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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-14280
HOST FUNDING, INC.
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(Exact name of Company as specified in its charter)
Maryland 52-1907962
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6116 N. Central Expressway, Suite 1313, Dallas, Texas 75206
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code 214-750-0760
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act.
Class A Common Stock - $0.01 Par Value
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(Title of Class)
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained to, the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Company (totaling 789,999 shares) was $7,801,240 (based upon the closing bid
of the Company's common stock on the AMEX on February 28, 1997 of $9.875
per share). The term affiliates is deemed, for this purpose only, to refer
only to directors, officers and principal stockholders of the Company.
Indicate the number of shares outstanding of each of the Company's classes of
common stock, as of the latest practicable date.
The number of outstanding shares of the Company's Class A Common Stock was
1,374,049 and Class B Common Stock 140,000 as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Proxy Statement for the 1997 Annual Meeting of Stockholders to be held
May 21, 1997.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Host Funding, Inc. (the "Company") was incorporated in the State of
Maryland in December, 1994. The Company's Class A Common Stock began trading
on the American Stock Exchange on April 22, 1996, the date of its initial
public offering. The Company is a qualified real estate investment trust
("REIT") engaged in the business of acquiring high quality, limited-service
hotels throughout the United States which are affiliated with national or
regional hotel chains. On April 22, 1996 the Company in connection with the
public offering of its Class A Common Stock commenced operations by acquiring
five geographically diversified Super 8 Hotels located in Miner, Missouri,
Popular Bluff, Missouri, Rock Falls, Illinois, Somerset, Kentucky and San Diego,
California (the "Initial Hotels"). All five Initial Hotels are limited
service hotels.
SUBSEQUENT ACQUISITIONS
In September, 1996 the Company formed CrossHost, Inc., as a wholly-owned,
special purpose subsidiary of the Company ("CrossHost"). CrossHost is a
qualified REIT subsidiary incorporated under the laws of the State of
Maryland. CrossHost was formed at the request of Credit Suisse First Boston
Capital, LLC (previously known as First Boston Mortgage Capital Corp.)
("First Boston") as a condition to First Boston providing an acquisition and
credit facility (the "Initial Loan Facility") to CrossHost in the amount of
$15,500,000. CrossHost used a significant portion of the proceeds from the
Initial Credit Facility to acquire Sleep Inn Hotels located in Destin,
Sarasota and Tallahassee, Florida and Ocean Springs, Mississippi (the
"Acquired Hotels"). As a further condition to obtaining the Initial Credit
Facility, First Boston required the Company to transfer to CrossHost the Initial
Hotels.
RECENT ACQUISITIONS
In March, 1997 the Company formed Host Ventures, Inc., as a wholly-owned,
special purpose subsidiary of the Company ("Host Ventures"). Host Ventures
is a qualified REIT subsidiary incorporated under the laws of the State of
Maryland. Host Ventures was formed at the request of First Boston as a
condition to First Boston providing a revised credit facility which increased
the Initial Loan Facility to $21,725,000 (the "Revised Credit Facility"). The
Revised Credit Facility was allocated $8,725,000 to Host Ventures (the "Host
Ventures Loan Facility") and $13,000,000 to CrossHost (the "CrossHost Loan
Facility"). The proceeds from the Revised Credit Facility were used to
refinance the Initial Loan Facility and for Host Ventures to acquire a Super
8 Hotel located in Flagstaff, Arizona (the "Flagstaff Super 8") for a gross
purchase price of $5,125,000 excluding closing expenses. The effective
closing date of the Flagstaff Super 8 was March 14, 1997. As a prerequisite
to obtaining the Revised Credit Facility, First Boston also required
CrossHost to transfer to Host Ventures the Sleep Inn Hotels owned by
CrossHost and located in Ocean Springs, Mississippi and Sarasota, Florida.
As a result of the acquisition of the Flagstaff Super 8, the hotel property
portfolio of the Company was increased to ten properties consisting of 767
rooms all of which are owned through CrossHost and Host Ventures. Of the
hotel property portfolio, Host Ventures currently owns two Sleep Inn Hotels
located in Ocean Springs, Mississippi and Sarasota, Florida and one Super 8
Hotel located in Flagstaff, Arizona (collectively, the "Host Ventures
Properties"), and CrossHost currently owns the five Initial Hotels and two
Sleep Inn Hotels located in Tallahassee,
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Florida and Destin, Florida (collectively, the "CrossHost Properties"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Recent Developments".
The Host Ventures Loan is secured by the Host Ventures Properties and the
CrossHost Loan is secured by the CrossHost Properties. The two loans are not
cross-defaulted or cross-collateralized. The Company signed an Indemnity and
Guaranty Agreement (the "Indemnity Agreement") relating to both the Host
Ventures Loan Facility and the CrossHost Loan Facility. The Indemnity
Agreement requires the Company (i) to indemnify First Boston in the event
either CrossHost or Host Ventures is in breach of the non-personal liability
"carve outs" typically found in securitized financing documentation such as
the Revised Credit Facility; and (ii) to guaranty to First Boston full
payment and performance of the obligations of CrossHost and Host Ventures in
the event either entity enters into bankruptcy proceedings.
MANAGEMENT OF HOTELS
Consistent with its status as a REIT, the Company is precluded from
operating the hotel properties which it owns. Consequently, all of the hotel
properties owned by CrossHost and Host Ventures, including the recently
acquired Flagstaff Super 8, are leased by separate lease agreements to
Crossroads Hospitality Tenant Company, LLC ("Crossroads"), as Lessee, and are
further subject to a Master Agreement among the Company, Crossroads and
Crossroads Hospitality Company, LLC ("Crossroads Hospitality"). See
"Percentage Leases - Master Agreement." Crossroads was recently formed in
1995 as a Delaware limited liability company of which 75% of the voting
interests are owned by Crossroads Hospitality. Each of Crossroads and
Crossroads Hospitality is controlled by Interstate Hotels Corporation, a
publicly held, nation wide operator and manager of hotel properties.
Crossroads leases, manages and operates all of the hotel properties owned by
the Company and does not lease, manage or operate any hotels other than those
owned by the Company. See "Percentage Leases."
PERCENTAGE LEASES
IN GENERAL
Each hotel is separately leased by the Company to Crossroads under a
Percentage Lease as amended from time to time. Each Percentage Lease contains
the provisions described below, and the Company intends that future leases with
respect to its hotel property investments will contain substantially similar
provisions, although the Company's Board of Directors may, in its discretion,
alter any of these provisions with respect to any particular lease, depending
on the purchase price paid, economic conditions and other factors deemed
relevant at the time, and consistent with maintaining the Company's status as
a REIT under the Code.
PERCENTAGE LEASE TERMS
Each Percentage Lease has an initial term of not less than fifteen years,
subject to earlier termination upon the occurrence of certain contingencies
described in the Percentage Leases (including, particularly, provisions relating
to damage to hotels, condemnation of hotels, and termination on disposition of
hotels).
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AMOUNTS PAYABLE UNDER THE PERCENTAGE LEASES
During the term of each Percentage Lease, the Lessee is obligated to pay
(i) the Base Rent, (ii) the Percentage Rent, and (iii) other than the
property taxes on the hotels (the Company is obligated to pay such property
taxes), all taxes, assessments, ground rents, water, sewer or other rents and
charges, excises, tax inspection, authorization or similar fees and all other
governmental charges ( the "Impositions"), (iv) every fine, penalty, interest
and cost for non-payment or late payment of Base Rent, Percentage Rent, or the
Impositions (the "Additional Charges"). Base Rent accrues and is required to
be paid monthly. Percentage Rent is based on percentages of room revenues for
each of the hotels. Percentage Rent is due quarterly; however, the Lessee will
not be in default for payment of Percentage Rent due in any quarter if the
Lessee pays, within 30 days of the end of the quarter, the Percentage Rent due
and unpaid with respect to such quarter. See "Properties-Hotels".
MAINTENANCE, MODIFICATIONS AND CAPITAL EXPENDITURES
Generally, the Lessee, at its expense, is required to maintain the
hotels in good order and repair, except for ordinary wear and tear, and to
make non-structural repairs, foreseen and unforeseen repairs, and ordinary
repairs which may be necessary and appropriate to keep the hotels in good
order and repair.
The Lessee, at its expense and subject to approval by the Company, may
make non-capital and capital additions, modifications or improvements to the
hotels, provided that such action does not significantly alter the character
or purposes of the hotels or significantly detract from the value or
operating efficiencies of the hotels. All such alterations, replacements and
improvements shall be subject to all the terms and provisions of the
Percentage Leases and will become the property of the Company upon
termination of the Percentage Leases. The Company owns substantially all
personal property (other than inventory, linens and other nondepreciable
personal property) not affixed to, or deemed a part of, the real estate or
improvements thereon, except to the extent that ownership of such personal
property would cause the Rents under a Percentage Lease not to qualify as
"rents from real property" for REIT income test purposes.
Under the Percentage Leases relating to the Initial Hotels, CrossHost is
required to fund into a replacement reserve account (the "Reserve Account")
an amount equal to six percent (6%) of gross room revenue for the preceding
month. In addition, under the Percentage Leases relating to the Acquired
Hotels and the Flagstaff Super 8, CrossHost or Host Ventures, as the case may
be, is required to set aside in the Reserve Account an amount equal to four
percent (4%) of gross room revenue during years one (1) to four (4) and 6% of
gross room revenue during years five (5) and thereafter. Deposits in the
Reserve Account are used to fund replacements of furniture, fixtures and
equipment and for capital additions to the hotels. Expenditures from the
Reserve Account generally must be jointly approved by CrossHost or Host
Ventures, as the case may be, and Crossroads.
INSURANCE AND PROPERTY TAXES
The Company is responsible for paying the property taxes on the hotels.
Any changes in the terms of the property taxes will be made pursuant to local
tax statutes. The Lessee is required to pay for all insurance on the hotels,
with extended coverage, including business interruption, casualty,
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comprehensive general public liability, workers' compensation and other
insurance as described in the Percentage Leases, and must name the Company as
the insured or an additional named insured.
INDEMNIFICATION
Under each of the Percentage Leases, the Lessee is obligated to
indemnify, and is obligated to hold harmless, the Company from and against
all liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) incurred by, imposed upon or asserted against the Company;
provided, however, that such indemnification will not be construed to require
the Lessee to indemnify the Company against the Company's own grossly
negligent acts or omissions or willful misconduct.
MASTER AGREEMENTS
Crossroads and Crossroads Hospitality have entered into separate Master
Agreements with the Company for the Super 8 Hotels and the Sleep Inn Hotels
whereby Crossroads Hospitality secures certain obligations of Crossroads.
The obligations concern payment of termination fees if Crossroads voluntarily
terminates more than one of the Percentage Leases in the first five years of
each of the Percentage Leases and the payment of termination fees and/or rent
in the event Crossroads defaults under any of the Percentage Leases. To
secure the obligations of Crossroads under the Percentage Leases, Crossroads
Hospitality has pledged as collateral pursuant to each Master Agreement 30,000
shares of the Company's Class A Common Stock (a total of 60,000 shares)
acquired by Crossroads Hospitality in the Company's initial public offering to
collateralize the payment of rent due under the Percentage Leases during the
first three years of the lease terms. In addition, Crossroads has agreed
under each Master Agreement to maintain a letter of credit after such three
year period equal to annually calculated termination fees that would be due on
the lease anniversary dates throughout the remaining terms of the Percentage
Leases. After the first year, Crossroads Hospitality may substitute the letter
of credit by guaranteeing the equivalent amounts required by the letter of
credit and providing to the Company a copy of Crossroads Hospitality's audited
financial statements which indicate a net worth of at least 2 1/2 times the
value of the letter of credit, with at least 40% of the net worth in cash or
cash equivalent assets. In addition, Crossroads Hospitality makes certain
negative covenants concerning maintenance of its minimum net worth levels.
FRANCHISE AGREEMENTS
All of the hotels are currently operated pursuant to franchise
agreements (the "Franchise Agreements") with either Super 8 Hotels or Sleep
Inn Hotels. The Company expects that a majority of any additional hotel
properties it may acquire will also be subject to similar agreements. The
Company believes that franchises (including hotel licenses) generally provide
advantages to hotel operators through the use of advertising on a much
broader scale than would be possible for an individual hotel or small group
of hotels, nationally recognized brand names, nationally accessible
reservations systems, technical and business assistance to the individual
franchisee and substantial buying power over approved suppliers.
The Franchise Agreements generally require the franchisee, which
responsibility for payment of fees has been assigned to the Lessee under the
Percentage Leases, to pay a monthly royalty fee based on gross sales and to
pay
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various other marketing fees associated with certain marketing or advertising
and centralized reservation service funds, usually based on gross sales.
Such fees may vary between individual hotels within a franchise system based
on the type of marks, restaurants or other aspects of the franchise system
used.
The Franchise Agreements generally contain specific standards for, and
restrictions and limitations on, the operation and maintenance of the hotels
which are established by the franchisors to maintain uniformity in the system
created by each such franchisor. Such standards generally regulate the hours
of operation, maintenance, appearance and cleanliness, quality and type of
goods and services offered, signage, protection of marks and advancement of
marks. Compliance with such standards could require significant expenditures
by the lessee of the hotel for capital improvements. Any such improvements
could increase the value of the applicable hotel to the benefit of the
Company.
Ongoing training costs, requirements to purchase only from approved
suppliers, financial reporting requirements, insurance requirements and
various covenants not to compete imposed upon the franchisee are other common
terms in the Franchise Agreements. Such financial reporting requirements
often stipulate the maintenance of books and records, the monthly reporting
of sales and other operating data, quarterly or semi-annual unaudited
financial statements and, in some cases, annual financial statements audited
by an independent certified public accountant. Required insurance usually
must cover both the franchisor and franchisee with respect to certain
specified liabilities, must fall within certain approved coverage limits and
be written by an approved insurance company. Covenants not to compete
include prohibitions against engaging in a similar business within a certain
geographical area, hiring employees away from the franchisor or other
unrelated franchisees or otherwise diverting business from other franchisees.
The Franchise Agreements generally require the consent of the franchisor
to a transfer of an interest in the applicable franchise, and both the
consent of the franchisor and the execution of a new franchise agreement in
the event of a transfer of all or a controlling portion of the franchisee
under the relevant Franchise Agreement.
GROWTH STRATEGY
The Company's growth strategy is to increase cash flow and enhance
shareholder value by acquiring additional existing hotels that meet the
Company's investment criteria and by participating, through the Percentage
Leases, in revenue growth at its hotels. Currently, the Company intends to
focus its acquisition strategy primarily upon the acquisition of additional
limited service hotels in the Midwest, Southwest and Southeast areas of the
United States, and its internal growth strategy will focus primarily upon
improvements in occupancy and ADR. Based upon recent increases in occupancy,
ADR and REVPAR of all U.S. hotels, management of the Company believes that
the U.S. lodging industry is recovering from a period of low profitability
resulting from high levels of debt, economic recession and an over-supply of
hotel rooms. As a result, management expects the Company to have
opportunities to acquire additional established limited service hotels at
attractive prices because of such factors.
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The Company intends to consider investments in hotel properties of the
types described above that meet one or more of the following criteria: (i)
properties in markets with projected growth potential; (ii) properties which
may be under-performing due to poor management, weak franchise affiliation or
a need for renovation; (iii) properties with relatively stable operating
histories; and (iv) properties with attractive purchase prices. Although the
Company presently anticipates that additional investments in hotel properties
will be made through the Company, additional investments also may be made
indirectly by other entities controlled by the Company. Such investments may
be financed, in whole or in part, from borrowings, the balance of the net
proceeds from future offerings, if any, subsequent issuances of Common Stock
or other securities or from cash flow. However, because the Company must
distribute annually at least 95% of its taxable net income to maintain its
REIT status, cash flow available for investment may be limited.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances,
regulations and common law, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws, ordinances and
regulations often impose liability whether or not the owner or operator knew
of, or was responsible for, the presence of such hazardous or toxic
substances and the liability under such laws, ordinances and regulations has
been interpreted to be strict, joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of
the property, as well as, the owner's ability to sell or lease the real
property or to borrow using such real property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of such substances at
the disposal or treatment facility, whether or not such facility is or ever
was owned or operated by such person. In addition, certain environmental
laws and common law principles govern the responsibility for the removal,
encapsulation or disturbance of ACMs when these ACMs are in poor condition or
when a property with ACMs is undergoing remodeling, renovation or demolition.
Such laws and common law principles could also be used to impose liability
upon owners or operators of real properties for release of ACMs that cause
personal injury or other damage. The policy of the Company is to obtain a
Phase I environmental assessment report for each of the hotels owned by the
Company, prepared by an independent environmental consultant.
Certain of the hotels owned by the Company are located on, adjacent to or
in the vicinity of properties (including gasoline stations) that contain or
have contained storage tanks or that have engaged, or may in the future
engage, in activities that may release petroleum products or other hazardous
substances into the soil or groundwater. Although there can be no assurance
that petroleum products from such properties or other hazardous substances
have not been released or have not migrated, or in the future will not be
released or will not migrate into such hotels, the Company is not aware of
any such releases or migrations. The Company does not believe that it will
have any material liability as a result of such activities; however, there
can be no assurance that the Company will not incur future environmental
liabilities arising out of such activities or that any such liability would
not have a material adverse effect on the future financial condition or
results of operations of the Company.
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The Company is not aware of any environmental condition with respect to
the hotels owned by the Company that could have had a material adverse effect
on the Company's financial condition or results of operations. No assurances
can be given, however, that (i) environmental assessments undertaken with
respect to the hotels have revealed all potential environmental liabilities,
(ii) any prior owner or operator of the real property on which the hotels are
located did not create any material environmental condition not known to the
Company, or (iii) a material environmental condition does not otherwise exist
as to any one or more hotels. Pursuant to the Percentage Leases, the Lessee
has agreed to comply with applicable environmental regulations. However, in
the event that the Company is held liable for costs and expenses in
connection with a site clean-up or in connection with ACMs, and the Company
is unable to enforce or obtain recoveries under the indemnity provisions of
the Percentage Leases such costs and expenses could have a material effect on
the Company's ability to make distributions to its shareholders.
EMPLOYEES
As of December 31, 1996, the Company was an externally-advised real
estate investment trust and had no compensated employees for the calendar
year. Effective January 31, 1997, the Company terminated the advisory
agreement with its external advisory company and became self-administered. As
a result of such termination, the Company entered into employment agreements
with three of its executive officers. See "Certain Relationships and Related
Transactions."
COMPETITION
The hotel industry is highly competitive. All of the hotels owned by the
Company are located in developed areas and experience competition primarily
from other similarly priced hotels within their immediate vicinity. In
addition, each hotel competes with other hotel properties in its particular
geographic market. The number of competitive hotel properties in a
particular market or geograhic area could have a material and adverse affect
on the rental market for the room units at each hotel and the rates which may
be charged for such room units. The hotels must also compete for occupants
with new hotels in the area.
In addition, when the Company seeks to acquire hotel properties, the
Company will be competing for investment opportunities with entities which
have substantially greater financial resources than the Company. Competition
may generally reduce the number of suitable investment opportunities offered
to the Company and increase the bargaining power of property owners seeking
to sell. Further, the Company anticipates that competition from entities
organized for purposes substantially similar to the Company's objectives will
increase significantly over time.
SEASONALITY OF THE HOTEL BUSINESS
The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth
quarters. All of the hotels owned by the Company typically reflect the
effects of this industry seasonality. This seasonality can be expected to
cause significant quarterly fluctuations in the Company's lease revenues.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operations -- Seasonality."
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REGULATORY MATTERS
GENERAL
Hotel properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities, such
as swimming pools, activity centers and other common areas. Based on its
inspection and evaluation of the hotels, the Company believes that each hotel
has the necessary permits and approvals required to enable Crossroads to
operate and manage the hotels in the manner contemplated by the Percentage
Leases.
AMERICANS WITH DISABILITIES ACT
The hotel properties must comply with Title III of the Americans with
Disabilities Act "ADA" to the extent that such properties are "public
accommodations" and/or "commercial facilities" as defined by the ADA. Under
the public accommodations provisions of the ADA, the Company as owner of the
hotel properties, will be obligated to reasonably accommodate the patrons of
the hotel properties who have physical, mental or other disabilities. This
will include the obligation to remove architectural and communication
barriers at the hotel properties when doing so is "readily achievable". In
addition, under the commercial facilities provisions of the ADA, the Company
will be obligated to ensure that alterations to the hotel properties made
after January 26, 1992, conform to the specific requirements of the ADA
implementing regulations. Noncompliance could result in the imposition of
fines, injunctive relief, and an award of damages and attorneys' fees. The
Lessee generally is obligated to remedy any ADA compliance matters pursuant
to the Percentage Leases. However, if required changes were to involve
significant expenditures, the ability of the Lessee to pay rent could be
adversely affected which in turn could adversely affect the Company's ability
to make distributions to its shareholders. Currently, the Company believes
that all hotels owned by the Company are in compliance with the ADA in all
material respects.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 6116 N. Central
Expressway, Suite 1313, Dallas, Texas. In addition, the Company owns through
CrossHost and Host Ventures ten properties located in seven states and
consisting of 767 rooms. Set forth in the chart below is certain information
relating to all of the hotel properties owned by CrossHost and Host Ventures,
excluding the newly acquired Flagstaff Super 8.
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<TABLE>
Gross Revenues
For the 12 Annual Year
Annual Percentage Months Ended Base Acquired/
Rooms Rent Formula (Year to Date) 12-31-96 Rent **** Built
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<S> <C> <C> <C> <C> <C>
INITIAL HOTELS
Minor, Missouri 63 35% YTD Revenues over initial Break-Even
Threshold of $660,000* on first $200,000 over
Break-Even Threshold, and 40% thereafter, less
Percentage Rent previously paid YTD. $ 727,000 $ 296,800 1995/85
Poplar Bluff, 63 35% YTD Revenues over initial Break-Even
Missouri Threshold of $550,000* on first $100,000 over
Break-Even Threshold, and 37% thereafter, less
Percentage Rent previously paid YTD. $ 655,000 $ 233,500 1995/85
Rock Falls, 63 28.75% YTD Revenues over initial Break-Even
Illinois Threshold of $580,000** on first $200,000 over
Break-Even Threshold, and 35% thereafter, less
Percentage Rent previously paid YTD. $ 676,000 $ 232,000 1995/85
Somerset, 63 32% YTD Revenues over initial Break-Even
Kentucky Threshold of $410,000*** on first $200,000
over Break-Even Threshold, and 35% thereafter,
less Percentage Rent previously paid YTD. $ 538,000 $ 143,800 1995/85
Mission Bay, 118 30% YTD Revenues over initial Break-Even
California Threshold of $1,050,000** on first $100,000
over Break-Even Threshold, and 40% thereafter,
less Percentage Rent previously paid YTD. $1,236,000 $ 308,000 1996/87
ACQUIRED HOTELS
Tallahassee, 78 30% YTD Revenues over initial Break-Even
Florida Threshold of $727,000 on first $300,000 over
(9-13-96) Break-Even Threshold, and 35% thereafter,
less Percentage Rent previously paid YTD. $ 969,000 $ 277,300 1996/94
Destin, Florida 78 30% YTD Revenues over initial Break-Even
(9-13-96) Threshold of $850,500 on first $350,000 over
Break-Even Threshold, and 35% thereafter,
less Percentage Rent previously paid YTD. $1,171,000 $ 437.500 1996/92
Ocean Springs, 82 30% YTD Revenues over initial Break-Even
Mississippi Threshold of $788,400 on first $350,000 over
(9-13-96) Break-Even Threshold, and 35% thereafter,
less Percentage Rent previously paid YTD. $ 951,000 $ 388,900 1996/95
Sarasota, Florida 80 30% YTD Revenues over initial Break-Even
(9-13-96) Threshold of $802,800 on first $300,000 over
Break-Even Threshold, and 35% thereafter,
less Percentage Rent previously paid YTD. $ 933,000 $ 313,800 1996/93
Consolidated Total for Hotels $7,856,000 $2,631,600
</TABLE>
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* Break-Even Threshold increases by 2% per year
** Break-Even Threshold increases by 3% per year
*** Break-Even Threshold remains constant
**** Base Rent Effective 12/31/96
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Class A Common Stock trades and is reported on the
American Stock Exchange ("AMEX") under the symbol "HFD". The Class A Common
Stock began trading on April 22, 1996, the date of its initial public
offering. The initial public offering price of the Class A Common Stock was
$10.00 per share. The Company also has 140,000 shares of Class B Common
Stock issued and outstanding. There is no public trading market for the Class
B Common Stock. On January 31, 1997, all 140,000 shares of the Company's
issued and outstanding Class C Common Stock was converted to Class A Common
Stock on a one for one basis. The shares of Class A Common Stock issued upon
conversion are "restricted securities" under the Securities Act of 1933.
No shares of Class C Common Stock remain issued and outstanding.
The following table shows the range of high and low bid prices of the
Company's Class A Common Stock from the date on which the Class A Common
Stock began trading through December 31, 1996 as reported through AMEX.
These quotations represent prices between dealers without retail markup,
markdown or commissions, and may not necessarily represent actual
transactions.
1996
----
High Low
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April 22, 1996 to June 30, 1996 9 7 7/8
Third Quarter 8 5/8 7 5/8
Fourth Quarter 8 3/4 7 3/8
At February 28, 1997, there were approximately 1,100 shareholders of
record of the Company's Common Stock and the closing bid price was $9.875.
The Company declared dividends of $0.2275 per share on August 1, 1996,
$0.2375 per share on November 1, 1996, and $0.24 per share on February 4,
1997. The Company intends to continue to make comparable dividend payments to
its shareholders on a regular quarterly basis in the future.
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ITEM 6. SELECTED FINANCIAL DATA
Host Funding, Inc. was formed December 22, 1994 and was inactive from
inception until March 31, 1995.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ------------------
REVENUES $ 1,768,783 $ 942,343
LOSS BEFORE INCOME TAXES $ (149,276) $ (31,217)
NET LOSS $ (149,276) $ (28,217)
NET LOSS PER COMMON SHARE $ (0.12) $ (0.04)
DISTRIBUTIONS PER COMMON SHARE:
CLASS A $ 0.465 -
CLASS B - -
CLASS C - -
TOTAL ASSETS $20,435,575 $ 2,694,694
LONG-TERM OBLIGATIONS
(Including current portion) $15,500,000 $ 4,230,565
SHAREHOLDERS' EQUITY (DEFICIT) $ 4,703,395 $(2,064,834)
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,244,668 690,000
See Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional information concerning the Company's financial
performance.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On February 3, 1997, the Company entered into an Agreement (the
"Agreement") with HMR Capital, LLC, a Delaware limited liability company ("the
Acquisition Company"), and Host Funding Advisors, Inc., a Delaware corporation,
(the "Advisor"), whereby the Acquisition Company and Company agreed to restate
and amend the Acquisition Agreement between the parties (the "Acquisition
Agreement") and the Advisor and the Company terminated the Advisory Agreement
between the parties ("Advisory Agreement"). See "Certain Relationships and
Related Transactions". The Acquisition Agreement provides for the Acquisition
Company to be responsible for the management, coordination and supervision of
the Company's acquisition of hotel properties and was amended to allow
cancellation with thirty (30) days written notice from either party. The
Advisory Agreement allowed the Advisor to provide information, advice,
assistance and facilities to the Company and was terminated effective January
31, 1997 to allow the Company to become self-administered. As compensation to
the Acquisition Company for restating and amending the Acquisition Agreements,
the Company has agreed to issue 225,000 Series A Warrants (the "Series A
Warrants") and 225,000 Series B Warrants (the "Series B Warrants") to the
Acquisition Company.
<PAGE>
As compensation to the Advisory for termination of the Advisory Agreement by
the Company, the Company paid the Advisors $30,000 on February 14, 1997.
The Series A Warrants provide warrants to purchase 225,000 shares of the
Company's Class A Common Stock, $0.01 par value per share, at $9.90 per share,
and expire on February 2, 2000. The Series B Warrants provide warrants to
purchase 225,000 shares of the Company's Class A Common Stock, $0.01 par value
per share, at $10.80 per share, and expire on February 2, 2001.
The Company has entered into Employment Agreements (the "Employment
Agreements") with William Birdsall, Chairman of the Board; Michael S.
McNulty, President; and Bona K. Allen, Chief Financial Officer, for a term of
three years from February 1997. The Employment Agreements provide for base
salaries of $291,000 with a minimum bonus of 15% up to a maximum of 50%,
based upon a prescribed formula in the Employment Agreements, of base
compensation in the first year. The Employment Agreements also provide for
base salary increases based upon prescribed increases in the Company's asset
size. The Employment Agreements are terminable by the Company, for cause,
upon thirty (30) days written notice, or upon death or disability, with
severance payments due the employees ranging from nothing to two years of
current base salary then in effect.
On March 5, 1997, Host Funding formed Host Ventures, Inc., a Maryland
corporation ("Host Ventures"), as a wholly-owned, special purpose subsidiary
of the Company. Host Ventures was formed at the request of Credit Suisse
First Boston Mortgage Capital, LLC ("First Boston") as a condition to First
Boston revising the existing $15,500,000 Initial Credit Facility (the
"Initial Credit Facility") with CrossHost, Inc., a Maryland corporation
("CrossHost"), formed on September 5, 1996 as a wholly-owned, special purpose
subsidiary of the Company. First Boston refinanced the Initial Credit
Facility at a reduced amount of $13,000,000 (the "CrossHost Loan Facility")
and provided an acquisition and credit facility to Host Ventures in the
amount of $8,725,000 (the "Host Ventures Loan Facility"). A significant
portion of the proceeds from the Host Ventures Loan Facility was used by Host
Ventures to acquire a 90 room Super 8 Hotel in Flagstaff, Arizona (the
"Flagstaff Super 8") from Teachers Retirement System of the State of Illinois
("Teachers") and to pay down the Initial Credit Facility. The effective
closing date for the purchase of the Flagstaff Super 8 was March 14, 1997.
Effective as of the closing date of the Flagstaff Super 8, Host Ventures also
leased the Flagstaff Super 8 to Crossroads Hospitality Tenant Company,
L.L.C., a Delaware limited liability company ("Crossroads") See "Liquidity
and Capital Resources".
The Flagstaff Super 8 was acquired pursuant to the terms of the Restated
and Amended Post-Formation Acquisition Agreement dated February 3, 1997, (as
amended, the "Acquisition Agreement") by and between the Company and HMR
Capital, LLC (f\k\a Host Acquisition Group, LLC) (the "Acquisition Company").
The Acquisition Company is an affiliate of Mr. Michael S. McNulty, a director
and president of each of the Company, CrossHost and Host Ventures. Under the
terms of the Acquisition Agreement, the Acquisition Company is responsible
for the management, coordination, and supervision of the Company's
acquisition of additional hotel properties. The Acquisition Company sought
out the Flagstaff Super 8 and negotiated the terms of the acquisition.
Management and the board of directors of each of the Company and Host
Ventures (including all independent directors) approved the purchase of the
Flagstaff Super 8.
Pursuant to the terms of the Acquisition Agreement, the Acquisition Company
is entitled to
<PAGE>
receive an acquisition fee of up to 6%, but not less than 2% of the gross
purchase price of the Flagstaff Super 8 plus reimbursement of certain
expenses (the "Acquired Property Acquisition Fee"). The Acquired Property
Acquisition Fee is payable in cash or, at the option of the Acquisition
Company, in the Class A Common Stock of the Company. The Company and the
Acquisition Company agreed that the Acquired Property Acquisition Fee earned
by the Acquisition Company relating to the Flagstaff Super 8 was 16,000
shares of the Class A Common Stock of the Company valued at $10 per share and
payable as of March 31, 1997. The shares of Class A Common Stock received by
the Acquisition Company in payment of the Acquired Property Acquisition Fee
will be restricted securities under the Securities Act of 1933 and subject to
the resale provisions of Rule 144 promulgated under the Act. The last traded
price of the stock of the Company on the American Stock Exchange on March 14,
1997 was $9.50 per share. The Company will record the Acquired Property
Acquisition Fee on the Flagstaff Super 8 at the fair market value of the
Class A Common Stock on March 14, 1997. The Acquired Property Acquisition
Fee (based upon a value of $10 and $9.50 per share or $160,000 and $152,000,
respectively) represents approximately 3.1% and 3.0%, respectively, of the
gross purchase price totaling $5,125,000 excluding closing expenses of the
Flagstaff Super 8.
Hotel Mortgage Resources Corp., an affiliate of Michael S. McNulty,
president and a director of each of the Company, CrossHost and Host Ventures,
received a loan origination fee of $84,907 relating to the financing
provided by First Boston for the acquisition of the Flagstaff Super 8.
