherwise) or the creation or issuance of new stock in one or a series of
transactions by which an aggregate of more than 10% of such corporation's stock
shall be vested in a party or parties who are not now stockholders or change in
control of such corporation; and (iv) if Trustor, any Guarantor or any general
partner of Trustor or any Guarantor is a limited or general partnership or joint
venture, the change, removal, resignation or addition of a general partner,
managing partner or joint venturer or the transfer of the partnership interest
of any general partner, managing partner or joint venturer.
(c) Beneficiary may predicate its decision to grant or withhold
consent hereunder on Beneficiary's satisfaction with factors which may include,
but not be limited to, the creditworthiness of the proposed transferee and such
proposed transferee's management experience, and upon the execution of an
assumption agreement in form and substance acceptable to Beneficiary, the
payment of an assumption fee equal to one percent
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(1%) of the then unpaid principal balance of the Note and the payment of all
reasonable costs and expenses incurred by Beneficiary in connection with the
assumption including reasonable attorneys' fees and disbursements. Beneficiary
shall not be required to demonstrate any actual impairment of its security or
any increased risk of default hereunder in order to declare the Obligations
immediately due and payable upon Trustor's sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Trust Estate without
Beneficiary's consent. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Estate
regardless of whether voluntary or not, or whether or not Beneficiary has
consented to any previous sale, conveyance, alienation, mortgage, encumbrance,
pledge or transfer of the Trust Estate.
(d) Beneficiary's consent to one sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Trust Estate shall not be
deemed to be a waiver of Beneficiary's right to require such consent to any
future occurrence of same. Any sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Estate made in contravention of
this Section shall be null and void and of no force and effect.
(e) Trustor agrees to bear and shall pay or reimburse Beneficiary on
demand for all reasonable expenses (including, without limitation, reasonable
attorney's fees and disbursements, title search costs and title insurance
endorsement premiums) incurred by Beneficiary in connection with the review,
approval and documentation of any such sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer.
A.19 LIEN SUBROGATION. As further security, Beneficiary, except as
provided herein or in the Loan Agreement, shall be subrogated to any and all
liens or encumbrances prior or superior to this Deed of Trust, whether or not
released of record, to the extent paid out of the proceeds of the loan secured
by this Deed of Trust.
A.20 ASSIGNMENT OF LEASES AND RENTS.
(a) Trustor hereby absolutely and unconditionally assigns and
transfers to Beneficiary (and has not heretofore otherwise so assigned or
transferred) all the leases, subleases, income, rents, issues, deposits, profits
and proceeds of the Trust Estate to which Trustor may be entitled, whether now
due, past due or to become due, and hereby gives to and confers upon Beneficiary
the right, power and authority to collect such income, rents, issues, deposits,
profits and proceeds. This assignment of the leases, income, rents, issues,
deposits, profits and proceeds constitutes an irrevocable direction and
authorization of all tenants under the leases to pay all rent, income and
profits to Beneficiary upon demand and without further consent or other action
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by Trustor. This is an absolute assignment, not an assignment for security
only, and Beneficiary's right to rents, issues and profits is not contingent on
Beneficiary's possession of all or any portion of the Trust Estate. Trustor
irrevocably appoints Beneficiary its true and lawful attorney, at the option of
Beneficiary at any time, to demand, receive and enforce payment, to give
receipts, releases and satisfactions, and to sue, either in the name of Trustor
or in the name of Beneficiary, for all such income, rents, issues, deposits,
profits and proceeds and apply the same to the indebtedness secured hereby.
(b) It is understood and agreed that neither the foregoing
assignment of leases, income, rents, issues, deposits, profits and proceeds to
Beneficiary nor the exercise by Beneficiary of any of its rights or remedies
under this Section or under any other provision of this Deed of Trust hereof
shall be deemed to make Beneficiary a "mortgagee-in-possession" or otherwise
obligated, responsible or liable in any manner with respect to the Trust Estate,
or the use, occupancy, enjoyment or operation of all or any portion thereof.
(c) Notwithstanding anything to the contrary contained herein or
in the Note, so long as no event of default shall have occurred, Trustor shall
have a license to collect all income, rents, issues, profits and proceeds from
the Trust Estate. Upon the occurrence of an event of default, such license
shall be deemed revoked and any rents received thereafter by Trustor shall be
delivered in kind to Beneficiary. Upon such occurrence of an event of default,
Trustor agrees to deliver the original copies of all leases to Beneficiary.
Trustor hereby irrevocably constitutes and appoints Beneficiary its true and
lawful attorney-in-fact to enforce in Trustor's name or in Beneficiary's name or
otherwise all rights of Trustor in the instruments, including, without
limitation, checks and money orders tendered as payments of rents and to do any
and all things necessary and proper to carry out the purposes hereof.
(d) Trustor shall not accept any deposit or prepayment of rental
or lease payment in excess of one (1) month in advance without Beneficiary's
prior written consent. Trustor agrees not to lease all or any part of the
Project, and not to enter into an agreement providing for the management,
leasing or operation of the Project except as provided in the Loan Agreement,
without the prior written consent of Beneficiary.
A.21 EXCULPATION AND INDEMNIFICATION.
(a) Trustor shall pay to Beneficiary reasonable compensation for
services rendered concerning this Deed of Trust, including, without limitation,
any statement of amounts owing under any of the Obligations. Beneficiary shall
not directly or
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indirectly be liable to Trustor or any other person as a consequence of (i) the
exercise of the rights, remedies or powers granted to Beneficiary in this Deed
of Trust, (ii) the failure or refusal of Beneficiary to perform or discharge any
obligation or liability of Trustor under any agreement related to the Trust
Estate or this Deed of Trust, or (iii) any losses sustained by Trustor or any
third party resulting from Beneficiary's inability or failure to lease the
Project after a default or from any other act or omission of Beneficiary in
managing the Trust Estate after a default unless the loss is caused by the
negligence, willful misconduct, or bad faith of Beneficiary and no such
liability shall be asserted against or imposed upon Beneficiary, and all such
liability is hereby expressly waived and released by Trustor.
(b) Trustor indemnifies Trustee and Beneficiary against, and
holds them harmless from, all losses, damages, liabilities, claims, causes of
action, judgments, court costs, attorneys' fees and other reasonable expenses,
costs of evidence of title, cost of evidence of value, and other reasonable
expenses which either may suffer or incur other than from the negligence or
willful misconduct of Trustee or Beneficiary (i) by reason of this Deed of
Trust, or (ii) by reason of the execution of this Deed of Trust or in
performance of any act required or permitted hereunder or by law, or (iii) as a
result of any failure of Trustor to perform Trustor's obligations under this
Deed of Trust or any of the Loan Documents, or (iv) by reason of any alleged
obligation or undertaking on Beneficiary's part to perform or discharge any of
the representations, warranties, conditions, covenants or other obligations
contained in any other document related to the Trust Estate. Trustor's duty to
indemnify Trustee and Beneficiary shall survive the cancellation of the
Obligations and the release and reconveyance or partial release or reconveyance
of this Deed of Trust.
A.22 IDENTITY OF TRUSTOR. Trustor shall not change its name or
substitute or replace any party to act as Trustor, except upon ten (10) days
written notice to Beneficiary specifying such change of name or party to be
substituted or replaced. These provisions are in addition to the requirements
of SECTION A.18 hereof.
B. FIXTURE FILING Trustor and Beneficiary are entering into that certain
Amended and Restated Security Agreement dated concurrently herewith in
connection with the Loan ("Security Agreement"). Pursuant to the Security
Agreement, Trustor, as "Debtor," has granted Beneficiary, as "Secured Party," a
security interest in the Collateral (as defined in the Security Agreement) which
includes, among other things, goods and other items which are or are to become
fixtures on the Trust Estate, in which Beneficiary has a security interest.
This Deed of Trust is intended to serve as a fixture filing pursuant to the
terms of Sections 9313 and 9402 of the California Uniform Commercial Code. This
filing is to be
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recorded in the real estate records of the county in which the Trust Estate is
located. In that regard, the following information is provided:
Name of Debtor: Trustor
Address of Debtor: See Page 1 hereof.
Name of Secured Party: Beneficiary
Address of Secured Party: See Page 1 hereof.
Trustor warrants and agrees that except as specifically disclosed to Beneficiary
in writing prior to the date of this Deed of Trust, there is no financing
statement covering the foregoing Collateral, the Trust Estate, or any part
thereof, on file in any public office. Upon the occurrence of an event of
default, Beneficiary may proceed at its election, in any sequence: (i) to
dispose of any Collateral separately from the sale of real property in
accordance with Division 9 of the California Commercial Code or other applicable
law; and (ii) to dispose of some or all of the Trust Estate and the Collateral
in any combination consisting of both real and personal property together in one
or more sales to be held in accordance with the provisions of Section 9501(4) of
the California Commercial Code.
C. DEFAULTS AND REMEDIES
C.1 DEFAULT. Any of the following events shall, at Beneficiary's
option, constitute an event of default under this Deed of Trust:
(a) The failure to pay when due any installment of principal or
interest under the Note, or any other sum as provided in any Loan Document and
secured by this Deed of Trust, including, but not limited to, that certain
Promissory Note Secured by Deed of Trust of even date herewith in the original
principal amount of Two Million Dollars ($2,000,000) executed by Trustor in
favor of The Sol and Helen Price Trust, Created Under Declaration of Trust dated
February 20, 1970; or
(b) The failure of Trustor to observe or to perform any term,
condition, covenant or agreement contained in this Deed of Trust or to comply
with any term, condition, covenant, or agreement now or hereafter affecting the
Trust Estate, or any part thereof, if such failure is not cured within thirty
(30) days from the giving of notice of such failure to Trustor by Beneficiary
(or, if in Beneficiary's sole discretion Beneficiary reasonably believes that
such failure cannot be corrected within said thirty (30) days but it can be
cured, in Beneficiary's sole opinion, within a reasonable time thereafter, then
such failure to cure within thirty (30) days shall not be an event of default,
and Beneficiary shall not exercise its rights hereunder, if Trustor
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promptly commences to cure such failure and diligently pursues the same to
completion and does in fact cure the same within the time period determined by
Beneficiary to be reasonable, but in no event shall such period for cure be
greater than one hundred twenty (120) days); or
(c) The occurrence of an event of default under any other Loan
Document.
C.2 REMEDIES. Upon the occurrence of any default as provided in
SECTION C.1 above, Beneficiary may declare all sums secured hereby, and the same
shall thereupon become, immediately due and payable upon notice by Beneficiary
to Trustor. Thereafter, Beneficiary, at its option may:
(a) Terminate Trustor's right and license to collect the rents,
issues and profits and either in person or by agent, with or without bringing
any action or proceeding, or by a receiver appointed by a court and without
regard to the adequacy of its security, enter upon and take possession of the
Trust Estate, or any part thereof, in its own name or in the name of Trustee,
and do any acts which it deems necessary or desirable to preserve the value,
marketability or rentability of the Trust Estate, or any part thereof or
interest therein, make, modify, enforce, cancel or accept the surrender of any
Lease, increase the income therefrom or protect the security hereof and, with or
without taking possession of the Trust Estate, sue for or otherwise collect the
rents, issues and profits, including those past due and unpaid, and apply the
same, less reasonable costs and expenses of operation and collection, including
attorneys' fees, upon any indebtedness secured hereby, all in such order as
Beneficiary may determine. The entering upon and taking possession of the Trust
Estate, the collection of the rents, issues and profits and the application
thereof as aforesaid, or any of such acts, shall not cure or waive any default
or notice of default hereunder or invalidate any act done in response to such
default or pursuant to such notice or default and, notwithstanding the
continuance in possession of the Trust Estate or the collection, receipt and
application of rents, issues or profits, Trustee or Beneficiary shall be
entitled to exercise every right provided for in any of the Loan Documents or by
law upon occurrence of any event of default, including the right to exercise the
power of sale provided below;
(b) Commence an action to foreclose this Deed of Trust as a
mortgage, or specifically enforce any of the covenants hereof;
(c) Exercise any or all of the remedies available to a secured
party under the California Commercial Code in such order and in such manner as
Beneficiary, in its sole discretion, may determine; provided, however, that the
expenses of retaking, holding, preparing for sale or the like as provided
thereunder shall include reasonable attorneys' fees and other
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reasonable expenses of Beneficiary and Trustee and shall be additionally secured
by this Deed of Trust;
(d) Deliver to Trustee a written declaration of default and
demand for sale, and a written notice of default and election to cause Trustor's
interest in the Trust Estate or any portion thereof to be sold, which notice
Trustee or Beneficiary shall cause to be duly filed for record in the Official
Records of the County in which the Trust Estate is located; and/or
(e) Exercise all other rights and remedies provided herein, in
any Loan Document or other document or agreement now or hereafter securing all
or any portion of the obligations secured hereby, or provided by law, including,
but not limited to, such rights and remedies as Beneficiary may have under
California Civil Code Section 2925.5 and California Code of Civil Procedure
Sections 564(c), 726.5 and 736, as the same may be amended from time to time,
or any successor statute or law relating thereto. Upon request of Beneficiary,
Trustor shall assemble and make available to Beneficiary at the Premises any of
the Trust Estate which is not located thereon or has been removed therefrom.
C.3 FORECLOSURE BY POWER OF SALE. Should Beneficiary elect to
foreclose by exercise of the power of sale herein contained, Beneficiary shall
notify Trustee and shall deposit with Trustee this Deed of Trust and the Note
and such receipts and evidence of expenditures made and secured hereby as
Trustee may require.
(a) Upon receipt of such notice from Beneficiary, Trustee shall
cause to be recorded, published and delivered to Trustor such Notice of Default
and Election to Sell as may then be required by law and by this Deed of Trust.