As a further condition to obtaining the Host Ventures Loan, First Boston
required the Company to transfer to Host Ventures two Sleep Inn properties
owned by the Company. The two Sleep Inns are located in Sarasota, Florida
and Ocean Springs, Mississippi (collectively, the "Transferred Sleep Inns").
Simultaneously with the acquisition of the Flagstaff Super 8, CrossHost
deeded the Transferred Sleep Inns to Host Ventures in a tax free
reorganization. In addition, the Company assigned to Host Ventures the lease
agreements with Crossroads pertaining to each of the Transferred Sleep Inns.
The Company declared a cash dividend of $0.24 per share to stockholders of
record on February 4, 1997, which was payable February 18, 1997.
The Company, as a requirement under the Internal Revenue Code (the "Code")
to elect REIT status, must have no more than five (5) shareholders, who own no
more than 50% of common stock, common stock equivalents, or other forms of
equity outstanding. The Company has not met this requirement as of December 31,
1996. Under the Code, the Company is allowed a six month exemption until
June 30, 1997 to meet the requirement. While management at the Company intends
to meet the Code requirements, no assurance can be given that REIT status will
be maintained, which could result in the Company being taxed as a C corporation.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1995:
The Company did not acquire any assets until April 1, 1995. On that date
the four Super 8 hotels located in Miner, Missouri; Poplar Bluff, Missouri; Rock
Falls, Illinois; and Somerset, Kentucky were acquired by the Company which are
collectively referred to as the "Initial Hotels". Further, on April 22, 1996,
the Company completed an initial public stock offering of 500,000 common shares
that raised net cash proceeds totaling $4,500,000 (the "Stock Offering"), and
the Company acquired the assets of Mission Bay Super 8, Ltd., a California
limited partnership ("Mission Bay"), the owner of a 117 room Super 8 Motel (the
"Acquisition Hotel") located in San Diego, California, pursuant to an asset
acquisition agreement. In addition, on September 13, 1996 and September 19,
1996 the Company completed the transaction resulting in the acquisition of three
Sleep
<PAGE>
Inn Hotels located in Destin, Sarasota, and Tallahassee, Florida from Capital
Circle Hotel Company ("Capital Circle") and one Sleep Inn Hotel located in
Ocean Springs, Mississippi from Ocean Springs Hotel Company ("Ocean Springs")
(collectively, the "Acquired Properties"). Therefore, comparisons of results
of operations to the corresponding period of the previous year cannot be made.
Occupancy, average room rates, and revenue per available room of 73%,
$37.42, and $27.18 for the four Initial Hotels for the year ended December
31, 1996, occupancy, average room rates, and revenue per available room of
64%, $45.99, and $29.32 for the Acquisition Hotel from April 22 to December
31, 1996 and occupancy, average room rates, and revenue per available room of
54%, $46.67, and $25.30 for the four Acquired Properties for the period
September 14 to December 31, 1996 resulted in total sales, including room
sales of approximately $4,385,000. These total sales generated base and
percentage lease revenues of $200,512 from Inn Fund, LLC, a Delaware limited
liability Company ("Inn Fund\Old Lessee") for the period January 1 to March
31, 1996 and $1,262,165 from Crossroads for the period April 1 to December
31, 1996.
Interest income from a note received from All American Group, Ltd., a
Delaware limited partnership ("AAG"), the principal shareholder of the
Company, (the "Related Party Note"), which is included in Interest income -
related parties, totaled $204,939 for the year ended December 31, 1996, which
interest rate was at 10% until April 22, 1996, at which time it changed to
12% pursuant to the terms of the note. Interest income from the notes with
the independent directors, which income is included in Interest income -
related parties, totaled $14,528 for the period ending December 31, 1996.
Based upon an accounting of Furniture, Fixtures and Equipment reserve
expenditures made by Inn Fund\Old Lessee to April 22, 1996, Inn Fund\Old
Lessee owed $77,941 to Host Funding, which has been included in lease revenue
- - related party. This amount has been offset against an approximately equal
net amount owed by Host Funding to affiliates of Mr. Guy E. Hatfield, a
director and affiliate of the Company and member of Inn Fund\Old Lessee,
through April 22, 1996.
Interest expense incurred for the period January 1 to December 31, 1996
were a result of interest expense and loan fee amortization expense on long
and short-term debt and notes payable resulting from the acquisition of the
Initial Hotels in April 1995 and the execution of the Loan Facility in
September 1996. In April 1996, long-term debt and notes payable for three of
the Initial Hotels were paid off from proceeds from the Stock Offering in the
amount of $3,190,000. On September 13, 1996, the Company borrowed $15,500,000
from the Loan Facility and paid off the remaining Initial Hotels debt of
approximately $980,000 (see Liquidity and Capital Resources). Interest
expense for the year ended December 31, 1996 totaled $563,515, including
$216,500 of loan fee amortization.
Depreciation expense, which is included in depreciation and
amortization, is calculated based upon the original historical cost of the
Initial Hotels and the acquisition value of the Acquisition Hotel (Mission
Bay) and the Acquired Properties over their estimated useful lives, totaled
$287,348 for the year ended December 31, 1996. Franchise fee amortization,
which is included in depreciation and amortization, is calculated based upon
the original cost amortized over the life of the franchise agreement, which
totaled $1,750 for the year ended December 31, 1996.
Administrative expenses - related party totaling $60,000 per month,
including $44,000 for
<PAGE>
April 1996, were due under a consulting agreement (the "Related Party
Consulting Agreement") to AAG. The Related Party Consulting Agreement was
terminated upon consummation of the Stock Offering on April 22, 1996. These
fees are non-recurring.
Administrative expenditures - other totaled $427,980 for the year ended
December 31, 1996 including the 1995 audit fees of approximately $21,000 billed
and paid in 1996, legal fees totaling $118,000 and accounting fees totaling
$81,000, which amounts are greater than will be expected in future quarters due
to start-up costs, stock transfer fees totaling approximately $41,000, Acquired
Property lease transaction expenses totaling $45,000, expired loan application
fees totaling $38,000, and other administrative expenses totaling approximately
$84,000. Of these expenditures, approximately $185,000 are non-recurring
administrative expenses on an annualized basis.
Advisory fees - related party totaling $21,083 were due under an
Advisory Agreement with Host Funding Advisors, Inc., a Delaware corporation
(the "Advisor") entered into upon the close of the Stock Offering.
Effective January 1, 1996, the Company became responsible for property
taxes under the Percentage Leases for the Initial Hotels. In addition, the
Company is responsible for property taxes on the Acquisition Hotel and the
Acquired Properties. Property tax expense, based upon local taxing
authorities' assessment of the values of the Company's real and personal
property owned times the statutory rates in effect in the respective tax
districts, totaled $138,675 for the year ended December 31, 1996.
Amortization of unearned directors' compensation has been calculated
based upon the terms of the independent directors notes.
Net income per share and weighted average shares outstanding have been
calculated based upon the daily average of the number of shares outstanding
upon completion of the Stock Offering, the Mission Bay acquisition and those
shares issued to the independent directors which date was April 22, 1996,
plus the shares issued to the Acquisition Company on September 19, 1996 added
to the AAG shares outstanding upon completion of the Stock Offering, which
shares of AAG are considered to have been outstanding from the date of
formation of Host Funding.
LIQUIDITY AND CAPITAL RESOURCES
CrossHost entered into an Initial Loan Facility with First Boston in the
amount of $15,500,000 on September 13, 1996. CrossHost immediately borrowed
the entire funds available under the Loan Facility. The Loan Facility was
payable interest only, monthly, at the LIBOR Rate plus 304.5 basis points
(LIBOR Rate was 5.53906% as of December 31, 1996), with a maturity date of
October 1, 1997 at which time all unpaid interest plus principal was due.
On March 14, 1997, CrossHost and Host Ventures entered into the
CrossHost Loan Facility totaling $13,000,000 and the Host Ventures Loan
Facility totaling $8,725,000 whereby the Initial Credit Facility was repaid
totaling $15,500,000, the Flagstaff Super 8 was acquired from Teachers for
approximately $5,125,000, closing costs and other expenses of the CrossHost
and Host Ventures Loan Facilities and of the Flagstaff Super 8 were incurred
totaling approximately $757,000, with
<PAGE>
approximately $343,000 in remaining loan proceeds provided to the Company for
working capital.
The CrossHost Loan Facility is payable over twenty years in equal monthly
installments of $120,838, including interest at a fixed rate of 9.46% per annum
(the "Base Interest Rate") over the first ten years, with an increased fixed
monthly payment the second ten years that fully amortizes remaining principle
plus interest at an interest rate equal to the greater of 2% over the Base
Interest Rate or 2% over the then-existing ten year U.S. Treasury Note rate,
with a due date in March 2017.
The Host Ventures Loan Facility is payable interest only, monthly, at the
LIBOR Rate plus 350 basis points (LIBOR Rate was 5.4375% as of March 14, 1997),
with a maturity date of April 1, 1999, at which time all unpaid interest plus
principal are due.
The term of the leases on the Acquired Properties, as amended on March 14,
1997 (the "Acquired Properties Leases"), are for a period of fifteen (15) years
from the date of acquisition of each property (the "Commencement Date"). The
Acquired Properties Leases have combined total annual base rentals of
$1,417,500, plus percentage rentals ranging from 30% to 35% of year to date
revenues less varying breakeven thresholds adjusted annually by defined
percentages for each hotel. Rentals due CrossHost or Host Ventures from
Crossroads from the Commencement Date of the Acquired Property Leases until
December 31, 1996 require only defined base rents. During the first four years
after the Commencement Date, Crossroads will be entitled to accumulate a credit
of 50% of base rent paid in excess of hotel cash flow, if any, as defined in the
Acquired Property Leases, for each of the Acquired Properties which may be
applied towards future percentage rentals that may be due (the "Negative Base
Rent"). Should no future percentage rental be due under the Acquired Property
Leases during the lease terms, the Negative Base Rent will expire. No Negative
Base Rent credit was outstanding as of December 31, 1996. The Acquired Property
Leases generally require Crossroads to pay all operating expenses of the
properties, including maintenance and insurance, while CrossHost and Host
Ventures are responsible for property taxes. In addition, CrossHost or Host
Ventures is required to set aside in a replacement reserve an amount equal to 4%
of gross room revenue during years one (1) to four (4) and 6% of gross room
revenue during years five (5) and thereafter, to be used for capital
expenditures which generally must be jointly approved by CrossHost, Host
Ventures and Crossroads. Further, should CrossHost or Host Ventures decide to
sell any of the properties leased to Crossroads under the Acquired Property
Leases, Crossroads will be provided a 30 day right of first refusal to purchase
such property at the price offered CrossHost or Host Ventures by the third
party. In addition, should Crossroads choose not to exercise their right of
first refusal to acquire the properties and should CrossHost or Host Ventures
elect to terminate the lease, upon CrossHost's, Host Venture's, Crossroads' and
the buyer's consent, Crossroads may be entitled to some portion of the sale
proceeds based on a formula as provided in the Acquired Property Leases. In
Addition, CrossHost was required to provide a long-term advance of $30,000 per
Acquired Property to Crossroads, subject to proration adjustments, to be used
for working capital purposes which is due back to CrossHost or Host Ventures at
the end of the term of each Acquired Property Lease.
As a condition to obtaining the Initial Credit Facility, First Boston
required the Company to transfer to CrossHost the five Super 8 hotel properties
owned by the Company. The five hotels are located in Somerset, Kentucky; Rock
Falls, Illinois; San Diego, California; Miner, Missouri; and Poplar Bluff,
Missouri (collectively, the "Transferred Properties"). Simultaneously with the
<PAGE>
acquisition of the Acquired Properties located in Florida by CrossHost, the
Company deeded the Transferred Properties to CrossHost in a tax free
reorganization. In addition, the Company assigned to CrossHost the Lease
Agreements and related Master Agreement pertaining to each of the Transferred
Properties.
The Transferred Properties lease agreements with Crossroads were
transferred to CrossHost on September 13, 1996 and amended on October 1, 1996
and March 14,1997 (the "Amended Transferred Property Leases"). The Amended
Transferred Property Leases annual base rentals, effective after October 1,
1996, were increased $183,700 to $1,213,800, subject to possible additional
increases annually beginning in calendar 1998 and thereafter throughout the
term of the Amended Transferred Property Leases based upon increases in average
room rates, as defined in the Amended Transferred Property Leases, while
percentage rentals due remained unchanged. Concurrent with the change in base
rent due for each Amended Transferred Property Lease, the requirement for
Crossroads to set aside in a replacement reserve $125 per room, per quarter,
increased annually by inflation factors, was terminated. CrossHost is now
required, under the Amended Transferred Property Leases effective October 1,
1996, to fund into a replacement reserve an amount equal to six percent (6%) of
gross room revenue for the proceeding month, which amount to be expended for
capital expenditures will require joint approval of CrossHost and Crossroads.
All remaining significant terms of the Amended Transferred Property Leases
remained the same, except as described above.
The lease agreement between Crosshost and Host Ventures for the Flagstaff
Super 8 (the "Flagstaff Lease Agreement") is for a term of fifteen (15) years
from March 1997 and provides for annual base rentals of $505,000 plus percentage
rentals of 32% or gross revenues less a breakeven level of $925,000, adjusted
annually. Remaining terms of the Flagstaff Lease Agreement are similar to the
Acquired Properties Leases.
The Company has no committed additional sources of external liquidity
available, therefore the Company will rely on its internal cash flow to meet its
liquidity needs. The Company's principal source of cash to meet its cash
requirements, including distributions to Shareholders, is its share of the
Company's cash flow from the Percentage Leases and interest income from the
Related Party Note. Although, the obligations of Crossroads, as lessee, under
the Percentage Leases are guaranteed in part by Crossroads Hospitality Company,
LLC, a Delaware limited liability company (a subsidiary of Interstate Hotels,
Inc., a Delaware Corporation and parent company of Crossroads), the ability of
Crossroads to make lease payments under the Percentage Leases, and therefore the
Company's liquidity, including its ability to make distributions to
shareholders, is dependent on the ability of Crossroads to generate sufficient
cash flow from the Hotels. The following table sets forth certain financial
information for Crossroads Hospitality Company, LLC, as of and for the year
ended December 31, 1996.
Total Assets $ 874,464
Total Liabilities $ 881,145
Partners' Deficit $ 6,681
Revenues $3,850,828
Net Income $ 2,081
Other than debt service on the CrossHost Loan Facility and the Host
Ventures Loan Facility, the capital expenditures required under the Transferred,
Acquired Properties leases with Crossroads or capital expenditures required
under the Loan Facility, property taxes on the Company's hotels, obligation
under the Employment Agreements, other administrative expenses and the Internal
Revenue Service tax requirements (the "Code") to make distributions to
shareholders to maintain the Company's REIT status, the Company is not aware of
any demands, commitments, events or uncertainties that will result or are likely
to result in a change in the Company's liquidity.
<PAGE>
The Company intends to make additional investments in hotel properties and
may incur indebtedness to make such investments or to meet distribution
requirements imposed on a REIT under the Code to the extent that working capital
and cash flow from the Company's investments are insufficient to make such
distributions. The Company will invest in additional hotel properties only as
suitable opportunities arise, and the Company will not undertake investments
unless adequate sources of financing are available. Based upon REIT
distribution requirements, the Company expects that future investments in hotel
properties will be financed, in whole or in part, with common stock, proceeds
from additional issuances of common stock, or from the issuance of other debt or
equity securities. The Company in the future may seek to obtain a line of
credit or a permanent credit facility, negotiate additional credit facilities,
or issue corporate debt instruments, all in compliance with its charter
restrictions. Any debt incurred or issued by the Company may be secured or
unsecured, long-term or short-term, charge a fixed or variable interest rate and
may be subject to such other terms as the Board of Directors of the Company
deems prudent.
INFLATION
Operators of hotels, in general, possess the ability to adjust room rates
quickly. Competitive pressures may, however, limit the ability of the lessee to
raise room rates in the face of inflation.
SEASONALITY
Hotel operations are generally seasonal in nature based upon geographic
locations. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue to the extent that it receives Percentage
Rent. It is presently anticipated that the Company's cash flow from operation
of the hotels is sufficient to enable it to make distributions at the
estimated initial rate. To the extent that cash flow form operations is
insufficient during any quarter, due to temporary or seasonal fluctuations in
lease revenue, the Company expects to utilize other cash on hand or borrowings
to make such distributions. No assurance can be given, however, that the
Company will make distributions in the future at the initially estimated rate,
or at all.
"THE SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF
1995.
This Annual Report on Form 10-K contains or incorporates statements that
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements appear in a
number of places in this Annual Report on Form 10-K and include statements
regarding, among other matters, the Company's growth opportunities, the
Company's acquisition strategy, regulatory matters pertaining to compliance
with governmental regulations and other factors affecting the Company's
financial condition or results of operations. Stockholders are cautioned that
any such forward looking statements are not guarantees of future performance
and involve risks, uncertainties and other factors which may cause actual
results, performance or achievements to differ materially from the future
results, performance or achievements, expressed or implied in such forward
looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The information required by this Item was previously reported by the
Company on a Current Report on Form 8-K filed with the Commission on April 29,
1996.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item 10 is included under the caption
"Election of Directors" of the Company's Proxy Statement for its Annual
Meeting of Stockholders to be held on May 21, 1997, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is included under the captions
"Executive Compensation", "Compensation of Directors", and "Certain
Transactions", of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 21, 1997, which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 is included under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management," of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 21, 1997, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TERMINATION AND AMENDMENT OF CERTAIN AGREEMENTS
Effective January 31, 1997, the Company terminated the Advisory
Agreement dated effective as of April 22, 1996, by and between the Company
and Host Funding Advisors, Inc. ("Host Advisors"), as amended by the First
Amendment to Advisory Agreement between the parties dated effective as of
June 12, 1996 (as amended, the "Advisory Agreement"). The purpose and effect
of the termination of the Advisory Agreement was to eliminate the status of
the Company as an externally advised real estate investment trust and thereby
become self-administered and advised as of the date of termination. Also,
effective as of January 31, 1997, the Company amended the Post-Formation
Acquisition Agreement dated effective as of April 22, 1996 by and between the
Company and HMR Capital, LLC (predecessor in name to Host Acquisition Group,
LLC) ("HMR Capital"), as amended by the First Amendment to Post -Formation
Acquisition Agreement between the parties dated effective as of June 12, 1996
(as amended, the Acquisition Agreement"), by entering into and Amended and
Restated Post-Acquisition Agreement dated effective as of February 3, 1997.
The purpose and effect of the restatement and amendment was to (i) redefine
the role and compensation of HMR Capital as the exclusive representative for
property acquisitions by the Company, (ii) provide the Company with the
opportunity to seek and analyze a wider range of hotel property acquisitions
on an internal basis; and (iii) provide for the termination by the Company of
the Acquisition Agreement upon thirty (30) days prior written notice.
<PAGE>
In consideration for the termination of the Advisory Agreement and the
restatement and amendment of the Acquisition Agreement, the Company agreed to
pay Host Advisors $30,000 in cash, on or before February 15, 1997, and issue
Series A Warrants and Series B Warrants to HMR Capital to purchase a total of
450,000 shares of the Class A Common Stock of the Company (divided 225,000
shares to the Series A Warrants and 225,000 shares to the Series B Warrants).
The Series A Warrants have an expiration date of February 2, 2000 with a
strike price of $9.90 per share. The Series B Warrants have an expiration
date of February 2, 2001 with a strike price of $10.80 per share. The
Warrants are subject to price adjustments upon the occurrence of certain
events, including, without limitation, stock splits, mergers,
reclassifications of stock, sale of assets and dividends in the form of
stock. The Series B Warrants are subject to an additional price adjustment
upon the successful completion by the Company of a public offering in which
the net proceeds to the Company are not less than $50,000,000. Upon the
consummation of such an offering, the exercise price of the Series B Warrants
is adjusted to be equal to the greater of (i) 110% of the public per share
offering price on the effective date of the public offering or (ii) the per
share exercise price on the date immediately preceding the effective date of
the public offering. The Series B Warrants are not exercisable during the
period of time commencing ten (10) business days after the Company gives
written notice to the holder of the Series B Warrants that within twenty-four
(24) months after the date of issuance of the Warrant, the Company intends to
file an application with the Securities and Exchange Commission to register
and sell common stock of the Company pursuant to an underwritten public
offering with net proceeds to the Company of not less than $50,000,000 and
ending on the earlier to occur of sixty (60) days after the effective date of
such public offering or twenty-four (24) months after the date of issuance of
the Warrants (the "Registration Period").
The holders of the Warrants are also entitled to certain limited
registration rights. The Series A Warrants provide that the Company will
prepare and file a Form S-3 Shelf Registration Statement covering all of the
shares issuable upon exercise of the Series A Warrants within ninety (90)
days following the effective date of a public offering of the Company's
common stock in which the net proceeds to the Company are not less than
$20,000,000. The Series B Warrants provide that the Company will prepare and
file a Form S-3 Shelf Registration Statement covering all of the shares
issuable upon exercise of the Series B Warrants within ninety (90) days
following the earlier to occur of (i) the effective date of a public offering
of the Company's common stock in which the net proceeds to the Company are
not less than $50,000,000 and (ii) the effective date of a public offering of
the Company's common stock after the expiration of the Registration Period
(described above) in which the net proceeds to the Company are not less than
$20,000,000. Upon the filing of a Shelf Registration Statement relating to
either of the Warrant series, the Company is required to keep the Shelf
Registration Statement effective for a period ending on the earlier to occur
of two years after the effective date of the Shelf Registration Statement or
the expiration date of the Warrant.
EMPLOYMENT AGREEMENTS
In connection with the Company becoming self-administered as of January
31, 1997, the Company entered into Employment Agreements with William
Birdsall, Chairman of the Board, Michael S. McNulty, President, and Bona K.
Allen, Chief Financial Officer (collectively the "Employment Agreements").
Each of the Employment Agreements is for a term of three years from February
1, 1997 and provide for a base salary to Mr. Birdsall of $108,000, Mr.
McNulty $108,000, and Mr. Allen $75,000 with a minimum bonus of 15% up to a
maximum of 50%, based upon a
<PAGE>
prescribed formula in the Employment Agreements of base compensation in the
first year. The Employment Agreements further provide for base salary
increases based upon prescribed increases in the Company's asset size. The
Employment Agreements are terminable by the Company, for cause, upon thirty
(30) days written notice, or upon death or disability, with severance
payments from nothing to two years of current base salary then in effect.
ACQUISITION FEES ON FLAGSTAFF PROPERTY
The Company through Host Ventures, a wholly-owned subsidiary, recently
acquired a Super 8 Hotel located in Flagstaff, Arizona (the "Flagstaff Super
8"). See "Business-Recent Acquisitions." The Flagstaff Property was
acquired pursuant to the terms of that certain Restated and Amended
Post-Formation Acquisition Agreement dated February 3, 1997 (the "Acquisition
Agreement") by and between the Company and HMR Capital, LLC (f/k/a Host
Acquisition Group, LLC) ("HMR Capital"). Pursuant to the terms of the
Acquisition Agreement, HMR Capital is entitled to receive an acquisition fee
of up to 6%, but not less than 2% of the gross purchase price of the
property. The acquisition fee is payable in cash or at the option of the
Company in the Class A Common Stock of the Company. The Company and the
Acquisition Company have agreed that the acquisition fee earned by the
Company relating to the Flagstaff Property is 16,000 shares of the Class A
Common Stock of the Company valued at $10 per share and payable as of March
31, 1997. The shares of Class A Common Stock of the Company received by HMR
Capital in payment of the acquisition fee will be deemed restricted
securities under the Securities Act of 1933 and subject to the resale
provisions of Rule 144 promulgated under the Act. The acquisition fee (based
upon a value of $10 per share) represents approximately 3.1% of the gross
purchase price of the Flagstaff Property which totaled $5,125,000 excluding
closing expenses. HMR Capital is an affiliate of Mr. Michael S. McNulty, a
Director and President of each of the Company, CrossHost and Host Ventures
based upon Mr. McNulty's ownership and control of 10.38% of the membership
units in HMR Capital. Effective February 1, 1997 HMR Capital has redeemed
all of Mr. McNulty's direct and indirect interest in HMR Capital.
Hotel Mortgage Resources Corp. ("Hotel Resources") received a loan
origination fee of $84,907 relating to the financing provided by First
Boston for acquisition of the Flagstaff Property. Mr. McNulty was an
employee of Hotel Resources during the calendar year 1996 and received a
gross annual salary of $60,000 of which $52,500 was paid during calendar year
1996 and $7,500 is due. Mr. McNulty terminated his employment relationship
with Hotel Resources effective January 1, 1997.
The total fees received by HMR and Hotel Resources represent
approximately 4.7% of the gross purchase price of the Flagstaff Property.
The remaining information required by this Item 13 is included under the
caption "Certain Transactions" of the Company's Proxy Statement for its
Annual Meeting of Stockholders to be held on May 21, 1997, which information
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K Annual
Report:
<PAGE>
(1) Financial Statements:
The Report of Independent Accountants and the following consolidated
Financial Statements of the Company are included herein:
Consolidated Balance Sheet--December 31, 1996 and December 31, 1995.
Consolidated Statement of Operations--Year ended December 31, 1996 and
nine months ended December 31, 1995.
Consolidated Statement of Shareholders' Equity (Deficit) --Year ended
December 31, 1996 and nine months ended December 31, 1995.
Consolidated Statement of Cash Flows--Year ended December 31, 1996 and
nine months ended December 31, 1995.
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation
All other schedules to the Consolidated Financial Statements are
omitted because the required information is inapplicable or has been
presented in the Financial Statements or Related Notes thereto.
Financial Statements of Acquired Property:
It is impracticable at this time to provide the financial statements of
the Flagstaff Super 8 hotel property recently acquired by the Company.
The required financial statements relating to the Flagstaff Super 8
will be filed as soon as they are available.
Pro Forma Financial Information:
It is impracticable at this time to provide the pro forma financial
information of the Company to reflect the acquisitions of Flagstaff
Super 8. The required pro forma financial information derived from the
acquisition of the Flagstaff Super 8 will be filed as soon as such
information is available.
(b) Reports of Form 8-K.
The Company filed a Current Report on Form 8-K, dated September 30,
1996, as amended by a Current Report on Form 8-K/A, dated November 8, 1996,
which disclosed the consummation of the acquisition of four Sleep Inn Hotel
properties and the securing by the Company of a
<PAGE>
$15,500,00 credit facility from Credit Suisse First Boston Capital, LLC. The
Form 8-K/A included the following financial statements of the Sleep Inn
properties and certain pro forma unaudited financial statements of the
Company:
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
1. Independent Auditor's Reports.
2. Combined Balance Sheets as of June 30, 1995, December 31, 1995, 1994
and 1993.
3. Combined Statements of Earnings for the six months ended June 30, 1995
and the years ended December 31, 1995, 1994 and 1993.
4. Combined Statements of Retained Earnings for the six months ended
June 30, 1995 and the years ended December 31, 1995, 1994, and 1993.
5. Combined Statements of Cash Flows for the six months ended June 30,
1995 and the years ended December 31, 1995, 1994 and 1993.
6. Notes to Combined Financial Statements.
PRO FORMA UNAUDITED FINANCIAL INFORMATION
1. Unaudited Estimated Pro Forma Balance Sheet as of June 30, 1996.
2. Notes to Pro Forma Balance Sheet.
3. Unaudited Estimated Pro Forma Statement of Income for the year ended
December 31, 1995; the twelve months ended June 30, 1996; and the six
months ended June 30, 1996 and 1995.
4. Notes to Pro Forma Statements of Income.
(c) Exhibits.
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to Company's Amendment No. 8 to
Form S-11 effective April 17, 1996).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to Company's Amendment No. 8 to
Form S-11 effective April 17, 1996).
<PAGE>
4.1 Form of Share Certificate (incorporated by reference to
Exhibit 4.1 to Company's Amendment No. 8 to Form S-11
effective April 17, 1996).
4.2 Form of Series A Warrant dated effective as of February 3,
1997.
4.3 Form of Series B Warrant dated effective as of February 3,
1997.
10.1 Agreement to Purchase Motel between Teacher's Retirement
System of the State of Illinois, as Seller, and Host Funding,
Inc., as Purchaser, as from time to time amended by the
parties thereto (Flagstaff, Arizona).
10.2 Assignment of Agreement to Purchase Motel dated effective as
of May 14, 1997, by and between Host Funding, Inc., as
Assignor, and Host Ventures, Inc., as Assignee (Flagstaff,
Arizona).
10.3 Promissory Note dated March 14, 1997 from CrossHost, Inc., as
Maker, and Credit Suisse First Boston Capital LLC, as Payee,
in the principal amount of $13,000,000.
10.4 Promissory Note dated March 14, 1997 from Host Ventures, Inc.
as Maker, and Credit Suisse First Boston, LLC, as Payee,
in the principal amount of $8,725,000.
10.5 Form of Mortgage and Security Agreement, dated as of March 14,
1997 by and between CrossHost, Inc., as Mortgagor, and Credit
Suisse First Boston Mortgage Capital LLC, as Mortgagee.
CrossHost and Host Ventures executed a separate Mortgage
Agreement and/or Deed of Trust for each of the hotel
properties pledged to secure the Revised Credit Facility. The
Mortgage Agreements and/or Deeds of Trust are substantially
similar except for the remedy provisions required under the
laws of the state in which the hotel property is located in
the event of a default by the respective Mortgagor.
10.6 Lease Agreement dated March 14, 1997 by and between Host
Ventures, Inc., as Lessor, and Crossroads Hospitality Tenant
Company, L.L.C., as Lessee (Flagstaff, Arizona).
10.7 Master Agreement dated September 13, 1996 by and among
CrossHost, Inc. and Crossroads Hospitality Tenant Company,
L.L.C., and Crossroads Hospitality Company, L.L.C., (Sleep
Inn Hotels) (incorporated by reference to Exhibit 10.18
to Company's Form 8-K filed on September 30, 1996).
10.8 Master Agreement dated April 1, 1996 by and among Host
Funding, Inc. and Crossroads Hospitality Tenant Company,
L.L.C. and Crossroads Hospitality Company, L.L.C. (Super 8
Hotels) (incorporated by reference to Exhibit 10.2 to
Company's Amendment No. 8 to Form S-11 effective April 17,
1996).
<PAGE>
10.9 Form of Lease Agreement (Super 8 Hotels) (incorporated by
reference to Exhibit 10.1 to Company's Amendment No. 8 to
Form S-11 effective April 17, 1996 and Exhibit 10.19 to
Company's Form 8-K filed on September 30, 1996).
10.10 Form of Lease Agreement (Sleep Inn Hotels) (incorporated by
reference to Exhibit 10.14 to Company's Form 8-K filed on
September 30, 1996).
10.11 Assignment and Assumption of Lease Agreement dated as of
March 14, 1997 by and between CrossHost, Inc., as Assignor,
and Host Ventures, Inc., as Assignee (Sarasota, Florida).
An identical Assignment and Assumption Agreement was executed
by Assignor and Assignee for Ocean Springs, Mississippi.
10.12 Partial Assignment and Assumption of Master Agreement dated as
of March 14, 1997 by and among Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C., and Crossroads
Hospitality Company, L.L.C. (Sarasota, Florida and Ocean
Springs, Mississippi).
10.13 Restated and Amended Post-Formation Acquisition Agreement
dated as of February 3, 1997 by and between Host Funding, Inc.
and HMR Capital, LLC.
10.14 Second Amendment to Lease Agreement dated effective as of
March 14, 1997 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, LLC (Poplar Bluff,
Missouri). An identical Second Amendment to Lease Agreement
was executed by the parties with respect to the hotel
properties located in Rock Falls, Illinois, Somerset,
Kentucky, Miner, Missouri and San Diego, California.
10.15 First Amendment to Lease Agreement dated effective as of
March 14, 1997 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, LLC (Sarasota,
Florida). An identical First Amendment to Lease Agreement
was executed by the parties with respect to the hotel
properties located in Destin and Tallahassee, Florida and
Ocean Springs, Missouri.
10.16 Termination Agreement dated effective as of February 3, 1997
by and between Host Funding, Inc. and Host Funding Advisors,
Inc. relating to termination of the Advisory Agreement.
10.17 Indemnity and Guaranty Agreement dated as of March 14, 1997
by and between Host Funding, Inc. and Credit Suisse First
Boston Capital, LLC.
10.18 Agreement dated February 3, 1997 by and between Host Funding,
Inc., HMR Capital, LLC and Host Funding Advisors, Inc.
10.19 Employment Agreement dated effective as of February 1, 1997
by and between Host Funding, Inc. and William K. Birdsall.