Trustee shall, without demand on Trustor, after lapse of such time as may then
be required by law and after recordation of such Notice of Default and after
Notice of Sale having been given as required by law, sell the Trust Estate at
the time and place of sale fixed by it in said Notice of Sale, either as a
whole, or in separate lots or parcels, or in separate legal interests, or items
as Trustee shall deem expedient, and in such order as it may determine, at one
or more public auctions to the highest bidder for cash in lawful money of the
United States payable at the time of sale. Trustee shall deliver to such
purchaser or purchasers thereof its good and sufficient deed or deeds conveying
the property so sold, but without any covenant or warranty, express or implied.
The recitals in such deed of any matters or facts shall be conclusive proof of
the truthfulness thereof. Any person, including, without limitation, Trustor,
Trustee or Beneficiary, may purchase at such sale and Trustor hereby covenants
to warrant and defend the title of such purchaser or purchasers.
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(b) Subject to the provisions of SECTION D.4(f) below, after
deducting all reasonable costs, fees and expenses of Trustee and of this Deed of
Trust, including costs of evidence of title and attorneys' fees of Trustee or
Beneficiary in connection with the sale, Trustee shall apply the proceeds of
sale to payment of all sums expended under the terms hereof not then repaid,
with accrued interest at the rate then in effect under the Note, all other sums
then secured hereby and the remainder, if any, to the person or persons legally
entitled thereto. Trustor specifically waives the benefits of California Civil
Code Section 1479 or its successor statute or any other right of Trustor to
direct the order of application of any payment or performance under the Loan
Documents.
(c) Trustee may postpone the sale of all or any portion of the
Trust Estate by public announcement at the time and place of such sale, and from
time to time thereafter may postpone such sale by public announcement at the
time fixed by the preceding postponement or subsequently noticed sale, and
without further notice make such sale at the time fixed by the last
postponement, or may, in its discretion, give a new notice of sale.
(d) Trustor hereby expressly waives any right which it may have
to direct the order in which any of the Trust Estate shall be sold in the event
of any sale or sales pursuant thereto.
C.4 RESCISSION OF NOTICE OF DEFAULT. Beneficiary, from time to time
before any Trustee's sale as provided above, may rescind any notice of default
and election to sell or notice of sale by executing and delivering to Trustee a
written notice of such rescission, which such notice, when recorded, shall also
constitute a cancellation of any prior declaration of default and demand for
sale. The exercise by Beneficiary of such right of rescission shall not
constitute a waiver of any breach or default then existing or subsequently
occurring, or impair the right of Beneficiary to execute and deliver to Trustee,
as above provided, other declarations or notices of default and demand for sale
of the Trust Estate to satisfy the obligations hereof, nor otherwise affect any
provision, covenant or condition of any Loan Document or any of the rights,
obligations or remedies of Trustee or Beneficiary hereunder or thereunder.
C.5 APPOINTMENT OF RECEIVER. If an event of default shall have
occurred and be continuing, Beneficiary, as a matter of right and without notice
to Trustor or to anyone claiming under Trustor, and without regard to the then
value of the Trust Estate or the interest of Trustor therein, shall have the
right to apply to any court having jurisdiction to appoint a receiver or
receivers of the Trust Estate, or any portion thereof, and Trustor hereby
irrevocably consents to such appointment. Any such receiver or receivers shall
have all the usual powers and duties of receivers
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in like or similar cases and all the powers and duties of Beneficiary in case of
entry as provided in SECTION C.2(a) hereof, and shall continue as such and
exercise all such powers until the date of confirmation of the sale of the Trust
Estate, unless such receivership is sooner terminated.
C.6 REMEDIES NOT EXCLUSIVE; WAIVER. Trustee and Beneficiary, and
each of them, shall be entitled to enforce the payment and performance of any
indebtedness or obligations secured hereby and to exercise all rights and powers
under this Deed of Trust or under any other Loan Document or other agreement or
any laws now or hereafter in force, notwithstanding the fact that some or all of
the indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers
contained herein, shall prejudice or in any manner affect Trustee's or
Beneficiary's right to realize upon or enforce any other security now or
hereafter held by Trustee or Beneficiary. Trustee and Beneficiary, and each of
them, shall be entitled to enforce this Deed of Trust and any other security now
or hereafter held by Beneficiary or Trustee in such order and manner as they or
either of them may in their absolute discretion determine. No remedy herein
conferred upon or reserved to Trustee or Beneficiary is intended to be exclusive
of any other remedy contained herein or by law provided or permitted, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute. Every
power or remedy given by any of the Loan Documents to Trustee or Beneficiary or
to which either of them may be otherwise entitled, may be exercised,
concurrently or independently, from time to time and as often as may be deemed
expedient by Trustee or Beneficiary, and either of them may pursue inconsistent
remedies. By exercising or by failing to exercise any right, option or election
hereunder, Beneficiary shall not be deemed to have waived any provision hereof
or to have released Trustor from any of the obligations secured hereby unless
such waiver or release is in writing and signed by Beneficiary. The waiver by
Beneficiary of Trustor's failure to perform or observe any term, covenant, or
condition referred to or contained herein to be performed or observed by Trustor
shall not be deemed to be a waiver of such term, covenant or condition or of any
subsequent failure of Trustor to perform or observe the same or any other such
term, covenant or condition referred to or contained herein, and no custom or
practice which may develop between Trustor and Beneficiary during the term
hereof shall be deemed a waiver of or any way affect the right of Beneficiary to
insist upon the performance by Trustor of the obligations secured hereby in
strict accordance with the terms hereof or of any other Loan Document.
C.7 REQUEST FOR NOTICE. Trustor hereby requests a copy of any notice
of default and requests that any notice of sale
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hereunder be mailed to it at the address set forth below. Otherwise, neither
Trustee nor Beneficiary is under any obligation to notify any person or entity
of any action or proceeding of any kind in which Trustor, Beneficiary and/or
Trustee shall be a party, unless brought by Trustee, or of any pending sale
under any other deed of trust.
Trustor:
500 Hotel Circle North
San Diego, CA 92108
Attn: Mr. C. Terry Brown
Trustor's Counsel:
Weiss, Scolney, Spees, Danker & Shinderman
10100 Santa Monica Boulevard, Suite 1095
Los Angeles, CA 90067
Attn: Ashleigh A. Danker, Esq.
D. HAZARDOUS SUBSTANCES.
D.1 DEFINITIONS.
(a) HAZARDOUS SUBSTANCES. As used herein, the term "Hazardous
Substance(s)" shall include:
(i) FEDERAL LAW. All of those substances included within
the definitions of "hazardous substances," "hazardous materials," "toxic
substances," or "solid waste" in (a) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 ET
SEQ. ("CERCLA"), as amended, (b) the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Section 6901 ET SEQ. ("RCRA"), and (c) the Hazardous Materials
Transportation Act, 49 U.S.C. Appx. Section 1801, ET SEQ., and in the
regulations promulgated pursuant to said laws or any amendment thereto or
replacement thereof;
(ii) FEDERAL REGULATIONS. All of those substances listed
in the United States Department of Transportation Table (49 CFR 172.101 and
amendments thereto) or by the Environmental Protection Agency (40 CFR Part 302
and amendments thereto) as hazardous substances;
(iii) CALIFORNIA LAW. All of those substances defined as
"hazardous wastes" in Sections 25100 ET SEQ. of the California Health & Safety
Code, or as "hazardous substances" in Sections 25316 and 25281 of the California
Health & Safety Code or Section 736(f)(3) of the Code of Civil Procedure, or as
"waste," "pollution," or "contamination" in Section 13000 ET SEQ. of the
California Water Code, and in the regulations promulgated pursuant to said laws
or any replacement thereof; and
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(iv) OTHER LAWS AND REGULATIONS. All other substances,
materials and wastes which are, or in the future, become regulated under
applicable local, state or federal law, or which are classified as hazardous or
toxic under federal, state, or local laws or regulations, or classified or
identified as posing a threat to human health or the environment, including
without limitation federal laws and regulations and California law set forth
above, and any radioactive wastes or substances, petroleum or fractions thereof
or asbestos.
(b) ENVIRONMENTAL LAW(S). The term "Environmental Law(s)" shall
mean any of the laws, ordinances, codes, statutes, regulations and other matters
referenced in SECTIONS D.1(a)(i), (ii), (iii) and (iv) above.
(c) ENVIRONMENTAL ORDER. The term "Environmental Order" means
an order of any federal, state or local governmental agency or court of law
relating to the investigation, assessment, cleanup, remediation, or other
response action required by applicable law.
(d) RELEASE. The term "Release" means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing into the environment, including, but not limited
to, continuing migration of Hazardous Substances into or through soil, surface
water, or groundwater. The term does not include actions directly relating to
the incorporation in a lawful manner of building materials into the
Improvements.
D.2 REPRESENTATIONS AND WARRANTIES. Trustor represents and warrants
to Beneficiary as to the matters set forth below with respect to any Hazardous
Substances.
(a) REQUEST FOR INFORMATION BY BENEFICIARY. Beneficiary has
made a written request to Trustor for information concerning the environmental
condition of the Real Property and Improvements, including the actual, alleged
or threatened presence or Release of Hazardous Substances at, in, around or
potentially affecting the Real Property, Improvements, or the soil, groundwater
or soil vapor on or under the Real Property or Improvements.
(b) VIOLATIONS OF ENVIRONMENTAL LAWS. The Trust Estate, the
Real Property, the Improvements and Trustor are not in violation of, have not
incurred liability under and are not subject to any existing, pending, or
threatened investigation by any federal, state or local governmental authority
under, any Environmental Laws.
(c) INQUIRY BY TRUSTOR. Trustor has conducted all appropriate
inquiry into the uses of the Real Property prior to the date of this Deed of
Trust, and has determined that no
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Hazardous Substance exists and that no Release has occurred on, in or at the
Real Property or the Improvements, except as has been disclosed to Beneficiary
in writing.
(d) TRUSTOR'S USE. Trustor's intended use of the Trust Estate,
the Real Property or the Improvements under the Loan Agreement, will not result
in a Release of any Hazardous Substance onto the Real Property or the
Improvements in violation of any Environmental Laws.
(e) STORAGE OF HAZARDOUS SUBSTANCES. There are no Hazardous
Substances or materials which are being stored or otherwise held on, under or
about the Trust Estate, the Real Property or the Improvements, by Trustor or any
other person which are in violation of Environmental Laws.
(f) BORDER ZONE PROPERTY. There is no occurrence or condition
on any other real property that could cause the Trust Estate, the Real Property,
the Improvements or any part thereof to be classified as "Border Zone Property"
under the provisions of California Health and Safety Code Sections 25220 ET
SEQ., or any regulation adopted in accordance therewith or to be otherwise
subject to any restrictions on ownership, occupancy, transferability or use.
D.3 COVENANTS. Trustor covenants as to the matters set forth below.
(a) USE AND DISPOSAL OF HAZARDOUS SUBSTANCES. Neither Trustor
nor any third party under Trustor's supervision or control will use, generate,
manufacture, produce, store, discharge, or dispose of any Hazardous Substance
or otherwise cause a Release to occur on, under or about the Trust Estate, the
Real Property or the Improvements or transport any Hazardous Substance to or
from the Trust Estate, the Real Property or the Improvements in violation of any
Environmental Laws. Trustor has complied, and shall comply and cause all
occupants of the Real Property and Improvements to comply, with all
Environmental Laws, including those requiring disclosure to prospective and
actual buyers or tenants of all or any portion of the Real Property. Trustor
has also complied and shall comply with the recommendations of any qualified
environmental engineer or other expert which apply or pertain to the Real
Property or Improvements.
(b) WRITTEN NOTICE WITH RESPECT TO HAZARDOUS SUBSTANCES.
Trustor shall give prompt written notice to Beneficiary of any of the following
with respect to which Trustor acquires actual knowledge:
(i) any proceeding or inquiry by any governmental
authority with respect to a Release or the presence of any Hazardous Substance
on the Trust Estate, the Real Property, the
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Improvements or the migration thereof from or to other real property with
respect to which Trustor has acquired actual knowledge;
(ii) all claims made or threatened by any third party
against Trustor, or the Trust Estate, the Real Property or the Improvements
relating to any Hazardous Substance with respect to which Trustor has acquired
actual knowledge;
(iii) Trustor's discovery of any occurrence or condition on
any real property adjoining or in the vicinity of the Trust Estate, the Real
Property or the Improvements that could cause the Trust Estate, the Real
Property or the Improvements or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use of the Trust
Estate, the Real Property or the Improvements under any Environmental Laws; and
(iv) any other notice required by law.
(c) RIGHT TO JOIN IN LEGAL PROCEEDINGS. Beneficiary shall have
the right to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated in connection with any Environmental Laws.
(d) DUTY TO CLEAN UP. In the event that any Hazardous Substance
is hereafter found, or a Release otherwise occurs on, under or about the Trust
Estate, the Real Property or the Improvements in violation of Environmental
Laws, Trustor shall take all necessary and appropriate actions and shall spend
all necessary sums to cause the same to be promptly cleaned up in compliance
with applicable Environmental Laws, and Beneficiary shall in no event be liable
or responsible for any costs or expenses incurred in so doing.
(e) COMPLIANCE WITH ENVIRONMENTAL LAWS. In its use or
operations on the Real Property, Trustor shall at all times observe and satisfy
the requirements of and maintain the Trust Estate, the Real Property and the
Improvements in compliance with all Environmental Laws.
D.4 DEFAULTS BY TRUSTOR; REMEDIES OF BENEFICIARY. In addition to all
other rights and remedies of Trustor under this Deed of Trust, Beneficiary shall
have the rights and remedies set forth in this SECTION D.4.
(a) RIGHT OF BENEFICIARY TO CURE VIOLATIONS. Should Trustor at
any time default in or fail to perform or observe any of its obligations under
this ARTICLE D, or should any representation or warranty contained in this
ARTICLE D fail to be correct when made or become incorrect, Beneficiary shall
have the right, but not the duty, without limitation upon any of
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Beneficiary's rights pursuant thereto, to perform, and Trustor agrees to pay to
Beneficiary, on demand, all costs and expenses incurred by Beneficiary in
connection therewith pursuant to the applicable provisions of SECTION D.4(b)
BELOW.
(b) REIMBURSEMENT AND INDEMNIFICATION OF BENEFICIARY. It is the
intent of Trustor and Beneficiary that Trustor shall indemnify Beneficiary
pursuant to the provisions of this SECTION D.4(b) with respect to all costs,
amounts, and liabilities that a "secured lender" is authorized and allowed to
recover from a borrower pursuant to Section 736 of the California Code of Civil
Procedure, as the same may be amended from time to time or pursuant to any
successor statute or law with respect thereto (collectively "Section 736");
provided, however, that if all or any portion of Section 736 is repealed after
the date of this Deed of Trust, Beneficiary's rights and remedies in this
ARTICLE D shall not be impaired or affected in any manner. To the extent that
the indemnification provisions contained in this SECTION D.4(b) are also covered
by or contained in that certain Environmental Indemnity of even date herewith
executed by Trustor in favor of Beneficiary ("Environmental Indemnity"), and in
the event that Trustor is obligated to indemnify Beneficiary under this Section
and the applicable provisions of the Environmental Indemnity, it is the
intention of Trustor and Beneficiary that Trustor be obligated to indemnify
Beneficiary under this SECTION D.4(b) to the extent that such indemnification or
reimbursement is permitted by Section 736, and shall not be obligated to
indemnify or reimburse Beneficiary under the Environmental Indemnity with
respect to matters recoverable by Beneficiary under this SECTION D.4(b);
provided, however, that Beneficiary shall be entitled to proceed against Trustor
and recover all amounts under the Environmental Indemnity not otherwise
permitted under Section 736. Trustor agrees to reimburse Beneficiary for and
indemnify, defend, and protect Beneficiary and agrees to hold Beneficiary
harmless with respect to the following:
(i) if not pursuant to an Environmental Order, those
costs relating to a reasonable and good faith investigation, assessment,
cleanup, remediation or other response action concerning any Release or
threatened Release of Hazardous Substances at, in, on, around or potentially
affecting any part of the Real Property or the soil, groundwater, or soil vapor
on or under the Real Property, which costs may be incurred at any time, whether
before or after the Loan is paid in full or this Deed of Trust is reconveyed,
foreclosed, or extinguished;
(ii) if pursuant to an Environmental Order, which may be
imposed at any time, whether before or after the Loan is paid in full or this
Deed of Trust is reconveyed, foreclosed or extinguished, concerning any Release
of threatened Release of Hazardous Substances at, in, on, around or potentially
affecting any part of the Real Property or the soil, groundwater, or soil
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vapor on or under the Real Property, all amounts reasonably advanced in good
faith by Beneficiary in connection with such Environmental Order, provided that
Beneficiary shall negotiate or attempt to negotiate in good faith to minimize
the amounts that Beneficiary shall be required to advance under the
Environmental Order;
(iii) any and all actual or threatened liabilities,
claims, actions, causes of action, judgments, orders, damages (including
foreseeable and unforeseeable consequential damages) costs, expenses, fines,
penalties and losses (including but not limited to, sums paid in settlement of
claims and all consultant and expert fees and expenses) incurred by or imposed
on Beneficiary to any third party relating to the breach of any provision or
inaccuracy of any statement set forth in this ARTICLE D and not arising from
acts, omissions or other conduct which occur after Trustor is no longer an owner
or operator of the Real Property, and provided that Beneficiary is not
responsible for the environmentally impaired condition of the Real Property in
accordance with the standards set forth in Section 726.5(d) of the California
Code of Civil Procedure, as the same may be amended from time to time, or any
successor statute or law with respect thereto ("Section 726.5(d)"). For
purposes of this Section, the term "owner" or "operator" means those persons
described in Section 101(20)(A) of CERCLA, and Beneficiary shall be deemed to be
not responsible for such environmentally impaired condition in accordance with
Section 726.5(d) so long as Beneficiary did not have actual knowledge of the
Release which caused the environmentally impaired condition;
(iv) attorneys' fees and costs incurred by Beneficiary
relating to any breach of the provisions of this ARTICLE D; and
(v) Interest on all of the foregoing amounts advanced by
Beneficiary from the date of expenditure at the rate of interest set forth in
the Note applicable in an event of default.
The damages that Beneficiary may recover pursuant to this ARTICLE D shall not
include any part of the principal amount or accrued interest of the Loan, except
for amounts advanced by Beneficiary to cure or mitigate any breach of the
provisions of this Section that are added to the principal amount, and interest
thereon as provided above, or any amounts which relate to a Release in violation
of Environmental Law which was knowingly permitted, caused or contributed to by
Beneficiary.
(c) SITE VISITS, OBSERVATION AND TESTING. Beneficiary and its
agents and representatives, either (i) upon reasonable belief of the existence
of a past or present Release or threatened Release of any Hazardous Substance
into, onto, beneath
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or from the Real Property or the Improvements that was not previously disclosed
in writing to Beneficiary in connection with the making, renewal or modification
of the Loan, or (ii) after the commencement of judicial or non-judicial
foreclosure proceedings against the Real Property, shall have the right during
the normal business hours of Trustor or its tenants at the Real Property and the
Improvements, to enter and visit the Real Property for the purposes of observing
the Real Property and the Improvements, taking and removing soil or groundwater
samples, and conducting tests on any part of the Real Property and the
Improvements; provided, however, that Beneficiary shall have no duty to conduct
or perform the foregoing. Except in the case of an emergency, or if Trustor or
its tenants have abandoned the Real Property or Improvements by Trustor or its
tenants, or it is impracticable to do so, Beneficiary shall give Trustor or its
tenants twenty-four hours' notice of Beneficiary's intent to enter the Real
Property or Improvements to conduct such inspections. In no event shall the
exercise by Beneficiary of any of the foregoing rights be a representation that
Hazardous Substances are or are not present in, on, under or around the Real
Property or the Improvements, or that there has been or shall be compliance with
any Environmental Law and neither Trustor nor any other party is entitled to
rely on any site visit, observation or testing by Beneficiary. Beneficiary owes
no duty of care to protect or inform Trustor or any other party of any Hazardous
Substances or any other adverse condition affecting the Real Property or the
Improvements. Beneficiary shall make reasonable efforts to avoid interfering
with Trustor's use of the Real Property or the Improvements and exercising any
rights provided in this Section and shall reimburse Trustor for the cost of
repair of any physical injury to the Real Property or the Improvements caused
solely by the exercise of such rights.
(d) DEFENSE OF BENEFICIARY. Any attorney selected by Trustor to
defend Beneficiary hereunder shall be subject to the approval of Beneficiary,
which approval shall not be unreasonably withheld or delayed; provided, however,
that upon written notice to Trustor, Beneficiary may elect to defend any such
claim, loss, action, legal or administrative proceeding at the cost and expense
of Trustor, if, in the sole judgment of Beneficiary (i) the defense is not
proceeding or being conducted in a satisfactory manner, or (ii) there is a
conflict of interest between any of the parties to such lawsuit, action, legal
or administrative proceeding. Regardless of whether Beneficiary elects to
designate counsel as aforesaid, all offers of settlement with respect to any
claims raised as against Beneficiary shall be submitted to Beneficiary, and the
decision whether to accept any such offer shall be made by Beneficiary in its
sole judgment. In no event shall Trustor accept any offer of settlement as to
claims naming Beneficiary as a party unless such offer of settlement includes a
full, unconditional release of Beneficiary with respect thereto. Trustor
further acknowledges and agrees that Beneficiary shall have the right to join
and participate in, as a party if it so elects,
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any legal or administrative proceedings or actions initiated in connection with
any Environmental Laws or any breach of the provisions of this ARTICLE D. If
Beneficiary exercises its right to designate counsel pursuant to this Section,
all costs and expenses thereof shall be paid by Trustor promptly after written
demand by Beneficiary.
(e) NO LIMITATION ON BENEFICIARY. Trustor's obligations under
this ARTICLE D shall not be diminished or affected in any way as a result of any
notice, disclosure or knowledge, if any, to or by Beneficiary of the Release,
presence, existence or threatened Release of Hazardous Substances at, in, on,
around or potentially affecting the Real Property or the soil, groundwater or
soil vapor on or under the Real Property, or any matter covered by Trustor's
obligations hereunder. Beneficiary shall not be deemed to have permitted,
caused, contributed to or acquiesced in any such Release, presence or existence
or threatened Release of Hazardous Substances or any other matter covered by
Trustor's obligations hereunder solely because Beneficiary had notice or
knowledge thereof, or because Beneficiary exercised or failed to exercise any
right contained in this Deed of Trust or the other Loan Documents, whether at
the time this Deed of Trust is delivered or at any other time.
(f) APPLICATION OF PAYMENTS. Trustor hereby acknowledges and
agrees that any amounts realized by Beneficiary by reason of any payments made
pursuant to any Loan Documents other than the provisions of this ARTICLE D, any
foreclosure of this Deed of Trust or other security for the Loan (including any
amounts realized by reason of any credit bid in connection with such
foreclosure), any conveyance in lieu of foreclosure, any other realization upon
any security for the Loan (including any drawings under any letters of credit),
any recoveries against Trustor personally (except for recoveries against Trustor
under this ARTICLE D), and any recoveries against any person or entity other
than Trustor (including any guarantor), at the option of Beneficiary, and to the
maximum extent permitted by applicable law, shall be applied to pay all other
Obligations other than Obligations of Trustor arising under this ARTICLE D prior
to being applied to pay Obligations of Trustor arising under this ARTICLE D in
such order and such a manner as may be determined by Beneficiary.
(g) PROVISION SECURED BY DEED OF TRUST; SURVIVAL AND
ENFORCEMENT. All rights of Beneficiary, to the extent that Beneficiary is a
"secured lender" under Section 736 and all obligations of Trustor under this
ARTICLE D are secured by this Deed of Trust; provided, however, that such rights
and obligations shall survive and be unsecured following: (i) the payment and
performance of the Obligations other than Trustor's Obligations under this
ARTICLE D; (ii) the surrender of the Note, reconveyance of this Deed of Trust
and/or release of any other security for the
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Loan; (iii) the foreclosure of this Deed of Trust and/or any other security for
the Loan, notwithstanding that all or any portion of the Obligations (other than
Trustor's Obligations under this ARTICLE D) shall have been discharged thereby;
(iv) the extinguishment of this Deed of Trust and/or any other Loan Documents by
any means, including deed or assignment in lieu of foreclosure herein; (v) any
election by Beneficiary to purchase any portion of the Real Property by
crediting all or any portion of the Obligations against the purchase price
therefore (except to the extent and only to the extent that Beneficiary has
specifically elected in writing in its sole discretion to credit against the
purchase price any costs, amounts or liabilities covered in the indemnification
provisions of this ARTICLE D which were liquidated in amount at the time of such
foreclosure sale), it being agreed that the Obligations shall be discharged by
any such crediting in the order set forth above; (vi) the acquisition of the
Real Property or any portion of it by Beneficiary; and (vii) the transfer of
Beneficiary's right in the Loan Documents and/or the Real Property. The
foregoing notwithstanding, Beneficiary may enforce Trustor's obligations under
this ARTICLE D in any manner, including judicially, at any time while the Deed
of Trust continues to affect the Real Property.
(h) OTHER RIGHTS OR REMEDIES OF BENEFICIARY. In addition to the
rights and remedies of Beneficiary specifically set forth in this ARTICLE D, in
the event of Beneficiary's belief that a breach of any of the foregoing
environmental provisions exist, Beneficiary may exercise any additional rights
it may have under California Code of Civil Procedure Section 726.5 or California
Civil Code Section 2929.5 or seek a court order appointing a receiver to
facilitate its exercise of such rights under California Code of Civil Procedure
Section 564(c), as the same may be amended from time to time, or any successor
statute or law with respect thereto, or any other rights or remedies of
Beneficiary under applicable law.
E. MISCELLANEOUS PROVISIONS
E.1 SUCCESSORS; GENDER. Subject to the provisions on transfer set
out elsewhere in this Deed of Trust, this Deed of Trust applies to, inures to
the benefit of, and binds all parties hereto, their heirs, legatees, devisees,
administrators, executors, successors and assigns. The term "Beneficiary" shall
mean the owner and holder from time to time, including pledgees, participants or
owners of other such interests, of the Note, whether or not named as Beneficiary
herein. In this Deed of Trust, whenever the context so requires, the masculine
gender includes the feminine and/or neuter, and the singular number includes the
plural.
E.2 AUTHORIZATION TO RELY. Trustee, upon presentation to it of an
affidavit signed by or on behalf of Beneficiary,
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setting forth any fact or facts showing a default by Trustor under any of the
terms or conditions of this Deed of Trust, is authorized to accept as true and
conclusive all facts and statements in such affidavit and to act hereunder in
complete reliance thereon.
E.3 GOVERNING LAW. The provisions of this Deed of Trust governing
the contractual rights and obligations of Trustor, Beneficiary and Trustee shall
be governed and construed according to the laws of the State of California.
E.4 PERMITTED CONTESTS. Trustor may contest or object in good faith
to the amount or validity of any tax, assessment, claim, demand, levy, lien,
encumbrance, charge or notice of noncompliance asserted by a third party that
may result in a lien or charge against the Real Property (collectively, the
"Claim"), but only in accordance with the following conditions:
(a) Trustor shall first give written notice to Beneficiary and
deposit with Beneficiary a bond or cash satisfactory to Beneficiary in such
amounts as Beneficiary shall reasonably require, up to 150% of the amount of any
Claim or other sum in controversy, and, if the context of such Claim so
requires, Trustor shall have provided such additional undertaking as may be
required or permitted by law to accomplish a stay of any legal proceedings then
pending in connection with any such Claim or controversy; and
(b) Trustor shall promptly and diligently proceed to cause such
Claim to be settled and discharged in a manner not prejudicial to Beneficiary or
its rights hereunder; and
(c) If Trustor shall fail to discharge diligently any such
Claim, then, in addition to any other right or remedy of Beneficiary,
Beneficiary may, but shall not be obligated to, discharge the same, either by
paying the amount claimed to be due, or by procuring the discharge of such Claim
by promptly depositing in court a bond or the amount claimed or otherwise giving
security for such Claim, or in such manner as is or may be prescribed by law;
and
(d) Beneficiary may employ an attorney or attorneys to protect
its rights hereunder, and in the event of such employment, Trustor shall pay
Beneficiary the reasonable attorneys' fees and expenses incurred by Beneficiary,
whether or not an action is actually commenced against Trustor by reason of any
default hereunder; and
(e) Trustor has demonstrated to Beneficiary's reasonable
satisfaction that no portion of the Trust Estate will be sold to satisfy any
such Claim prior to final resolution of such Claim or permitted contest.