<PAGE>
10.20 Employment Agreement dated effective as of February 1, 1997
by and between Host Funding, Inc. and Michael S. McNulty.
10.21 Employment Agreement dated effective as of February 1, 1997
by and between Host Funding, Inc. and Bona K. Allen.
21.1 Subsidiaries of Registrant
27 Financial Data Schedule
The Company will furnish copies of these Exhibits upon request and the
payment of $.20 per page. Requests should be addressed to Bona K. Allen, c/o
Host Funding, Inc., 6116 North Central Expressway, Suite 1313, Dallas, Texas
75206.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Host Funding, Inc.
By: /s/ Michael S. McNulty
--------------------------------
Michael S. McNulty
Title: President
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William Birdsall
- ------------------------- Chairman of the Board March 31,1997
William Birdsall
/s/ Michael S. McNulty
- ------------------------- President and Director March 31, 1997
Michael S. McNulty
/s/ Bona K. Allen
- ------------------------- Chief Financial and March 31, 1997
Bona K. Allen Accounting Officer
/s/ Don W. Cockroft
- ------------------------- Director March 31, 1997
Don W. Cockroft
/s/ Guy E. Hatfield
- ------------------------- Director March 31, 1997
Guy E. Hatfield
/s/ Charles R. Dunn
- ------------------------- Director March 31, 1997
Charles R. Dunn
<PAGE>
INDEX TO FINANCIAL STATEMENTS
HOST FUNDING, INC.
Report of Independent Accountants F-2
Consolidated Balance Sheet as of December 31, 1996
and December 31, 1995 F-3
Consolidated Statement of Operations for the year
ended December 31, 1996 and nine months ended
December 31, 1995 F-4
Consolidated Statement of Shareholders' Equity (Deficit)
for the year ended December 31, 1996 and nine months ended
December 31, 1995 F-5
Consolidated Statement of Cash Flows for the year
ended December 31, 1996 and nine months ended
December 31, 1995 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-22
Schedule III-Real Estate and Accumulated Depreciation F-23 to F-24
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Host Funding, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Host Funding, Inc. and subsidiary listed in the index
on page F-1 of this Form 10-K. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Host Funding,
Inc. at December 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for the year ended December 31, 1996 and the
nine months ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND, L.L.P.
San Diego, California
February 14, 1997, except as to the information presented
in Note 8, for which the date is March 14, 1997
F-2
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED BALANCE SHEET
December 31, December 31,
1996 1995
ASSETS
LAND, PROPERTY AND EQUIPMENT - AT COST:
Building and improvements $ 12,644,239 $ 1,813,261
Furnishings and equipment 1,952,233 285,929
Less accumulated depreciation (391,009) (103,663)
14,205,463 1,995,527
Land 4,808,047 642,287
Land, property and equipment - net 19,013,510 2,637,814
CASH AND CASH EQUIVALENTS 218,693 500
RESTRICTED CASH 128,952 -
RENT RECEIVABLE - CROSSROADS 223,160 -
DUE FROM RELATED PARTIES 30,390 35,234
LONG-TERM ADVANCES TO CROSSROADS 225,000 -
LOAN COMMITMENT FEES - Net 502,338 21,146
FRANCHISE FEES - Net 58,250 -
PREPAID AND OTHER ASSETS 35,282 -
TOTAL $ 20,435,575 $ 2,694,694
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
LONG-TERM DEBT $ 15,500,000 $ 4,155,321
NOTES PAYABLE - 75,244
ACCOUNTS PAYABLE 38,354 -
ACCRUED INTEREST 114,886 40,963
ACCRUED PROPERTY TAXES 78,940 -
ACCOUNTS PAYABLE - STOCK ISSUANCE COSTS - 325,000
DEFERRED INCOME TAXES - 163,000
Total liabilities 15,732,180 4,759,528
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Class A Common stock, at December 31, 1996 and
1995, $.01 par value; authorized 50,000,000 and
1,000, respectively; issued and outstanding
1,234,049 and 100 shares, respectively 12,340 1
Class B Common stock, at December 31, 1996,
$.01 par value; authorized 4,000,000 shares;
issued and outstanding 140,000 shares 1,400 -
Class C Common stock, at December 31, 1996,
$.01 par value; authorized 4,000,000 shares;
issued and outstanding 140,000 shares 1,400 -
Additional Paid in Capital 7,501,494 -
Accumulated Deficit (744,772) (259,160)
Less: Related party note receivable (1,805,675) (1,805,675)
Less: Unearned directors' compensation (262,792) -
Total shareholders' equity (deficit) 4,703,395 (2,064,834)
TOTAL $ 20,435,575 $ 2,694,694
See accompanying notes to financial statements.
F-3
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
TWELVE AND
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
REVENUES:
Lease revenue - related party $ 278,453 $ 806,670
Lease revenue - Crossroads 1,262,165 -
Interest income - related parties 219,467 135,673
Interest income 8,698 -
Total revenue 1,768,783 942,343
EXPENSES:
Interest expense 780,015 322,461
Depreciation and amortization 289,098 111,099
Administrative expenses - related party 224,000 540,000
Administrative expenses - other 427,980 -
Advisory fees - related party 21,083 -
Property taxes 138,675 -
Amortization of unearned directors' compensation 37,208 -
Total expenses 1,918,059 973,560
LOSS BEFORE INCOME TAXES (149,276) (31,217)
BENEFIT FOR INCOME TAXES - (3,000)
NET LOSS $ (149,276) $ (28,217)
NET LOSS PER SHARE $ (0.12) $ (0.04)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,244,668 690,000
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
Class A Class B Class C Additional Related Unearned Total
Common Common Common Paid in Accumulated Party Note Directors' Shareholders'
Stock Stock Stock Capital Deficit Receivable Compensation Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONTRIBUTION OF NET ASSETS
AND LIABILITIES FOR COMMON
STOCK AND ACCUMULATED
DEFICIT ON APRIL 1, 1995 $ 1 $ - $ - $ - $(305,943) $(1,805,675) $ - $(2,111,617)
REDUCTION IN STOCK ISSUANCE
COSTS - - - - 75,000 - - 75,000
NET LOSS - - - - (28,217) - - (28,217)
BALANCE, December 31, 1995 1 - - - (259,160) (1,805,675) - (2,064,834)
COMMON STOCK ISSUED IN
PUBLIC STOCK OFFERING 3,000 - - 2,697,000 - - - 2,700,000
COMMON STOCK ISSUED IN
PRIVATE PLACEMENT 2,000 - - 1,798,000 - - - 1,800,000
COMMON STOCK ISSUED
PURSUANT TO MISSION BAY
ACQUISITION AGREEMENT 2,520 - - 2,517,970 - - - 2,520,490
COMMON STOCK ISSUED TO
PARTNERS OF AAG 4,099 1,400 1,400 (6,899) - - - 0
COMMON STOCK ISSUED TO
INDEPENDENT DIRECTORS 300 - - 299,700 - - (300,000) 0
COMMON STOCK ISSUED FOR
ACQUIRED PROPERTIES
ACQUISITION FEE 420 - - 338,205 - - - 338,625
RECLASS OF STOCK ISSUANCE
COSTS AGAINST ADDITIONAL
PAID IN CAPITAL - - - (64,943) 64,943 - - 0
INCREASE IN STOCK ISSUANCE
COSTS - - - (77,539) - - - (77,539)
AMORTIZATION OF UNEARNED
DIRECTORS' COMPENSATION - - - - - - 37,208 37,208
ELIMINATION OF DEFERRED INCOME
TAXES FROM CONVERSION TO REIT - - - - 163,000 - - 163,000
DISTRIBUTIONS PAID - - - - (564,279) - - (564,279)
NET LOSS - - - - (149,276) - - (149,276)
BALANCE, December 31, 1996 $12,340 $1,400 $1,400 $7,501,494 $(744,772)$(1,805,675) $(262,792) $4,703,395
</TABLE>
See accompanying notes to financial statement
F-5
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (149,276) $ (28,217)
Adjustments to reconcile net loss to net cash:
provided by operating activities
Depreciation and amortization 289,098 111,099
Deferred taxes - (3,000)
Amortization of loan fees 216,500 -
Amortization of unearned directors' compensation 37,208 -
Changes in operating assets and liabilities:
Rent and interest receivable - due from related
parties 4,844 (35,234)
Rent receivable - Crossroads (223,160) -
Payment of loan fees (697,692) -
Prepaid and other assets (14,800)
Accounts payable and accrued expenses 191,217 40,963
Net cash (used in) provided by operating activities (346,061) 85,611
INVESTING ACTIVITIES:
Acquisition of land, property and equipment (13,803,929) -
Restricted cash (128,952) -
Long-term advances to Crossroads (225,000) -
Franchise fees (60,000)
Prepaid and other assets (20,482) -
Net cash used in investing activities (14,238,363) 0
FINANCING ACTIVITIES:
Borrowings on long-term debt and notes payable 15,500,000 120,000
Proceeds from common stock issued in Stock Offering
and Private Placement 4,500,000 -
Payments on long-term debt and notes payable (4,230,565) (105,111)
Stock issuance costs (402,539) (100,000)
Distributions paid (564,279) -
Net cash provided by (used in) financing activities 14,802,617 (85,111)
NET CHANGE IN CASH AND CASH EQUIVALENTS 218,193 500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 500 0
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 218,693 $ 500
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 610,408 $ 281,498
Cash paid during the period for income taxes $ 0 $ 0
</TABLE>
(Continued)
F-6
<PAGE>
HOST FUNDING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION (Continued)
Non-cash investing activities:
Contribution of net assets and liabilities for common
stock and accumulated deficit
Land, property and equipment $ - $ 2,741,477
Loan commitment fees - 28,582
Related party note receivable - 1,805,675
Long-term debt - (4,215,676)
Common Stock - (1)
0 360,057
Less: Liabilities and accumulated deficit resulting
from the contribution of net assets and liabilities
Accounts payable stock issuance costs - (500,000)
Reduction in accounts payable stock issuance costs - 75,000
Deferred income taxes - (166,000)
Accumulated deficit - 305,943
Reduction in stock issuance costs - (75,000)
0 (360,057)
Net non-cash investing activity $ 0 $ 0
Common stock issued pursuant to Mission Bay
Acquisition Agreement
Land, property and equipment $(2,520,490) $ -
Class A common stock 2,520 -
Additional paid in capital 2,517,970 -
Net non-cash investing activity $ 0 $ 0
Common stock issued to partners of AAG
Class A common stock $ 4,099 $ -
Class B common stock 1,400 -
Class C common stock 1,400 -
Additional paid in capital (6,899) -
Net non-cash investing activity $ 0 $ 0
Common stock issued to independent directors
Class A common stock $ 300 $ -
Additional paid in capital 299,700 -
Unearned directors' compensation (300,000) -
Net non-cash investing activity $ 0 $ 0
Reclass of deferred income taxes and stock issuance
costs due to Stock Offering
Deferred income taxes $ (163,000) $ -
Additional paid in capital (64,943) -
Retained earnings 227,943 -
Net non-cash investing activity $ 0 $ 0
Common stock issued for Acquired Properties
Acquisition Fee
Class A common stock $ 420 $ -
Additional paid in capital 338,205 -
Land, property and equipment (338,625) -
Net non-cash investing activity $ 0 $ 0
</TABLE>
(Concluded)
See accompanying notes to financial statements.
F-7
<PAGE>
HOST FUNDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
The accompanying financial statements include the accounts of Host Funding,
Inc., a Maryland corporation ("Host Funding") and its consolidated
subsidiary. Host Funding was initially formed on December 22, 1994 as a Real
Estate Investment Trust ("REIT") to acquire and then lease limited service
hotels/motels. Host Funding's fiscal year end is December 31. Host Funding
was inactive from inception, December 22, 1994 to March 31, 1995. Host
Funding intends to elect REIT status with the filing of their consolidated
tax return for the year ending December 31, 1996 (see note 7).
On April 1, 1995, Host Funding and All American Group, Ltd., a Delaware
limited partnership ("AAG") entered into a Contribution and Assumption
Agreement (the "Contribution and Assumption Agreement"). Under the
Contribution and Assumption Agreement, AAG transferred, assigned and conveyed
to Host Funding all of the real property, including land and personal
property ($2,741,477) and loan commitment fees ($28,582), and Host Funding
agreed to assume stock issuance costs payable ($425,000) and all real
property debt ($4,215,676), at historical cost, of four (4) Super 8 motels
located and doing business in Somerset, Kentucky; Miner, Missouri; Poplar
Bluff, Missouri; and Rock Falls, Illinois. In addition, AAG contributed a
note receivable (the "Related Party Note") ($1,805,675). In accordance with
generally accepted accounting principles, the Related Party Note has been
offset against shareholder's equity as the Related Party Note was originally
issued for equity in AAG. As consideration to AAG, Host Funding issued 100
shares of common stock. As of December 31, 1995, all of the outstanding
stock of Host Funding was owned by AAG.
On April 22, 1996, Host Funding raised additional capital via an initial
public offering of Class A common stock (the "Stock Offering"). The Stock
Offering issued 500,000 common shares and raised net cash proceeds totalling
$3,997,461 (300,000 of publicly offered shares at $3,000,000 net of $300,000
of sales commissions and 200,000 privately placed shares at $1,800,000 for a
total of $4,500,000, net of issuance costs of $502,539). Host Funding used
the capital raised from the Stock Offering to pay down long-term debt, to pay
expenses of the formation of Host Funding, and for working capital purposes.
Further, on April 22, 1996, Host Funding acquired for a total purchase price
of $2,810,000, certain assets of Mission Bay Super 8, Ltd., a California
limited partnership ("Mission Bay"), the owner of a 117 room Super 8 motel
located in San Diego, California, pursuant to an asset acquisition agreement
(the "Mission Bay Acquisition Agreement"). Host Funding exchanged
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252,049 shares of common stock at a stated value of $10.00 per share
($2,520,490) plus cash for a reserve for dissenters rights and fractional
share settlements of approximately $290,000 (see note 6).
Upon completion of the Stock Offering and the Mission Bay Acquisition
Agreement, Host Funding issued additional Class A, B and C common shares to
AAG in exchange for 100 initial shares held by AAG based upon appraised
values of Host Funding's assets net of liabilities prior to the Stock
Offering. The common shares issued upon completion of the Stock Offering
include 410,000 Class A, 140,000 Class B and 140,000 Class C, which number of
shares were determined based upon the net appraised value of assets net of
liabilities of $6,900,000 or $10.00 per share. The Class B and C shares
include certain restrictions as to the future payment of dividends and are
convertible to Class A common shares at certain times and under certain
circumstances as defined in the charter. The Class C common shares converted
into Class A common shares effective January 1, 1997.
On September 5, 1996, Host Funding formed CrossHost, Inc., a Maryland
Corporation ("CrossHost"), as a wholly-owned, special purpose, REIT
qualified, subsidiary. CrossHost was formed at the request of CS First
Boston Mortgage Capital Corp. ("First Boston") as a condition to First Boston
providing an acquisition and credit facility (the "Initial Loan Facility") to
CrossHost (see note 3 and 7). A significant portion of the proceeds from the
Loan Facility was used by CrossHost to acquire three Sleep Inn Hotels located
in Destin, Sarasota, and Tallahassee, Florida from Capital Circle Hotel
Company ("Capital Circle") and one Sleep Inn Hotel located in Ocean Springs,
Mississippi from Ocean Springs Hotel Company ("Ocean Springs") (collectively,
the "Acquired Properties"). The effective closing dates for the purchase of
the Acquired Properties by CrossHost from Capital Circle and Ocean Springs
were September 13, 1996 and September 19, 1996, respectively (see note 6).
As a further condition to obtaining the Loan Facility, First Boston required
Host Funding to transfer to CrossHost the five Super 8 hotel properties owned
by Host Funding (the "Transferred Properties"). Simultaneously with the
acquisition of the Acquired Properties by CrossHost, Host Funding deeded the
Transferred Properties to CrossHost in a tax free reorganization.
Host Funding is listed on the American Stock Exchange.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Land, Property and Equipment
- ----------------------------
Buildings and improvements are being depreciated over useful lives of 35
years from the original historical date of acquisition using the
straight-line method. Hotel furnishings and equipment are being depreciated
using primarily straight-line methods over useful lives ranging from 3 to 7
years from the original historical date of acquisition.
Host Funding assesses impairment of its real estate properties based upon
whether it is probable that undiscounted future cash flows from each
individual property will be less than its net book value. No impairment has
occurred as of December 31, 1996, nor has impairment been required to be
recorded upon implementation in 1996 of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to Be Disposed Of."
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Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are defined as cash on hand and in banks plus all
short-term investments with a maturity, at the date of purchase, of three
months or less.
Restricted Cash
- ---------------
Restricted cash represents cash deposited in escrow accounts under
contractual agreements for property taxes and capital improvements that are
restricted as to usage.
Loan Commitment Fees
- --------------------
The loan commitment fees are amortized over the terms of the loans using the
straight-line method which approximates the effective interest rate method.
Accumulated amortization of loan fees totalled $195,355 and $28,424 as of
December 31, 1996 and 1995, respectively.
Franchise Fees
- --------------
Franchise fees are being amortized on a straight-line basis over the fifteen
(15) year life of the franchise agreements. Accumulated amortization of
franchise fees totalled $1,750 as of December 31, 1996.
Revenues
- --------
Host Funding recognizes lease revenue on an accrual basis over the terms of
the lease agreement.
Net Loss Per Share
- ------------------
Net loss per share is based on the weighted average number of common shares
outstanding during the year. The weighted average number of shares
outstanding prior to the Stock Offering were calculated as if the shares
issued to AAG upon completion of the Stock Offering were outstanding from
April 1, 1995.
Fair Value of Financial Instruments and Concentration of Credit Risk
- --------------------------------------------------------------------
The following disclosure of estimated fair value was determined by available
market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data and develop the
related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Rent receivable - Crossroads, due from related parties, long-term advances to
Crossroads, accounts payable and accrued expenses, and accounts payable are
carried at amounts which reasonably approximate their fair value.
The carrying value of long-term debt approximates fair value as the related
interest rate is variable and approximates market rates.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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Income Taxes
- ------------
Host Funding had adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the use of
the liability method of accounting for deferred income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes
and income tax purposes and operating loss and tax credit carryforwards.
Deferred income tax benefit totalled $3,000 for the year ended December 31,
1995. The deferred income tax liability as of December 31, 1995, totalling
$163,000, was reversed and credited to retained earnings upon consummation of
the Stock Offering in 1996. The reason for the reversal of the deferred tax
liability is that upon completion of the Stock Offering, Host Funding will
elect REIT status and intends to meet the Code requirements and be taxed as a
REIT. As a result, no future deferred tax liability will be required.
Host Funding will elect to be treated as a REIT under the provisions of the
Code beginning with the 1996 year. As a result, Host Funding will not be
subject to federal income tax on its taxable income at corporate rates to the
extent it distributes annually 95% of its taxable income to its shareholders
and complies with certain other requirements (see note 7). Host Funding is
subject to state income and franchise taxes in certain states which it
operates. There is no provision for Federal income taxes for the year ended
December 31, 1996, as Host Funding will elect REIT status and has a net
operating loss carryforward of $348,000 expiring in 2011 and 2010. Host
Funding elected not to recognize this deferred tax asset as future
utilization of this net operating loss is uncertain.
As of December 31, 1996, Host Funding's net assets for federal tax reporting
purposes totalled approximately $19,900,000.
NOTE 2. REAL ESTATE INVESTMENTS
As described in note 1, on April 1, 1995, Host Funding acquired fee interests
in four motels. The motel properties were leased (the "Initial Leases") to
Inn Fund, LLC, a Delaware limited liability company ("Inn Fund"). Guy D.
Hatfield, the controlling partner of AAG, and approximate 46% shareholder of
Host Funding, owns 7.5% and Ian Gardner-Smith owns 92.5% of Inn Fund. The
four motels were operated for Inn Fund by All American Group, Inc., an entity
100% owned by Guy Hatfield and his wife ("AAG, Inc."). Lease revenue -
related party under the Initial Leases for the year and nine months ended
December 31, 1996 and 1995, respectively, include $195,025 and $772,350 of
base rentals and $5,487 and $34,320 of percentage rentals, respectively.
On April 1, 1996 and on April 22, 1996, Host Funding agreed to enter into new
motel leases for the four existing motel properties and Mission Bay,
respectively, (the "New Leases") with a limited liability company of a
nationally recognized hotel management company and operator, Crossroads
Hospitality Tenant Company, a Delaware limited liability company
("Crossroads"). Upon execution of the New Leases, the previous leases with
Inn Fund, which leases were similar to the New Leases, were terminated. The
New Leases with Crossroads were transferred to CrossHost on September 13,
1996 and amended on October 1, 1996 (the "Amended Transferred Property
Leases").
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Further, effective as of the closing dates of the respective Acquired
Properties, CrossHost also (i) leased each of the Acquired Properties to
Crossroads by separate Lease Agreements (the "Acquired Property Leases") and
(ii) entered into a Master Agreement with Crossroads and Crossroads
Hospitality Company, LLC, a Delaware limited liability company ("Crossroads
Hospitality") a subsidiary of Interstate Hotels, Inc. a Delaware Corporation,
and parent company of Crossroads), relating to the Acquired Property Leases.
The Amended Transferred Property Leases and the Acquired Property Leases (the
"Combined Leases") are for a term of 15 years from the effective dates.
Combined total annual base rentals of $2,631,600 are due, plus percentage
rentals ranging from 28.75% to 40% of year to date revenues less varying
break even thresholds adjusted annually by defined percentages for each motel
under the Combined Leases. Base and percentage rentals under the Combined
Leases totalled $1,091,654 and $170,511, respectively, for the year ended
December 31, 1996.
The annual base rentals of the Amended Transferred Property Leases are
subject to possible additional increases annually beginning in calendar year
1998 and thereafter based upon increases in average room rates, as defined in
the Amended Transferred Property Leases.
During the first four years after the Commencement Date, Crossroads will be
entitled to accumulate a credit of 50% of base rent paid in excess of hotel
cash flow, if any, as defined in the Acquired Property Leases, for each of
the Acquired Properties which may be applied towards future percentage
rentals that may be due (the "Negative Base Rent"). Should no future
percentage rent be due under the Acquired Property Leases during the lease
terms, the Negative Base Rent will expire. No Negative Base Rent credit was
outstanding as of December 31, 1996.
The Combined Leases generally require Crossroads to pay all operating
expenses of the properties, including maintenance and insurance, while Host
Funding is responsible for property taxes.
Concurrent with the change in base rent due for each Amended Transferred
Property Lease, the requirement for Crossroads to set aside in a replacement
reserve $125 per room, per quarter, increased annually by inflation factors,
was terminated. As of December 31, 1996, Crossroads has on deposit in a
replacement reserve account net remaining funds totalling approximately
$80,000 which are available for capital improvements on the Transferred
Properties.
Under the Amended Transferred Property Leases, effective October 1, 1996,
CrossHost is required to fund into a replacement reserve (the "Replacement
Reserve") an amount equal to six percent (6%) of gross room revenue for the
proceeding month. In addition, under the Acquired Property Leases, CrossHost
is required to set aside in the Replacement Reserve an amount equal to 4% of
gross room revenue during years one (1) to four (4) and 6% of gross room
revenue during years five (5) and thereafter. Capital expenditures generally
must be jointly approved by CrossHost and Crossroads. Replacement Reserve
contributions due from CrossHost under the Combined Leases totalled $75,683
for the period October 1 to December 31, 1996. As of December 31, 1996
Replacement Reserve contributions totalling $67,294 have been funded by
CrossHost, which amount is included in restricted cash, with $8,389 in
Replacement Reserve contributions due.
Based upon an accounting of remaining furniture, fixtures and equipment
reserve contributions
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<PAGE>
due from Inn Fund under the Initial Leases to March 31, 1996, the date of the
cancellation of the Initial Leases, Inn Fund owes $77,941 to Host Funding.
This amount has been included in lease revenue - related party and was offset
against an approximately equal net amount owed by Host Funding to affiliates
of Guy E. Hatfield, an affiliate of the Company. (See note 5.)
Further, should Host Funding decide to sell any of the properties leased to
Crossroads under the Combined Leases, Crossroads will be provided a 30 day
right of first refusal to purchase such property at the price offered Host
Funding by the third party. In addition, under the Acquired Property Leases,
if Crossroads elects not to exercise its right of first refusal to acquire
the properties and should CrossHost elect to terminate the lease, upon the
consent of CrossHost, Crossroads and the buyer, Crossroads may be entitled to
some portion of the sale proceeds based on a formula as provided in the
applicable Acquired Property Lease.
CrossHost, under the Combined Leases, was required to provide long-term
non-interest bearing advances totalling $225,000 to Crossroads to be used for
working capital purposes which is due back to CrossHost at the end of the
term of each Acquired Property Lease.
Crossroads may terminate any one lease under the Amended Transferred Property
Leases within the first five years without damages. Should two leases under
the Amended Transferred Property Leases be terminated within the first five
years, Crossroads has agreed to pay a termination fee equal to the previous
twelve months revenue for the hotel times 18% in years one to three, 12% in
year four and 6% in year five. If more than two leases are terminated within
the first five years under the Amended Transferred Property Leases, Host
Funding has the right to terminate all remaining leases or to collect the
termination fee as described above.
The parent company of Crossroads has agreed to pledge as collateral 30,000
shares of Host Funding Class A common stock acquired by Crossroads parent
under the Stock Offering to collateralize the payment of rent due under the
Amended Transferred Property Leases in the amount of $264,000 during the
first three years of the lease terms. In addition, Crossroads has agreed to
maintain a letter of credit thereafter equal to annually calculated
termination fees that would be due on the lease anniversary dates throughout
the remaining terms of the Amended Transferred Property Leases. After the
first year, Crossroads parent may substitute the letter of credit by
guaranteeing the equivalent amounts required by the letter of credit and
providing to Host Funding a copy of Crossroads parent's audited financial
statements which indicate a net worth of at least 2-1/2 times the value of
the letter of credit, with at least 40% of the net worth in cash or cash
equivalent assets. In addition, Crossroads parent makes certain negative
covenants concerning maintenance of its minimum net worth levels.
Minimum future base rents due under operating leases for the five years
ending December 31, 1997 to 2001 and thereafter are as follows:
1997 $ 2,631,600
1998 2,992,800
1999 2,992,800
2000 2,992,800
2001 2,992,800
Thereafter 28,897,150
-------------
Total $ 43,755,942
-------------
-------------
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NOTE 3. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt:
- ---------------
A summary of Host Funding's long-term debt as of December 31 follows:
1996 1995
-------- -------------
First mortgage note payable to bank;
8.5% interest until March 1994, prime
plus 1.5% but not less than 8.5%
thereafter (prime was 9% at December 31,
1995), adjusted annually; payments of
$11,823 monthly, due March 1998; personal
guarantees of Guy E. and Dorothy Hatfield $ -- $1,094,146 (A)
First mortgage not payable to bank; 8.75%
interest; payments of $11,244 monthly; due
February 1998. -- 1,011,545 (B)
First mortgage note payable to bank; prime
plus 2%, adjusted quarterly (prime was 9%
at December 31, 1995); payments of $9,174
monthly, due March 1998. -- 889,630 (A)
First mortgage note payable to bank; prime
plus 1/2% interest rate adjusted daily (prime
was 9% at December 31, 1995); accrued interest
plus principal are due on March 31, 1996. -- 1,160,000 (A)
First mortgage note payable, interest at
LIBOR plus 304.5 basis points, adjusted
monthly (LIBOR was 5.53906% at December 31,
1996); payable monthly; due October 1997
(for information regarding the refinancing
see note 7). 15,500,000 --
---------- -----------
15,500,000 4,155,321
Less current portion 15,500,000 1,251,844
---------- -----------
$ 0 $ 2,903,477
---------- -----------
---------- -----------
(A) Paid off from proceeds from Stock Offering in April 1996.
(B) Paid off from proceeds of the Initial Loan Facility in September 1996.
F-14
<PAGE>
From the proceeds of the Initial Loan Facility, CrossHost paid approximately
$9,730,000 in cash to Capital Circle and approximately $3,555,000 in cash to
Ocean Springs as consideration for the Acquired Properties plus closing
expenses on the Acquired Properties in the approximate amount of $229,000.
In addition, CrossHost used approximately $980,000 of the loan proceeds to
pay in full the mortgage relating to the Super 8 motel located in Rock Falls,
Illinois. Further, proceeds from the Initial Loan Facility were used by Host
Funding and CrossHost for loan origination costs and other expenses relating
to the acquisition of the Acquired Properties and the financing of the
Transferred Properties in the approximate amount totaling $693,000, including
related party loan fees and expense reimbursements of $232,500 and $20,000,
respectively, which amount will be amortized over the term of the Initial
Loan Facility (see note 5 and 7). In addition, CrossHost used approximately
$60,000 of proceeds from the Initial Loan Facility to acquire a ten (10) year
Sleep Inn franchise with Choice Hotels, Inc., a nationally recognized hotel
franchisor. Additional proceeds from the Loan Facility were escrowed in
restricted cash accounts required under the Initial Loan Facility to be used
to pay property taxes in the approximate amount of $99,000 and for capital
improvements in the approximate amount of $62,000. The remaining proceeds
from the Loan Facility in the approximate amount of $92,000 were used for
long-term advances due Crossroads under the Acquired Property Leases (see
note 2). The Initial Loan Facility was collateralized by liens on
substantially all of the assets of CrossHost, including the Acquired
Properties and the Transferred Properties. The Initial Loan Facility was
refinanced on March 14, 1997 (see note 7).
NOTES PAYABLE:
In July 1995, Host Funding entered into a second mortgage collateralized by
the Poplar Bluff, Missouri and Rock Falls, Illinois motels totalling $100,000
at an interest rate of prime plus 2% payable interest only on August 15, 1995
and, thereafter, in monthly installments of $12,000, including principal and
interest, commencing September 15, 1995. The note balance as of December 31,
1995 totalled $55,244. The note was paid off upon completion of the Stock
Offering.
In October 1995, Host Funding entered into an unsecured note payable
totalling $20,000. This note bore interest at 10% and was due and payable
March 31, 1996. The note balance as of December 31, 1995 totalled $20,000.
The note was paid off upon completion of the Stock Offering.
NOTE 4. SHAREHOLDERS' EQUITY
Host Funding is authorized to issue 55,000,000 shares of common stock,
consisting of 50,000,000 shares of Class A common stock, $.01 par value per
share, and 4,000,000 shares of Class B common stock, $.01 par value per share
and 1,000,000 shares of Class C common stock, $.01 par value per share.
Upon consummation of the Stock Offering and Mission Bay Acquisition Agreement,
Host Funding sold to each independent director then in office 10,000 shares of
Class A common stock at a price per share equal to $10 per share. The purchase
price ($300,000) will be paid by them through delivery of a five year promissory
note executed in favor of Host Funding by each purchaser, which shall bear
interest, payable quarterly, at a fixed rate equal to 7% per annum. Principal
payments totalling 2% of the original principal will be due annually. The
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<PAGE>
shares of common stock purchased by each independent director will be pledged
to Host Funding to collateralize payment of the promissory note, which shall
be non-recourse to the maker, except to 10% of the principal amount due from
directors. Host Funding has agreed to forgive the promissory notes issued in
exchange for the shares of common stock in increments of 18% of the principal
amount per annum for each year that the maker remains a director of Host
Funding. The estimated annual amortization of unearned director's
compensation is expected to total $54,000 based upon the issuance of a total
of 30,000 shares to three directors. Interest income - related party, paid
or accrued by the directors, to Host Funding totalled $14,528 for the year
ended December 31, 1996. As of December 31, 1996, $819 remains payable to
Host Funding and is included in due from related parties.
Host Funding also has 20,000,000 authorized preferred shares, $.01 par value,
none of which are issued or outstanding.
Please refer to Note 1, Organization and Summary of Significant Accounting
Policies, for information regarding common stock issued as a result of the
Stock Offering and the Mission Bay Acquisition Agreement. Also, refer to
Note 5, Related Party Transactions, for information regarding common stock
issued under the Post-Formation Acquisition Agreement as a result of the
purchase of the Acquired Properties.
NOTE 5. RELATED PARTY TRANSACTIONS
RELATED PARTY NOTE RECEIVABLE:
As described in note 1, on April 1, 1995, AAG, as part of the Contribution
and Assumption Agreement, contributed the Related Party Note to Host Funding.
The Related Party Note is due from Guy and Dorothy Hatfield and their two
children, sole limited partners, and AAG, Inc., sole general partner (the
"AAG Partners"), of AAG. The principal balance of the Related Party Note
dated March 31, 1995, as of December 31, 1996, is $1,805,675, with interest
payable quarterly, commencing November 15, 1995, at 10% per annum, adjusted
to 12% per annum upon completion of the Stock Offering, with remaining
outstanding principal and unpaid accrued interest due and payable on March
31, 2000. The Related Party Note was secured by second trust deeds on
properties located in Central City, Kentucky; Lebanon, Kentucky; Miner,
Missouri; and Dexter, Missouri. The collateral for the Related Party Note
was provided via a Lent Collateral Agreement from Hatfield Inn, Inc., a
Delaware corporation ("Hatfield Inn") 100% owned by Guy and Dorothy Hatfield.
In September 1995, the Related Party Note was amended to remove the
obligation of AAG to maintain real property security, conditioned upon the
delivery to Host Funding of an unconditional guarantee by Guy and Dorothy
Hatfield. The Related Party Note is classified in the Shareholders' Equity
(Deficit) section of the balance sheet as it was contributed to AAG and, in
turn, Host Funding to provide equity to AAG and Host Funding, respectively.
Interest income - related parties, paid or accrued by the AAG partners to
Host Funding, totalled $204,939 and $135,673 for the year ended December 31,
1996 and for the nine months ended December 31, 1995, respectively. As of
December 31, 1996, $33,706 of Related Party Note interest is payable and
included in due from related parties.
STOCK PLEDGE AGREEMENT:
Further, on April 1, 1995, the AAG Partners entered into a Stock Pledge
Agreement (the "Stock Pledge Agreement") with Host Funding. Pursuant to the
Stock Pledge Agreement, the AAG Partners agreed to pledge a security
investment in 26.2%, or 180,780, of the fraction shares
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<PAGE>
issued to AAG in the Stock Offering, together with all additional shares
issued to the AAG Partners by reason of stock split or stock dividend, of
common stock in Host Funding to secure the Related Party Note.
RELATED PARTY CONSULTING AGREEMENT:
Host Funding entered into a consulting agreement (The "Related Party
Consulting Agreement") with AAG effective April 1, 1995 to provide advisory,
accounting and other consulting services to Host Funding for a monthly fee of
$60,000 plus annual additional compensation as mutually agreed upon. Related
party consulting fees totalling $224,000 and $540,000 for the year ended
December 31, 1996 and for the nine months ended December 31, 1995,
respectively, were paid or accrued to AAG under the Related Party Consulting
Agreement. The Related Party Consulting Agreement was canceled upon
completion of the Stock Offering.
RELATED PARTY ADVISORY AGREEMENT:
Host Funding has entered into an Advisory Agreement (the "Advisory
Agreement") with Host Funding Advisors, Inc., a Delaware corporation (the
"Advisor") on the close of the Stock Offering. The Advisor was formed on
June 23, 1994. Pursuant to the Advisory Agreement, the Advisor will provide
information, advice, assistance, and facilities to Host Funding in connection
with Host Funding's future investment in hotel properties. Additionally, the
Advisor will administer the daily operations of Host Funding, negotiate on
Host Funding's behalf, act as agent for Host funding in collecting funds and
paying debts, and generally manage and operate Host Funding. In
consideration for such services, Host Funding will compensate the Advisor in
the amount of $30,000 per year. The Advisor is an affiliate of Ian
Gardner-Smith, a director and officer of CrossHost, and Michael S. McNulty, a
director and president of Host Funding and CrossHost. Advisory fees
totalling $21,083 were paid or accrued during the calendar year ended
December 31, 1996. Effective January 31, 1997, the Advisory Agreement was
canceled for payment of a fee at $30,000 and the Registrant became
self-administered.
RELATED PARTY ACQUISITION AGREEMENT:
Host Funding has entered into a Post-Formation Acquisition Agreement (as
amended, the "Acquisition Agreement") with HMR Capital, LLC, a Delaware
limited liability company, (the "Acquisition Company") on April 22, 1996.
The Acquisition Company is an affiliate of Michael S. McNulty and Ian
Gardner-Smith. Under the terms of the Acquisition Agreement, the Acquisition
Company is responsible for the management, coordination, and supervision of
Host Funding's acquisition of additional hotel properties. The Acquisition
Company sought out the Acquired Properties and negotiated the terms of the
acquisition.
The Acquisition Agreement is for a term of five years, as amended, from
February 3, 1997 or when net fees earned by the Acquisition Company exceed $9
million, subject to a 30 day cancellation provision by either party.
Further, the Acquisition Company is entitled to receive an acquisition fee of
no less than 2% and up to 6% of the gross purchase price of the Acquired
Properties, subject to the 30 day cancellation provision, plus reimbursement
of certain expenses (the "Acquired Properties Acquisition Fee"). The
Acquired Properties Acquisition Fee is payable in cash or, at the option of
the Acquisition Company, in the Class A Common Stock of Host Funding. Host
Funding and the Acquisition Company agreed that the Acquired Properties
Acquisition Fee earned by the Acquisition Company relating to the Acquired
Properties was 42,000 shares of the Class A Common Stock of the Registrant
valued at $10 per
F-17
<PAGE>
share and payable as of September 19, 1996 (the Ocean Springs closing date).
The shares of Class A Common Stock received by the Acquisition Company in
payment of the Acquired Properties Acquisition Fee will be restricted
securities under the Securities Act of 1933 and subject to the resale
provisions of Rule 144 promulgated under the Act. The last traded price of
the stock of Host Funding on the American Stock Exchange on September 19,
1996 was $8.0625 per share. Host Funding has recorded the Acquired
Properties Acquisition Fee on the Acquired Properties at the fair market
value of the Class A Common Stock on September 19, 1996. The Acquired
Properties Acquisition Fee (based upon a value of $8.0625 per share or
$338,625) represents approximately 2.5% of the gross purchase price totalling
$13,285,000 excluding closing expenses of the Acquired Properties.
OTHER RELATED PARTY TRANSACTIONS:
As of the close of the Stock Offering, management of Host Funding, Inn Fund
and AAG and the general and limited partners of AAG have offset the
consulting fees due AAG under the Related Party Consulting Agreement against
accrued interest receivable due under the Related Party Note and accrued rent
receivable and remaining furniture, fixtures and equipment reserve
contributions due under the Initial Leases with Inn Fund. As of December 31,
1996, $4,135 remains payable to AAG from Host Funding and has been netted
against and included in due from related parties.
Hatfield Inn is the owner and operator of a 40 room motel adjacent to Host
Funding's property located in Miner, Missouri. Host Funding and Hatfield Inn
have a shared parking agreement allowing cars to park in either property's
parking facilities, compete for similar business, and are managed by the
general partner of AAG.
Hotel Mortgage Resources Corp. ("HMRC"), an affiliate of Mr. Ian
Gardner-Smith and Michael S. McNulty, in connection with the Loan Facility
discussed in Note 1 and 3, received a loan origination fee of $232,500 plus
reimbursement of expenses of approximately $20,000 during the year ended
December 31, 1996. The total fees received by affiliates relating to the
acquisition of the Acquired Properties, including loan origination fees, the
Acquired Properties Acquisition Fee and the expense reimbursement, totalled
approximately $591,125.
HMRC, during the year ended December 31, 1996, also received expense
reimbursements for stock issuance costs totaling $105,679 and for travel and
other related expenses which are included in administrative and other
expenses totalling $23,455. Loan application fees totalling $5,000 were paid
to HMRC during the year ended December 31, 1996.
The parent company of Crossroads, the lessee under the New Leases, purchased
60,000 shares of Class A common stock via the initial Private Placement.
NOTE 6. ACQUISITIONS
The following unaudited pro forma information has been prepared assuming that
the acquisition of Mission Bay and the Acquired Hotels has occurred at the
beginning of the periods presented. Permitted pro forma adjustments include
only the effects of events directly attributable to a transaction that are
factually supportable and expected to have continuing impact. Pro forma
adjustments reflecting anticipated "efficiencies" in operations resulting
from a transaction are,
F-18
<PAGE>
under most circumstances, not permitted. As a result of the limitations
imposed with regard to the types of permitted pro forma adjustments, Host
Funding believes that this unaudited pro forma information is not indicative
of future results of operations, not the results of historical operations had
the acquisition of Mission Bay and the Acquired Properties been consummated
as of the assumed dates.
(Unaudited)
Nine Months
Year Ending Ending
December 31, December 31,
1996 1995
----------- ------------
Revenues $ 3,318,000 $ 2,524,000
Net Income $ 463,000 $ 382,000
Earnings Per Share $ 0.31 $ 0.25
Weighted Average Number of
Common Shares Outstanding 1,514,049 1,514,049
NOTE 7. COMMITMENTS AND CONTINGENCIES
REIT STATUS:
Host Funding, as a requirement under the Code to elect REIT status, must have
no more than five (5) shareholders, own no more than 50% of common stock,
common stock equivalents, or other forms of equity outstanding. Host Funding
has not met this requirement as of December 31, 1996. Under the Code, Host
Funding is allowed a six month exemption until June 30, 1997 to meet the
requirement. While management at Host Funding intends to meet the Code
requirements, no assurance can be given that REIT status will be maintained,
which could result in Host Funding being taxed as a C corporation.
FRANCHISE AGREEMENTS:
Host Funding has been granted franchise license agreements from Super 8 and
Sleep Inns for terms expiring in 2005 and 2011, respectively. Pursuant to
the terms of the agreement, Host Funding is required to pay royalty fees and
advertising fees of 5% to 4% and 3% to 1.3%, respectively, and reservation
fees due under the Sleep Inn agreements of 1.75%, of gross room revenue. The
responsibility for payment of the fees has been assigned to Crossroads under
the Combined Leases.
DIVIDEND DECLARATION:
On January 27, 1997, Host Funding declared a cash dividend of $0.24 per share
to stockholders of record on February 4, 1997, which was payable on February
18, 1997.
TERMINATION OF ADVISORY AGREEMENT, AMENDMENT OF ACQUISITION AGREEMENT AND
ISSUANCE OF WARRANTS:
On February 3, 1997, Host Funding entered into an Agreement with the
Acquisition Company and the Advisor whereby the Acquisition Company and Host
Funding agreed to amend the Acquisition Agreement and the Advisor and Host
Funding terminated the Advisory Agreement (see note 5).
As compensation to the Acquisition Company for amending the Acquisition
Agreement allowing
F-19
<PAGE>
a thirty (30) day cancellation, Host Funding has agreed to issue 225,000
Series A Warrants (the "Series A Warrants") and 225,000 Series B Warrants
(the "Series B Warrants") to the Acquisition Company.
The Series A Warrants provide warrants to purchase 225,000 shares of Host
Funding's Class A Common Stock, $0.01 par value per share, at $9.90 per
share, and expire on February 2, 2000. There are additional provisions in
the Series A Warrants that allow pari passu treatment upon recapitalization
of Host Funding.
The Series B Warrants provide warrants to purchase 225,000 shares of Host
Funding's Class A Common Stock, $0.01 par value per share, at $10.80 per
share, and expire on February 2, 2001. There are additional provisions in
the Series B Warrants that allow pari passu treatment upon recapitalization
of Host Funding and certain restrictions within the first twenty-four months
of issuance as to the price allowed upon exercise of the Series B Warrants
based upon consummation of a public offering in which proceeds to Host
Funding are not less than $50 million.
EMPLOYMENT AGREEMENTS:
Host Funding has entered into Employment Agreements (the "Employment
Agreements") with William Birdsall, Chairman of the Board; Michael S.
McNulty, President; and Bona K. Allen, Chief Financial Officer, for a term of
three years from February 1997. The Employment Agreements provide for base
salaries of $291,000 with a minimum bonus of 15% up to a maximum of 50%,
based upon a prescribed formula in the Employment Agreements, of base
compensation in the first year. The Employment Agreements also provide for
base salary increases based upon prescribed increases in Host Funding's asset
size. The Employment Agreements are terminable by Host Funding, for cause,
upon thirty (30) days written notice, or upon death or disability, with
severance payments due employees ranging from nothing to two years of current
base salary then in effect.
NOTE 8. SUBSEQUENT EVENTS
FORMATION OF HOST VENTURES, REFINANCING OF INITIAL LOAN FACILITY AND ACQUISITION
OF FLAGSTAFF SUPER 8:
On March 5, 1997, Host Funding formed Host Ventures, Inc., a Maryland
corporation ("Host Ventures"), as a wholly-owned, special purpose subsidiary
of Host Funding. Host Ventures was formed at the request of First Boston as
a condition to refinancing the existing $15,500,000 Initial Loan Facility
with CrossHost at a reduced amount of $13,000,000 (the "CrossHost Loan
Facility") and provided an acquisition and credit facility to Host Ventures
in the amount of $8,725,000 (the "Host Ventures Loan Facility").
The CrossHost Loan Facility is payable over twenty years in equal monthly
installments of $120,838, including interest at a fixed rate of 9.46% per annum
(the "Base Interest Rate") over the first ten years, with an increased fixed
monthly payment the second ten years that fully amortizes remaining principal
plus interest at an interest rate equal to the greater of 2% over the Base
Interest Rate or 2% over the then-existing ten year U.S.Treasury Note rate, with
a due date in March 2017.
F-20
<PAGE>
The Host Ventures Loan Facility is payable interest only, monthly at the
LIBOR Rate plus 350 basis points (LIBOR Rate was 5.4375% as of March 14,
1997), with a maturity date of April 1, 1999, at which time all unpaid
interest plus principal are due.
Aggregate principal payments under the CrossHost and Host Ventures Loan
Facilities for the next five calendar years ended December 31 and thereafter
are as follows:
1997 $ 150,951
1998 244,973
1999 8,994,179
2000 295,777
2001 325,004
Thereafter 11,714,116
Total $ 21,725,000
A significant portion of the proceeds from the Host Ventures Loan Facility
was used by Host Ventures to acquire a 90 room Super 8 Motel in Flagstaff,
Arizona for $5,125,000 plus closing costs (the "Flagstaff Super 8") from
Teachers Retirement System of the State of Illinois ("Teachers") and to pay
down the Initial Loan Facility in the amount of $2,500,000. The effective
closing date for the purchase of the Flagstaff Super 8 was March 14, 1997.
Effective as of the closing date of the Flagstaff Super 8, Host Ventures also
leased the Flagstaff Super 8 to Crossroads. The CrossHost and Host Ventures
Loan Facilities require escrows to be reserved for property taxes and capital
expenditures.
The lease agreement between Crosshost and Host Ventures for the Flagstaff
Super 8 (the "Flagstaff Lease Agreement") is for a term of fifteen (15) years
from March 1997 and provides for annual base rentals of $505,000 plus
percentage rentals of 32% of gross revenues less a breakeven level of
$925,000, adjusted annually. Remaining terms of the Flagstaff Lease
Agreement are similar to the Acquired Properties Leases.
The Flagstaff Super 8 was acquired pursuant to terms of the Acquisition
Agreement by and between Host Funding and the Acquisition Company. Pursuant
to the terms of the Acquisition Agreement, the acquisition Company is
entitled to receive an acquisition fee of up to 6% of the gross purchase
price of the Flagstaff Super 8 plus reimbursement of certain expenses (the
"Flagstaff Property Acquisition Fee"). The Flagstaff property Acquisition
Fee is payable in cash or, at the option of the Acquisition Company, in the
Class A Common Stock of Host Funding. Host Funding and the Acquisition
Company agreed that the Flagstaff Property Acquisition Fee earned by the
Acquisition Company relating to the Flagstaff Super 8 was 16,000 shares of
the Class A Common Stock of Host Funding valued at $10 per share and payable
as of March 31, 1997. The shares of Class A Common Stock received by the
Acquisition Company in payment of the Flagstaff Property Acquisition Fee will
be restricted securities under the Securities Act of 1933 and subject to the
resale provisions of Rule 144 promulgated under the Act. The last traded
price of the stock of Host Funding on the American Stock Exchange on March
14, 1997 was $9.50 per share. Host Funding intends to record the Flagstaff
Property Acquisition Fee on the Flagstaff Super 8 at the fair market value of
the Class A Common Stock on March 14, 1997. The Flagstaff Property
Acquisition Fee (based upon a value of $10 and $9.50 per share or $160,000
and $152,000, respectively) represents approximately 3.1% and 3.0%,
respectively,
F-21
<PAGE>
of the gross purchase price totaling $5,125,000 excluding closing expenses of
the Flagstaff Super 8.
As a further condition to obtaining the Host Ventures Loan Facility, First
Boston required Host Funding to transfer to Host Ventures two Sleep Inn
properties owned by Host Funding. The two Sleep Inns are located in
Sarasota, Florida and Ocean Springs, Mississippi (collectively, the
"Transferred Sleep Inns"). Simultaneously with the acquisition of the
Flagstaff Super 8, Host Funding deeded the Transferred Sleep Inns to Host
Ventures in a tax free reorganization. In addition, Host Funding assigned to
Host Ventures the lease agreements with Crossroads pertaining to each of the
Transferred Sleep Inns.
F-22
<PAGE>
SCHEDULE III
HOST FUNDING, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
Costs Subsequent Gross amount at which
Initial Cost to Company to Acquisition carried at close of period
------------------------- -------------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrances(1) Land Improvements Land Improvements Land Improvements
- ----------- -------------- ---------- ------------- ---- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hotel Assets:
Super 8, Rock Falls, IL $ $ 131,627 $ 491,711 $ -- $ -- $ 131,627 $ 491,711
Super 8, Somerset, KY 170,000 449,541 -- -- 170,000 449,541
Super 8, Miner, MO 187,660 461,494 -- -- 187,660 461,494
Super 8, Poplar Bluff, MO 153,000 410,515 -- -- 153,000 410,515
Super 8, San Diego, CA 702,500 1,826,500 -- -- 702,500 1,826,500
Sleep Inn, Ocean Springs, MS 924,162 2,402,821 -- -- 924,162 2,402,821
Sleep Inn, Destin, FL 993,429 2,582,915 -- -- 993,429 2,582,915
Sleep Inn, Sarasota, FL 834,990 2,170,975 -- -- 834,990 2,170,975
Sleep Inn, Tallahassee, FL 710,679 1,847,767 -- -- 710,679 1,847,767
$15,500,000 $4,808,047 $12,644,239 $ 0 $ 0 $4,808,047 12,644,239
Land 4,808,047
Furniture and equipment 1,952,233
Total hotels and land
under lease $19,404,519
Accumulated
Depreciation & Year of Date
Amortization Construction Acquired Life
-------------- ------------ -------- ----
Description
Hotel Assets:
Super 8, Rock Falls, IL $ 18,099 1985 4/1/95 35
Super 8, Somerset, KY 23,014 1985 4/1/95 35
Super 8, Miner, MO 25,198 1985 4/1/95 35
Super 8, Poplar Bluff, MO 23,462 1985 4/1/95 35
Super 8, San Diego, CA 26,872 1987 4/22/96 35
Sleep Inn, Ocean Springs, MS 15,439 1995 9/19/96 35
Sleep Inn, Destin, FL 16,596 1992 9/13/96 35
Sleep Inn, Sarasota, FL 13,949 1993 9/13/96 35
Sleep Inn, Tallahassee, FL 11,873 1994 9/13/96 35
174,502
Land --
Furniture and equipment 216,507
Total hotels and land
under lease $391,009
</TABLE>
(1) All hotel assets are cross collateralized and encumbered
by the Initial Loan Facility as of December 31, 1996.
See accompanying notes to financial statements.
F-23
<PAGE>
SCHEDULE III
Page 2 of 2
HOST FUNDING, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION - NOTES TO SCHEDULE
DECEMBER 31, 1996
NOTES:
(A) The change in total cost of properties for the year ended December 31,
1996 is as follows:
Balance at December 31, 1995 $ 2,741,477
Additions: Capital expenditures 16,663,042
Balance at December 31, 1996 $19,404,519
(B) The change in accumulated depreciation and amortization for the year
ended December 31, 1996 is as follows:
Balance at December 31, 1995 $ 103,663
Depreciation and amortization 287,346
Balance at December 31, 1996 $ 391,009
F-24
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE "ACTS"). NEITHER
THIS WARRANT NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL OF HOST FUNDING,
INC. TO THE EFFECT THAT SUCH REGISTRATIONS ARE NOT REQUIRED. THIS WARRANT IS
SUBJECT TO CERTAIN OTHER LIMITATIONS ON TRANSFER.
SERIES A WARRANT
TO PURCHASE COMMON STOCK OF
HOST FUNDING, INC.
THIS IS TO CERTIFY THAT, for value received, HMR Capital, LLC, a Delaware
limited liability company, or permitted assigns, is entitled to purchase from
Host Funding, Inc., a Maryland corporation (the "Company"), at the Warrant
Office (hereinafter defined), at a purchase price per share of $9.90, subject to
adjustment as provided below (the "Exercise Price"),225,000 shares of duly
authorized, validly issued, fully paid and nonassessable shares of the Company's
Class A Common Stock, $0.01 par value ("Common Stock"), and is entitled also to
exercise the other appurtenant rights, powers and privileges hereinafter set
forth. The number of shares of Common Stock purchasable hereunder and the
Exercise Price are subject to adjustment in accordance with Article IV hereof.
This Warrant is issued pursuant to the terms of that certain Agreement,
dated effective February 3, 1997, by and among the Company, HMR Capital and Host
Funding Advisors, Inc., a Delaware corporation. Subject to the limitations and
requirements contained herein, the holders of these Warrants may transfer or
exchange such Warrants or a portion thereof in the manner specified herein.
Certain terms used in this Warrant are defined in Article I.
<PAGE>
ARTICLE I
TERMS DEFINED
As used in this Warrant, unless the context otherwise requires, the
following terms have the respective meanings set forth below or in the Section
indicated:
ACTS -- shall mean the Securities Act of 1933 and any applicable state
securities or blue sky laws, as they may be amended from time to time, and the
rules and regulations thereunder, all as the same shall be in effect at the
time.
BOARD OF DIRECTORS -- shall mean the Board of Directors of the Company.
COMMON STOCK -- shall mean the Company's Class A Common Stock, $0.01 par
value per share.
CODE -- shall mean the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder.
COMPANY -- shall mean Host Funding, Inc., a Maryland corporation, and its
successors and assigns.
DATE OF ISSUANCE -- shall mean February 3, 1997.
EXPIRATION DATE -- shall mean February 2, 2000 (i.e. three years from the
Date of Issuance).
EXERCISE PRICE -- shall mean the purchase price per share of Common Stock
payable by the holder hereof upon exercise of this Warrant, as it may be
adjusted from time to time in accordance with the provisions of Article IV
hereof.
OUTSTANDING -- when used with reference to Common Stock at any date, shall
mean all issued shares of Common Stock at such date, except shares then held in
the treasury of the Company.
PERSON -- shall mean any individual, corporation, partnership, trust,
organization, association or other entity or individual.
REIT QUALIFICATION RULES -- shall mean any and all provisions of the Code
the compliance with which is necessary for the Company to maintain its status as
a qualified real estate investment trust in accordance with the Code.
WARRANT -- shall mean this Warrant and any successor or replacement Warrant
delivered in accordance herewith.
2
<PAGE>
WARRANT OFFICE -- shall have the meaning set forth in Section 3.1.
WARRANT SHARES -- shall mean the shares of Common Stock purchased or
purchasable by the registered holder of this Warrant or the permitted assignees
of such holder upon exercise hereof pursuant to Article II hereof.
ARTICLE II
EXERCISE OF WARRANT
2.1 TERM. Subject to the limitations and requirements contained
herein, this Warrant may be exercised as a whole at any time or in part from
time to time commencing on the Date of Issuance and terminating at 5:00 p.m.,
Dallas, Texas time on the Expiration Date.
2.2 METHOD OF EXERCISE. To exercise this Warrant, the registered holder
hereof or permitted assignees of all rights of the registered holder hereof
shall deliver to the Company, at the Warrant Office (a) a written notice in the
form of the Subscription Notice attached hereto, stating therein the election of
such holder or such permitted assignees to exercise this Warrant in the manner
provided in the Subscription Notice, (b) payment in full of the Exercise Price
(in the manner described below) for all Warrant Shares purchased hereunder, and
(c) this Warrant. This Warrant shall be deemed to be exercised on the date of
receipt by the Company of the Subscription Notice, accompanied by payment for
the Warrant Shares and surrender of this Warrant, as aforesaid, and such date is
referred to herein as the "Exercise Date". Upon such exercise, the Company
shall issue and deliver to such holder a certificate for the full number of the
Warrant Shares purchasable by such holder hereunder, against the receipt by the
Company of this Warrant and the total Exercise Price payable hereunder for all
such Warrant Shares, in accordance with Section 2.4 below. Upon any partial
exercise of this Warrant, the Company shall forthwith issue and deliver to or
upon the order of the exercising holder a new Series A Warrant To Purchase
Common Stock of Host Funding, Inc. of like tenor, in the name of the holder
thereof, or as such holder may request, calling in the aggregate on the face or
faces thereof for the number of Warrant Shares equal to the number of such
shares called for on the face of the original Warrant minus the number of such
shares designated by the holder in the Subscription Notice. The person in whose
name the certificate(s) for Common Stock is to be issued shall be deemed to have
become a holder of record of such Common Stock on the Exercise Date. Each
certificate representing the Warrant Shares shall upon issuance bear the
restrictive legend set forth on Exhibit A attached to this Warrant.
2.3 FRACTIONAL SHARES. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but in lieu of such fractional share,
the Company shall make a cash payment therefor equal to the Exercise Price then
in effect multiplied by such fractional share.
2.4 PAYMENT OF EXERCISE PRICE. Upon exercise of this Warrant, the
Exercise Price then in effect shall be payable, at the holder's election, by
delivering to the Company, in accordance with
3
<PAGE>
this Article II, certified or cashier's check or wire transfer of good funds
in an amount equal to the Exercise Price then in effect multiplied by the
number of Warrant Shares with respect to which this Warrant is then being
exercised.
ARTICLE III
WARRANT OFFICE; TRANSFER
3.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be 6116 N. Central Expressway, Suite 1313, Dallas, Texas 75205 Attention:
Michael S. McNulty, and may subsequently be such other office of the Company or
of any transfer agent of the Common Stock in the continental United States as to
which written notice has previously been given to the registered holder of this
Warrant. The Company shall maintain, at the Warrant Office, a register for the
Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each
permitted assignee of the registered holder hereof.
3.2 OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article III. The Warrants shall be evidenced by a
"Certificate of Warrant" issued by the Company to the holder of the Warrant and
containing the appropriate legend relating to restrictions on sale and transfer
under the Acts.
3.3 RESTRICTIONS ON EXERCISE AND TRANSFER OF WARRANTS. The Company agrees
to maintain at the Warrant Office books for the registration and transfer of
this Warrant. Subject to the restrictions on transfer of Warrants in this
Section 3.3, the Company, from time to time, shall register the transfer of this
Warrant in such books upon surrender of this Warrant at the Warrant Office
properly endorsed or accompanied by appropriate instruments of transfer and
written instructions for transfer satisfactory to the Company. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be canceled by the Company. The Company shall pay all expenses,
taxes (other than transfer or income taxes incurred by the holder) and other
charges payable in connection with the transfer of Warrants pursuant to this
Section 3.3.
(a) RESTRICTIONS IN GENERAL. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable and the Warrant Shares shall not be
transferable except upon the conditions specified in this Section 3.3,
which conditions are intended, among other things, to insure compliance
with the provisions of the Acts and the REIT Qualification Rules in respect
of the exercise or transfer of this Warrant or transfer of Warrant Shares.
The registered holder of this Warrant agrees that except for transfers of
this Warrant expressly permitted by Section 3.3 (b) below, he will
4
<PAGE>
neither transfer this Warrant nor transfer Warrant Shares prior to delivery
to the Company of the opinion of counsel referred to in, and to the effect
described in, clause (A) of Section 3.3(c).
(b) PERMITTED TRANSFERS. HMR Capital, as the original registered
holder of this Warrant, shall have the right to transfer and assign all or
any portion of this Warrant to (i) the members of HMR Capital existing as
of the Date of Issuance and (ii) the Profit Holders, as defined in the
Profit Percentage Agreement dated effective as of November 1,1996, by and
among HMR Capital and HFG Acquisition Group, Inc.(as assignee of La Jolla
Securities Corporation), Strategic Property Advisors, Inc. (as assignee of
Capital Equities of La Jolla, Inc.) and John Phillips (collectively, the
"Permitted Transferees"); provided, that each such Permitted Transferee
shall have executed and delivered to the Company an Investment Letter
Agreement effective on or before the date of the assignment or transfer, in
form and substance acceptable to the Company.
(c) OPINION OF COUNSEL. The registered holder of this Warrant, by
his acceptance hereof, agrees that prior to any transfer of this Warrant or
any transfer of the related Warrant Shares, said holder will deliver to the
Company a statement setting forth either said holder's intention with
respect to the disposition of this Warrant or any Warrant Shares, or the
intention of said holder's prospective transferee with respect to his
acquisition of this Warrant or of said Warrant Shares (whichever is
involved in such transfer), in either such case, together with a signed
copy of the opinion of said holder's counsel, such opinion and counsel to
be reasonably acceptable to the Company, as to (i) the necessity or non-
necessity for registration under the Acts in connection with such exercise
or such transfer and (ii) whether or not the effect of such exercise or
transfer would disqualify the Company as a qualified real estate investment
trust pursuant to the REIT Qualification Rules. The following provisions
shall then apply:
(A) If, in the opinion of said holder's counsel, the proposed
transfer of this Warrant or the proposed transfer of such Warrant
Shares may be effected without (i) registration under the Acts of this
Warrant or such Warrant Shares, as the case may be, and (ii)
disqualification of the Company as a qualified real estate investment
trust pursuant to the REIT Qualification Rules, then the registered
holder of this Warrant shall be entitled to transfer this Warrant or
such Warrant Shares in accordance with the statement of intention
delivered by said holder to the Company.
5
<PAGE>
(B) If, in the opinion of said counsel, either the proposed
transfer of this Warrant or the proposed transfer of such Warrant
Shares may not be effected without (i) registration under the Acts of
this Warrant or such Warrant Shares, as the case may be, or (ii)
disqualification of the Company as a qualified real estate investment
trust pursuant to the REIT Qualification Rules, the registered holder
of this Warrant shall not be entitled to transfer this Warrant or such
Warrant Shares, as the case may be, until such registration is
effected or disqualification remedied.
(d) TERMINATION OF RESTRICTIONS. If, in the opinion of counsel to
the holder of this Warrant, a copy of which shall be furnished, and reasonably
acceptable, to the Company, this Warrant may be freely transferred pursuant to
the provisions of the Securities Act of 1933, as amended, or other applicable
provisions of the Acts, the restrictions set forth in this Section 3.3 shall
terminate and, upon request by said holder, the Company shall cause the
restrictive legends on the face hereof to be removed.
3.4 ACKNOWLEDGMENT OF RIGHTS. The Company will, at the time of any
exercise of this Warrant in accordance with the terms hereof, upon the request
of the registered holder hereof, acknowledge in writing its continuing
obligation to afford to such holder any rights to which such holder shall
continue to be entitled after such exercise in accordance with the provisions of
this Warrant, provided, that if the holder of this Warrant shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
3.5 EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all expenses,
taxes (other than transfer or income taxes incurred by the holder) and other
charges payable in connection with the preparation, issuance and delivery of
Warrants and related Warrant Shares hereunder (except as otherwise provided in
Section 5.5 hereof).
ARTICLE IV
ADJUSTMENT PROVISIONS
4.1 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price shall be subject to adjustment from time to time as provided in
this Article IV. Upon each adjustment of the Exercise Price, the registered
holder hereof shall thereafter be entitled to purchase, upon exercise hereof, at
the Exercise Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest whole shares pursuant to Section
4.1(a)(iv)) obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(a) ADJUSTMENTS. The Exercise Price and the number of Warrant Shares
shall be subject to adjustment from time to time as follows:
6
<PAGE>
(i) STOCK DIVIDENDS. If the number of shares of Common Stock
outstanding at any time after the date of this Warrant is increased by
a stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend or the effective date of such
subdivision or split-up, as the case may be, the Exercise Price shall
be appropriately adjusted so that the adjusted Exercise Price shall
bear the same relation to the Exercise Price in effect immediately
prior to such adjustment as the total number of shares of Common Stock
outstanding immediately prior to such action shall bear to the total
number of shares of Common Stock outstanding immediately after such
action.
(ii) COMBINATION OF STOCK. If the number of shares of Common
Stock outstanding at any time after the date of issuance of this
Warrant is decreased by a combination of the outstanding shares of
Common Stock, then, immediately after the effective date of such
combination, the Exercise Price shall be appropriately adjusted so
that the adjusted Exercise Price shall bear the same relation to the
Exercise Price in effect immediately prior to such adjustment as the
total number of shares of Common Stock outstanding immediately prior
to such action shall bear to the total number of shares of Common
Stock outstanding immediately after such action.