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The foregoing is not intended to apply to claims or actions brought against
Trustor, the subject matter of which is unrelated to the Trustor's interest in
the Real Property or a claim of a lien or charge therein, unless and until any
such claim results in an actual lien or charge being filed against the Real
Property, which Trustor desires to contest or object to in good faith.
E.5 STATUTE OF LIMITATIONS. Except insofar as now or hereafter
prohibited by law, the right to plead, use or assert any statute of limitations
as a plea or defense or bar of any kind, or for any purpose, to any debt, demand
or obligation secured or to be secured hereby, or to any complaint or other
pleading or proceeding filed, instituted or maintained for the purpose of
enforcing this Deed of Trust or any rights hereunder, is hereby waived by
Trustor.
E.6 SEVERABILITY. The invalidity of any one or more covenants,
phrases, clauses, sentences or paragraphs of this Deed of Trust shall not affect
the remaining portions of this Deed of Trust or any part thereof, and the same
shall be construed as if such invalid covenants, phrases, clauses, sentences or
paragraphs, if any, had not been inserted herein. If the lien of this Deed of
Trust is invalid or unenforceable as to any part of the indebtedness secured
hereby, or if the lien is invalid or unenforceable as to any part of the Trust
Estate, the unsecured or partially secured portion of such indebtedness shall be
completely paid prior to the payment of the remaining and secured or partially
secured position of such indebtedness, and all payments made on such
indebtedness, whether voluntary or under foreclosure or other enforcement action
or procedure, shall be considered to have been first paid on and applied to the
full payment of that portion of such indebtedness which is not secured or fully
secured by the lien of this Deed of Trust.
E.7 NOTICES. Whenever Beneficiary, Trustor or Trustee shall desire
to give or serve any notice, demand, request or other communication with respect
to this Deed of Trust, each such notice, demand, request or other communication
shall be in writing and shall be effective only if the same is delivered by
personal service against receipt, mailed by United States registered or
certified mail, postage prepaid, return receipt requested, or delivered by
receipted nationwide overnight commercial courier, addressed to the addresses
first set forth above. Notice so mailed shall be effective three (3) business
days following its posting in the United States mail. Notice delivered by
receipted nationwide overnight commercial courier shall be effective one (1)
business day following its delivery to such service as evidenced by the receipt.
Notice given in any other manner shall be effective only if and when received by
the addressee. Any party may at any time change its address for such notices by
delivering or mailing to the other parties hereto, as aforesaid, a notice of
such change.
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E.8 WAIVER OF REMEDIES. By accepting payment of any amount secured
hereby after its due date, or an amount which is less than the amount then due,
or performance of any obligation required hereunder after the date required for
such performance, Beneficiary does not waive its rights either to require prompt
payments or performance when due of all other amounts or other obligations so
secured, or to declare a default as herein provided for the failure so to pay or
perform.
E.9 TRUSTEE'S POWERS. At any time, or from time to time, without
liability therefor and without notice, upon written request of Beneficiary and
presentation of the original or certified copies of this Deed of Trust and the
Note secured hereby for endorsement, and without affecting the personal
liability of any person for payment of the indebtedness secured hereby or the
effect of this Deed of Trust upon the remainder of the Trust Estate, Trustee may
(i) reconvey any part of the Trust Estate, (ii) consent in writing to the making
of any map or plat of the Trust Estate, or any part thereof, (iii) join in
granting any easement on the Trust Estate, or any part thereof, or (iv) join in
any extension agreement or any agreement subordinating the lien or charge of
this Deed of Trust.
E.10 BENEFICIARY POWERS. Without affecting the liability of Trustor
or any other person liable for the payment of any obligation secured hereby, and
without affecting the lien or charge of this Deed of Trust upon any portion of
the Trust Estate not then or theretofore released as security for the full
amount of all unpaid obligations, Beneficiary may, from time to time and without
notice (i) release any person so liable, (ii) extend the maturity or alter any
of the terms of any such obligation, or join in any agreement modifying the
terms of any Loan Document, (iii) waive any provision hereof or grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Beneficiary's option, the Trust Estate or any parcel or portion
thereof, (v) take or release any other or additional security for any obligation
herein mentioned, (vi) make compositions or other arrangements with debtors in
relation thereto, or (vii) subordinate the lien or charge of this Deed of Trust.
E.11 SUBSTITUTION OF TRUSTEE. Beneficiary may, from time to time, by
a written instrument executed and acknowledged by Beneficiary and recorded in
the county or counties where the Trust Estate is located, and by otherwise
complying with the provisions of California Civil Code Section 2934a, or any
successor section, substitute a successor or successors for the Trustee named
herein or acting hereunder.
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E.12 ADDITIONAL SECURITY. In the event Beneficiary at any time holds
additional security for any of the obligations secured hereby, all such
additional security shall be taken, considered and held as cumulative, and
Beneficiary may enforce the sale thereof or otherwise realize upon the same, at
its option, either before or concurrently with the exercise of any of its rights
or remedies hereunder or after a sale is made hereunder. The taking of
additional security, execution of partial releases of the security, or any
extension of the time of payment of the indebtedness secured hereby, shall not
diminish the force, effect or lien of this Deed of Trust and shall not affect or
impair the liability of any maker, surety or endorser for the payment of such
indebtedness.
E.13 CAPTIONS. The captions or headings at the beginning of each
Section hereof are for the convenience of the parties and are not to be
construed as a part of this Deed of Trust.
E.14 TRUST IRREVOCABLE; NO OFFSET. The trust created hereby is
irrevocable by Trustor. No offset or claim that Trustor now or may in the
future have against Beneficiary shall relieve Trustor from paying the
installments or performing any other obligation contained herein or secured
hereby.
E.15 CORRECTIONS. Trustor shall, upon request of Trustee, promptly
correct any defect, error or omission which may be discovered in the contents of
this Deed of Trust or in the execution or acknowledgment hereof, and will
execute, acknowledge and deliver such further instruments and do such further
acts as may be necessary or as may be reasonably requested by Trustee to carry
out more effectively the purposes of this Deed of Trust, to be subject to the
lien and security interest hereby created any of Trustor's properties, rights or
interest covered or intended to be covered hereby, and to perfect and maintain
such lien and security interest.
E.16 FULL RECONVEYANCE. Upon written request of Beneficiary stating
that all sums secured hereby have been paid and upon surrender to Trustee of
this Deed of Trust and the Note for cancellation and retention and upon payment
of its fees, Trustee shall fully reconvey, without warranty, the entire
remaining Trust Estate then held hereunder. The recitals in such reconveyance
of any matters of facts shall be conclusive proof of the truthfulness thereof.
The grantee in such reconveyance may be described as "the person or persons
legally entitled thereto."
E.17 PERFORMANCE UNDER OTHER DOCUMENTS. Trustor shall faithfully
perform each and every covenant to be performed by Trustor under any lien or
encumbrance, lease, sublease, instrument, declaration, covenant, condition,
restriction, license, order or other agreement which affects or may affect the
Trust Estate, in
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law or in equity, including, without limitation, each and every covenant to be
performed by Trustor under any mortgages and any and all other instruments
pertaining to such mortgages, including the respective obligations secured
thereby. A breach of or a default under any such lien, encumbrance or other
instrument which Beneficiary reasonably believes may be prior and superior to
the lien or charge of this Deed of Trust shall, at Beneficiary's option,
constitute an event of default under this Deed of Trust.
E.18 INSPECTIONS. Beneficiary, and its agents, representatives and
workmen, are authorized to enter at any reasonable time upon or in any part of
the Trust Estate for the purpose of inspecting the same and for the purpose of
performing any of the acts it or Trustor is authorized to perform under the
terms of any of the Loan Documents.
E.19 AMENDMENTS. This instrument cannot be waived, changed discharged
or terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of any waiver, change, discharge or termination is
sought.
E.20 ASSIGNMENT. Any assignment of this Deed of Trust shall be
considered an assignment of the Note and Loan Documents.
E.21 ATTORNEYS' FEES. In the event it becomes necessary for any party
to retain legal counsel in order to enforce its rights under this Deed of Trust,
if successful in such enforcement by legal proceedings or otherwise, such party
shall be reimbursed immediately for reasonably incurred attorneys' fees and
other costs and expenses by the party against whom enforcement was sought,
including but not limited to, expenses and costs of investigation incurred in
appellate proceedings, costs incurred in establishing the right to
indemnification, or in any action or participation in, or in connection with,
any case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, 11
United States Code Section 101 ET SEQ. or any successor statutes or laws.
E.22 ACCEPTANCE BY TRUSTEE. Trustee accepts this trust when this Deed
of Trust, duly executed and acknowledged, is made a public record as provided by
law.
E.23 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. Trustor shall
protect, preserve and defend the Trust Estate and title to and right of
possession of the Trust Estate, the security hereof and the rights and powers of
Beneficiary and Trustee hereunder at Trustor's sole expense against all adverse
claims, whether the claim (i) is against a possessory or non-possessory
interest, (ii) arose prior or subsequent to the date hereof, or (iii) is senior
or junior to Trustor's or Beneficiary's rights. Trustor shall give Beneficiary
and Trustee prompt notice in writing of the assertion of any claim, of the
filing of any action or
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proceeding, or the occurrence of any damage to the Trust Estate and of any
condemnation offer or action.
E.24 UNDERLYING WAIVER OF REMEDIES. By accepting payment of any
amount secured hereby after its due date, or an amount which is less than the
amount then due, or performance of any obligation required hereunder after the
date required for such performance, Beneficiary does not waive its rights either
to require prompt payment or performance when due of all other amounts or other
obligations so secured, or to declare a default as herein provided for the
failure to so pay or perform.
E.25 ANTI-FORFEITURE. Trustor represents and warrants to Beneficiary
that there has not been committed by Trustor or any other person in occupancy of
or involved with the operation or use of the Trust Estate any act or omission
affording the federal government or any state or local government the right of
forfeiture as against the Trust Estate or any part thereof of any monies paid in
performance of Trustor's obligations under the Note or under any of the other
Loan Documents. Trustor hereby covenants and agrees not to commit, permit or
suffer to exist any act or omission affording such right of forfeiture. In
furtherance thereof, Trustor hereby indemnifies and protects Beneficiary and
agrees to defend and hold Beneficiary harmless from and against any loss, damage
or injury by reason of the breach of the covenants and agreements or the
warranties and representations set forth in this Section. Without limiting the
generality of the foregoing, the filing of formal charges or the commencement of
proceedings against Trustor or all or any part of the Trust Estate under any
federal or state law for which forfeiture of the Trust Estate or any part
thereof or of any monies paid in performance of Trustor's obligations under the
Loan Documents is a potential result, shall, at the election of Beneficiary,
constitute an event of default hereunder without notice or opportunity to cure.
E.26 COMPLIANCE WITH ACCESS LAWS.
(a) Trustor represents and warrants that the Improvements comply
with the Fair Housing Amendments Act of 1988, the Americans with Disabilities
Act of 1990 and the regulations and guidelines issued in conjunction therewith
and any other laws, ordinances, rules and regulations of federal, state, county
or municipal governments or agencies addressing the disabled ("Access Laws").
Trustor represents and warrants that Trustor has delivered to Beneficiary all
reports, memoranda, data and other information relating to Trustor's past or
present compliance or non-compliance with the Access Laws and all reports,
memoranda, data and other information relating to Trustor's future compliance
with the Access Laws. Trustor represents and warrants that the consummation by
Trustor of the transactions contemplated as part of the Loan, including without
limitation, the design, construction and
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operation of the Improvements, will not conflict with or result in a breach of
the Access Laws.
(b) Trustor covenants and agrees to comply promptly with all
Access Laws now in force or that may be enacted hereafter. Notwithstanding any
provisions set forth herein or in any other document regarding Beneficiary's
approval of alterations of the Trust Estate, Trustor shall not alter the Trust
Estate in any manner which would increase Trustor's responsibilities for
compliance with the applicable Access Laws without the prior written approval of
Beneficiary. The foregoing shall apply to tenant improvements constructed by
Trustor or by any of its tenants. Beneficiary may condition any such approval
upon receipt of a certificate of Access Law compliance from an architect,
engineer, or other person acceptable to Beneficiary.
(c) Trustor covenants and agrees, at its sole cost and expense,
to indemnify, protect, defend, hold and save Beneficiary harmless from and
against any and all damages, losses, liabilities, obligations, penalties,
claims, litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses of any kind or of any nature whatsoever (including,
without limitation, reasonable attorneys' and experts' fees and disbursements)
which may at any time be imposed upon, incurred by or asserted or awarded
against Beneficiary arising from or out of (i) any violation of or any non-
compliance with the Access Laws or any assertion of any violation of or non-
compliance with the Access Laws, or (ii) the enforcement of this Agreement or
any of the Loan Documents or the assertion by Beneficiary of any defense to its
obligations hereunder with respect to the Access Laws.
E.27 NON-FOREIGN ENTITY. Section 1445 of the Internal Revenue Code of
1986, as amended (the "Code") and Sections 18805, 18815 and 26131, as
applicable, of the California Revenue and Taxation Code ("CRTC") provide that a
transferee of a U.S. real property interest must withhold tax, in the case of
the Code, if the transferor is a foreign person, or if, in the case of the CRTC,
the transferor is not a California resident. To inform Beneficiary that the
withholding of tax will not be required in the event of the disposition of the
Real Property or the Improvements, or any portion thereof or interest therein,
pursuant to the terms of this Deed of Trust, Trustor hereby certifies, under
penalty of perjury, that: (a) Trustor is not a foreign corporation, foreign
partnership, foreign trust or foreign estate, as those terms are defined in the
Code and the regulations promulgated thereunder; and (b) Trustor's U.S. employer
identification number is 95-2052406; and (c) Trustor's principal place of
business is 500 Hotel Circle North, San Diego, California 92108. It is
understood that Beneficiary may disclose the contents of this certification to
the Internal Revenue Service and the California Franchise Tax Board, and that
any false statement contained herein could be punished by fine, imprisonment or
both. Trustor covenants and agrees to
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execute such further certificates, which shall be signed under penalty of
perjury, as Beneficiary shall reasonably require. The covenant set forth herein
shall survive the foreclosure of the lien of this Deed of Trust or acceptance of
a deed in lieu thereof.
E.28 HAZARDOUS MATERIALS. The obligations and indebtedness of Trustor
under that certain Environmental Indemnity of even date herewith,
notwithstanding anything contained herein or in any other document or agreement
which may be construed to the contrary, (i) shall not be secured by this Deed of
Trust or other Loan Documents, and shall not be subject to California Code of
Civil Procedure Sections 580a, 580b, 580d, 580d, 726 or any other anti-
deficiency laws, and (ii) shall survive the foreclosure of this Deed of Trust,
the repayment of the Loan and the termination of the Note and other Loan
Documents.
E.29 RESTATEMENT OF ORIGINAL DEED OF TRUST. Trustor acknowledges and
agrees that this Deed of Trust and the other Loan Documents constitute a
complete restatement of and amendment to the Original Loan Documents (as defined
in the Loan Documents) and all of Borrower's obligations and indebtedness
thereunder. Upon the execution of this Deed of Trust and the other Loan
Documents, the delivery thereof to Beneficiary, and the satisfaction by Trustor
of all other conditions set forth in the Loan Agreement, this Deed of Trust and
the other Loan Documents shall replace the Original Loan Documents.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Deed of
Trust as of the date first above written.
TRUSTOR:
ATLAS HOTELS, INC., a Delaware
corporation
By:
---------------------------
Its:
-----------------------
By:
---------------------------
Its:
-----------------------
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AMENDED AND RESTATED SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement") is made as
of March 31, 1995, by ATLAS HOTELS, INC., a Delaware corporation (the "Debtor"),
for the benefit of PRICE ENTERPRISES, INC., a Delaware corporation (the "Secured
Party") with reference to the facts set forth below.
RECITALS
The Debtor is indebted to the Secured Party pursuant to that certain
Amended and Restated Promissory Note Secured by Deed of Trust, in the original
principal amount of Forty-Five Million One Hundred Thousand Dollars
($45,100,000.00) of even date herewith, executed by the Debtor in favor of the
Secured Party (as amended, renewed or extended from time to time, the "Note"),
and pursuant to certain other documents executed in connection with the Debtor's
execution and delivery of the Note (as amended or supplemented from time to
time, the "Loan Documents"), including, but not limited to, that certain Loan
Agreement by and between Secured Party and Debtor dated concurrently herewith.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Debtor hereby agrees as follows for the benefit of the Secured
Party and its successors and assigns:
1. GRANT OF SECURITY. To the full extent permitted under applicable law,
the Debtor hereby assigns to the Secured Party, and grants to the Secured Party
a security interest in, all the Debtor's right, title and interest in, to, and
under the property described in the PARAGRAPHS below, now owned or hereafter
acquired and arising from, relating to or used in connection with the real
property described in EXHIBIT "A" attached hereto and incorporated herein, and
in all proceeds and products thereof (and proceeds and products of proceeds and
products), in whatever form (including proceeds consisting of property of any
type described below, whether or not such type of property is marked as property
initially subject hereto) and whether such proceeds arise before or after the
commencement of any case under the United States Bankruptcy Code, 11 U.S.C.
sections 101 et seq. (or any successor statute), by or against the Debtor,
including, without limitation, all payments under insurance whether or not the
Secured Party is the loss payee thereof, all proceeds of any governmental
taking, and any indemnity, warranty, letter of credit (including the right to
draw on such letter of credit), or guaranty payable by reason of any default
under, loss of, or damage to or otherwise with respect to any of the other
Collateral (as defined below):
(a) All "Accounts", including, without limitation, all accounts,
contract rights, accounts receivable, book debts, and
<PAGE>
other forms of obligations (to the extent not constituting obligations evidenced
by Chattel Paper, Documents or Instruments), now owned or hereafter received or
acquired by or belonging or owing to the Debtor, whether arising out of goods
sold or services rendered by the Debtor or from any other transaction, and all
of the Debtor's rights in, to, and under all purchase orders or receipts now
owned or hereafter acquired by the Debtor for goods or services, and all of the
Debtor's rights to any goods represented by any of the foregoing (including,
without limitation, unpaid seller's rights of rescission, replevin, reclamation,
and stoppage in transit and rights to returned, reclaimed, or repossessed
goods), and all monies due or to become due to the Debtor under all purchase
orders and contracts for the sale of goods or the performance of services, or
both, by the Debtor (whether or not yet earned by performance on the part of the
Debtor or in connection with any other transaction), now in existence or
hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any person or entity with respect to any of the
foregoing, whether or not any of the foregoing is included within the definition
of "accounts" in the California Uniform Commercial Code.
(b) All "Chattel Paper" now owned or hereafter acquired by the
Debtor.
(c) All "Documents" now owned or hereafter acquired by the Debtor.
(d) All "Equipment" now or hereafter owned or acquired by the Debtor,
including, without limitation, all machinery, equipment, furnishings, vehicles,
and computers and other electronic data-processing and other office equipment,
and any and all additions to, substitutions for, and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts,
equipment, and accessories installed thereon or affixed thereto.
(e) All "Fixtures" now or hereafter owned or acquired by the Debtor,
including, without limitation (regardless of where located), all of the
fixtures, systems, machinery, apparatus, equipment, and fittings of every kind
and nature whatsoever and all appurtenances and additions thereto and
substitutions therefor or replacements thereof, now or hereafter attached or
affixed to or constituting a part of, or located in or upon, real property
(including, without limitation, the real property, if any, described on EXHIBIT
"A" hereto), together with all right, title, and interest of the Debtor in and
to all extensions, improvements, betterments, renewals, substitutes and
replacements of, and all additions and appurtenances to, any of the foregoing
property and all conversions of the security constituted thereby immediately
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upon any acquisition or release thereof or any such conversion, as the case may
be.
(f) All "General Intangibles" now owned or hereafter acquired by the
Debtor, including, without limitation, all right, title, and interest that the
Debtor may now or hereafter have in or under any contract, customer lists,
trademarks, service marks, patents, rights in intellectual property, interests
in partnerships, joint ventures, and other business associations, licenses,
permits, copyrights, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, databases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any trademark, service mark, trademark, or service mark registration or
trademark or service mark licensed under any trademark or service mark license),
claims in or under insurance policies (including, without limitation, any
unearned premiums), uncertificated securities, deposit accounts, rights to
receive tax refunds and other payments (whether payment in money or payment in
kind), repayment rights, and security interests (and other rights) of the Debtor
relating to advances made, expenses incurred, and services rendered by the
Debtor to or for the benefit of third parties (including, without limitation,
all rights with respect to any statutory or common law lien or trust), and
rights of indemnification.
(g) All "Instruments" now owned or hereafter acquired by the Debtor,
including, without limitation, all notes, certificated securities, and other
evidences of indebtedness, to the extent not constituting Chattel Paper.
(h) All "Inventory" now owned or hereafter acquired by the Debtor,
including, without limitation, all inventory, merchandise, goods, and other
personal property held by or on behalf of the Debtor for sale or lease or
furnished or to be furnished under a contract of service or that constitute raw
materials, work in process, or materials used or consumed or to be used or
consumed in the Debtor's business or the processing, packing, packaging,
labelling, promotion, delivery, or shipping of the same, and all finished goods.
(i) All "Leases" now or hereafter acquired or entered into by the
Debtor, including, without limitation, all leases, licenses, occupancy
agreements, management agreements, concessions, or other agreements or
arrangements, whether written or oral, affecting all or any portion of the use,
enjoyment or occupancy of the real property described on EXHIBIT "A" attached
heretofore or hereafter entered into (the "Leases") and all income, rents,
issues, profits, revenues (including all oil and gas or other mineral royalties
and bonuses), deposits and other benefits,
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<PAGE>
including, without limitation, all revenues and credit card receipts collected
from guest rooms, restaurants, bars, meeting rooms, banquet rooms, convention
facilities and recreational facilities, all receivables, customer obligations,
installment payment obligations and other obligations now existing or hereafter
arising or created out of the sale, lease, sublease, license, concession or
other grant of the right of the use and occupancy of property or rendering of
services by Debtor or any operator or manager of the hotel, convention
facilities or the commercial space located in the real property described on
EXHIBIT "A" or acquired from others including, without limiting the generality
of the foregoing, from the rental of any office space, retail space, convention
facilities, guest rooms or other space, halls, stores, and offices, and deposits
securing reservations of such space, exhibit or sales space of every kind,
license, lease, sublease and concession fees and rentals, health club membership
fees, food and beverage wholesale and retail sales, service charges, vending
machine sales and proceeds, if any, from business interruption or other loss of
income insurance (collectively, the "Rents") and all proceeds from the sale or
other disposition of the Leases and the right to receive and apply the Rent to
the payment of the indebtedness secured hereby;
(j) All "Capital Stock" and "Securities" whether now owned or
hereafter acquired by the Debtor, and all earnings, dividends and proceeds
thereon or therefrom;
(k) All other goods and personal property of the Debtor, whether
tangible or intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, the Debtor and wherever located, including,
without limitation (to the extent not described above), all farm products,
deposit accounts, cash, and any beneficial interest of the Debtor under any
trust.
(l) The "Palmilla Pledged Documents" including (i) that certain
Redemption Agreement dated March 15, 1991 among Palmilla Partners by and among
Palmilla Partners ("Palmilla"), Donald M. Koll ("Koll"), C. Terry Brown
("Brown") and Debtor; (ii) that certain Promissory Note in the face amount of
Ten Million Dollars ($10,000,000) dated March 15, 1991 executed by Palmilla in
favor of Brown; (iii) that certain Assignment of Pre-paid Interest Lots dated
March 15, 1991 by and between Palmilla and Brown excluding lots 24, 25 and 27 as
described therein; (iv) that certain Assignment of Sale Lots dated March 15,
1991 between Palmilla and Brown; and (v) that certain Guaranty dated March 15,
1991 between Palmilla San Jose Inmobiliaria, S.A. de C.V. and Brown, together
with all other property, including, without limitation, equipment, buildings,
licenses, permits, leases, privileges, goods, inventory, fixtures, accounts,
accounts receivable, deposit accounts, money, sales and escrow agreements,
instruments, documents, chattel paper and general intangibles relating to or
arising from the Palmilla Pledged Documents or in which Debtor has been or is at
any time
4
<PAGE>
granted an interest as security for the performance of the obligations of any
party under the Palmilla Pledged Documents; all deposit or other accounts into
which amounts relating to any of the foregoing interests may be deposited; any
and all causes of action or other claims arising out or relating to any of the
foregoing, and all proceeds and products of any of the foregoing, now existing
or hereafter arising or acquired.
All of the property described above together with the proceeds, products,
offspring, rents and profits thereof (and the proceeds, products, offspring,
rents and profits of proceeds, products, offspring, rents and profits),
including, without limitation, those from the sale, exchange, transfer,
collection, loss, damage, disposition, substitution or replacement of any of the
foregoing, is herein collectively called the "Collateral". Notwithstanding
anything else contained in this SECTION 1, the "Collateral" shall exclude all
hazardous or toxic (i.e., deleterious to either the environment or to health)
wastes.
2. SECURITY FOR PAYMENT AND PERFORMANCE OF OBLIGATIONS. This Agreement
and security interests granted hereunder secure the faithful performance and
payment of all obligations of the Debtor to the Secured Party under the Note,
this Agreement, and each other Loan Document, and all extensions, modifications,
substitutions, replacements, and renewals of any thereof (collectively, the
"Secured Obligations").
3. LIABILITY UNDER OTHER AGREEMENTS. Anything herein to the contrary
notwithstanding, (a) the Debtor shall remain liable under all agreements
constituting Collateral, if any, to which the Debtor is a party, to the extent
set forth therein, to perform all of the Debtor duties and obligations
thereunder to the same extent as if this Agreement had not been executed; (b)
the exercise by the Secured Party of any of the Secured Party's rights hereunder
shall not release the Debtor from any of the Debtor's duties or obligations
under such agreements; and (c) the Secured Party shall not have any obligations
or liability under such agreements by reason of this Agreement, nor shall the
Secured Party be obligated to perform any of the obligations or duties of the
Debtor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Debtor represents,
warrants, and covenants to the Secured Party as follows:
(a) The principal place of business and chief executive office of the
Debtor are located at the address for notice to the Debtor set forth on the
signature page hereto. The Debtor has not, within the last five years, used any
other name or merged with any other entity, except as disclosed to the Secured
Party in writing.
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(b) Except as disclosed by Debtor in writing to Secured Party, the
Debtor owns the Collateral free and clear of any lien or other adverse claim
except for the security interest created by this Agreement. The Debtor has
paid, or will cause to be paid when due, all invoice prices, transportation and
delivery costs, taxes, and any acquisition or other fees relating to the
Collateral. The Debtor has all necessary authority to encumber and grant a
security interest in the Collateral.