(iii) REORGANIZATIONS, CONSOLIDATIONS, MERGERS AND SALES. In
case of any capital reorganization of the Company, or of any
reclassification of the Common Stock, or in case of the consolidation
of the Company with or the merger of the Company with any other Person
or of the sale, or other transfer of all or substantially all of the
assets of the Company to any other Person, this Warrant shall, after
such capital reorganization, reclassification, consolidation, merger,
sale, lease or other transfer, be exercisable for the number of shares
of stock or other securities or property to which the Common Stock
issuable (at the time of such capital reorganization,
reclassification, consolidation, merger, sale, or other transfer) upon
exercise of this Warrant would have been entitled to receive upon such
capital reorganization, reclassification, consolidation, merger, sale,
or other transfer if such exercise had taken place; and in any such
case, if necessary, the provisions set forth herein with respect to
the rights and interests thereafter of the holder of this Warrant
shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The
subdivision or combination of shares of Common Stock issuable upon
exercise of this Warrant at any time outstanding into a greater or
lesser number of shares of Common Stock (whether with or without par
value) shall not be deemed to be a reclassification of the Common
Stock of the Company for the purposes of this clause (iii).
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(iv) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this Section 4.1(a) shall be made to the nearest
cent or to the nearest whole share (as provided in Section 2.3), as
the case may be.
(b) STATEMENT REGARDING ADJUSTMENTS. Whenever the Exercise Price
shall be adjusted as provided in Section 4.1(a), the Company shall
forthwith file at the Warrant Office a statement showing in detail the
facts requiring such adjustment and the Exercise Price and new number of
shares issuable that shall be in effect after such adjustment, and the
Company shall also cause a copy of such statement to be given to the
registered holder of this Warrant. Each such statement shall be signed by
the Company's chief financial or accounting officer. Where appropriate,
such copy may be given in advance and may be included as part of a notice
required to be mailed under the provisions of Section 4.1(c).
(c) NOTICE TO HOLDERS. In the event the Company shall propose to
take any action of the type described in clause (i), (ii) or (iii) of
Section 4.1(a), the Company shall give notice to the registered holder of
this Warrant, in the manner set forth in Section 7.6, which notice shall
specify the record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Exercise Price and the
number, kind or class of shares or other securities or property which shall
be deliverable upon exercise of this Warrant. In the case of any action
which would require the fixing of a record date, such notice shall be given
at least 10 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 15 days prior to the taking of
such proposed action.
4.2. COSTS. Except as otherwise provided in Section 5.5, the Company shall
pay all documentary, stamp, transfer or other transactional taxes attributable
to the issuance or delivery of shares of Common Stock upon exercise of this
Warrant; PROVIDED, HOWEVER, that the Company shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificate for such shares in a name other than that of the
holder of this Warrant in respect of which such shares are being issued.
ARTICLE V
REGISTRATION RIGHTS
5.1 SHELF REGISTRATION. The Company agrees that within ninety (90) days
following the effective date of a public offering of the Company's common stock
in which the net proceeds to the Company (after underwriting discounts and
commissions but before other expenses of the offering) is not less than
$20,000,000 to prepare and file a registration statement on Form S-3 (the "Shelf
Registration Statement") with the Securities and Exchange Commission (the "SEC")
for the public sale of the Warrant Shares. The Company shall use its reasonable
diligent efforts to cause the Shelf
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Registration Statement to become effective not later than ninety (90) days
after the date of filing and to remain effective for a period ending on the
earlier to occur of (i) two years after the effective date of the Shelf
Registration Statement or (ii) the Expiration Date of this Warrant. The
Company shall supply to the registered holder of this Warrant a reasonable
number of copies of all registration materials and related prospectuses.
5.2 LIMITATIONS ON SHELF REGISTRATION. The obligation of the Company
under Section 5.1 to file the Shelf Registration Statement is subject to each of
the following limitations, conditions and qualifications:
(a) ELIGIBILITY OF FORM S-3. The Company shall be entitled to
postpone the preparation and filing of the Shelf Registration
Statement if the Company delivers to the registered holder of this
Warrant an opinion of counsel that (i) either the Company or the
Warrant Shares do not meet the eligibility requirements for filing a
Form S-3 or (ii) there is a reasonable likelihood that the filing of
the Shelf Registration Statement would not be approved for filing by
the SEC. Any postponement pursuant to this Section 5.1 (a) shall
continue until such time as counsel to the Company shall determine
that the Company and the Warrant Shares meet the eligibility
requirements for the use of Form S-3 and that the SEC would accept the
filing of the Shelf Registration Statement.
(b) PENDING MATERIAL EVENTS. The Company shall be entitled to
postpone for a reasonable period of time (not exceeding sixty (60)
days ) the effectiveness (but not the filing or preparation ) of the
Shelf Registration Statement if the underwriter or investment banking
firm of the Company determines (and the Company so notifies the
registered holder of this Warrant) that in its judgment, such
registration would materially interfere with any financing,
acquisition, corporate reorganization or other material transaction
involving the Company.
(c) FINANCIAL STATEMENTS. The Company shall be entitled to postpone
for a reasonable period of time (not exceeding sixty (60) days) the
filing of the Shelf Registration Statement, as is reasonably
necessary, to prepare the financial statements of the Company for
inclusion in the Shelf Registration Statement.
5.3 RESTRICTIONS ON PUBLIC SALE. To the extent not inconsistent with
public law, the registered holder of this Warrant agrees not to effect any
public sale or distribution of the Warrant Shares under the Shelf Registration
Statement during the fourteen (14) days prior to, and during the ninety (90) day
period beginning on, the effective date of a registration statement filed by the
Company (excluding the Shelf Registration Statement), but only to the extent
requested in writing (with reasonable prior notice) by the managing underwriter
or underwriters in the case of an underwritten public offering by the Company of
securities of the same type as the Warrant Shares; provided, that the period of
time for which the Company is required to keep the Shelf Registration
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Statement effective shall be increased by a period of days equal to the
requested holdback period, not to exceed the Expiration Date of this Warrant.
5.4 NOTIFICATION OF MATERIAL EVENTS. The Company will notify the
registered holder of this Warrant or the Warrant Shares during the effective
period of the Shelf Registration Statement of the occurrence of any event, as a
result of which, the Shelf Registration Statement or any related prospectus, as
then effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and will prepare and furnish to such holder a
reasonable number of copies of any amendment to the Shelf Registration Statement
or supplement to any related prospectus as may be necessary so that, as
thereafter delivered to a purchaser of the Warrant Shares, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The registered holder of this Warrant or the Warrant Shares, as
the case may be, agrees not to sell Warrant Shares under the Shelf Registration
Statement during any period when the Company has advised such holder that the
information in the prospectus relating to the Warrant Shares is not current.
5.5 REGISTRATION EXPENSES. The Company shall bear all expenses relating
to the preparation and filing of the Shelf Registration Statement except for the
following expenses which shall be borne by the registered holder of this
Warrant: (i) fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualification of the Warrant Shares), (ii) fees and expenses incurred, if any,
in connection with the listing of the Warrant Shares upon exercise of this
Warrant on each securities exchange on which similar securities issued by the
Company are then listed, and (iii) underwriting fees, discounts and commissions
relating to the sale of the Warrant Shares.
5.6 INDEMNIFICATION BY HOLDER OF WARRANT. In connection with the Shelf
Registration Statement, the registered holder of this Warrant agrees to furnish
to the Company in writing such information with respect to the name and address
of the holder, the amount of Warrant Shares issuable to such holder upon
exercise of this Warrant, and such other information as the Company shall
reasonably request for use in connection with the preparation and filing of the
Shelf Registration Statement and any related prospectuses. The registered
holder of this Warrant agrees to indemnify, to the extent permitted by
applicable law, the Company, its directors and officers, and each person or
entity which controls the Company (within the meaning of the Securities Act of
1933) against any losses, claims, damages, liabilities and expenses resulting
from any untrue statement of a material fact or any omission of a material fact
required to be stated in the Shelf Registration Statement or any related
prospectus or any amendment thereof or supplement thereto, or necessary not to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is based upon information with
respect to the registered holder of this Warrant furnished in writing by such
holder specifically for inclusion in the Shelf Registration Statement or any
related prospectus.
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ARTICLE VI
COVENANTS OF THE COMPANY
6.1 DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant. Without limiting the generality of the foregoing,
the Company shall at all times reserve and keep available, so long as this
Warrant remains outstanding, free from preemptive rights, the number of shares
of Common Stock equal to the number of shares of Common Stock to be issued upon
the exercise of all of the Warrants issued and outstanding.
ARTICLE VII
MISCELLANEOUS
7.1 ENTIRE AGREEMENT. This Warrant contains the entire agreement between
the registered holder hereof and the Company with respect to the Warrant Shares
purchasable upon exercise hereof and the related transactions and supersedes all
prior arrangements or understandings with respect thereto.
7.2 GOVERNING LAW. This Warrant shall be interpreted, construed and
governed by the laws of the State of Maryland.
7.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof, and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of a majority of the holders of Warrants and the Company, except
that any waiver of any term or condition, or any amendment or supplementation,
of this Warrant must be in writing. No course of dealing between the holder
hereof and any other party hereto or any failure or delay on the part of the
holder hereof in exercising any rights or remedies hereunder shall operate as a
waiver of any rights or remedies of the holder under this or any other
applicable instrument. No single or partial exercise of any rights or remedies
hereunder shall operate as a waiver or preclude the exercise of any other rights
or remedies hereunder, and a waiver of any breach or failure to enforce any of
the terms or conditions of this Warrant shall not in any way affect, limit or
waive a party's rights hereunder at any time to enforce strict compliance
thereafter with every term or condition of this Warrant.
7.4 SEVERABILITY. Any provision contained in this Warrant which is
prohibited or unenforceable by law shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
contained in this Warrant.
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7.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
7.6 NOTICES. Any notices or communications under this Agreement shall be
given by any of the following means: (i) registered, certified or first class
mail, (ii) hand delivery or (iii) telex, telecopy or telegram. Such notice or
communication shall be sent to the respective parties at the address listed
below. Except as expressly provided herein, notice shall be deemed to have been
given when sent to or refused by the party to whom notice is being given.
Notice given by first class mail shall be deemed received on the third business
day following the date on which it is mailed. Communication by telex, telecopy
or telegram shall be confirmed by posting a copy of the same by registered,
certified or first class mail in an envelope properly addressed to the
respective parties at the address listed below:
If to the Company: Host Funding, Inc.
6116 N. Central Expressway, Suite 1313
Dallas, Texas 75205
Telecopy No. (214)750-0793
Attn: Michael S. McNulty
If to the holder hereof: HMR Capital, LLC
1025 Prospect Street, Suite 350
La Jolla, California 92037
Telecopy No. (619) 456-6073
Attn: Ian Gardner-Smith
With a Copy To: Peter G. Aylward
Attorney at Law
3250 Vista Diego Road
Jamul, California 91935
Any party may, by written notice to the others, change the representative or
the address to which such notices and communications are to be sent.
7.7 LIMITATION OF LIABILITY; NOT SHAREHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices other than as herein
expressly provided in respect of meetings of shareholders for the election of
directors of the Company or any other matter whatsoever as a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to
any liability of such holder for the purchase price of any shares of Common
Stock or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
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7.8 EXCHANGE OF WARRANTS. Subject to Section 3.3 hereof, upon surrender
for exchange of this Warrant to the Company, the Company at its expense will
promptly issue and deliver to or upon the order of the registered holder
hereof a new Warrant of like tenor, in the name of such registered holder or
as such holder may direct, calling in the aggregate for the purchase of the
number of shares of the Common Stock to be issued upon the exercise of this
Warrant so surrendered. The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses and charges payable in
connection with the preparation, execution and delivery of Warrants pursuant
to this Section 7.8.
7.9 REPLACEMENT OF WARRANT. Upon receipt of evidence satisfactory to
the Company of the loss, theft, mutilation or destruction of this Warrant,
and in the case of any such loss, theft or destruction upon delivery of an
agreement of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation upon
surrender and cancellation of this Warrant, the Company will make and deliver
a new Warrant of like tenor, in the name of the registered holder hereof, in
lieu of such lost, stolen, destroyed or mutilated Warrant. This Warrant
shall be promptly cancelled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay all taxes
(other than securities transfer taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of
Warrants pursuant to this Section 7.9.
7.10 HEADINGS. The Article and Section and other headings herein are
for convenience only and are not a part of this Warrant and shall not affect
the interpretation thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
effective as of the 3rd day of February, 1997.
HOST FUNDING, INC.
BY:
-----------------------------
Guy E. Hatfield
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SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented by said Warrant for, and to purchase
thereunder, _______shares of the Common Stock covered by said Warrant and
herewith makes payment in full therefor pursuant to Section 2.1 of such
Warrant, and requests (a) that certificates for such shares (and any
securities or other property issuable upon such exercise) be issued in the
name of, and delivered to, ___________________________________, and (b) if
such shares shall not include all of the shares issuable as provided in said
Warrant, that a new Warrant of like tenor and date, in the name of the
undersigned, for the balance of the shares issuable thereunder be delivered
to the undersigned.
------------------------------------
Dated: __________ , 19__
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ASSIGNMENT
For value received, ___________________________ , hereby sells, assigns
and transfers unto _______________________ the within Warrant, together with
all right, title and interest therein and does hereby irrevocably constitute
and appoint ___________________attorney, to transfer said Warrant on the
books of the Company, with full power of substitution.
------------------------------------
Dated: __________ , 19__
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THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE "ACTS").
NEITHER THIS WARRANT NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS OR AN OPINION OF COUNSEL SATISFACTORY
TO COUNSEL OF HOST FUNDING, INC. TO THE EFFECT THAT SUCH REGISTRATIONS ARE
NOT REQUIRED. THIS WARRANT IS SUBJECT TO CERTAIN OTHER LIMITATIONS ON
TRANSFER.
SERIES B WARRANT
TO PURCHASE COMMON STOCK OF
HOST FUNDING, INC.
THIS IS TO CERTIFY THAT, for value received, HMR Capital, LLC, a Delaware
limited liability company, or permitted assigns, is entitled to purchase from
Host Funding, Inc., a Maryland corporation (the "Company"), at the Warrant
Office (hereinafter defined), at a purchase price per share of $10.80,
subject to adjustment as provided below (the "Exercise Price"),225,000 shares
of duly authorized, validly issued, fully paid and nonassessable shares of
the Company's Class A Common Stock, $0.01 par value ("Common Stock"), and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter set forth. The number of shares of Common Stock purchasable
hereunder and the Exercise Price are subject to adjustment in accordance with
Article IV hereof.
This Warrant is issued pursuant to the terms of that certain Agreement,
dated effective February 3, 1997, by and among the Company, HMR Capital and
Host Funding Advisors, Inc., a Delaware corporation. Subject to the
limitations and requirements contained herein, the holders of these Warrants
may transfer or exchange such Warrants or a portion thereof in the manner
specified herein.
Certain terms used in this Warrant are defined in Article I.
<PAGE>
ARTICLE I
TERMS DEFINED
As used in this Warrant, unless the context otherwise requires, the
following terms have the respective meanings set forth below or in the
Section indicated:
ACTS -- shall mean the Securities Act of 1933 and any applicable state
securities or blue sky laws, as they may be amended from time to time, and the
rules and regulations thereunder, all as the same shall be in effect at the
time.
BOARD OF DIRECTORS -- shall mean the Board of Directors of the Company.
COMMON STOCK -- shall mean the Company's Class A Common Stock, $0.01 par
value per share.
CODE -- shall mean the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder.
COMPANY -- shall mean Host Funding, Inc., a Maryland corporation, and its
successors and assigns.
DATE OF ISSUANCE -- shall mean February 3, 1997.
EXPIRATION DATE -- shall mean February 2, 2001 (i. e. four years from the
Date of Issuance).
EXERCISE PRICE -- shall mean the purchase price per share of Common Stock
payable by the holder hereof upon exercise of this Warrant, as it may be
adjusted from time to time in accordance with the provisions of Article IV
hereof.
OUTSTANDING -- when used with reference to Common Stock at any date, shall
mean all issued shares of Common Stock at such date, except shares then held in
the treasury of the Company.
PERSON -- shall mean any individual, corporation, partnership, trust,
organization, association or other entity or individual.
REIT QUALIFICATION RULES -- shall mean any and all provisions of the Code
the compliance with which is necessary for the Company to maintain its status
as a qualified real estate investment trust in accordance with the Code.
REGISTRATION PERIOD. -- shall mean that period of time commencing ten (10)
business days after the Company gives written notice to the holder of this
Warrant that within twenty-four (24)
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months after the Date of Issuance the Company intends to file an application
with the Securities and Exchange Commission to register and sell common
stock of the Company pursuant to an underwritten public offering with net
proceeds (after underwriting discounts and commissions but before other
expenses of the offering) to the Company of not less than $50,000,000 and
ending on the earlier to occur of (i) sixty (60) days after the effective
date of such public offering or (ii) twenty-four (24) months after the Date
of Issuance.
WARRANT -- shall mean this Warrant and any successor or replacement
Warrant delivered in accordance herewith.
WARRANT OFFICE -- shall have the meaning set forth in Section 3.1.
WARRANT SHARES -- shall mean the shares of Common Stock purchased or
purchasable by the registered holder of this Warrant or the permitted
assignees of such holder upon exercise hereof pursuant to Article II hereof.
ARTICLE II
EXERCISE OF WARRANT
2.1 TERM. Subject to the limitations and requirements contained herein,
this Warrant may be exercised as a whole at any time or in part from time to
time commencing on the Date of Issuance and terminating at 5:00 p. m.,
Dallas, Texas time on the Expiration Date.
2.2 METHOD OF EXERCISE. To exercise this Warrant, the registered holder
hereof or permitted assignees of all rights of the registered holder hereof
shall deliver to the Company, at the Warrant Office (a) a written notice in
the form of the Subscription Notice attached hereto, stating therein the
election of such holder or such permitted assignees to exercise this Warrant
in the manner provided in the Subscription Notice, (b) payment in full of the
Exercise Price (in the manner described below) for all Warrant Shares
purchased hereunder, and (c) this Warrant. This Warrant shall be deemed to
be exercised on the date of receipt by the Company of the Subscription
Notice, accompanied by payment for the Warrant Shares and surrender of this
Warrant, as aforesaid, and such date is referred to herein as the "Exercise
Date". Upon such exercise, the Company shall issue and deliver to such
holder a certificate for the full number of the Warrant Shares purchasable by
such holder hereunder, against the receipt by the Company of this Warrant and
the total Exercise Price payable hereunder for all such Warrant Shares, in
accordance with Section 2.4 below. Upon any partial exercise of this Warrant,
the Company shall forthwith issue and deliver to or upon the order of the
exercising holder a new Series B Warrant To Purchase Common Stock of Host
Funding, Inc. of like tenor, in the name of the holder thereof, or as such
holder may request, calling in the aggregate on the face or faces thereof for
the number of Warrant Shares equal to the number of such shares called for on
the face of the original Warrant minus the number of such shares designated
by the holder in the Subscription Notice. The person in whose name the
certificate(s) for Common
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Stock is to be issued shall be deemed to have become a holder of record of
such Common Stock on the Exercise Date. Each certificate representing the
Warrant Shares shall upon issuance bear the restrictive legend set forth on
Exhibit A attached to this Warrant.
2.3 FRACTIONAL SHARES. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but in lieu of such fractional share,
the Company shall make a cash payment therefor equal to the Exercise Price then
in effect multiplied by such fractional share.
2.4 PAYMENT OF EXERCISE PRICE. Upon exercise of this Warrant, the
Exercise Price then in effect shall be payable, at the holder's election, by
delivering to the Company, in accordance with this Article II, certified or
cashier's check or wire transfer of good funds in an amount equal to the
Exercise Price then in effect multiplied by the number of Warrant Shares with
respect to which this Warrant is then being exercised.
ARTICLE III
WARRANT OFFICE; TRANSFER
3.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be 6116 N. Central Expressway, Suite 1313, Dallas, Texas 75205 Attention:
Michael S. McNulty, and may subsequently be such other office of the Company or
of any transfer agent of the Common Stock in the continental United States as to
which written notice has previously been given to the registered holder of this
Warrant. The Company shall maintain, at the Warrant Office, a register for the
Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each
permitted assignee of the registered holder hereof.
3.2 OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article III. The Warrants shall be evidenced by a
"Certificate of Warrant" issued by the Company to the holder of the Warrant and
containing the appropriate legend relating to restrictions on sale and transfer
under the Acts.
3.3 RESTRICTIONS ON EXERCISE AND TRANSFER OF WARRANTS. The Company
agrees to maintain at the Warrant Office books for the registration and
transfer of this Warrant. Subject to the restrictions on transfer of
Warrants in this Section 3.3, the Company, from time to time, shall register
the transfer of this Warrant in such books upon surrender of this Warrant at
the Warrant Office properly endorsed or accompanied by appropriate
instruments of transfer and written instructions for transfer satisfactory to
the Company. Upon any such transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be canceled by the Company. The
Company shall
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pay all expenses, taxes (other than transfer or income taxes incurred by the
holder) and other charges payable in connection with the transfer of Warrants
pursuant to this Section 3.3.
(a) RESTRICTIONS IN GENERAL. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable and the Warrant Shares shall not be
transferable except upon the conditions specified in this Section 3.3 ,
which conditions are intended, among other things, to insure compliance
with the provisions of the Acts and the REIT Qualification Rules in respect
of the exercise or transfer of this Warrant or transfer of Warrant Shares.
The registered holder of this Warrant agrees that except for transfers of
this Warrant expressly permitted by Section 3.3 (b) below, he will neither
transfer this Warrant nor transfer Warrant Shares prior to delivery to the
Company of the opinion of counsel referred to in, and to the effect
described in, clause (A) of Section 3.3(d).
(b) PERMITTED TRANSFERS. HMR Capital, as the original registered
holder of this Warrant, shall have the right to transfer and assign all or
any portion of this Warrant to (i) the members of HMR Capital existing as
of the Date of Issuance and (ii) the Profit Holders, as defined in that
certain Profit Percentage Agreement dated effective as of November 1, 1996
by and among HMR Capital and HFG Acquisition Group, Inc. (as assignee of La
Jolla Securities Corporation),Strategic Property Advisors, Inc. (as
assignee of Capital Equities of La Jolla, Inc.) and John Phillips
(collectively, the "Permitted Transferees"); provided, that each such
Permitted Transferee shall have executed and delivered to the Company an
Investment Letter Agreement effective on or before the date of the
assignment or transfer, in form and substance acceptable to the Company.
(c) RESTRICTIONS ON TRANSFER DURING REGISTRATION PERIOD. This
Warrant shall not be exercisable during any Registration Period.
(d) OPINION OF COUNSEL. The registered holder of this Warrant, by
his acceptance hereof, agrees that prior to any transfer of this Warrant or
any transfer of the related Warrant Shares, said holder will deliver to the
Company a statement setting forth either said holder's intention with
respect to the disposition of this Warrant or any Warrant Shares, or the
intention of said holder's prospective transferee with respect to his
acquisition of this Warrant or of said Warrant Shares (whichever is
involved in such transfer), in either such case, together with a signed
copy of the opinion of said holder's counsel, such opinion and counsel to
be reasonably acceptable to the Company, as to (i) the necessity or
non-necessity for registration under the Acts in connection with such
exercise or such transfer and (ii) whether or not the effect of such
exercise or transfer would disqualify the Company as a qualified real
estate investment trust pursuant to the REIT Qualification Rules.
The following provisions shall then apply:
(A) If, in the opinion of said holder's counsel, the proposed
transfer of this Warrant or the proposed transfer of such Warrant
Shares may be effected without (i)
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registration under the Acts of this Warrant or such Warrant Shares,
as the case may be, and (ii) disqualification of the Company as a
qualified real estate investment trust pursuant to the REIT
Qualification Rules, then the registered holder of this Warrant shall
be entitled to transfer this Warrant or such Warrant Shares in
accordance with the statement of intention delivered by said holder
to the Company.
(B) If, in the opinion of said counsel, either the proposed
transfer of this Warrant or the proposed transfer of such Warrant
Shares may not be effected without (i) registration under the Acts of
this Warrant or such Warrant Shares, as the case may be, or (ii)
disqualification of the Company as a qualified real estate investment
trust pursuant to the REIT Qualification Rules, the registered holder
of this Warrant shall not be entitled to transfer this Warrant or such
Warrant Shares, as the case may be, until such registration is
effected or disqualification remedied.
(e) TERMINATION OF RESTRICTIONS. If, in the opinion of counsel to
the holder of this Warrant, a copy of which shall be furnished, and
reasonably acceptable, to the Company, this Warrant may be freely
transferred pursuant to the provisions of the Securities Act of 1933, as
amended, or other applicable provisions of the Acts, the restrictions set
forth in this Section 3.3 shall terminate and, upon request by said
holder, the Company shall cause the restrictive legends on the face hereof
to be removed.
3.4 ACKNOWLEDGMENT OF RIGHTS. The Company will, at the time of any
exercise of this Warrant in accordance with the terms hereof, upon the request
of the registered holder hereof, acknowledge in writing its continuing
obligation to afford to such holder any rights to which such holder shall
continue to be entitled after such exercise in accordance with the provisions of
this Warrant, provided, that if the holder of this Warrant shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
3.5 EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all expenses,
taxes (other than transfer or income taxes incurred by the holder) and other
charges payable in connection with the preparation, issuance and delivery of
Warrants and related Warrant Shares hereunder (except as otherwise provided in
Section 5.5 hereof).
ARTICLE IV
ADJUSTMENT PROVISIONS
4.1 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price shall be subject to adjustment from time to time as provided
in this Article IV. Upon each adjustment of the Exercise Price, the
registered holder hereof shall thereafter be entitled to purchase, upon
exercise hereof, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock (calculated to the nearest whole shares
pursuant to Section 4.1(a)(v)) obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of
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<PAGE>
shares of Common Stock purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(a) ADJUSTMENTS. The Exercise Price and the number of Warrant Shares
shall be subject to adjustment from time to time as follows:
(i) STOCK DIVIDENDS. If the number of shares of Common Stock
outstanding at any time after the date of this Warrant is increased by
a stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend or the effective date of such
subdivision or split-up, as the case may be, the Exercise Price shall
be appropriately adjusted so that the adjusted Exercise Price shall
bear the same relation to the Exercise Price in effect immediately
prior to such adjustment as the total number of shares of Common Stock
outstanding immediately prior to such action shall bear to the total
number of shares of Common Stock outstanding immediately after such
action.
(ii) COMBINATION OF STOCK. If the number of shares of Common
Stock outstanding at any time after the date of issuance of this
Warrant is decreased by a combination of the outstanding shares of
Common Stock, then, immediately after the effective date of such
combination, the Exercise Price shall be appropriately adjusted so
that the adjusted Exercise Price shall bear the same relation to the
Exercise Price in effect immediately prior to such adjustment as the
total number of shares of Common Stock outstanding immediately prior
to such action shall bear to the total number of shares of Common
Stock outstanding immediately after such action.
(iii) REORGANIZATIONS, CONSOLIDATIONS, MERGERS AND SALES. In
case of any capital reorganization of the Company, or of any
reclassification of the Common Stock, or in case of the consolidation
of the Company with or the merger of the Company with any other Person
or of the sale, or other transfer of all or substantially all of the
assets of the Company to any other Person, this Warrant shall, after
such capital reorganization, reclassification, consolidation, merger,
sale, or other transfer, be exercisable for the number of shares of
stock or other securities or property to which the Common Stock
issuable (at the time of such capital reorganization,
reclassification, consolidation, merger, sale, or other transfer) upon
exercise of this Warrant would have been entitled to receive upon such
capital reorganization, reclassification, consolidation, merger, sale,
or other transfer if such exercise had taken place; and in any such
case, if necessary, the provisions set forth herein with respect to
the rights and interests thereafter of the holder of this Warrant
shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The
subdivision or combination of shares of Common Stock
7
<PAGE>
issuable upon exercise of this Warrant at any time outstanding into a
greater or lesser number of shares of Common Stock (whether with or
without par value) shall not be deemed to be a reclassification of the
Common Stock of the Company for the purposes of this clause (iii).
(iv) REGISTRATION PERIOD ADJUSTMENT. If within twenty-four
months after the Date of Issuance, the Company shall be successful in
consummating a public offering during the Registration Period,
pursuant to which the net proceeds (after underwriting discounts and
commissions but before other expenses of the offering) to the Company
are not less than $50,000,000 (the "Public Offering"), the Exercise
Price shall be adjusted to equal the greater of (A) 110% of the public
per share offering price on the effective date of the Public Offering
or (B) the per share Exercise Price (including any adjustments
pursuant to Sections 4(a) (i), (ii) or (iii) above) on the date
immediately preceding the effective date of the Public Offering.
(v) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this Section 4.1(a) shall be made to the nearest
cent or to the nearest whole share (as provided in Section 2.3), as
the case may be.
(b) STATEMENT REGARDING ADJUSTMENTS. Whenever the Exercise Price
shall be adjusted as provided in Section 4.1(a), the Company shall
forthwith file at the Warrant Office a statement showing in detail the
facts requiring such adjustment and the Exercise Price and new number of
shares issuable that shall be in effect after such adjustment, and the
Company shall also cause a copy of such statement to be given to the
registered holder of this Warrant. Each such statement shall be signed by
the Company's chief financial or accounting officer. Where appropriate,
such copy may be given in advance and may be included as part of a notice
required to be mailed under the provisions of Section 4.1(c).
(c) NOTICE TO HOLDERS. In the event the Company shall propose to
take any action of the type described in clause (i), (ii) or (iii) of
Section 4.1(a), the Company shall give notice to the registered holder of
this Warrant, in the manner set forth in Section 7.6, which notice shall
specify the record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Exercise Price and the
number, kind or class of shares or other securities or property which shall
be deliverable upon exercise of this Warrant. In the case of any action
which would require the fixing of a record date, such notice shall be given
at least 10 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 15 days prior to the taking of
such proposed action.
4.2. COSTS. Except as otherwise provided in Section 5.5, the Company shall
pay all documentary, stamp, transfer or other transactional taxes attributable
to the issuance or delivery of
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<PAGE>
shares of Common Stock upon exercise of this Warrant; PROVIDED, HOWEVER, that
the Company shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of this
Warrant in respect of which such shares are being issued.
ARTICLE V
REGISTRATION RIGHTS
5.1 SHELF REGISTRATION. The Company agrees that within ninety (90) days
following the earlier to occur of (i) the effective date of a public offering of
the Company's common stock in which the net proceeds to the Company (after
underwriting discounts and commissions but before other expenses of the
offering) ("Net Proceeds") are not less that $50,000,000 or (ii) the effective
date of a public offering of the Company's common stock after expiration of the
Registration Period in which the Net Proceeds to the Company are not less that
$20,000,000, to prepare and file a registration statement on Form S-3 (the
"Shelf Registration Statement") with the Securities and Exchange Commission (the
"SEC") for the public sale of the Warrant Shares. The Company shall use its
reasonable diligent efforts to cause the Shelf Registration Statement to become
effective not later that ninety (90) days after the date of filing and to remain
effective for a period ending on the earlier to occur of (A) two years after the
effective date of the Shelf Registration Statement or (B) the Expiration Date of
this Warrant. The Company shall supply to the registered holder of this Warrant
a reasonable number of copies of all registration materials and related
prospectuses.
5.2 LIMITATIONS ON SHELF REGISTRATION. The obligation of the Company
under Section 5.1 to file a Shelf Registration Statement is subject to each of
the following limitations, conditions and qualifications:
(a) ELIGIBILITY OF FORM S-3. The Company shall be entitled to
postpone the preparation and filing of the Shelf Registration Statement if
the Company delivers to the registered holder of this Warrant an opinion of
counsel that (i) either the Company or the Warrant Shares do not meet the
eligibility requirements for filing a Form S-3 or (ii) there is a
reasonable likelihood that the filing of the Shelf Registration Statement
would not be approved for filing by the SEC. Any postponement pursuant to
this section 5.1 (a) shall continue until such time as counsel to the
Company shall determine that the Company and the Warrant Shares meet the
eligibility requirements for the use of Form S-3 and that the SEC would
accept the filing of the Shelf Registration Statement.
(b) PENDING MATERIAL EVENTS. The Company shall be entitled to
postpone for a reasonable period of time (not exceeding sixty (60) days)
the effectiveness (but not the filing or preparation) of the Shelf
Registration Statement if the underwriter or investment banking firm of the
Company determines (and the Company so notifies the registered holder of
this Warrant) that in its judgment, such registration would materially
interfere with any financing, acquisition, corporate reorganization or
other material transaction involving the Company.