(c) This Agreement creates a valid security interest of the Secured
Party in the Collateral securing the Secured Obligations, and upon the filing of
the financing statements delivered in connection with the execution and delivery
of this Agreement and the taking of possession by the Secured Party of such
instruments as the Secured Party may require, all filings and other actions
necessary to perfect and protect such security interest will have been duly
taken. No effective financing statement under the Uniform Commercial Code, or
other instrument similar in effect, covering all or part of the Collateral, is
on file in any recording office except such as may be filed from time to time in
favor of the Secured Party.
(d) No consent, authorization, approval, or other action by, and no
notice to or filing with, any governmental authority, regulatory body, or other
person or entity is required either (i) for the grant by the Debtor of the
security interest granted hereby or for the execution, delivery or performance
of this Agreement by the Debtor or (ii) for the perfection or exercise by the
Secured Party of the Secured Party's rights and remedies hereunder, other than
the filings referred to in the foregoing SECTION 4(c) and any necessary
continuations thereof. This Agreement is the legal, valid and binding
obligation of the Debtor, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditors' rights generally.
(e) The Debtor shall, at its own expense, maintain insurance with
respect to the Collateral in such amounts, against such risks, in such form, and
with such insurers, as shall be satisfactory to the Secured Party from time to
time. Each policy for liability insurance shall provide for all losses to be
paid on behalf of the Secured Party and the Debtor as their respective interests
may appear, and each policy for property damage insurance shall provide for all
losses to be paid directly to the Secured Party. Each such policy shall in
addition (i) name the Debtor and the Secured Party as insured parties thereunder
(without any representation or warranty by or obligation upon the Secured Party)
as their interests may appear; (ii) contain the agreement by the insurer that
any loss thereunder shall be payable to the Secured Party notwithstanding any
action, inaction, or breach of representation or warranty by the Debtor; (iii)
provide that there shall be no recourse against the Secured Party for payment of
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premiums or other amounts with respect thereto; and (iv) provide that at least
ten (10) days' prior written notice of cancellation or of lapse shall be given
to the Secured Party by the insurer. The Debtor shall, if so requested by the
Secured Party, deliver to the Secured Party original or duplicate policies of
such insurance and, as often as the Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance. Further,
the Debtor shall, at the request of the Secured Party, duly execute and deliver
instruments of assignment of such insurance policies to comply with the
requirements of SECTION 5(a) and cause the insurers to acknowledge notice of
such assignment. Reimbursement under any liability insurance maintained by the
Debtor pursuant to this SECTION 4(e) may be paid directly to the person or
entity who shall have incurred liability covered by such insurance. In the case
of any loss involving damage to Collateral when no Event of Default or Potential
Default (as hereinafter defined) shall have occurred and be continuing, the
Debtor shall make or cause to be made the necessary repairs to or replacements
of such Collateral, and any proceeds of insurance maintained by the Debtor
pursuant to this SECTION 4(e) shall be paid to the Debtor as reimbursement for
the costs of such repairs or replacements.
5. DOCUMENTATION.
(a) The Debtor shall from time to time, at the expense of the Debtor,
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Secured Party
may request, in order to perfect with the priority required hereby and otherwise
protect the security interest granted or purported to be granted hereby, or to
enable the Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, the Debtor shall (i) if requested by the Secured Party, duly note the
security interest of the Secured Party on each certificate of title covering any
of the Collateral and on any registration without certification of title
covering any of the Collateral (in each such case, if permitted under applicable
law) and upon each item of Chattel Paper; (ii) contemporaneously with the
issuance in the name of the Debtor, or any other transfer to the Debtor, of any
capital stock or other security of any entity constituting Collateral hereunder,
execute and deliver to the Secured Party, together with the certificates
representing such capital stock or other security, (A) upon the first such
occasion a Stock Pledge Agreement in form and substance reasonably acceptable to
the Secured Party, and (B) thereafter, a supplement thereto in the form attached
as an exhibit to such Stock Pledge Agreement, together, in each instance, with
stock powers (or other document of assignment) relating to such capital stock or
other security, duly endorsed by the Debtor in blank (provided, however, that
neither the Debtor's failure to execute and deliver any such Stock Pledge
Agreement or supplement, nor the Secured Party's neglect to require such
execution and delivery, shall
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<PAGE>
impair the security interest created therein by this Agreement, and, in the
absence of such other agreement or supplement, such securities will be held in
pledge subject to the provisions hereof); (iii) upon receipt by the Debtor of
any promissory note or other Instrument (and if requested by the Secured Party,
any item of Chattel Paper), deliver such Instrument or Chattel Paper to the
Secured Party, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance reasonably acceptable to
Secured Party; (iv) if requested by the Secured Party, deliver to Secured Party
a list setting forth all buyers, commission merchants, and the selling agents to
or through whom the Debtor shall sell or deliver any crops or other farm
products; shall thereafter (without further request) advise the Secured Party in
writing of any additions or changes thereto; and shall not sell or deliver any
crops or other farm products to anyone not on the current list delivered by the
Debtor to the Secured Party; and (v) execute and file such financing or
continuation statements (or amendments thereto) and such other instruments or
notices, and make such recordings, as may be necessary or desirable, or as the
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby. Without limiting the
Secured Party's rights otherwise provided in this Section, the Debtor agrees
that, in the discretion of the Secured Party, this Agreement may be filed as a
financing statement, and that a xerographic, photostatic, or carbon copy or
other reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(b) To the best of its ability, the Debtor shall furnish to the
Secured Party from time to time statements and schedules further identifying and
describing the Collateral (including, without limitation, the location and
condition thereof) and such other reports in connection with the Collateral as
the Secured Party may reasonably request, all in reasonable detail.
6. ADDITIONAL COVENANTS WITH RESPECT TO THE COLLATERAL.
The Debtor shall:
(a) Cause the Collateral to be kept in jurisdictions where all action
required by SECTION 5 has been taken with respect to the Collateral. Without
limiting the generality of the foregoing, the Debtor agrees that no material
item of tangible Collateral, other than vehicles or Inventory in transit in the
ordinary course of business, shall be moved or removed from the place it is
currently located without the prior written consent of the Secured Party.
(b) Cause the Collateral to be maintained and preserved in the same
condition, repair and working order as exists on the date of this Agreement,
ordinary wear and tear excepted, and in
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accordance with all material recommendations of any manufacturer's manual, and
shall forthwith (or in the case of any loss or damage to any of the Collateral,
as quickly as practicable after the occurrence thereof) make or cause to be made
all repairs, replacements, and other improvements in connection therewith that
are commercially reasonable. The Debtor shall promptly furnish to the Secured
Party a statement respecting any material loss or damage to any of the
Collateral and shall notify the Secured Party of any decision not to make or
cause to be made any repair, replacement, or improvement related thereto.
(c) Pay promptly when due all property and other taxes, fees,
assessments, and governmental charges or levies imposed upon or in respect of
the Collateral or this Agreement and all claims (including claims for labor,
materials and supplies) against the Collateral.
(d) Perform in a timely manner all obligations of the Debtor under
any agreement relating to any of the Collateral the failure to perform which
would materially adversely affect the rights of the Debtor thereunder.
7. MAINTENANCE OF BUSINESS.
(a) The Debtor shall keep the Debtor's principal place of business
and chief executive office and the office where the Debtor keeps its records and
files at the location specified in SECTION 4(a) above or, upon 30 days' prior
written notice to the Secured Party, at another location in a jurisdiction where
all action required by SECTION 5 shall have been taken with respect to the
Collateral. The Debtor shall hold and preserve such records and files and upon
reasonable notice shall permit representatives of the Secured Party at any time
during normal business hours to inspect and make abstracts from such records and
files.
(b) Except as otherwise provided in this SECTION 7(b) or any other
Loan Document, the Debtor shall have the right to continue to collect, at its
own expense, all amounts due or to become due to the Debtor. In connection with
such collections, the Debtor may take, and, following the occurrence and during
the continuation of an "event of default", as defined in SECTION 12 below
("Event of Default"), or of an event that, with the giving of notice or the
lapse of time, or both, would constitute such an event of default ("Potential
Default"), at the Secured Party's direction shall take, such action as the
Debtor or the Secured Party may deem necessary or advisable to enforce
collection. If any Event of Default shall have occurred and be continuing, the
Secured Party shall have the right, with respect to agreements constituting
Collateral, without written notice to the Debtor of its intention to do so, (i)
to direct the obligor(s) or the account debtor(s) under such agreements to make
payment of all amounts due or to become due thereunder directly to the Secured
Party or to a
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post office lock box under the Secured Party's sole control, and/or (ii) to
require that all amounts received by the Debtor in respect of such agreements be
received in trust for the benefit of the Secured Party and be segregated from
other funds of the Debtor. Any amounts so segregated shall, at the Secured
Party's request, be forthwith paid over to the Secured Party to be held as
Collateral and either (A) released to the Debtor after payment in full of all
Secured Obligations, or (B) if any such Event of Default shall have occurred and
be continuing, applied as provided in SECTION 12. If the Secured Party notifies
the Debtor of the Secured Party's intention to direct such obligor(s) or account
debtor(s) to make payments directly to the Secured Party and/or to a post office
lock box and/or to require the Debtor to segregate and hold such payments in
trust, the Debtor shall enter into written agreements satisfactory to the
Secured Party to implement such intention.
8. TRANSFER AND OTHER LIENS. The Debtor shall not, except as expressly
permitted by this Agreement or another Loan Document:
(a) sell, assign (by operation of law or otherwise), lease, charter,
or otherwise dispose of any of the Collateral, other than Inventory in the
ordinary course of business, without the prior written consent of the Secured
Party; or
(b) create or suffer to exist any lien, security interest, or other
charge or encumbrance upon or with respect to any of the Collateral other than
the security interest created hereby.
9. ATTORNEY-IN-FACT. to the extent allowed by law, the Debtor hereby
irrevocably appoints the Secured Party, acting singly, as the Debtor's
attorney-in-fact, with full authority in the place and stead of the Debtor and
in the name of the Debtor, the Secured Party, or otherwise, from time to time in
the Secured Party's discretion, if an Event of Default shall have occurred and
be continuing, to take any action and to execute any instrument that the Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the rights of the Debtor under SECTION 7), including,
without limitation:
(a) to obtain and adjust insurance required to be maintained pursuant
to the Loan Documents in respect of any of the Collateral;
(b) to ask, demand, collect, sue for, recover, compound, receive,
settle, compromise, extend, modify, and give acquittance and receipts for, money
due and to become due under or in respect of any of the Collateral;
(c) to receive, endorse, sign, and collect, in the name of Debtor or
Secured Party, any drafts or other instruments and documents in connection with
clauses (a) and (b) above;
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(d) to enter any premises where any Collateral may be located for the
purpose of securing, protecting, inventorying, storing, preserving, disposing,
receiving or similar actions with respect to the Collateral;
(e) to file claims or take any action or institute any proceedings
that the Secured Party may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Secured Party with
respect to any of the Collateral; and
(f) to file one or more financing or continuation statements, and
amendments thereof, relative to all or any part of the Collateral without the
signature of the Debtor where permitted by law.
10. SECURED PARTY MAY PERFORM. If the Debtor fails to perform any
agreement contained herein, in the Note, or in any other Loan Document, then the
Secured Party may perform, or cause the performance of, such agreement, and the
expenses of the Secured Party incurred in connection therewith shall be payable
by the Debtor under SECTION 13(b) below.
11. SECURED PARTY'S DUTIES. The powers conferred on the Secured Party
hereunder are solely to protect the interests of the Secured Party in the
Collateral, and shall not impose any duty upon the Secured Party to exercise any
such powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, the Secured Party
shall have no duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Collateral.
12. REMEDIES.
(a) The occurrence of any of the following events, for any reason,
whether voluntary or involuntary, pursuant to the order of any court or other
governmental authority, or otherwise, shall constitute an "Event of Default"
hereunder:
(i) any default in the payment when due of any Secured
Obligation;
(ii) any other breach of or default under the Note, this
Agreement, or any other Loan Document; or
(iii) the Debtor shall become the subject of any proceeding
under the United States Bankruptcy Code or any successor statute, or shall make
an assignment for the benefit of its creditors, or shall generally fail to pay
its debts when due, or a receiver, trustee, or other custodian shall be
appointed for all or a material portion of the Debtor's property.
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(b) If any Event of Default shall have occurred and be continuing:
(i) In lieu of or in addition to exercising any other power
hereby granted or otherwise available to the Secured Party, the Secured Party
(without notice, demand, or declaration of default, which are hereby waived by
the Debtor) may declare all unpaid Secured Obligations immediately due and
payable, whereupon they shall become due and payable, and (whether or not the
Secured Obligations are so accelerated) may proceed by an action or actions in
equity or at law for the seizure and sale of the Collateral or any part thereof,
for the specific performance of any covenant or agreement herein contained or in
aid of the execution of any power herein granted, for the foreclosure or sale of
the Collateral or any part thereof under the judgment or decree of any court of
competent jurisdiction, for the appointment of a receiver pending any
foreclosure hereunder or the sale of the Collateral or any part thereof, or for
the enforcement of any other appropriate equitable or legal remedy; and upon the
commencement of judicial proceedings by the Secured Party to enforce any right
under this Agreement, the Secured Party shall be entitled as a matter of right
against the Debtor to such appointment of a receiver, without regard to the
adequacy of the security by virtue of this Agreement or any other collateral or
to the solvency of the Debtor.
(ii) In addition to other rights and remedies provided for
herein or otherwise available to the Secured Party, the Secured Party may
exercise in respect of the Collateral all the rights and remedies of a secured
party on default under the California Uniform Commercial Code, whether or not
the California Uniform Commercial Code applies to the affected Collateral, and
also may (A) require the Debtor to, and the Debtor hereby agrees that, at its
expense and upon request of the Secured Party, it forthwith shall, assemble all
or part of the Collateral as directed by the Secured Party and make it available
to the Secured Party at such places reasonably convenient to all parties as the
Secured Party may designate, and (B) without notice except as specified below,
sell the Collateral or any part thereof in one or more sales at public or
private sales, at any of the Secured Party's offices or elsewhere, for cash, on
credit, or for future delivery and at such price or prices and upon such other
terms as the Secured Party may deem commercially reasonable. The Debtor agrees
that, to the extent notice of sale shall be required by law, at least 5 days'
notice to the Debtor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Secured Party shall not be obligated to make any sale of Collateral,
regardless of notice of sale having been given. The Secured Party may adjourn
any public or private sale from time to time by public announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Secured Party shall have
the right to become the purchaser at
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any public sale made pursuant to the provisions of this SECTION 12 and shall
have the right to credit against the amount of the bid made therefor the amount
payable to the Secured Party out of the net proceeds of such sale.
(iii) All cash proceeds received by the Secured Party in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral, shall be applied at Secured Party's election as follows:
(A) First, to the payment of all costs and expenses
incident to the enforcement of this Agreement, including, but not limited to,
reasonable fees and expenses of the agents, contractors, and attorneys of the
Secured Party incurred in connection with such sale, collection, or realization;
(B) Second, to the payment of all other Secured
Obligations, in such order as the Secured Party may elect; and
(C) Third, the remainder, if any, to the Debtor or to
whomever may be lawfully entitled to receive such remainder;
provided, however, that the Debtor shall remain liable to the Secured Party for
any deficiency in the Secured Obligations remaining unpaid after the application
of such proceeds as provided in this SECTION 12(b)(iii), and provided further
that, to the extent not prohibited by applicable law, nothing herein contained
shall in any way limit or restrict the Secured Party's rights to proceed
directly against the Debtor without first causing the Secured Party to exhaust,
or in any manner to exercise its rights in respect of, the Collateral.
(iv) Any sale of the Collateral or any part thereof pursuant
to the provisions of this SECTION 12 shall operate to divest all right, title,
interest, claim and demand of the Debtor in and to the property sold and shall
be a perpetual bar against the Debtor. Nevertheless, if requested by the
Secured Party so to do, the Debtor shall join in the execution, acknowledgment,
and delivery of all proper conveyances, assignments, and transfers of the
property sold. It shall not be necessary for the Secured Party to have
physically present or constructively in the Secured Party's possession any of
the Collateral at any such sale, and the Debtor shall deliver all of the
Collateral to the purchaser at such sale on the date of sale and, if it should
be impossible or impracticable then to take actual delivery of the Collateral,
the title and right of possession to the Collateral shall pass to the purchaser
at such sale as completely as if the same had been actually present and
delivered. The Debtor agrees that if the Debtor
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retains possession of the property or any part thereof subsequent to such sale,
the Debtor shall be considered a tenant at sufferance of the purchaser and
shall, if the Debtor remains in possession after demand to remove, be guilty of
forceful detainer and be subject to eviction and removal, forcible or otherwise,
with or without process of law, and all damages by reason thereof are hereby
expressly waived by the Debtor.
(v) The Secured Party may use, assemble, complete, produce,
grow, raise, develop, harvest, process, market, or operate the Collateral to the
extent that the Secured Party deems appropriate for the purpose of caring for,
preserving, or disposing of the Collateral or for any other purpose that the
Secured Party deems appropriate, and, in connection with any of the foregoing
and/or any disposition of the Collateral, may use, sell, or dispose of any
brand, water right, timber permit, grazing privilege, license, permit,
franchise, trademark, tradename, trade style, copyright, patent right, or
technical process or information of the Debtor relating thereto.
(vi) Subject to any requirements of applicable law, the Debtor
agrees that neither the Debtor nor any of the Debtor's affiliates under its
control shall at any time have or assert any right under any law pertaining to
the marshalling of assets, the sale of property in the inverse order of
alienation, the administration of estates of decedents, appraisement, valuation,
stay, extension or redemption now or hereafter in force in order to prevent or
hinder the rights of the Secured Party or any purchaser of the Collateral or any
part thereof under this Agreement, and the Debtor, to the extent permitted by
applicable law, hereby waives the benefit of all such laws.
(vii) Upon any sale made under the powers of sale herein
granted and conferred, the receipt of the Secured Party shall be sufficient
discharge to the purchaser or purchasers at any sale for the purchase money,
and such purchaser or purchasers, and the heirs, devisees, personal
representatives, successors, and assigns thereof shall not, after paying such
purchase money and receiving such receipt of the Secured Party, be obliged to
see to the application thereof or be in anywise answerable for any loss,
misapplication, or nonapplication thereof.
13. INDEMNITY AND EXPENSES.
(a) The Debtor agrees to indemnify the Secured Party from and against
any and all claims, losses, and liabilities growing out of, or resulting from,
this Agreement (including, without limitation, enforcement of this Agreement).
(b) The Debtor shall upon demand pay to the Secured Party the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of counsel and/or any experts and
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agents, that the Secured Party may incur in connection with (i) the
administration of this Agreement, (ii) the inspection, custody, preservation,
use, or operation of, the sale of, the collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement of any of the
rights of the Secured Party hereunder or under any judgment awarded to the
Secured Party in respect of its rights hereunder (which obligation shall be
severable from the remainder of this Agreement and shall survive the entry of
any such judgment), or (iv) the failure by the Debtor to perform or observe any
of the provisions hereof or the failure of any representation or warranty of the
Debtor made in or pursuant to any Loan Document to be true and correct in all
respects. The foregoing shall include any and all expenses and fees incurred by
the Secured Party in connection with a bankruptcy, reorganization, receivership,
or similar debtor-relief proceeding by or affecting the Debtor or any of the
Collateral.
14. MISCELLANEOUS.
(a) NOTICES. All notices, demands and other communications required
or permitted hereunder shall be in writing, addressed to the parties at the
following addresses:
Debtor: Atlas Hotels, Inc.
500 Hotel Circle North
San Diego, CA 92108
Attn: Mr. C. Terry Brown
With a copy to: Weiss, Scolney, Spees, Danker & Shinderman
10100 Santa Monica Boulevard, Suite 1095
Los Angeles, CA 90067
Attn: Ashleigh A. Danker, Esq.
Lender: Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, CA 92117
Attn: Mr. Daniel T. Carter
With a copy to: Luce, Forward, Hamilton & Scripps
600 West Broadway, Suite 2600
San Diego, CA 92101
Attn: Marjorie J. Floyd, Esq.
or to such other address as may be designated from time to time by notice to the
other parties in the manner set forth herein. All such communications shall be
deemed effective (a) upon actual delivery if delivered by personal delivery or
certified postage prepaid mail, (b) three business days following deposit, first
class postage prepaid, with the United States Mail, or (c) on the next business
day after timely and proper deposit with an overnight air courier with request
for next business day delivery.
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(b) CONTINUING SECURITY INTEREST, ETC. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until payment in full of the Secured Obligations and
performance of all other obligations secured hereby; (ii) be binding upon the
Debtor and the Debtor's heirs, executors, personal representatives, successors,
and assigns (provided, however, that the Debtor shall not have the right to
assign the Debtor's rights or obligations hereunder or any interest herein
without the prior written consent of the Secured Party); and (iii) inure to the
benefit of, and be enforceable by, the Secured Party and the Secured Party's
successors and assigns.
(c) SEVERABILITY. If any provision of this Agreement shall be deemed
or held to be invalid or unenforceable for any reason, it shall be adjusted, if
possible, rather than voided, so as to achieve the intent of the parties to the
fullest extent possible. In any event, such provision shall be severable from,
and shall not be construed to have any effect on, the remaining provisions of
this Agreement, which shall continue to be in full force and effect.
(d) MULTIPLE OBLIGORS. If "Debtor" refers to more than one person or
entity, then (i) the obligations of each such person or entity shall be joint
and several; (ii) all references to the "Debtor" herein shall, unless the
context otherwise requires, refer to all such parties jointly and severally; and
(iii) each such person or entity hereby waives any and all defenses based upon
suretyship or guaranty or impairment of collateral. If the Debtor is a
partnership, the partnership and all general partners therein shall be jointly
and severally liable hereunder.
(e) RIGHTS CUMULATIVE: NO WAIVER. The Secured Party's options,
powers, rights, privileges, and immunities specified herein or arising hereunder
are in addition to, and not exclusive of, those otherwise created or existing
now or at any time, whether by contract, by statute, or by rule of law. The
Secured Party shall not, by any act, delay, omission, or otherwise, be deemed to
have modified, discharged, or waived any of the Secured Party's options, powers,
or rights in respect of this Agreement, and no modification, discharge, or
waiver of any such option, power, or right shall be valid unless set forth in
writing signed by the Secured Party or the Secured Party's authorized agent, and
then only to the extent therein set forth. A waiver by the Secured Party of any
right or remedy hereunder on any one occasion shall be effective only in the
specific instance and for the specific purpose for which given, and shall not be
construed as a bar to any right or remedy that the Secured Party would otherwise
have on any other occasion.
(f) GOVERNING LAW; TERMS. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applied to
contracts between residents thereof, to be
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wholly performed within the State of California, except to the extent that the
validity or perfection of the security interest hereunder, or remedies or other
provisions hereunder, in respect of any particular Collateral are governed by
the laws of a jurisdiction other than the State of California, including federal
law. Unless otherwise defined herein, terms used in Division 9 of the California
Uniform Commercial Code are used herein as therein defined.
(g) RELEASES. No release from the lien of this Agreement of any part
of the Collateral by the Secured Party shall in anywise alter, vary, or diminish
the force, effect, or lien of this Agreement on the balance of the Collateral.
(h) SUBROGATION. This Agreement is made with full substitution and
subrogation of the Secured Party in and to all covenants and warranties by
others heretofore given or made in respect of the Collateral or any part
thereof.
(i) NATURE OF AGREEMENT. This Agreement will be deemed to be and may
be enforced from time to time as an assignment, chattel mortgage, contract,
financing statement, or security agreement, and from time to time as any one or
more thereof as is appropriate under applicable state law.
(j) COUNTERPARTS. This Agreement may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Agreement.
(k) HEADINGS. The section headings used in this Agreement are
intended principally for convenience and shall not by themselves determine the
rights and obligations of the parties to this Agreement.
[Remainder of Page Intentionally Left Blank]
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(l) ENTIRE AGREEMENT. This Agreement, the Note, and other Loan
Documents contain the entire agreement between the Debtor and the Secured Party
with respect to the subject matter of this Agreement, and supersede all prior
communications relating thereto, including, without limitation, all oral
statements or representations. No supplement to or modification of this
Agreement shall be binding unless executed in writing by the Debtor and the
Secured Party.
IN WITNESS WHEREOF, the Debtor has caused this Agreement to be duly
executed and delivered as of the date first above written.
DEBTOR:
ATLAS HOTELS, INC., a Delaware
corporation
By:______________________________
Its:__________________________
By:______________________________
Its:__________________________
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CAPITAL RESERVE AGREEMENT
This CAPITAL RESERVE AGREEMENT (this "Agreement") is made as of March 31,
1995, by and between ATLAS HOTELS, INC., a Delaware corporation (the "Lender"),
and PRICE ENTERPRISES, INC., a Delaware corporation (the "Borrower") with
reference to the facts set forth below.
RECITALS
A. Borrower has entered into an Amended and Restated Loan Agreement of
even date herewith ("Loan Agreement") with Lender in connection with a loan by
Lender to Borrower in the principal sum of Forty-Five Million One Hundred
Thousand and No/100 Dollars ($45,100,000.00) (the "Loan"). The Loan is
evidenced by an Amended and Restated Promissory Note Secured by Deed of Trust of
even date herewith ("Note"). The Note is secured, INTER ALIA, by, among other
property, an Amended and Restated Deed of Trust with Assignment of Leases and
Rents and Fixture Filing of even date herewith ("Deed of Trust") and Security
Agreement of even date herewith ("Security Agreement"). The Loan Agreement, the
Note, the Deed of Trust, the Security Agreement and all other documents executed
in connection with the Loan are hereafter referred to as the "Loan Documents."
B. The execution of this Agreement is a condition precedent to the
obligation of Lender to make the Loan.
C. Capitalized terms not otherwise defined shall have the meanings set
forth in the Loan Agreement.
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower hereby agree as set forth below.
1. INCORPORATION OF RECITALS. The Recitals set forth above are
incorporated herein by this reference.
2. CAPITAL RESERVE ACCOUNT. On the Effective Date of the Loan Agreement,
Borrower shall establish a separate account in Borrower's name at a depository
institution approved by Lender ("Capital Reserve Account"), into which (a)
Lender shall disburse the Special Capital Reserve (as the same may be increased
as provided in the Loan Agreement and SECTIONS 3 AND 4 below), and (b) Borrower
shall make the Capital Reserve Monthly Deposit (as defined below), as provided
herein and in the Loan Agreement. All payments made from the Capital Reserve
Account shall be made on a monthly basis and shall be made by checks jointly
signed by Lender and Borrower made payable to Borrower in reimbursement of
amounts actually expended by Borrower as provided herein. Borrower shall not be
entitled to receive and Lender shall not be obligated to
<PAGE>
make any disbursement from the Special Capital Reserve or sign any check for a
payment from the Capital Reserve Account if an Event of Default or any other
condition that with the giving of notice or the passage of time or both would
give rise to an Event of Default, then exists.