9
<PAGE>
(c) FINANCIAL STATEMENTS. The Company shall be entitled to postpone
for a reasonable period of time (not exceeding sixty (60) days) the filing
of the Shelf Registration Statement, as is reasonable necessary, to prepare
the financial statements of the Company for inclusion in the Shelf
Registration Statement.
5.3 RESTRICTIONS ON PUBLIC SALE. To the extent not inconsistent with
public law, the registered holder of this Warrant agrees not to effect any
public sale or distribution of the Warrant Shares under the Shelf Registration
Statement during the fourteen (14) days prior to, and during the ninety (90) day
period beginning on, the effective date of a registration statement filed by the
Company (excluding the Shelf Registration Statement), but only to the extent
requested in writing (with reasonable prior notice) by the managing underwriter
or underwriters in the case of an underwritten public offering by the Company of
securities of the same type as the Warrant Shares; provided, that the period of
time for which the Company is required to keep the Shelf Registration Statement
effective shall be increased by a period of days equal to the requested holdback
period, not to exceed the Expiration Date of this Warrant.
5.4 NOTIFICATION OF MATERIAL EVENTS. The Company will notify the
registered holder of this Warrant or the Warrant Shares during the effective
period of the Shelf Registration Statement of the occurrence of any event, as a
result of which, the Shelf Registration Statement or any related prospectus, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and will prepare and furnish to such holder a
reasonable numer of copies of any amendment to the Shelf Registration Statement
or supplement to any related prospectus as may be necessary so that, as
thereafter delivered to a purchaser of the Warrant Shares, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The registered holder of this Warrant or the Warrant Shares, as
the case may be, agrees not to sell Warrant Shares under the Shelf Registration
Statement during any period when the Company has has advised such holder that
the information in the prospectus relating to the Warrant Shares is not current.
5.5 REGISTRATION EXPENSES. The Company shall bear all expenses relating
to the preparation and filing of the Shelf Registration Statement except for
the following expenses which shall be borne by the registered holder of this
Warrant: (i) fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualification of the Warrant Shares), (ii) fees and expenses incurred, if any,
in connection with the listing of the Warrant Shares on each securities exchange
on which similar securities issued by the Company are then listed, and (iii)
underwriting fees, discounts and commissions relating to the sale of the Warrant
Shares.
5.6 INDEMNIFICATION BY HOLDER OF WARRANT. In connection with the Shelf
Registration Statement, the registered holder of this Warrant agrees to furnish
to the Company in writing such information with respect to the name and address
of the holder, the amount of Warrant Shares issuable to such holder upon
exercise of this Warrant, and such other information as the Company
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<PAGE>
shall reasonable request for use in connection with the preparation and
filing of the Shelf Registration Statement and any related prospectuses. The
holder of this Warrant agrees to indemnify, to the extent permitted by
applicable law, the Company, its directors and officers, and each person or
entity which controls the Company (within the meaning of the Securities Act
of 1933) against any losses, claims, damages, liabilities and expenses
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in the Shelf Registration Statement or
any related prospectus or any amendment thereof or supplement thereto, or
necessary not to make the statements therein not misleading, to the extent,
but only to the extent, that such untrue statement or omission is based upon
information with respect to the registered holder of this Warrant furnished
in writing by such holder specifically for inclusion in the Shelf
Registration Statement or any related prospectus.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1 DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant. Without limiting the generality of the foregoing, the
Company shall at all times reserve and keep available, so long as this Warrant
remains outstanding, free from preemptive rights, the number of shares of Common
Stock equal to the number of shares of Common Stock to be issued upon the
exercise of all of the Warrants issued and outstanding.
ARTICLE VII
MISCELLANEOUS
7.1 ENTIRE AGREEMENT. This Warrant contains the entire agreement between
the holder hereof and the Company with respect to the Warrant Shares purchasable
upon exercise hereof and the related transactions and supersedes all prior
arrangements or understandings with respect thereto.
7.2 GOVERNING LAW. This Warrant shall be interpreted, construed and
governed by the laws of the State of Maryland.
7.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof, and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of a majority of the holders of Warrants and the Company, except
that any waiver of any term or condition, or any amendment or supplementation,
of this Warrant must be in writing. No course of dealing between the holder
hereof and any other party hereto or any failure or delay on the part of the
holder hereof in exercising any rights or remedies hereunder shall operate as a
waiver of any rights or remedies of the holder under
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<PAGE>
this or any other applicable instrument. No single or partial exercise of any
rights or remedies hereunder shall operate as a waiver or preclude the
exercise of any other rights or remedies hereunder, and a waiver of any
breach or failure to enforce any of the terms or conditions of this Warrant
shall not in any way affect, limit or waive a party's rights hereunder at any
time to enforce strict compliance thereafter with every term or condition of
this Warrant.
7.4 SEVERABILITY. Any provision contained in this Warrant which is
prohibited or unenforceable by law shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
contained in this Warrant.
7.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
7.6 NOTICES. Any notices or communications under this Agreement shall be
given by any of the following means: (i) registered, certified or first class
mail, (ii) hand delivery or (iii) telex, telecopy or telegram. Such notice or
communication shall be sent to the respective parties at the address listed
below. Except as expressly provided herein, notice shall be deemed to have been
given when sent to or refused by the party to whom notice is being given.
Notice given by first class mail shall be deemed received on the third business
day following the date on which it is mailed. Communication by telex, telecopy
or telegram shall be confirmed by posting a copy of the same by registered,
certified or first class mail in an envelope properly addressed to the
respective parties at the address listed below:
If to the Company: Host Funding, Inc.
6116 N. Central Expressway, Suite 1313
Dallas, Texas 75206
Telecopy No. (214) 750-0793
Attn: Michael S. NcNulty
If to the holder hereof: HMR Capital, LLC
1025 Prospect Street, Suite 350
La Jolla, California 92037
Telecopy No. (619) 456-6073
Attn: Ian Gardner-Smith
With a Copy To: Peter G. Aylward
Attorney at Law
3250 Vista Diego Road
Jamul, California 91935
Any party may, by written notice to the others, change the representative or
the address to which such notices and communications are to be sent.
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<PAGE>
7.7 LIMITATION OF LIABILITY; NOT SHAREHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices other than as herein
expressly provided in respect of meetings of shareholders for the election of
directors of the Company or any other matter whatsoever as a shareholder of the
Company. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the purchase price of any shares of Common Stock or
as a shareholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
7.8 EXCHANGE OF WARRANTS. Subject to Section 3.3 hereof, upon surrender
for exchange of this Warrant to the Company, the Company at its expense will
promptly issue and deliver to or upon the order of the holder hereof a new
Warrant of like tenor, in the name of such holder or as such holder may direct,
calling in the aggregate for the purchase of the number of shares of the Common
Stock to be issued upon the exercise of this Warrant so surrendered. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this Section 7.8.
7.9 REPLACEMENT OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, mutilation or destruction of this Warrant, and in
the case of any such loss, theft or destruction upon delivery of an agreement of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company, or in the event of such mutilation upon surrender and cancellation of
this Warrant, the Company will make and deliver a new Warrant of like tenor, in
the name of the holder hereof, in lieu of such lost, stolen, destroyed or
mutilated Warrant. This Warrant shall be promptly cancelled by the Company upon
the surrender hereof in connection with any exchange or replacement. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this Section 7.9.
7.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
effective as of the 3rd day of February, 1997.
HOST FUNDING, INC.
BY:
-------------------------------
Guy E. Hatfield
13
<PAGE>
SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented by said Warrant for, and to purchase
thereunder, ___________ shares of the Common Stock covered by said Warrant and
herewith makes payment in full therefor pursuant to Section 2.1 of such Warrant,
and requests (a) that certificates for such shares (and any securities or other
property issuable upon such exercise) be issued in the name of, and delivered
to, ________________________, and (b) if such shares shall not include all of
the shares issuable as provided in said Warrant, that a new Warrant of like
tenor and date, in the name of the undersigned, for the balance of the shares
issuable thereunder be delivered to the undersigned.
------------------------------
Dated: , 19
-------- --
14
<PAGE>
ASSIGNMENT
For value received, _________________ , hereby sells, assigns and
transfers unto __________________________________ the within Warrant,
together with all right, title and interest therein and does hereby
irrevocably constitute and appoint _____________________________ attorney, to
transfer said Warrant on the books of the Company, with full power of
substitution.
--------------------------------
Dated: , 19
---------------- ---
15
<PAGE>
AGREEMENT TO PURCHASE MOTEL
BETWEEN
TEACHERS' RETIREMENT SYSTEM OF THE STATE OF ILLINOIS
AND
HOST FUNDING INC.
DATED: _______________, 1996
<PAGE>
AGREEMENT TO PURCHASE MOTEL
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
1 DEFINITIONS AND REFERENCES. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 References and Interpretation. . . . . . . . . . . . . . . . . . . 4
2 SALE AND PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . 5
3 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Payment of the Balance of the Purchase Price . . . . . . . . . . . 6
4 PURCHASER'S INSPECTIONS AND INVESTIGATIONS. . . . . . . . . . . . . . . 6
4.1 Deliveries to Purchaser. . . . . . . . . . . . . . . . . . . . . . 6
4.2 Review and Inspection. . . . . . . . . . . . . . . . . . . . . . . 8
4.3 "As Is" Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 11
5.1 Representations and Warranties of Seller . . . . . . . . . . . . . 11
5.2 Representations and Warranties of Purchaser. . . . . . . . . . . . 13
5.3 Duration of Representations and Warranties . . . . . . . . . . . . 13
6 CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Closing Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.3 Title Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.4 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7 CLOSING DELIVERIES; POSSESSION. . . . . . . . . . . . . . . . . . . . . 15
7.1 Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Purchaser's Deliveries . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Concurrent Transactions. . . . . . . . . . . . . . . . . . . . . . 16
7.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8 ADJUSTMENTS AND PRORATIONS: CLOSING STATEMENTS . . . . . . . . . . . . 16
8.1 Adjustments and Prorations . . . . . . . . . . . . . . . . . . . . 16
8.2 Closing Statements . . . . . . . . . . . . . . . . . . . . . . . . 18
i
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ARTICLE PAGE
- ------- ----
9 CONDITIONS TO SELLER'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . 19
9.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Failure of Conditions. . . . . . . . . . . . . . . . . . . . . . . 19
10 CONDITIONS TO PURCHASER'S OBLIGATIONS . . . . . . . . . . . . . . . . . 19
10.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.2 Failure of Conditions. . . . . . . . . . . . . . . . . . . . . . . 19
11 ACTIONS AND OPERATIONS PENDING CLOSING. . . . . . . . . . . . . . . . . 20
11.1 Actions and Operations Pending Closing . . . . . . . . . . . . . . 20
12 CASUALTIES AND TAKINGS. . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Casualties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Takings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13 EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.1 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15 ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 22
15.1 Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . 22
16 EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.1 Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.2 Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Exhibit A Legal Description
Exhibit B Permitted Exceptions
Exhibit C FIRPTA Certificate
ii
<PAGE>
AGREEMENT TO PURCHASE MOTEL
THIS AGREEMENT TO PURCHASE MOTEL ("AGREEMENT") is made as of this
______ day of _______________, 1996, by and between TEACHERS' RETIREMENT
SYSTEM OF THE STATE OF ILLINOIS, a retirement system created under the laws
of the State of Illinois ("Seller") and HOST FUNDING, INC., a Maryland
corporation or its permitted assignee as provided herein ("Purchaser").
R E C I T A L S:
A. Seller is the fee owner of the real property approximately 1.414
acres in size and legally described in Exhibit A hereto, which real property
has been improved with (i) two (2) two (2) story motel buildings containing
90 guest rooms; (ii) parking areas; and (iii) certain other improvements and
which is commonly known as the Flagstaff Super 8 Motel located in Flagstaff,
Coconino County, Arizona (collectively, the "Motel").
B. Seller desires to sell, and Purchaser desires to purchase, the Motel
upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements, covenants and conditions herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Seller and Purchaser agree as follows:
ARTICLE 1.
DEFINITIONS AND REFERENCES
1.1 DEFINITIONS. As used herein, the following terms shall have the
respective meanings indicated below:
ACCOUNTANTS: As defined in Section 8.2.
AGREEMENT: This Agreement to Purchase Motel, including the Exhibits
attached hereto, which are incorporated herein by this reference.
BOOKINGS: Contracts for the use or occupancy of guest rooms of the
Motel.
CAPITAL: Capital Associates Realty Advisors Corp., an Illinois
corporation.
CLOSING: As defined in Section 6.1.
<PAGE>
CLOSING DATE: As defined in Section 6.1.
CLOSING STATEMENTS: The Preliminary and Final Closing Statements
required under the provisions of Section 8.2.
CONSUMABLES: All engineering, maintenance, housekeeping and guest
supplies, including soap, cleaning materials and matches, stationery and
printing, and other supplies of all kinds, in each case whether partially
used, unused or held in reserve storage for future use or in connection with
the maintenance and operation of the Motel, which are on hand on the date
hereof, subject to such depletion and restocking as shall occur and be made
in the normal course of business, excluding, however, (i) Operating
Equipment, and (ii) property owned by guests, Manager or its employees or
other persons furnishing services to the Motel.
CONTINUING OBLIGATIONS: All commitments, promotional and other
obligations to provide free or discounted guest rooms at the Motel which have
not been satisfied in full as of the Closing Date and which are not included
in the Motel Contracts.
CUT-OFF TIME: 12:01 A.M. local time on the Closing Date.
DEPOSIT: As defined in Section 3.2.
ESCROW: The escrow to be created for the purpose of facilitating the
Closing.
ESCROWEE: Near North National Title Corporation.
ESCROW INSTRUCTIONS: The escrow instructions to be executed and
delivered by the parties hereto (or their respective attorneys, who are
hereby authorized by the parties to execute same) and the Escrowee for
closing of the transactions contemplated hereby.
FINAL CLOSING STATEMENT: The Final Closing Statement required under the
provisions of Section 8.2.
FIXTURES AND TANGIBLE PERSONAL PROPERTY: All fixtures, furniture,
furnishings, fittings, equipment (including laundry equipment), cars, trucks,
machinery, apparatus, signage, appliances, draperies, carpeting and other
articles of personal property used or useable in connection with any part of
the Motel, subject to such depletion, resupply, substitutions and
replacements as shall occur and be made in the normal course of business but
in accordance with present standards, excluding, however: (i) Consumables;
(ii) Operating Equipment; (iii) equipment and property leased pursuant to
Motel Contracts; (iv) property owned by guests, Manager or its employees or
other persons furnishing services to the Motel; and (v) Improvements.
FIRPTA CERTIFICATE: A certificate in the form attached hereto as
Exhibit C, to be delivered by Seller to Purchaser at the Closing.
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IMPOSITIONS: All general and special real estate, personal property and
other ad valorem taxes and assessments assessed or levied against or with
respect to the Property, or any part thereof or any interest therein, and all
sales, occupancy, room and other taxes incurred in connection with the
Motel's operation.
IMPROVEMENTS: The buildings, structures (surface and sub-surface) and
other improvements, including such fixtures as shall constitute real
property, located on the Real Property and constituting the Motel located in
Flagstaff, Arizona.
LEGAL REQUIREMENTS: All laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits,
licenses, authorizations, directions and requirements of all governments and
governmental authorities having jurisdiction over the Motel and the operation
thereof.
MANAGER: Crossroads Hospitality Company, L.L.C., a Delaware limited
liability company.
MOTEL: As defined in Recital A to this Agreement.
MOTEL CONTRACTS: All service, maintenance, purchase order, lease and
other contracts and agreements, including equipment leases, and any
amendments thereto, with respect to the maintenance, operation, provisioning
or equipping of the Motel or the Property, as well as written warranties and
guaranties relating thereto, if any, including those relating to heating and
cooling equipment and/or mechanical equipment, but excluding, however (i)
insurance policies and (ii) the Bookings.
NOTICES: As defined in Section 14.1.
OPERATING EQUIPMENT: All linens and uniforms, whether in use or held in
reserve storage for future use, in connection with the operation of the
Motel, which are on hand on the date hereof, subject to such depletion and
restocking as shall be made in the normal course of business, excluding,
however, (i) Consumables, and (ii) property owned by guests, Manager or its
employees or other persons furnishing services to the Motel.
OPERATING LEASE: The Super 8 Lease Agreement dated December 15, 1994,
by and between Seller and Manager.
PERMITS: All licenses, franchises and permits, certificates of
occupancy, authorizations and approvals issued to Seller and used in or
relating to the ownership, occupancy or operation of any part of the Motel,
excluding any the foregoing which are not transferable by Seller.
PERMITTED EXCEPTIONS: Any and all liens, encumbrances, restrictions,
exceptions and other matters specified in Exhibit B.
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PRELIMINARY CLOSING STATEMENT: The Preliminary Closing Statement
required by Section 8.2.
PROPERTY: The following items, collectively, as they relate to the
Motel: (i) the Real Property; (ii) the Fixtures and Tangible Personal
Property; (iii) the Operating Equipment; (iv) the Consumables; (v) all
transferable right, title and interest of Seller in, to and under the Motel
Contracts and Bookings; and (vi) all transferable right, title and interest
of Seller in, to and under the Permits.
PURCHASE PRICE: As defined in Section 3.1.
REAL PROPERTY: Title to the real property legally described on Exhibit
A hereto and to the Improvements.
RECEIVABLES: The accounts receivable of the Motel operation (including,
without limitation, credit card receivables) incurred in the ordinary course
of business in accordance with the Motel's credit policies in existence as of
the Cut-off Time.
TITLE COMMITMENT: The commitment for title insurance issued in
accordance with Section 6.3(b).
TITLE COMPANY: Near North National Title Corporation, as agent for
First American Title Insurance Company.
TITLE POLICY: As defined in Section 7.1(d).
VIOLATION: Any condition with respect to the Property which constitutes
a violation of any Legal Requirements.
1.2 REFERENCES AND INTERPRETATION. Except as otherwise specifically
indicated, all references herein to Section and Subsection numbers refer to
Sections and Subsections of this Agreement, and all references herein to
Exhibits refer to the Exhibits attached hereto. The words "hereby,"
"hereof," "herein," "hereto," "hereunder," "hereinafter," and words of
similar import refer to this Agreement as a whole and not to any particular
Section or Subsection hereof. The word "hereafter" shall mean after, and the
term "heretofore" shall mean before, the date of this Agreement. The terms
"include," "including" and similar terms shall be nonreturnable and construed
as if followed by the phrase "without being limited to." Captions used
herein are for convenience only and shall not be used to construe the
meaning of any part of this Agreement. Words of the masculine, feminine or
neuter gender shall mean and include the correlative words of other genders,
and words importing the singular number shall mean and include the plural
number and vice versa. Words importing persons shall include firms,
associations, partnerships (including limited partnership), trusts,
corporations and other legal entities, including public bodies, as well as
natural persons. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday
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or legal holiday, such time for performance shall be extended to the next
business day; otherwise, all references herein to "days" shall mean calendar
days.
ARTICLE 2
SALE AND PURCHASE
2.1 SALE AND PURCHASE. Seller hereby agrees to sell to Purchaser, and
Purchaser hereby agrees to purchase from Seller, the Property on the terms
and subject to the conditions set forth in this Agreement.
ARTICLE 3.
PURCHASE PRICE
3.1 PURCHASE PRICE. The purchase price ("Purchase Price") for the
Property shall be Five Million Two Hundred Fifty Thousand Dollars
($5,250,000.00).
3.2 DEPOSIT.
(a) Within two (2) business days following Seller's acceptance of
this Agreement, Purchaser shall initially deposit with the Title Company
the sum of Seventy-Five Thousand Dollars ($75,000.00) (the "Initial
Deposit"), which Initial Deposit shall be increased to One Hundred Thousand
Dollars ($100,000.00) (the "Final Deposit," and, together with the Initial
Deposit, the "Deposit") upon the expiration of the Due Diligence Period (as
hereinafter defined) if Purchaser does not elect to terminate this
Agreement at that time. The Deposit shall be held in escrow by the Title
Company pursuant to the Title Company's standard form of strict joint order
escrow instructions. If Purchaser elects to extend the Closing Date
pursuant to Section 6.1, the additional Twenty-Five Thousand Dollars
($25,000.00) to be deposited therefor shall be part of the Deposit and the
Deposit shall then be One Hundred Twenty-Five Thousand Dollars
($125,000.00) as of the expiration of the Due Diligence Period.
(b) In the event the Initial Deposit is not delivered within the
period provided in Section 3.2(a), then Seller shall have the right to
terminate this Agreement, whereupon this Agreement shall be null and void
and neither party shall have any rights or obligations hereunder. The
Deposit (together with any interest earned thereon) shall be held and
invested in U.S. Government obligations, certificates of deposit, money
market funds or such other interest-bearing investment as Seller shall
determine, and all interest and other earnings thereon shall become a part
of the Deposit. The funds representing the Final Deposit shall be
deposited in the joint order escrow and shall be governed thereby.
Purchaser shall be responsible to pay for any and all costs related to the
investment of the Deposit. At Closing, the Deposit (together with any
interest earned thereon) shall be paid and applied against the Purchase
Price. Purchaser shall have the right to terminate this Agreement for any
reason by written notice thereof delivered to
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Seller within the Due Diligence Period, and upon such termination, the
Deposit (together with any interest earned thereon) shall be returned to
Purchaser and the parties shall have no further rights or obligations
hereunder. Upon the expiration of the Due Diligence Period, as extended,
if applicable, the Deposit shall be non-refundable, except as otherwise
provided herein, and Purchaser shall be deemed to have accepted the
condition of the Property. If this Agreement is terminated by Seller
pursuant to Section 9.2 hereof, then except as expressly provided in said
Section 9.2, the parties agree that Seller shall be entitled to receive the
entire Deposit as liquidated damages. The parties agree that the amount of
liquidated damages described in the preceding sentences, as applicable, is
a reasonable sum considering all of the circumstances existing as of the
date hereof, including the relationship of such sum to the amount of harm
to Seller that reasonably could be anticipated, Seller's anticipated use of
the proceeds of sale and the fact that actual damages would be impossible
to determine.
PURCHASER AND SELLER AGREE THAT BASED UPON THE CIRCUMSTANCES NOW
EXISTING, KNOWN AND UNKNOWN, IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT
TO ESTABLISH SELLER'S DAMAGE BY REASON OF PURCHASER'S DEFAULT. SELLER AND
PURCHASER ACKNOWLEDGE AND AGREE THAT THE APPLICABLE FOREGOING AMOUNT OF
LIQUIDATED DAMAGES IS REASONABLE AS LIQUIDATED DAMAGES AND SHALL BE
SELLER'S SOLE AND EXCLUSIVE REMEDY IN LIEU OF ANY OTHER RELIEF, RIGHT OR
REMEDY, AT LAW OR IN EQUITY, TO WHICH SELLER MIGHT OTHERWISE BE ENTITLED BY
REASON OF PURCHASER'S DEFAULT. SELLER AND PURCHASER ACKNOWLEDGE THAT THEY
HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION 3.2 AND BY THEIR
INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
Seller's Initials __________ Purchaser's Initials __________
3.3 PAYMENT OF THE BALANCE OF THE PURCHASE PRICE. On the Closing
Date, Purchaser agrees to pay to Seller and Seller agrees to accept payment
of the balance of the Purchase Price, subject to prorations and adjustments
as provided in Section 8.1, and after application of the Deposit as provided
in Section 3.2, by wire transfer of federal funds, to an account specified by
the Escrowee pursuant to the Escrow Instructions.
ARTICLE 4
PURCHASER'S INSPECTIONS AND INVESTIGATIONS
4.1 DELIVERIES TO PURCHASER. The obligation of Purchaser to close the
transaction contemplated hereby is subject to Purchaser's receipt, review,
inspection and approval of the Property, and such other books, records,
documents and agreements as may be reasonably requested by Purchaser and
delivered by Seller and any other information that Purchaser may obtain
regarding the Property; provided, however, that Purchaser's right to inspect the
Property shall be subject to Section 4.2. Purchaser shall have until 5:00 p.m.
Central Standard Time on
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January 15, 1997, to conduct such inspections (the "Due Diligence Period"),
subject to extension as provided in Section 3.2 above. Within ten (10) days
after the execution of this Agreement by Seller and Purchaser, Seller shall
deliver to Purchaser the following items, data and/or information to the
extent Seller is in possession or control of such items:
(i) the most recent environmental report(s) with respect to the
Property;
(ii) maintenance, service or utility contracts; warranties,
guarantees, licenses, permits (including franchise or license
agreements relating to the operation of the Motel), plans, drawings,
engineering reports, specifications, site plans, and certificates of
occupancy, relating to the Property or the operation of the Motel;
(iii) all of the real estate and personal property tax statements,
if any, with respect to the Property for the years 1995 and 1996;
(iv) utility invoices relating to the Property from January 1,
1996 to the present, to the extent available;
(v) any financial statements prepared by or for Seller regarding
the Property and/or the Motel, including monthly income and expense
statements for the Property and/or the Motel from January 1, 1994, to
the present, in the form customarily used by Seller (and accompanying
data), and such other financial and operational data as Purchaser
shall reasonably require for the years 1994, 1995, and 1996;
(vi) a list of the amount and nature of the capital expenditures
incurred with respect to the Property and/or the Motel during the
preceding twenty-four (24) months;
(vii) the most recent franchise inspection reports prepared by the
franchisor or licensor and with respect to the Property and/or the
Motel;
(viii) an inventory of the Fixtures and Tangible Personal Property,
if any;
(ix) any leases and other documents relating to existing
telephone, computer and other support services with respect to the
Property and/or the Motel; and
(x) any ground or similar type leases with respect to or
associated with the Property and/or the Motel.
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If, for any reason, Purchaser, in its sole discretion, is not satisfied
with any of the foregoing on or before expiration of the Due Diligence
Period, then Purchaser, at its option, upon giving Seller written notice
thereof at any time on or before expiration of the Due Diligence Period, may
elect to terminate this Agreement, in which event the Deposit shall forthwith
be returned to Purchaser, and thereupon, this Agreement shall become null and
void and neither party shall have any further rights and obligations
hereunder. Purchaser's failure to give Seller such notice of termination on
or before the expiration of the Due Diligence Period shall be deemed to be
Purchaser's election to accept this Agreement and close this transaction as
aforesaid. Any and all information delivered to Purchaser by Seller pursuant
to this Agreement shall be confidential and Purchaser shall not disclose the
same to any person or entity other than Purchaser's counsel, accountant,
agents, contractors, representatives and lender consulted in connection with
the acquisition of the Motel; and Purchaser covenants that it shall use its
best efforts to require such persons to also keep the same confidential. In
the event Purchaser causes to be conducted on the Real Property an
environmental assessment (the "Report"), Purchaser shall immediatly deliver
to Seller a copy of the Report upon receipt thereof.
4.2 REVIEW AND INSPECTION.
(a) INSPECTION OF MOTEL. Prior to the close of the Due Diligence
Period, subject to the rights of Manager under the Operating Lease, Seller
shall allow Purchaser and its agents or representatives to enter upon and
inspect the Real Property for such purposes as Purchaser may reasonably
require, provided such inspections do not unreasonably interfere with the
continued operation of the Motel in the ordinary course of business.
Purchaser agrees that the results of any inspections, tests, investigations
and examinations as Purchaser may desire to perform pursuant to the
foregoing shall be treated as confidential, and Purchaser shall not
disclose the same to any person or entity other than Purchaser's counsel,
accountants, agents, contractors, representatives and lenders consulted in
connection with the acquisition of the Motel; Purchaser covenants that it
shall use its best efforts to require such persons to also keep the same
confidential. In the event that the transaction contemplated hereby is not
consummated, any and all reports, financial and operating information
obtained by Purchaser or its representatives from Seller or its
representatives shall be immediately returned to Seller. Purchaser hereby
agrees to indemnify, defend and hold Seller harmless from and against any
and all loss, damage, liability and expense (including reasonable
attorneys' fees and other litigation expense) which Seller may suffer,
sustain or incur arising from property damage or personal injury or claim
of lien against the Property resulting from the activities permitted by
this Section 4.2. The provisions of this Section 4.2 shall survive the
Closing or termination of this Agreement.
(b) MOTEL FRANCHISOR COMMUNICATIONS. Following the execution and
delivery of this Agreement by Seller and the payment of the Deposit by
Purchaser, and prior to the Closing, Purchaser shall have the right to
communicate, both in writing and verbally, with the franchisor of the Motel
upon reasonable prior notice to Seller. Except as otherwise expressly set
forth in Section 5.1 herein, Purchaser acknowledges and
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agrees that Seller has made no representation, warranty or covenant whatso-
ever pertaining to any motel franchises, license agreements or related
matters, it being expressly agreed and understood that Purchaser's
obligation to purchase the Property is not conditioned in any way upon
Seller, Purchaser or any other party breaching any agreement pertaining to
motel franchises or license agreements. Purchaser further acknowledges and
agrees that, prior to Closing, it must obtain (i) the written approval of
Super 8 Motels, Inc. of the transfer of the existing motel franchise agree-
ment from Seller to Purchaser, and (ii) the execution of a new franchise
agreement between Super 8 Motels, Inc. and Purchaser.
4.3 "AS IS" SALE.
(a) Purchaser acknowledges that Purchaser is acquiring the Property
"AS IS, WHERE IS, WITH ALL FAULTS" and that, except as otherwise provided
in Section 5.1 below, no representations, warranties, guaranties, promises,
statements or estimates regarding the Property, its motel franchise
affiliation, its physical condition, past or future income, expenses or
operations, of any nature whatsoever upon which Purchaser is relying,
whether written or oral, express or implied, in fact or in law, have been
made by Seller, any real estate broker, agent, employee, attorney-in-fact
or at law or other person representing or purporting to represent Seller,
or otherwise, and that Purchaser is entering into this Agreement knowing
that Purchaser's decision whether or not to purchase the Property will be
based solely on its own examination, investigation and judgment. Purchaser
hereby acknowledges and agrees that (i) it understands that Seller has not
authorized any real estate broker, agent, employee, attorney-in-fact or at
law or other person to make any representation, statement or agreement on
behalf of Seller in connection with the transactions contemplated hereby;
(ii) except as otherwise provided in Section 5.1 below, Seller has made and
shall make no representations or warranties whatsoever concerning the
information or materials furnished to Purchaser; and (iii) it is aware that
Super 8 Motels, Inc. may deliver to Seller a punchlist of work, which work
is required to be completed at the Property and, if Purchaser acquires the
Property, Purchaser shall be solely responsible for all costs to complete
such punchlist.
(b) EXCEPT AS OTHERWISE PROVIDED IN SECTION 5.1 BELOW, SELLER HAS NOT
MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY
REPRESENTATIONS, WARRANTIES (OTHER THAN THOSE SPECIFICALLY SET FORTH HEREIN
OR IN ANY DOCUMENT WHICH MAY BE EXECUTED BY SELLER AND DELIVERED AT
CLOSING) PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR
CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST,
PRESENT, OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (i) THE VALUE,
NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT
LIMITATION, SUBSURFACE CONDITION OF THE PROPERTY; (ii) THE INCOME TO BE
DERIVED FROM THE PROPERTY; (iii) THE SUITABILITY OF THE PROPERTY FOR ANY
AND ALL ACTIVITIES AND USES WHICH PURCHASER MAY CONDUCT THERE-
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ON; (iv) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY
LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL
AUTHORITY OR BODY; (v) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (vi)
THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY,
INCORPORATED INTO THE PROPERTY; (vii) THE MANNER, QUALITY, STATE OF REPAIR
OR LACK OF REPAIR OF THE PROPERTY; OR (viii) ANY OTHER MATTER WITH RESPECT
TO THE PROPERTY. EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR IN SECTION 5.1,
SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS REGARDING COMPLIANCE WITH ANY ENVIRONMENTAL LAWS OR LAND
USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS, OR THE EXISTENCE IN
OR ON THE PROPERTY (OR ANY PORTION THEREOF) OF HAZARDOUS MATERIALS.
PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR ITS RELIANCE ON THE
REPRESENTATIONS OF SELLER SET FORTH HEREIN AND SECTION 5.1, THAT HAVING
BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY, PURCHASER IS RELYING ON
ITS OWN INVESTIGATION OF THE PROPERTY AND NOT ON ANY INFORMATION PROVIDED
OR TO BE PROVIDED BY OR ON BEHALF OF SELLER. PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT, TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE
SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS-WHERE IS"
CONDITION AND BASIS WITH ALL FAULTS. IT IS UNDERSTOOD AND AGREED THAT THE
CONSIDERATION PAID FOR THE PURCHASE OF THE PROPERTY REFLECTS THAT ALL OF
THE PROPERTY IS SOLD BY SELLER AND PURCHASED BY PURCHASER SUBJECT TO THE
FOREGOING. IN ADDITION, PURCHASER ACKNOWLEDGES THAT SELLER IS UNDER NO
OBLIGATION TO RESEARCH OR INVESTIGATE ANY MATTER OR CONDITION RELATING TO
THE PROPERTY AND KNOWLEDGE OF ANY MATTER BY SELLER, IF ANY, IS LIMITED
SOLELY TO THE ACTUAL KNOWLEDGE OF SELLER, IF NOT FURTHER LIMITED BY EXPRESS
PROVISIONS OF THIS AGREEMENT.
NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY,
PURCHASER HEREBY RELEASES SELLER FROM ANY LIABILITY, CLAIMS, DAMAGES,
PENALTIES, COSTS, FEES, CHARGES, LOSSES, CAUSES OF ACTION, DEMANDS,
EXPENSES OF ANY KIND OR NATURE, STATUTORY OR COMMON LAW, RESULTING FROM THE
PRESENCE, REMOVAL OR OTHER REMEDIATION OF HAZARDOUS MATERIALS, IN, ON,
UNDER OR ABOUT THE PROPERTY OR WHICH HAS MIGRATED FROM ADJACENT LANDS TO
THE PROPERTY OR FROM THE PROPERTY TO ADJACENT LANDS.
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As used in this subparagraph (b) the term "Hazardous Materials" shall
mean and include (A) any "hazardous substance" as now or hereafter defined
in the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended (42 U.S.C. Section 9601 et. seq.) ("CERCLA") or any
regulations promulgated under or pursuant to CERCLA; (B) any "hazardous
waste" as now or hereafter defined in the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et. seq.) ("RCRA") or regulations
promulgated under or pursuant to RCRA; (C) any substance regulated by the
Toxic Substances Control Act (15 U.S.C. Section 2601 et. seq.); (D) oil and
petroleum products; (E) asbestos and asbestos containing materials, in any
form, whether friable or non-friable; (F) polychlorinated biphenyls; (G)
radon gas; and (H) any additional substances or materials which are now or
hereafter classified or considered to be hazardous or toxic to human health
or the environment under any Environmental Laws. As used herein,
"Environmental Laws" shall mean and include all laws, ordinances, statutes,
codes, rules, regulations, agreements, judgments, orders, and decrees, now
or hereafter enacted, promulgated, or amended, of the United States, the
states, the counties, the cities, or any other political subdivisions in
which any portion of the Property is located, and any other political
subdivision, agency or instrumentality exercising jurisdiction over the
owner of any portion of the Property, or the use of any portion of the
Property, relating to pollution, the protection or regulation of human
health, natural resources, or the environment, or the emission, discharge,
release or threatened release of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or waste or Hazardous Materials
into the environment (including, without limitation, ambient air, surface
water, ground water or land or soil).
Except as expressly included within the meaning of a Breach (as
hereinafter defined), Purchaser hereby waives, relinquishes and releases
any and all rights, claims and causes of action which Purchaser may have or
may be entitled to assert against Seller under or with respect to the
Property or the condition thereof, including without limitation, any and
all rights, claims and causes of action under or with respect to Title 42
of the United States Code, Section 9601 et seq., or both. Purchaser
expressly understands and acknowledges that it is possible that unknown
losses or claims exist or that present losses may have been underestimated
in amount or severity, and Purchaser explicitly took that into account in
determining the consideration for the execution of this Agreement, and a
portion of said consideration, having been bargained for between the
parties with the knowledge of the possibility of such unknown losses or
claims, was given in exchange for a full accord, satisfaction and discharge
of all such losses or claims.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF SELLER. As of the date Seller and
Purchaser have executed this Agreement, Seller represents and warrants to
Purchaser that:
(a) This Agreement and all other documents executed and delivered, or
to be executed and delivered, by Seller in connection with the transaction
contemplated hereby
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have been, or at the appropriate time will be, duly executed and
delivered and constitute or, upon such execution and delivery will
constitute, the legal, valid and binding obligations of Seller
enforceable in accordance with their respective terms, subject, however,
to general principles of equity and to the effect of any bankruptcy,
reorganization, moratorium, insolvency or other laws affecting the
rights of creditors generally;
(b) Seller has taken all action required to authorize its execution
of this Agreement and such other documents;
(c) Seller has good and marketable fee simple title to the Property,
which will be subject to the Permitted Exceptions;
(d) No condemnation or other eminent domain proceedings have been
instituted for which Seller has notice thereof or, to best of Seller's
current actual knowledge, threatened against the Property;
(e) To the best of Seller's current actual knowledge, (i) all laws,
ordinances, rules and regulations of any government, or any agency, body or
subdivision thereof, relating to the Property, have been mutually complied
with, (ii) the present operation of the Property is in substantial
compliance with all such ordinances, rules and regulations, and (iii) the
present occupation of the Property is in accordance with certificates of
occupancy and other permits and licenses issued or required by appropriate
governmental authorities;
(f) All items furnished to Seller in accordance with Section 4.1 of
this Agreement are, to the best of Seller's knowledge, in all material
respects, accurate, complete, and true as of the date furnished and will be
as of the Closing Date;
(g) Seller has received no written notice of any threatened, and
there currently is no pending, litigation which involves or affects the
Property, except to the extent covered by insurance maintained by Seller or
on behalf of Seller;
(h) Other than as set forth herein, or disclosed to Purchaser by
Seller, there are and will be no material agreements at Closing which
Purchaser will be required to assume with respect to the operation of the
Property. The term "material agreements" for the purposes of this
Section 5.1 shall mean any agreements requiring an annual expenditure by
Seller in excess of $10,000.00, or which are for a term in excess of one
(1) year;
(i) Seller has no employees at the Property;
(j) Seller has granted no rights of first refusal or options to
purchase the Property;
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(k) To the best of Seller's current actual knowledge, the franchise
and/or licensing agreements with respect to the Super 8 Motels, Inc. are in
full force and effect and Seller is not in default thereunder;
(l) At closing, there shall be at least thirty (30) days of normal
and/or customary operating supplies located at the Property; and
(m) At closing, there shall be 2 1/2 turns of linens at the
Property.
Seller's representations and warranties contained in this Section
5.1 shall survive the Closing for a period of twelve (12) months from
the date of Closing ("Survival Period"). In the event that any breach
of representation or warranty ("Breach") of Seller is discovered by
Purchaser after Closing and Purchaser notifies Seller of such Breach
within the Survival Period, Seller shall have a reasonable period of
time, not to exceed thirty (30) days, to use all due diligence to cure
such Breach and, upon Seller's failure to cure same, Seller shall be
liable for, and Seller hereby indemnifies and holds Purchaser harmless
against, all claims, losses, damages, liabilities, costs, expenses and
charges which Purchaser may actually incur as a direct result of any
such Breach. In order to retain rights pursuant to this grammatical
paragraph with respect to a Breach, Purchaser shall file a written claim
with Seller within the Survival Period or any claim with respect to such
Breach shall be deemed waived. If Seller does not cure the Breach, any
legal action relating to such claim must then be filed with the
appropriate court within six (6) months after the Survival Period. If a
legal action is not so filed, Purchaser shall be deemed to have waived
any legal action relating to the subject claim. If Purchaser or any of
its officers, agents or employees discover, are informed of or acquire
actual knowledge of any Breach prior to the Closing Date, Purchaser
shall notify Seller thereof. Purchaser shall have no right or remedy
under this grammatical paragraph with respect to, and shall be deemed to
have waived, any Breach of Seller if Purchaser had knowledge of the
Breach prior to the Closing Date and Purchaser failed to notify Seller
in writing prior to such date. For purposes of this Section 5.1,
phrases "to the best of Seller's knowledge" and "to the best of Seller's
current knowledge" mean the knowledge, without due inquiry, of Thomas J.
Pabian and Alasdair Cripps of Capital.
5.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
hereby represents and warrants to and covenants with Seller that this
Agreement and all other documents executed and delivered, or to be
executed and delivered, by Purchaser in connection with the transaction
contemplated hereby have been, or at the appropriate time will be, duly
executed and delivered and constitute or, upon such execution and
delivery will constitute, the legal, valid and binding obligations of
Purchaser enforceable in accordance with their respective terms and
provisions, subject, however, to general principles of equity and to the
effect of any bankruptcy, reorganization, moratorium, insolvency or
other laws affecting the rights of creditors generally, that Purchaser
has taken all action required to authorize its execution of this
Agreement and such other documents to acquire the Property.
5.3 DURATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in Sections 5.1 and 5.2 shall
be deemed restated on and as of the Closing Date and shall not, except
as otherwise expressly provided herein, survive the Closing.
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ARTICLE 6
CLOSING MATTERS
6.1 CLOSING. The closing of the transaction contemplated hereby
(the "Closing") shall take place at the offices of the Title Company in
Chicago, Illinois, on February 17, 1997 (the "Closing Date"). So long
as Purchaser is not in default hereunder, Purchaser shall have the right
to extend the Closing Date to March 19, 1997, by giving written notice
thereof to Seller upon the expiration of the Due Diligence Period and,
at that time, depositing an additional Twenty-Five Thousand Dollars
($25,000.00) into the Deposit escrow.
6.2 CLOSING ESCROW. The transaction contemplated hereby shall be
closed by means of an escrow, with the concurrent delivery of the
documents of title, transfer of interests, delivery of the Title Policy
and payment of the Purchase Price. Seller and Purchaser shall each pay
fifty percent (50%) of any charges of the Title Company for such escrow
closing. This Agreement shall not be merged into the Escrow
Instructions, but the Escrow Instructions shall be deemed auxiliary to
this Agreement, and, as between the parties hereto, the provisions of
this Agreement shall govern and control.
6.3 TITLE COMMITMENT. Seller shall deliver to Purchaser the
following, at Seller's expense:
(a) TITLE COMMITMENT. No later than thirty (30) days following the
date hereof, Seller shall deliver to Purchaser a title commitment for a
ALTA Owner's Title Insurance Policy (the "Title Commitment"), issued by the
Title Company, showing Purchaser as the proposed insured and Seller as the
current holder of fee simple title to the real property described on
Exhibit A hereto, subject to the standard printed exceptions. The amount
of coverage provided by the Title Commitment shall be equal to the Purchase
Price. If Purchaser objects to any exceptions to title shown in the Title
Commitment or the Survey (as hereinafter defined), other than Permitted
Exceptions (which Purchaser, by execution of this Agreement, has agreed to
accept) and mortgage liens (which Seller shall release on or before the
Closing Date), Purchaser shall give Seller written notice of such objection
within five (5) business days following the date of Purchaser's receipt of
both the Title Commitment and Survey. Any exceptions to title shown on the
Title Commitment or the Survey to which Purchaser does not so object shall
become additional "Permitted Exceptions" for purposes of this Agreement.
If the Title Commitment or Survey disclose exceptions to title to which
Purchaser has so objected, Seller shall, at its option, have thirty (30)
days from the date of Purchaser's notice of objection to have such
exceptions removed from the Title Commitment or Survey (or to have the
Title Company commit to insure over such unpermitted exceptions) and
provide evidence thereof to Purchaser, and the Closing Date shall be
delayed if necessary to allow for said thirty (30) day period. If Seller
fails to have such unpermitted exceptions removed (or insured over to
Purchaser's reasonable satisfaction), Purchaser may elect, as its sole
remedy, by notice to Seller given within five (5) days following the
earlier to occur of: (i) the date Seller informs Purchaser that such
unpermitted exceptions will not be removed or insured over; or (ii) the
expiration of said thirty (30) day period, to (a) terminate this Agreement
(in which event the Deposit shall be forthwith returned to Purchaser), or
(b) accept title subject to such unpermitted exceptions and close the
transactions contemplated hereby.
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6.4 SURVEY. Seller shall obtain and deliver to Purchaser a current
survey (the "Survey") of the Property within thirty (30) days following the
date hereof. The cost of obtaining the Survey shall be borne solely by
Seller. The Survey shall be in form sufficient to permit the Title Company
to delete the standard survey exception, except as to shortages in area, and
be certified to Seller, Purchaser and Title Company.
ARTICLE 7
CLOSING DELIVERIES; POSSESSION
7.1 SELLER'S DELIVERIES. At Closing, Seller shall deliver, or cause
to be delivered, to Purchaser the following, each of which shall be in form
and substance reasonably acceptable to counsel for Purchaser, and none of
which shall contain any representations or warranties, express or implied by
Seller except to the extent specifically provided hereinbelow:
(a) Recordable special warranty deed from Seller to Purchaser
conveying the Real Property, subject only to the Permitted Exceptions;
(b) A Bill of Sale transferring to Purchaser without recourse all of
Seller's right, title and interest in and to the Fixtures and Tangible
Personal Property, Consumables and Operating Equipment;
(c) An assignment conveying and transferring to Purchaser without
recourse all of Seller's right, title and interest in, to and under any and
all Bookings, Motel Contracts and Permits (to the extent assignable, and
with the specific exception of the Motel franchise agreement);
(d) An ALTA Owner's Title Insurance Policy (the "Title Policy"),
issued in favor of Purchaser by the Title Company, in the amount of the
Purchase Price, insuring Purchaser's fee simple title to the Real Property,
subject only to the Permitted Exceptions and otherwise in conformity with
the Title Commitment;
(e) The FIRPTA Certificate;
(f) A counterpart of the Preliminary Closing Statement, executed by
Seller;
(g) A copy of a letter addressed to and accepted by the Manager
terminating the Operating Lease as to the Motel as of the Closing Date;
(h) IRS Form 1099 and any State, County or local transfer
declarations required by any governmental authority having jurisdiction
over the Property; and
(i) A list certified by the Manager of all Continuing Obligations and
Motel Contracts as of the Closing Date.
Purchaser acknowledges that all documents executed and delivered by
Seller at Closing will contain the exculpation provisions set forth in
Article 16 of this Agreement.
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7.2 PURCHASER'S DELIVERIES. At Closing, Purchaser shall cause to be
delivered to Seller the Purchase Price, together with the following, each of
which shall be in form and substance reasonably acceptable to Seller and its
counsel:
(a) An assumption of all obligations of Seller arising from and
after the Closing Date under the items assigned to Purchaser pursuant to
Section 7.1(c) hereof;
(b) A counterpart of the Preliminary Closing Statement, executed by
Purchaser; and
(c) A fully executed Super 8 Motels, Inc. franchise agreement for
the Property between Super 8 Motels, Inc. and Purchaser.
7.3 CONCURRENT TRANSACTIONS. All documents or other deliveries
required to be delivered by Purchaser or Seller at Closing, and all
transactions required to be consummated concurrently with Closing, shall be
deemed to have been delivered and to have been consummated simultaneously
with all other transactions and all other deliveries, and no delivery shall
be deemed to have been made, and no transaction shall be deemed to have been
consummated, until all deliveries required to be made by Purchaser and Seller
shall have been made, and all transactions contemplated hereby shall have
been consummated, except to the extent that such delivery or transaction may
be waived by the party to be benefited thereby.
7.4 FURTHER ASSURANCES. Seller and Purchaser will, at the Closing, or
at any time or from time to time thereafter, upon request of either party,
execute such additional instruments, documents or certificates as either
party or the Title Company deems reasonably necessary, including, without
limitation, State, County, or local transfer declarations, in order to
convey, assign and transfer the Property to Purchaser and otherwise to carry
out this Agreement.
7.5 POSSESSION. Possession of the Property shall be delivered to
Purchaser at Closing, subject to the Permitted Exceptions.
ARTICLE 8
ADJUSTMENTS AND PRORATIONS: CLOSING STATEMENTS
8.1 ADJUSTMENTS AND PRORATIONS. The following matters and items shall
be apportioned between the parties hereto or, where appropriate, credited in
total to a particular party, as of the Cut-off Time:
(a) RECEIVABLES; TRADE ACCOUNTS PAYABLE; CONTINUING OBLIGATIONS.
Receivables and trade accounts payable shall be identified as of the
Cut-off Time. Seller shall retain all Receivables. Following the Closing,
Seller shall have the right to collect all Receivables, and if Purchaser
shall receive any payment on account of any Receivables at any time
following the Closing, Purchaser shall promptly remit such payment to
Seller. Notwithstanding the foregoing, Seller shall receive a credit for
guest ledger amounts accrued as of the Cut-off Time, including the amount
of guest room rentals for the full night which begins on the day
immediately preceding the Closing Date. Purchaser will honor, for its
account, the terms and rates of all pre-closing
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reservations confirmed fordates after the Closing Date. Any pre-closing
down payments on such confirmed reservations and other advance payments
made with respect to Bookings for Motel facilities for dates on or
after the Closing Date will be credited to Purchaser at the Closing.
Seller shall pay all trade accounts payable due as of the Cut-off Time
for goods and services received prior to the Cut-off Time. Purchaser
may either refuse delivery of or accept and pay for goods and services
received following the Cut-off Time. Purchaser shall establish its own
new trade accounts with vendors to be effective from and after the
Cut-off Time. All Continuing Obligations shall be identified as of the
Cut-Off Time, and Purchaser shall receive a credit against the Purchase
Price in an amount equal to the projected cost actually to be incurred
by Purchaser in fulfilling such Continuing Obligations (subject to a
discount reasonably determined by Seller and Purchaser to reflect the
degree of likelihood that Purchaser will be required to satisfy such
Continuing Obligations).
(b) TAXES AND ASSESSMENTS. All Impositions, water and sewer rents,
rates and charges, vault charges, canopy permit fees, and other municipal
permit fees shall be prorated on an accrual basis as of the Cut-off Time.
If the amount of any such item is not ascertainable on the Closing Date,
the credit therefor shall be based on the most recent available bill and
shall be reprorated upon receipt of the actual tax bill. In the case of
real and personal property AD VALOREM taxes, Seller shall pay all such
taxes assessed by the respective jurisdictions for all fiscal periods prior
to the fiscal period in which the closing occurs; such taxes assessed for
the fiscal period in which the closing occurs shall be prorated as of the
Cut-off Time. Seller shall pay any sales or transfer taxes or fees
(including all documentary transfer taxes) resulting from the sale of the
Property pursuant to this Agreement.
(c) UTILITY CONTRACTS. Amounts payable under telephone and telex
contracts and contracts for the supply of heat, steam, electric power, gas,
lighting and any other utility service shall be prorated on an accrual
basis as of the Cut-off Time, and Seller shall receive a credit for each
deposit, if any, made by or on behalf of Seller as security under any such
public service contracts provided that the same is transferable and remains
on deposit for the benefit of Purchaser. Where possible, cut-off readings
will be secured for all utilities on the Closing Date.
(d) MOTEL CONTRACTS. Any amounts prepaid or payable under any Motel
Contracts shall be prorated on an accrual basis as of the Cut-off Time.
(e) MANAGEMENT FEES AND REIMBURSEMENTS. Seller shall pay all
management fees and reimbursements (if any) due the Manager under the
Operating Lease through the Closing Date.
(f) VENDING MACHINE RECEIPTS. All receipts in vending machines at
the Motel at the Cut-off Time shall become the property of Purchaser at
Closing, and Seller shall receive a ratable credit therefor.
(g) CONSUMABLES. All Consumables at the Motel at the Cut-off Time
shall become the property of Purchaser at Closing, and Seller shall receive
a ratable credit therefor.
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(h) OTHER. Such other items (except as provided to the contrary in
this Agreement) which are normally prorated and adjusted in the sale of a
motel shall be prorated and adjusted as of the Cut-off Time, including all
petty cash funds transferred to Purchaser, for which Seller shall receive a
credit, and all deposits and prepaid items which inure to the benefit of
the Purchaser, for which Seller shall also receive a credit. Purchaser
specifically understands that Purchaser shall not be entitled to any cash
funds of Seller other than said petty cash funds, and that Seller shall
receive a proration credit with respect to said petty cash funds as
provided above.
8.2 CLOSING STATEMENTS. Each party shall cause its designated
representatives to enter the Motel at reasonable times and without
unreasonably interfering with operations, both before and after the
Closing Date, for the purpose of making such inventories, examinations
and audits of the Motel, and of the books and records of the Motel, as
they deem necessary to make the adjustments and prorations required
under this Article 8, or under any other provisions of this Agreement.
Based upon such inventories, examinations and audits, at the Closing,
the representatives of the parties shall jointly prepare and deliver to
each party a Preliminary Closing Statement which shall show the net
amount due either to Seller or Purchaser as a result thereof, and such
net amount will be added to or subtracted from the cash balance of the
Purchase Price to be paid to Seller pursuant to Section 3.3 hereof. The
closing statement shall reflect that Purchaser shall receive a credit
relating to maintenance items in the amount of $46,000.00. Within sixty
(60) days following the Closing Date, Seller and Purchaser shall agree
on a Final Closing Statement setting forth the final determination of
all items to be included on the Closing Statements. The net amount due
Seller or Purchaser, if any, by reason of adjustments in the Preliminary
Closing Statement as shown in the Final Closing Statement, shall be paid
in cash by the party obligated therefor within ten (10) days following
the date of delivery of the Final Closing Statement to the parties. In
the event the representatives of the parties are unable to reach
agreement with respect to the Closing Statements, the parties shall
submit their dispute to a firm of independent certified public
accountants of recognized standing in the hotel industry (the
"Accountants"), and the determination of such firm shall be conclusive
on both parties hereto.
ARTICLE 9
CONDITIONS TO SELLER'S OBLIGATIONS
9.1 CONDITIONS. Seller's obligation to close hereunder shall be
subject to the satisfaction of each of the following conditions, any one
or more of which may be waived by Seller in writing:
(a) PURCHASER'S COMPLIANCE WITH OBLIGATIONS. Purchaser shall have
complied in all material respects with all obligations required by this
Agreement to be complied with by Purchaser as of the Closing Date.
(b) TRUTH OF PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Purchaser contained in Section 5.2 shall
have been true in all material respects when made, and shall be true in all
material respects on the Closing Date.
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9.2 FAILURE OF CONDITIONS. If any condition precedent to Closing
of Purchaser as set forth in Section 9.1 has not been fulfilled and
satisfied as of the Closing Date, provided that Seller is not itself in
default, Seller shall have the right, as its sole and exclusive remedy
in lieu of any other remedies to which Seller might otherwise be
entitled at law or in equity, to terminate this Agreement and to pursue
the rights and remedies available to Seller under Section 3.2.
ARTICLE 10
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1 CONDITIONS. Purchaser's obligation to close hereunder shall
be subject to the satisfaction of each of the following conditions, any
one or more of which may be waived by Purchaser in writing:
(a) SELLER'S COMPLIANCE WITH OBLIGATIONS. Seller shall have complied
in all material respects with all obligations required by this Agreement to
be complied with by Seller as of the Closing Date.
(b) TRUTH OF SELLER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller contained in Section 5.1 shall
have been true in all material respects when made, and shall be true in all
material respects on the Closing Date.
(c) SELLER'S COMPLIANCE WITH FRANCHISE AGREEMENT. Seller shall have
complied in all material respects with all obligations with its franchisor
so as not to inhibit Purchaser's ability to obtain a franchise with such
franchisor.
10.2 FAILURE OF CONDITIONS. If any condition precedent to Closing of
Seller as set forth in Section 10.1 has not been fulfilled and satisfied as of
the Closing Date, provided that Purchaser is not itself in default, Purchaser
shall have the right, as its sole and exclusive remedy, either (a) to terminate
this Agreement, in which event the provisions of Section 3.2 shall apply, or
(b) to seek specific performance of this Agreement. Notwithstanding the
foregoing, if the failure of such condition precedent is due to matters outside
Seller's control, Purchaser agrees that its sole remedy shall be either (i) to
terminate this Agreement and receive a refund of the Deposit, whereupon the
parties shall have no further obligation or liability to each other hereunder,
or (ii) to close the transactions contemplated hereby notwithstanding the
failure of such conditions precedent, in which event such failure shall be
deemed to have been waived by Purchaser.
ARTICLE 11
ACTIONS AND OPERATIONS PENDING CLOSING
11.1 ACTIONS AND OPERATIONS PENDING CLOSING. Seller agrees that
from the date hereof through the Closing Date:
(a) The Motel will continue to be operated, managed and maintained
substantially in accordance with Seller's present standards.
(b) Seller will maintain in effect all policies of casualty and
liability insurance, or similar policies of insurance, with the same limits
of coverage which it now carries with respect to the Motel.
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(c) Seller will not dispose of any of the Property, except for
personal property, fixtures and Consumables, as the case may be, disposed
of in the ordinary course of business.
(d) Seller will not, after the expiration of the Due Diligence
period, enter into any Motel Contracts without the prior written approval
of Purchaser.
(e) Seller will pay all expenses, accrued or otherwise, and of any
type or kind whatsoever, through the Closing Date with regard to the
Property and/or the Motel, subject to prorations at Closing;
(f) Prior to or at Closing, Seller will cancel or terminate the
agreement (operating lease) with the Manager; and
(g) Seller will not, during the pending of this Agreement, place any
new encumbrances on the Property or modify any franchise or licensing
agreements or other documents material to the operation of the Property as
a Super 8 Motel, without prior written consent of Purchaser.
ARTICLE 12
CASUALTIES AND TAKINGS
12.1 CASUALTIES. In the event that, subsequent to the date
hereof and prior to Closing, any portion of the Real Property shall be
damaged or destroyed by fire or other casualty in excess of One Hundred
Thousand Dollars ($100,000.00), Purchaser may, at its option, either (a)
terminate this Agreement by written notice thereof to Seller within ten
(10) days after Seller notifies Purchaser of the casualty, at which time
Seller shall direct the Escrowee to promptly return the Deposit to
Purchaser or (b) proceed to close the transaction described herein
pursuant to the terms hereof, in which event Seller shall, at
Purchaser's option, deliver to Purchaser at Closing any insurance
proceeds received by Seller attributable to the Property from such
casualty or allow Purchaser at Closing a credit against the Purchase
Price in the amount of such agreed upon insurance proceeds. In the
event that such damage is an amount less than One Hundred Thousand
Dollars ($100,000.00), Purchaser shall proceed to closing as
contemplated herein provided that Purchaser may, at its option, (i) pay
the full balance of the Purchase Price, in which event Purchaser shall
be entitled to any insurance proceeds received attributable to the
Property from such casualty or (ii) reduce the Purchase Price in an
amount equal to the fair market value of the cost to repair the damages
(as mutually agreed upon by Seller and Purchaser), in which event Seller
shall be entitled to any insurance proceeds attributable to the Property
from such casualty.
12.2 TAKINGS. In the event of the institution of any proceeding for the
taking or condemnation of a substantial portion of the Real Property prior to
Closing, Purchaser may, at its option, either (a) terminate this Agreement by
written notice thereof to Seller within ten (10) days after Seller notifies
Purchaser of the proceedings for condemnation or taking, at which time Seller
shall direct the Escrowee to promptly return the Deposit to Purchaser or (b)
proceed to close the transaction described herein pursuant to the terms hereof,
in which event Seller shall, at Purchaser's option, deliver to Purchaser at
Closing any proceeds received by Seller attributable to the Property from such
condemnation or eminent domain proceeding or allow
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Purchaser at Closing a credit against the Purchase Price in the amount
of such condemnation or taking. As used in this paragraph, the taking
of a "substantial portion" of the Property shall mean (i) a taking in
excess of Fifty Thousand Dollars ($50,000.00) of the fair market value
of the Property or (ii) a taking which materially affects the value of
the Property as used for the operation of a motel.
ARTICLE 13
EMPLOYEE MATTERS
13.1 EMPLOYEES. Purchaser shall have the continuing right to
review all employment records and files of, and to interview, employees
working at the Motel. Purchaser acknowledges that (i) all employees
working at or in connection with the Motel are employees of Manager,
(ii) prior to the consummation of the Closing, Purchaser shall have no
rights whatsoever in connection with the hiring or discharge of said
employees, or in connection with any other matters relating to said
employees, and (iii) Manager shall have the right to retain, discharge
or transfer any or all of said employees at any time, and Seller makes
no representation to Purchaser as to whether any of said employees will
or will not be available for hire by Purchaser.
ARTICLE 14
NOTICES
14.1 NOTICES. Except as otherwise provided in this Agreement,
all notices, demands, requests, consents, approvals and other
communications (herein collectively called "Notices") required or
permitted to be given hereunder shall be in writing and shall be
personally delivered or sent by United States registered or certified
mail, postage prepaid, return receipt requested, or by overnight express
courier, postage prepaid, addressed to the party to be so notified as
follows:
If intended for Seller, to: Capital Associates Realty Advisors Corp.
1201 North Clark Street
Suite 300
Chicago, Illinois 60610-2270
Attn: Thomas J. Pabian
With a copy to: Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Attn: Harold B. Pomerantz, Esq.
If intended for Purchaser to: Host Funding, Inc.
1025 Prospect Street
Suite 350
LaJolla, California 92037
Attn: Chap Riedel
Notices mailed by registered or certified mail shall be deemed
received by the addressee three (3) business days after mailing thereof.
Notices personally delivered shall be deemed
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received by the addressee when delivered. Notices transmitted by
overnight express courier shall be deemed received by the addressee on
the next business day following the date of transmittal thereof. Either
party may at any time change the address for notice to such party by
mailing a Notice as aforesaid.
ARTICLE 15
ADDITIONAL COVENANTS
15.1 ADDITIONAL COVENANTS. In addition, the parties agree as
follows:
(a) EXPENSES. Seller shall be responsible for the payment of all
title insurance premiums and charges for the issuance of the Title Policy,
fifty percent (50%) of all escrow fees, all documentary transfer taxes and
the entire cost of the survey. Purchaser shall be responsible for the
payment of fifty percent (50%) of all escrow fees, all recording charges
and all additional title coverages and endorsements. The fees and expenses
of Seller's designated representatives, accountants and attorneys shall be
borne by Seller, and the fees and expenses of Purchaser's designated
representatives, accountants and attorneys shall be borne by Purchaser.
(b) BROKERAGE. Seller hereby represents and warrants to Purchaser
that Seller has not dealt with any broker or finder with respect to the
transaction contemplated hereby, other than Hotel Partners, Inc.
("Broker"). Seller agrees to pay any and all brokerage commissions to
which Broker shall be entitled in connection with this transaction and
agrees to indemnify Purchaser for any claim for brokerage commission or
finder's fee in connection with this transaction asserted by Broker.
Seller and Purchaser each represent and warrant to the other that it has
not authorized any broker, agent or finder to act on its behalf (other than
the Broker), nor does it have any knowledge of any other broker, agent or
finder purporting to act on its behalf in respect of this transaction, and
Seller and Purchaser each hereby covenant and agree to indemnify, defend
and hold harmless the other from and against any cost, expense, claim,
liability or damage (including, without limitation, reasonable attorneys'
fees and court costs) resulting from any breach of the representation and
warranty contained herein.
(c) BOOKS AND RECORDS. The transfer of the Property contemplated
hereby includes the books and records of Seller pertaining strictly to the
business of the Motel. Purchaser covenants and agrees that such books and
records will remain in the Motel or at Purchaser's office for examination
and audit by Seller and its agents after the Closing as provided in this
subsection (c). To the extent said books and records are located in a
centralized location, such books and records will be delivered to Purchaser
at the Closing. Books and records not pertaining strictly to the business
of the Motel may be removed by Seller within a reasonable time after the
Closing Date. Purchaser agrees to preserve all books and records, files
and correspondence, and not to destroy or dispose of the same, for at least
five (5) years following the Closing Date. Purchaser agrees to provide
Seller and its representatives access to such books, records, files and
correspondence at all reasonable times.
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(d) PUBLICITY. All notice to third parties and all other publicity
concerning the transactions contemplated hereby shall be jointly planned
and coordinated by and between Purchaser and Seller. Neither of the
parties shall act unilaterally in this regard without the prior written
approval of the other; however, such approval shall not be unreasonably
withheld or delayed.
(e) ASSIGNMENT. Notwithstanding the foregoing, except for an
assignment of this Agreement to CrossHost, Inc., a Maryland corporation,
which is a wholly owned subsidiary of Purchaser, or to such other assignee
which is affiliated with Purchaser and is reasonably acceptable to Seller,
neither Seller nor Purchaser shall have the right to assign its interest in
this Agreement without the prior written consent of the other party, which
consent may be given or withheld in the sole discretion of the party whose
consent is requested; provided, however, the party assigning its interest
in this Agreement shall remain liable for any and all of its obligations
hereunder.
(f) LITIGATION COSTS. In the event of any action or proceeding at
law or in equity between Seller and Purchaser to enforce any provision of
this Agreement or to protect or establish any right or remedy of either
party hereunder, the unsuccessful party to such litigation shall pay to the
prevailing party all costs and expenses, including reasonable attorneys'
fees incurred therein by such prevailing party (collectively, "Litigation
Costs"), and if such prevailing party shall recover judgment in any such
action or proceeding, such Litigation Costs shall be included in and as a
part of such judgment.