3. DISBURSEMENT OF SPECIAL CAPITAL RESERVE. Lender shall disburse into
the Capital Reserve Account funds from the Special Capital Reserve to reimburse
Borrower on a monthly basis for reasonable costs and expenses paid by Borrower
in completing the capital repairs and improvements to the Hotel set forth in the
Capital Repair Schedule (the "Capital Improvements"), up to the amounts
allocated therefor on the Capital Repair Schedule, upon the satisfaction in full
of the terms and conditions set forth in this SECTION 3 and SECTION 4 below;
provided, however, that disbursements from the Special Capital Reserve shall be
allocated only for the following purposes: (a) an amount equal to up to Six
Hundred Thousand Dollars ($600,000) shall be available for disbursement for the
door lock and fire sprinkler systems for the Hotel (the "Sprinkler Advance") and
(b) any amounts remaining undisbursed from the Sprinkler Advance after the
satisfactory completion of such improvements, the amount of Four Hundred
Thousand Dollars ($400,000), and any amounts remaining undisbursed from the
Aetna Advance after repayment of Borrower's obligations to Aetna and the
reconveyance of the Aetna Deed of Trust (collectively, the "Remaining Capital
Reserve Advance"), shall be available for disbursement for other Capital
Improvements. Borrower shall provide evidence satisfactory to Lender that the
Capital Improvements for which the reimbursement from the Special Capital
Reserve is being requested have been completed in full in a good and workmanlike
manner in accordance with all applicable Laws and shall submit to Lender copies
of invoices for which such funds are being requested, together with evidence of
payment therefor satisfactory to Lender, including, if required by Lender,
waivers of liens. Lender shall not be obligated to release any funds for
payment of the cost of an improvement or other item other than the Capital
Improvements set forth on the Capital Repair Schedule or for costs of Capital
Improvements in excess of the costs specified on the Capital Repair Schedule.
Notwithstanding the foregoing, at its sole option, Lender may disburse any
portion of the Special Capital Reserve directly to Borrower's vendors,
contractors or other parties to whom payment is due in connection with the
Capital Improvements.
4. CAPITAL RESERVE MONTHLY DEPOSIT. During the term of the Loan, on a
monthly basis as provided herein, Borrower shall reserve and deposit into the
Capital Reserve Account an amount equal to four percent (4%) of Gross Income
from Operations (the "Capital Reserve Amount"); provided, however, that the
amount of the Remaining Capital Reserve Advance shall be applied as a credit
toward the Capital Reserve Amount otherwise due from Borrower and Borrower shall
not be required to reserve or deposit amounts with
2
<PAGE>
respect thereto until such time as the cumulative amount of the Capital Reserve
Amount exceeds the amount of the Remaining Capital Reserve Advance, whether
disbursed or undisbursed by Lender under the provisions of SECTION 3 above (the
"Capital Reserve Deposit Commencement Date"). Commencing on the fifteenth
(15th) day of the first calendar month after the month in which the Capital
Reserve Deposit Commencement Date occurs, Borrower shall deposit on such date
and on the fifteenth (15th) day of each month thereafter an amount equal to the
Capital Reserve Amount calculated for the previous calendar month and any
applicable partial month. Each individual monthly deposit is referred to herein
as a "Capital Reserve Monthly Deposit."
4.1 CALCULATION OF CAPITAL RESERVE DEPOSITS. On a monthly basis
during the term of the Loan, within three (3) days after the date on which the
Capital Reserve Monthly Deposit is either due, or, but for the availability of
the Capital Reserve Advance, would otherwise be due, Borrower shall provide
Lender with written evidence of the deposit and a written statement detailing
the calculation of Gross Income from Operations for the previous calendar month
("Monthly Statement"). If requested by Lender from time to time, Borrower shall
provide Lender with any additional documentation supporting Borrower's
calculation of Gross Income from Operations and the amount of the Capital
Reserve Monthly Deposit.
4.2 WITHDRAWALS FROM CAPITAL RESERVE ACCOUNT. All monies on deposit
at any time during the term of the Loan in the Capital Reserve Account shall be
used by Borrower solely to reimburse Borrower for expenses paid for Capital
Improvements ("Qualified Expenses"), not to exceed amounts set forth in the
Capital Repair Schedule, except as may be permitted under the Loan Agreement.
Each withdrawal of funds from the Capital Reserve Account shall be made only
after Borrower has paid corresponding Qualified Expenses equal to or greater
than the amount of the withdrawal. The Monthly Statement delivered to Lender
each month shall include (a) a statement of Qualified Expenses paid with funds
from the Capital Reserve Account during the previous calendar month, including
information regarding the items purchased or services procured as Qualified
Expenses and (b) a true and correct copy of the monthly statement of activity in
the Capital Reserve Account prepared by the depository institution for the
previous calendar month.
5. PERFORMANCE OF IMPROVEMENTS. Borrower shall construct, erect,
undertake and complete all of the Capital Improvements within the time periods
provided in the Loan Agreement. Borrower shall pay for and obtain or cause to
be paid for and obtained all permits, licenses, and approvals required by all
applicable Laws with regard to the Capital Improvements, whether necessary for
commencement, completion, use or otherwise. Borrower shall perform or cause to
be performed all work in connection with the Capital
3
<PAGE>
Improvements in a good and workmanlike manner, in compliance with all applicable
Laws, without regard to the sufficiency of the funds held in the Special Capital
Reserve or the Capital Reserve Account. The Capital Improvements shall be
constructed, installed, or completed, as applicable, by Borrower free and clear
of any and all liens (including mechanics', materialmens' or other liens),
claims and encumbrance whatsoever.
6. OBLIGATIONS UNDER LOAN DOCUMENTS. Nothing contained in this Agreement
or the insufficiency of any balance in the Capital Reserve Account shall in any
manner alter, impair of affect the obligations of Borrower, or relieve Borrower
or any of its obligations, to make payments and perform all of its other
obligations required under the Loan Documents.
7. EVENTS OF DEFAULT. The occurrence of any of the following events, for
any reason, whether voluntary or involuntary, pursuant to the order of any court
or other governmental authority, or otherwise, shall constitute an "Event of
Default" hereunder:
(a) A failure of Borrower to fulfill any obligation under this
Agreement or to abide by the procedures set forth in this Agreement; or
(b) any other breach of or default by Borrower under the Note, this
Agreement, or any other Loan Document.
Upon the occurrence of an Event of Default, in addition to all other rights and
remedies of Lender, Borrower shall not be entitled to additional advances from
the Special Capital Reserve or be permitted to make any further withdrawals from
the Capital Reserve Account and Lender may apply any funds then held in the
Special Capital Reserve or the Capital Reserve Account in such order and in such
amounts as Lender shall elect, in its sole and absolute discretion, to payment
of the indebtedness evidenced by the Note and the Loan Documents or to make or
complete capital improvements to the Hotel.
8. GRANT OF SECURITY. To the full extent permitted under applicable law,
the Borrower hereby assigns to the Lender, and grants to the Lender a security
interest in, the Capital Reserve Account and all deposits and funds therein and
all interest and other earnings thereon and agrees that the Capital Reserve
Account and all such related property constitutes a "General Intangible" under
that certain Security Agreement executed by Borrower in favor of Lender of even
date herewith and shall be subject to the terms and provisions of the Security
Agreement, except to the extent inconsistent, in which event this Agreement
shall control. The Borrower shall from time to time, at the expense of the
Borrower, promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that the
Lender may request, in order to perfect and otherwise
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<PAGE>
protect the security interest granted or purported to be granted hereby, or to
enable the Lender to exercise and enforce its rights and remedies hereunder or
under the Security Agreement with respect to the Capital Reserve Account.
Without limiting the foregoing, simultaneously with the execution of this
Agreement, Borrower shall instruct, in a form satisfactory to Lender, the
depository institution where the Capital Reserve Account is maintained to follow
all instructions of Lender with respect to the Capital Reserve Account and shall
provide such account holder with a copy of this Agreement.
9. MISCELLANEOUS.
(a) INDEMNIFICATION OF LENDER AND ASSIGNMENT OF CLAIMS. Borrower
shall hold harmless, indemnify and defend Lender from and against any and all
liabilities, obligations, claims, demands, damages, penalties, causes of action,
losses, fines, costs, and expenses (including, without limitation, reasonable
attorneys' fees and expenses) imposed upon or incurred by Lender arising from,
in connection with, directly or indirectly, this Agreement. This indemnity is
in addition to any other indemnity agreements made by Borrower to Lender in the
Deed of Trust, the Note, or any of the other Loan Documents. Borrower hereby
assigns to Lender, all rights, claims and causes of action Borrower may have
against any person or entity supplying labor and materials in connection with
the Capital Improvements; provided, however, that Lender may pursue any such
right, claim, or cause of action, unless an Event of Default shall have occurred
under the Deed of Trust or Borrower shall have otherwise breached any provisions
of this Agreement.
(b) NOTICE. All notices, requests and other communications provided
for herein shall be given or made in writing in the manner specified in the Loan
Agreement.
(c) SEVERABILITY. If any provision of this Agreement shall be deemed
or held to be invalid or unenforceable for any reason, it shall be adjusted, if
possible, rather than voided, so as to achieve the intent of the parties to the
fullest extent possible. In any event, such provision shall be severable from,
and shall not be construed to have any effect on, the remaining provisions of
this Agreement, which shall continue to be in full force and effect.
(d) MULTIPLE OBLIGORS. If "Borrower" refers to more than one person
or entity, then (i) the obligations of each such person or entity shall be joint
and several; (ii) all references to the "Borrower" herein shall, unless the
context otherwise requires, refer to all such parties jointly and severally; and
(iii) each such person or entity hereby waives any and all defenses based upon
suretyship or guaranty or impairment of collateral. If the Borrower is a
partnership, the partnership and all general partners therein shall be jointly
and severally liable hereunder.
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(e) RIGHTS CUMULATIVE: NO WAIVER. The Lender's options, powers,
rights, privileges, and immunities specified herein or arising hereunder are in
addition to, and not exclusive of, those otherwise created or existing now or at
any time, whether by contract, by statute, or by rule of law. The Lender shall
not, by any act, delay, omission, or otherwise, be deemed to have modified,
discharged, or waived any of the Lender's options, powers, or rights in respect
of this Agreement, and no modification, discharge, or waiver of any such option,
power, or right shall be valid unless set forth in writing signed by the Lender
or the Lender's authorized agent, and then only to the extent therein set forth.
A waiver by the Lender of any right or remedy hereunder on any one occasion
shall be effective only in the specific instance and for the specific purpose
for which given, and shall not be construed as a bar to any right or remedy that
the Lender would otherwise have on any other occasion.
(f) GOVERNING LAW; TERMS. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applied to
contracts between residents thereof, to be wholly performed within the State of
California.
(g) COUNTERPARTS. This Agreement may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Agreement.
(h) HEADINGS. The section headings used in this Agreement are
intended principally for convenience and shall not by themselves determine the
rights and obligations of the parties to this Agreement.
(i) ENTIRE AGREEMENT. This Agreement, the Note, and other Loan
Documents contain the entire agreement between the Borrower and the Lender with
respect to the subject matter of this Agreement, and supersede all prior
communications relating thereto, including, without limitation, all oral
statements or representations. No supplement to or modification of this
Agreement shall be binding unless executed in writing by the Borrower and the
Lender.
(j) COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower agrees to pay
immediately upon demand and hold Lender harmless from and against any liability
for, any and all losses, liabilities, damages, claims, suits, expenses, fees and
costs, including but not limited to, court costs and reasonable attorneys' fees
arising out of Lender entering into, carrying out or enforcing this Agreement,
in actions for declaratory relief in any way related to this Agreement, in the
collection of any sum which becomes due to Lender hereunder, in the protection,
preservation or enforcement of any rights of Lender in connection with any Liens
granted by Borrower
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<PAGE>
to Lender to secure the obligations hereunder, or in the enforcement of any
judgement or order filed or issues with respect to such actions. Such fees
shall include, but not be limited to, fees and costs incurred in connection with
any proceeding under the Bankruptcy Code, or any creditor suits, third party
claims or bonds, or all of the above, related thereto, appearing at or preparing
for third party examinations, in preparation of garnishee's memorandum. Until
paid to Lender, all sums will bear interest from the date billed at the rate of
ten percent (10%) Per Annum.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
duly executed and delivered as of the date first above written.
BORROWER:
ATLAS HOTELS, INC., a Delaware
corporation
By:
---------------------------
Its:
-----------------------
By:
---------------------------
Its:
-----------------------
LENDER:
PRICE ENTERPRISES, INC., a
Delaware corporation
By:
---------------------------
Its:
-----------------------
By:
---------------------------
Its:
-----------------------
7
<PAGE>
EXHIBIT 15.1 -- INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Price Enterprises, Inc.
We have reviewed the accompanying consolidated balance sheet of Price
Enterprises, Inc., as of June 4, 1995 and the related consolidated statements of
income for the twelve and forty week periods ended June 4, 1995 and June 5,
1994, and the consolidated statements of cash flows for the forty week periods
ended June 4, 1995 and June 5, 1994. These financial statements are the
responsibility of the Company's management.
We conducted our reviews 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. 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 consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
June 20, 1995
<PAGE>
EXHIBIT 15.2 -- LETTER OF ERNST & YOUNG LLP
RE: UNAUDITED INTERIM FINANCIAL INFORMATION
Board of Directors
Price Enterprises, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-0628740) pertaining to The Price Enterprises 1995 Combined
Stock Grant and Stock Option Plan and The Price Enterprise Directors' 1995 Stock
Option Plan of our report dated June 20, 1995 relating to the unaudited
condensed consolidated interim financial statements of Price Enterprises, Inc.
which are included in its Form 10-Q for the quarter ended June 4, 1995.
Pursuant to Rule 436 (c) of the Securities Act of 1933 our report is not a part
of a registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
July 14, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> AUG-29-1995
<PERIOD-END> JUN-04-1995
<CASH> 1,743
<SECURITIES> 0
<RECEIVABLES> 79,529
<ALLOWANCES> 0
<INVENTORY> 8,396
<CURRENT-ASSETS> 16,763
<PP&E> 484,230
<DEPRECIATION> 39,957
<TOTAL-ASSETS> 570,948
<CURRENT-LIABILITIES> 17,384
<BONDS> 0
<COMMON> 2
0
0
<OTHER-SE> 532,512
<TOTAL-LIABILITY-AND-EQUITY> 570,948
<SALES> 55,287
<TOTAL-REVENUES> 94,188
<CGS> 51,502
<TOTAL-COSTS> 90,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 498
<INCOME-PRETAX> 8,180
<INCOME-TAX> 5,258
<INCOME-CONTINUING> 2,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,922
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