(g) INTEGRATION/CHOICE OF LAW. This Agreement (including all
exhibits hereto) contains the entire agreement between the parties with
respect to the subject matter hereof, supersedes all prior understandings,
if any, with respect thereto and may not be amended, supplemented or
terminated, nor shall any obligation hereunder or condition hereof be
deemed waived, except by a written instrument to such effect signed by the
party to be charged or as otherwise expressly provided in this Agreement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Arizona.
(h) EXECUTION. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original but all of which,
taken together, shall constitute but one and the same instrument. This
Agreement may be executed and delivered by facsimile transmission of
signature pages, following which executed original counterparts shall be
exchanged in the ordinary course of business.
(i) REAL ESTATE COMMITTEE APPROVAL. The execution and delivery of
this Agreement by Seller and the obligation of Seller to close the
transaction contemplated hereby is subject to review and approval of this
Agreement and of the transaction contemplated hereby by Seller's real
estate investment committee. If Seller's real estate investment committee
does not approve this transaction, Seller shall deliver written notice to
Purchaser of such committee's disapproval decision prior to execution of
this Agreement by Seller.
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(j) EXECUTIVE COMMITTEE APPROVAL. Purchaser hereby acknowledges that
its Executive Committee, which is composed of a majority of the Board of
Directors, has approved this Agreement and the transaction contemplated
hereby.
ARTICLE 16
EXCULPATION
16.1 EXCULPATION. Except to the extent of proceeds received by
Seller as a result of the closing of this transaction and except for a
period of eighteen (18) months after the closing of this transaction,
neither Seller nor any present or future officer, director, employee,
trustee, member or agent of Seller shall have any personal liability,
directly or indirectly, and recourse shall not be had against Seller or
any such officer, director, employee, trustee, member or agent, under or
in connection with this Agreement or any other document or instrument
heretofore or hereafter executed in connection with same. Except as
otherwise expressly provided in this Section 16.1, Purchaser hereby
waives and releases any and all such personal liability and recourse.
Except as otherwise expressly provided in this Section 16.1, Purchaser
and its successors and assigns and all other persons claiming by,
through or under Purchaser shall look solely to Seller' interest in the
Property with respect to any claim against Seller arising under or in
connection with this Agreement or any other document or instrument. The
limitations of liability provided in this Section are in addition to,
and not in limitation of, any limitations on liability otherwise set
forth herein or applicable by law or in any other contract, agreement or
instrument. All documents executed by Seller in connection with this
Agreement shall contain this provision and the provision in Section 16.2.
16.2 AGENCY. Capital is acting solely as the duly authorized
agent for Seller in connection with this Agreement. All of the terms,
provisions, stipulations, covenants and conditions to be performed by
Seller are undertaken solely as said agent and not personally or
individually by Capital. No personal liability shall be asserted or
enforceable against Capital or any of its employees, officers,
directors, shareholders or agents by reason of any of the terms,
provisions, stipulations, covenants, conditions and statements contained
in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
TEACHERS' RETIREMENT SYSTEM OF
THE STATE OF ILLINOIS
By: CAPITAL ASSOCIATES REALTY ADVISORS CORP.,
its Investment Manager
By:
----------------------------------
Thomas J. Pabian
Executive Vice President
24
<PAGE>
PURCHASER:
HOST FUNDING INC.,
a Maryland Corporation
By:
-----------------------------------
Name:
------------------------------
Its:
------------------------------
25
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EXHIBIT A
LEGAL DESCRIPTION
COUNTY OF COCONINO
STATE OF ARIZONA
PROPERTY: Flagstaff Super 8 Motel
Flagstaff, Arizona
A-1
<PAGE>
EXHIBIT B
PERMITTED EXCEPTIONS
Flagstaff Super 8 Motel
Flagstaff, Arizona
PERMITTED ENCUMBRANCES
1. Rights or claims of parties in possession not shown by public records.
2. Easements, or claims of easements, not shown by the public records.
3. Encroachments, overlaps, boundary line disputes or other matters which
would be disclosed by an accurate survey or inspection of the premises.
4. Any lien, or right to a lien, for services, labor, or material heretofore
or hereafter furnished, imposed by law and not shown by the public records.
5. Taxes or special assessments which are not shown as existing liens by the
public records.
6. Real estate taxes which have become a lien against the Real Estate but
which are not yet due and payable.
7. Any encumbrances to title shown on title commitment dated November 7, 1996
and issued by Near North National Title Corporation, as agent for First
American Title Insurance Company and title exceptions caused by and/or
resulting from the acts of Purchaser.
8. Acts of Purchaser or any contractor, agent, representative or employee of
Purchaser or those acting under them.
B-1
<PAGE>
EXHIBIT C
FIRPTA CERTIFICATE
TO: Host Funding, Inc.
("Transferee")
Section 1445 of the Internal Revenue Code ("FIRPTA") provides that a
transferee of a U.S. real property interest must withhold tax if the
transferor is a foreign person. TEACHERS' RETIREMENT SYSTEM OF THE STATE OF
ILLINOIS, a Delaware limited partnership (the "Transferor"), hereby certifies
the following to Transferee:
1. The Transferor is not a foreign person as that term is defined in
the Internal Revenue Code and Income Tax Regulations;
2. The Transferor's U.S. employer identification number is 37-131436;
and
3. The Transferor's office address is: c/o Capital Associates Realty
Advisors Corp., 1201 North Clark Street, Suite 300, Chicago, Illinois
60610-2270.
The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by Transferee and that any false statement
contained herein could be punished by fine, imprisonment or both.
Under penalties of perjury the undersigned declares that it has examined
this certification and to the best of its knowledge and belief the
information contained herein is true, correct and complete, and the
undersigned further declares that it has the requisite authority to sign this
document.
Further, the undersigned hereby agrees to indemnify and hold harmless
Transferee, Transferee's agents and the agents of the undersigned from and
against any and all loss, liability, costs, damages, claims or causes of
action which may arise or be incurred by Transferee, Transferee's agents or
the agents of the undersigned by reason of any failure of any certification
made herein to be true and correct in all respects or by reason of any
failure to withhold any amount required under FIRPTA, as a result of the
transfer.
_______________, 1996
TEACHERS' RETIREMENT SYSTEM OF THE
STATE OF ILLINOIS
By: CAPITAL ASSOCIATES REALTY ADVISORS CORP.,
its Investment Manager
By:
--------------------------------------
Thomas J. Pabian
Executive Vice President
C-1
<PAGE>
ASSIGNMENT OF AGREEMENT TO PURCHASE MOTEL
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF DALLAS )
THIS ASSIGNMENT OF AGREEMENT TO PURCHASE MOTEL ("Assignment"), is entered
and executed by and between HOST FUNDING, INC., a Maryland corporation
("Assignor"), and HOST VENTURES, INC., a Maryland corporation ("Assignee").
W I T N E S S E T H:
Assignor has heretofore entered into that certain Agreement to Purchase
Motel (as same may have been from time to time amended, the "Agreement")
between Assignor, as purchaser, and Teachers' Retirement System of the State
of Illinois, a retirement system created under the laws of the State of
Illinois, as seller, covering the property situated in Flagstaff, Coconino
County, Arizona more particularly described in the Agreement.
Assignee desires to purchase from Assignor, and Assignor desires to sell
and assign to Assignee, the Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
agreements and covenants herein set forth, together with the sum of Ten and
No/100 Dollars ($10.00) and other good and valuable consideration this day
paid and delivered by Assignee to Assignor, the receipt and sufficiency of
all of which by Assignor are hereby confessed and acknowledged, Assignor does
hereby ASSIGN, TRANSFER, SET OVER and DELIVER unto Assignee all of Assignor's
right, title and interest in and to the Agreement, and all of the rights
benefits and privileges of the buyer thereunder, but subject to all terms,
conditions, reservations and limitations set forth in the Agreement.
TO HAVE AND TO HOLD all and singular the Agreement unto Assignee, its
successors and assigns, and Assignor does hereby bind itself and its
successors and assigns, to WARRANT and FOREVER DEFEND all and singular the
Agreement unto Assignee, its successors and assigns, against every person
whomsoever lawfully claiming or attempting to claim same, or any part
thereof, by, through or under Assignor, but not otherwise.
It is specifically agreed that Assignor shall not be responsible to the
seller under the Agreement for the discharge and performance of any and all
duties and obligations to be performed and/or discharged by the buyer
thereunder after the date hereof. By accepting this Assignment and by its
execution hereof, Assignee covenants and agrees to indemnify, save and hold
harmless Assignor from and against any and all loss, liability, claims or
causes of action existing in favor of or asserted by the seller under the
Agreement arising out of or relating to Assignee's failure to perform any of
the obligations of the buyer under the Agreement after the date hereof.
Specifically, in furtherance of and without limitation of the foregoing,
Assignee hereby assumes the discharge and
<PAGE>
performance of any and all duties to be performed and/or discharged by the
buyer under the Agreement after the date hereof.
Assignor covenants and warrants to Assignee that: (a) Assignor is the
lawful owner and holder of all of the right, title and interest of the buyer
in and to the Agreement; (b) such right, title and interest is free from all
liens, security interest, and other encumbrances of all kinds; (c) the
Agreement is in full force and effect and to the best of Assignor's actual
knowledge, no default (nor any event which with notice or lapse of time or
both could cause a default) has occurred under the Agreement; and (d)
Assignor warrants such rights, title, and interests in and to the Agreement
to Assignee against all adverse claims.
All of the covenants, terms and conditions set forth herein shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
This Agreement may be executed in a number of identical counterparts,
each of which shall be deemed an original for all purposes, and which
constitutes, collectively, one agreement.
IN WITNESS WHEREOF, Assignee and Assignor have executed this Assignment
as of the 31st day of March, 1997.
ASSIGNOR:
HOST FUNDING, INC., a Maryland corporation
By: /s/ Michael S. McNulty
---------------------------------------
Michael S. McNulty, President
ASSIGNEE:
HOST VENTURES, INC., a Maryland corporation
By: /s/ Michael S. McNulty
---------------------------------------
Michael S. McNulty, President
APPROVED AND CONSENTED TO this
31st day of March, 1997:
TEACHERS' RETIREMENT SYSTEM OF
THE STATE OF ILLINOIS
By: CAPITAL ASSOCIATES REALTY
ADVISORS CORP., its investment advisor
and duly authorized agent
2
<PAGE>
By: /s/ Thomas J. Pabian
------------------------------------
Thomas J. Pabian, Executive Vice
President
3
<PAGE>
[FIXED RATE]
PROMISSORY NOTE
DATE OF NOTE: As of March 14, 1997
NOTE AMOUNT: $13,000,000.00
MATURITY DATE: The Payment Date in April, 2017.
THIS AMENDED AND RESTATED PROMISSORY NOTE (this "NOTE"), is made as of
March __, 1997 by the undersigned, as maker ("MAKER"), in favor of CREDIT SUISSE
FIRST BOSTON MORTGAGE CAPITAL LLC and its successors or assigns, as payee
(collectively, "PAYEE").
R E C I T A L S:
A. Maker is the obligor under that certain promissory note dated
September 13, 1996 in the original principal amount of $15,500,000 as described
on SCHEDULE A annexed hereto and made a part hereof (the "EXISTING NOTE") of
which the outstanding principal amount is $13,000,000 (the "EXISTING
INDEBTEDNESS");
B. As of the date hereof, Holder is the owner of the Existing Note
and those certain mortgages and deeds of trust securing the Existing Note
(jointly, the "MORTGAGE");
C. Maker and Holder desire to renew, combine, coordinate, amend and
restate in its entirety the Existing Indebtedness on the terms and conditions
provided in this Note as hereinafter set forth;
D. Any privileges in the Existing Note to prepay the Debt (as
hereinafter defined), in whole or in part, except as may hereinafter be
provided, are hereby terminated with the same force and effect as if they had
never been granted; and
<PAGE>
E. Maker and Holder intend these Recitals to be a material part of
this Note;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
I. Maker and Holder acknowledge and agree that the Existing Note now
constitutes a single indebtedness in the principal amount of Thirteen Million
($13,000,000.00) as evidenced by this Note;
II. From and after the date hereof, the terms, covenants and
provisions of the Existing Note are hereby modified, consolidated, coordinated,
amended and restated in their entirety so that henceforth the terms, covenants
and provisions of this Note shall supersede those of the Existing Note; and
III. Neither this Note nor anything contained herein shall be
construed as a substitution or novation of the Maker's indebtedness to Holder or
of the Existing Note, all of which shall remain in full force and effect, as
hereby confirmed, modified, consolidated, coordinated, amended and restated in
their entirety.
NOW, THEREFORE, FOR VALUE RECEIVED, Maker does hereby covenant and
promise to pay to the order of Payee, without any counterclaim, setoff or
deduction whatsoever, on the Maturity Date (as hereinafter defined), in
immediately available funds, at 11 Madison Avenue, New York, New York 10010 or
at such other place as Payee may designate to Maker in writing from time to
time, in legal tender of the United States, the Loan Amount and all other
amounts due or becoming due hereunder, to the extent not previously paid in
accordance herewith, together with all interest accrued thereon through the date
the Loan is repaid in full, at the rate of 9.46% per annum (the "INTEREST RATE")
to be computed on the basis of the actual number of days elapsed in a 360 day
year on so much of the Loan Amount as is from time to time outstanding on the
first day of the applicable Interest
2
<PAGE>
Accrual Period (as hereinafter defined) (taking into account any principal
reduction to the Loan Amount which occurs on the Payment Date in such
Interest Accrual Period).
SECTION 1. DEFINITIONS
Defined terms in this Note shall include in the singular number the
plural and in the plural number the singular. All capitalized terms not
otherwise defined herein shall have the meaning ascribed to them in the
Mortgage.
SECTION 2. PAYMENTS AND LOAN TERMS
Section 2.1. INTEREST AND AMORTIZATION PAYMENTS.
(a) Interest on the unpaid Principal Amount of the Loan for the
First Interest Accrual Period computed at the Interest Rate shall be payable,
without any counterclaim, setoff or deduction whatsoever, on the First Payment
Date. Commencing on the Payment Date next following the First Payment Date, and
on each Payment Date thereafter until this Note is paid in full on the Maturity
Date or otherwise, an amount equal to the Monthly Debt Service Payment shall be
due and payable, without any counterclaim, setoff or deduction whatsoever, which
amount represents principal installments ("PRINCIPAL PAYMENTS"), based upon a
twenty (20) year amortization schedule (the "AMORTIZATION SCHEDULE"), together
with interest irrespective of whether or not any voluntary or involuntary
prepayments of principal have been made.
(b) Commencing on the Hyperamortization Date, in addition to the
interest described in Section 2.1(a) hereof, additional interest shall also
accrue on the unpaid Principal Amount of the Loan at the greater of (i) two
hundred (200) basis points over the Interest Rate and (ii) two hundred (200)
basis points over the then-existing ten year U.S. Treasury Note rate, reset
monthly plus 275 basis points (the "ADDITIONAL INTEREST RATE") and on the
Accrued Interest (hereinafter defined), if any, at the Interest Rate plus the
Additional Interest Rate. Commencing on the Payment Date after the
Hyperamortization Date,
3
<PAGE>
and on each and every Payment Date thereafter, in addition to the payments
described in Section 2.1(a), one hundred percent (100%) of the amount of the
Excess Rent for the calendar month preceding the calendar month in which such
Payment Date occurs shall be due and shall be applied first to the Principal
Amount until reduced to zero, second, to currently accruing interest
described in the prior sentence of this Section 2.1(b), and third, to the
Accrued Interest, if any. To the extent Excess Rent is insufficient to pay
the interest payments described in the first sentence of this Section 2.1(b)
on any Payment Date, such interest shall be deferred and added to any
interest previously deferred pursuant to this sentence and remaining unpaid
(the "ACCRUED INTEREST"). Amounts payable pursuant to this Section 2.1(b)
shall not be included in the determination of the Required Debt Service
Payment.
(c) The entire outstanding principal balance, to the extent not
theretofore paid, together with all accrued but unpaid interest thereon and any
other amounts due hereunder shall be due and payable on the Payment Date in
April, 2017 (the "MATURITY DATE").
(d) To the extent any Interest Shortfall shall occur, except as
otherwise provided in Section 3.2 hereof, such Interest Shortfall shall accrue
additional interest at the Interest Rate.
(e) To the extent Payments are or become due and payable under
this Note or any of the other Loan Documents on a day (the "Due Date") which is
not a Business Day, such Payments are and shall be due and payable on the first
Business Day immediately following the Due Date for such Payments.
Section 2.2. APPLICATION OF PAYMENTS.
(a) Each and every payment (a "PAYMENT") made by Maker to Payee
in accordance with the terms of this Note and/or the terms of any one or more of
the other Loan Documents and all other proceeds received by Payee with respect
to the Debt, shall be applied as follows:
4
<PAGE>
(1) Payments other than Unscheduled Payments shall be applied (i)
first, to all interest (other than Default Rate Interest) which shall be due and
payable with respect to the Loan Amount pursuant to the terms hereof as of the
date the Payment is received (including any Interest Shortfalls and interest
thereon to the extent permitted by applicable law), (ii) second, taking into
account the respective date of such Payments, to the Loan Amount until the Loan
Amount has been amortized in accordance with the Amortization Schedule, and
(iii) third, to all Late Charges, Default Rate Interest or other premiums and
other sums payable hereunder or under the other Loan Documents (other than those
sums included in clauses (i) and (ii) of this Section 2.2(a)(1)) in such order
and priority as determined by Payee in its sole discretion.
(2) Unscheduled Payments, other than Payments received pursuant to
Section 2.1(b) hereof, shall be applied at the end of the Interest Accrual
Period in which such Unscheduled Payments are received as a principal prepayment
of the Loan Amount to amortize the Loan Amount.
(3) Payments received pursuant to Section 2.1(b) hereof shall be
applied at the times and in the manner set forth therein.
(b) To the extent that Maker makes a Payment or Payee receives
any Payment or proceeds for Maker's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
obligations of Maker hereunder intended to be satisfied shall be revived and
continue as if such Payment or proceeds had not been received by Payee.
Section 2.3. PREPAYMENTS.
The Debt may not be prepaid, in whole or in part, except as set
forth in Article XV of the Mortgage.
5
<PAGE>
SECTION 3. DEFAULTS
Section 3.1. EVENTS OF DEFAULT.
This Note is secured by, among other things, the Mortgage which
specifies various Events of Default, upon the happening of which all or portions
of the sums owing under this Note may be declared immediately due and payable as
more specifically provided therein. Each Event of Default under the Mortgage or
any one or more of the other Loan Documents shall be an Event of Default
hereunder.
Section 3.2. REMEDIES.
If an Event of Default shall occur hereunder or under any other Loan
Document, interest on the Principal Amount and, to the extent permitted by
applicable law, all accrued but unpaid interest on the Principal Amount shall,
commencing on the date of the occurrence of such Event of Default, at the option
of Payee, immediately and without notice to Maker, accrue interest at the
Default Rate until such Event of Default is cured. The foregoing provision
shall not be construed as a waiver by Payee of its right to pursue any other
remedies available to it under the Mortgage, or any other instrument evidencing
or securing the Loan, nor shall it be construed to limit in any way the
application of the Default Rate. If there is more than one Maker of this Note,
then subject to the provisions of Section 4 hereof, the undersigned parties
shall each be jointly and severally liable to pay the entire Loan Amount and all
other sums becoming due hereunder or under the other Loan Documents.
SECTION 4. EXCULPATION
Section 4.1. EXCULPATION.
Notwithstanding anything to the contrary contained in this Note or the
other Loan Documents, the obligations of Maker hereunder shall be non-recourse
except with respect to the Mortgaged Property, which for the purposes of this
Note shall be deemed to include the term Trust Property, if applicable, and as
6
<PAGE>
otherwise provided in Section 18.32 of the Mortgage, the terms of which are
incorporated herein.
SECTION 5. MISCELLANEOUS
Section 5.1. FURTHER ASSURANCES.
Maker shall execute and acknowledge (or cause to be executed and
acknowledged) and deliver to Payee all documents, and take all actions, required
by Payee from time to time to confirm the rights created or now or hereafter
intended to be created under this Note and the other Loan Documents, to protect
and further the validity, priority and enforceability of this Note and the other
Loan Documents, to subject to the Loan Documents any property of Maker intended
by the terms of any one or more of the Loan Documents to be encumbered by the
Loan Documents, or otherwise carry out the purposes of the Loan Documents and
the transactions contemplated thereunder; PROVIDED, HOWEVER, that no such
further actions, assurances and confirmations shall increase Maker's obligations
under this Note.
Section 5.2. MODIFICATION, WAIVER IN WRITING.
No modification, amendment, extension, discharge, termination or
waiver (a "MODIFICATION") of any provision of this Note, the Mortgage or any one
or more of the other Loan Documents, nor consent to any departure by Maker
therefrom, shall in any event be effective unless the same shall be in a writing
signed by the party against whom enforcement is sought, and then such waiver or
consent shall be effective only in the specific instance, and for the purpose,
for which given. Except as otherwise expressly provided herein, no notice to,
or demand on, Maker shall entitle Maker to any other or future notice or demand
in the same, similar or other circumstances. Payee does not hereby agree to,
nor does Payee hereby commit itself to, enter into any Modification. However,
in the event Payee does ever agree to a Modification, such Modification shall
only be upon the terms and conditions set forth in the Mortgage.
Section 5.3. COSTS OF COLLECTION.
7
<PAGE>
Subject to the provisions of Section 4 hereof, Maker agrees to pay all
costs and expenses of collection incurred by Payee, in addition to principal,
interest and late or delinquency charges (including, without limitation,
reasonable attorneys' fees and disbursements) and including all costs and
expenses incurred in connection with the pursuit by Payee of any of its rights
or remedies referred to in Section 3 hereof or its rights or remedies referred
to in any of the Loan Documents or the protection of or realization of
collateral or in connection with any of Payee's collection efforts, whether or
not suit on this Note, on any of the other Loan Documents or any foreclosure
proceeding is filed, and all such costs and expenses shall be payable on demand,
together with interest at the Default Rate thereon, and also shall be secured by
the Mortgage and all other collateral at any time held by Payee as security for
Maker's obligations to Payee.
Section 5.4. MAXIMUM AMOUNT.
(a) It is the intention of Maker and Payee to conform strictly
to the usury and similar laws relating to interest from time to time in force,
and all agreements between Maker and Payee, whether now existing or hereafter
arising and whether oral or written, are hereby expressly limited so that in no
contingency or event whatsoever, whether by acceleration of maturity hereof or
otherwise, shall the amount paid or agreed to be paid in the aggregate to Payee
as interest hereunder or under the other Loan Documents or in any other security
agreement given to secure the Debt, or in any other document evidencing,
securing or pertaining to the Debt, exceed the maximum amount permissible under
applicable usury or such other laws (the "MAXIMUM AMOUNT"). If under any
circumstances whatsoever fulfillment of any provision hereof, or any of the
other Loan Documents, at the time performance of such provision shall be due,
shall involve transcending the Maximum Amount, then IPSO FACTO, the obligation
to be fulfilled shall be reduced to the Maximum Amount. For the purposes of
calculating the actual amount of interest paid and/or payable hereunder, in
respect of laws pertaining to usury or such other laws, all sums paid or agreed
to be paid to the holder hereof for the use, forbearance or detention of the
Debt, outstanding from time to time shall, to the extent permitted by
8
<PAGE>
applicable law, be amortized, prorated, allocated and spread from the date of
disbursement of the proceeds of this Note until payment in full of all of the
Debt, so that the actual rate of interest on account of the Debt is uniform
through the term hereof. The terms and provisions of this Section 5.4 shall
control and supersede every other provision of all agreements between Maker
or any endorser and Payee.
(b) If under any circumstances Payee shall ever receive an
amount which would exceed the Maximum Amount, such amount shall be deemed a
payment in reduction of the Loan Amount owing hereunder and any other obligation
of Maker in favor of Payee, and shall be so applied in accordance with Section
2.2 hereof, or if such excessive interest exceeds the unpaid balance of the Loan
Amount and any other obligation of Maker in favor of Payee, the excess shall be
deemed to have been a payment made by mistake and shall be refunded to Maker.
Section 5.5. WAIVERS.
Maker hereby expressly and unconditionally waives presentment, demand,
protest, notice of protest or notice of any kind, including, without limitation,
any notice of intention to accelerate and notice of acceleration, except as
expressly provided herein, and in connection with any suit, action or proceeding
brought by Payee on this Note, any and every right it may have to (a) a trial by
jury, (b) interpose any counterclaim therein (other than a counterclaim which
can only be asserted in the suit, action or proceeding brought by Payee on this
Note and cannot be maintained in a separate action) and (c) have the same
consolidated with any other or separate suit, action or proceeding.
Section 5.6. GOVERNING LAW.
This Note was negotiated in New York, and delivered by Maker and
accepted by Payee in the State of New York, and the proceeds of this Note were
disbursed from New York, which State Maker agrees has a substantial relationship
to Payee and Maker and to the transaction embodied hereby, in all respects,
including, without limiting the generality of the foregoing,
9
<PAGE>
matters of construction, validity, enforceability and performance. This Note
and the obligations arising hereunder shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
made and performed in such State (without regard to the conflicts of law
rules thereof) and any applicable law of the United States of America, except
that at all times the provisions for the creation, perfection, and
enforcement of the liens and security interests created pursuant to the
Mortgages and pursuant to the other Loan Documents shall be governed by and
construed according to the law of the State in which the applicable
Cross-collateralized Property is located, it being understood that, to the
fullest extent permitted by law of such State, the law of the State of New
York shall govern the validity and the enforceability of all Loan Documents,
and the obligations arising hereunder or thereunder. To the fullest extent
permitted by law, Maker hereby unconditionally and irrevocably waives any
claim to assert that the law of any other jurisdiction governs this Note and
this Note shall be governed by and construed in accordance with the laws of
the State of New York pursuant to Section 5-1401 of the New York General
Obligations Law.
(b) Any legal suit, action or proceeding against Maker or Payee arising
out of or relating to this Note shall be instituted in any federal or state
court in New York, New York, pursuant to Section 5-1402 of the New York General
Obligations Law, and Maker waives any objection which it may now or hereafter
have to the laying of venue of any such suit, action or proceeding, and Maker
hereby irrevocably submits to the jurisdiction of any such court in any suit,
action or proceeding. Maker does hereby designate and appoint the Secretary of
the State of New York as its authorized agent to accept and acknowledge on its
behalf service of any and all process which may be served in any such suit,
action or proceeding in any federal or state court in New York, New York, and
agrees that service of process upon said agent at said address and written
notice of said service of Maker mailed or delivered to Maker in the manner
provided in the Mortgages, shall be deemed in every respect effective service of
process upon Maker, in any such suit, action or proceeding in the State of New
York. Maker (i) shall give prompt notice to the Payee of any changed address of
its authorized agent hereunder, (ii) may
10
<PAGE>
at any time and from time to time designate a substitute authorized agent
with an office in New York, New York (which office shall be designated as the
address for service of process), and (iii) shall promptly designate such a
substitute if its authorized agent ceases to have an office in New York, New
York or is dissolved without leaving a successor.
Section 5.7. HEADINGS.
The Section headings in this Note are included herein for convenience
of reference only and shall not constitute a part of this Note for any other
purpose.
Section 5.8. ASSIGNMENT.
Payee shall have the right to transfer, sell and assign this Note, the
Mortgage and/or any of the other Loan Documents, and the obligations hereunder,
to any Person. All references to "Payee" hereunder shall be deemed to include
the assigns of the Payee.
Section 5.9. SEVERABILITY.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
Section 5.10. LATE PAYMENT CHARGE. If any portion of the Debt is not
paid in full within five (5) days after the date on which it is due and payable
hereunder, Maker shall pay to Payee an amount equal to three percent (3%) of
such unpaid portion of the Debt to defray the expense incurred by Payee in
handling and processing such delinquent payment, and such amount shall
constitute a part of the Debt.
11
<PAGE>
IN WITNESS WHEREOF, this Note has been duly executed by the Maker the day
and year first written above.
CROSSHOST, INC., Maker
By: /s/ Michael S. McNulty
--------------------------------
Name: Michael S. McNulty
Title: President
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<PAGE>
Schedule A
That certain Promissory Note dated September 13, 1996 executed by Mortgagee
in favor of CS First Boston Mortgage Capital Corp., predecessor in interest to
Mortgagee in the principal amount of $15,500,000.00.
13
<PAGE>
[LIBOR]
PROMISSORY NOTE
DATE OF NOTE: As of March 14th, 1997
NOTE AMOUNT: $8,725,000.00
MATURITY DATE: The Payment Date in April, 1999.
FOR VALUE RECEIVED, the undersigned having an address c/o 6116 North
Central Expressway, Suite 1313, Dallas, Texas 75206, as maker (hereinafter
referred to as "MAKER"), does hereby covenant and promise to pay, in immediately
available funds, to the order of CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL
LLC, a Delaware corporation having an address at 11 Madison Avenue, New York,
New York 10010 (hereinafter referred to as "PAYEE"), or at such other place as
Payee may from time to time designate in writing, the principal sum of Eight
Million Seven Hundred Twenty Five Thousand and No/100 Dollars ($8,725,000.00),
in legal tender of the United States, without any counterclaim, set or
deductions whatsoever, and all other amounts due or becoming due hereunder, with
interest thereon from the date hereof at the Interest Rate (as hereinafter
defined), to be paid in lawful money of the United States of America, as herein
provided.
Interest, as calculated herein, shall be computed for any Payment Date on
the basis of a 360 day year for the actual number of days elapsed on so much of
the Principal Amount as is outstanding as of the last day of the month preceding
such Payment Date.
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms in this Note
shall include in the singular number the plural and in the plural number the
singular. All capitalized
<PAGE>
terms not otherwise defined herein shall have the meanings ascribed to them
in the Mortgage.
"DUE DATE" shall have the meaning set forth in Section 2.01(b) hereof.
"FIRST LIBOR REFERENCE PERIOD" shall mean the period commencing on the
Closing Date and ending on the last day of the calendar month in which the
Closing Date occurs.
"INTEREST DETERMINATION DATE" shall mean the second LIBOR Business Day
prior to the Payment Date. The LIBOR rate set on the Interest Determination
Date shall be in effect for the Interest Accrual Period immediately following
such Interest Determination Date.
"INTEREST RATE" shall mean the rate per annum (expressed as a percentage)
equal to the LIBOR Rate plus the LIBOR Margin except for the First LIBOR
Reference Period for which the Interest Rate shall be 8.9375%.
"LIBOR BUSINESS DAY" shall mean any day on which banks are open for dealing
in foreign currency and exchange in London, England.
"LIBOR MARGIN" shall mean from the closing date through and including the
Maturity Date, three hundred and fifty (350) basis points per annum.
"LIBOR RATE" shall mean the London interbank offered rate for thirty (30)
day United States Dollar deposits in an amount of $1,000,000 or more established
by the Payee in accordance with the terms of this Note on each Interest
Determination Date.
"LOAN AMOUNT" shall mean Eight Million Seven Hundred Twenty Five Thousand
and no/100 Dollars ($8,725,000.00).
"MATURITY DATE" shall have the meaning set forth in Section 2.01(a)(ii)
hereof.
"MAXIMUM AMOUNT" shall have the meaning set forth in Section 4.07 hereof.
2
<PAGE>
"MORTGAGES" shall have the meaning set forth in Section 3.01 hereof.
"PAYMENT" shall have the meaning set forth in Section 2.02(a) hereof.
"PRINCIPAL PAYMENTS" shall have the meaning set forth in Section
2.01(a)(ii) hereof.
"PRINCIPALS" shall have the meaning set forth in Section 4.04 hereof.
"REUTERS SCREEN LIBO PAGE" shall mean the display page designated as "LIBO"
on the Reuters Monitor Money Rates Service.
SECTION 2. INTEREST AND AMORTIZATION PAYMENTS
Section 2.01. (a) Payments under this Note, calculated in accordance
with the terms hereof, shall be due and payable as follows:
(i) interest shall be due and payable on each and every Payment
Date at the Interest Rate in effect for the Interest Accrual Period
ending on the day preceding the Payment Date; and
(ii) the entire outstanding Principal Amount, together with all
accrued and unpaid interest and any other charges due hereon shall be
due and payable April 1, 1999 (the "MATURITY DATE").
(b) To the extent Payments are or become due and payable under this Note
or any of the other Loan Documents on a day (the "DUE DATE") which is not a
Business Day, such Payments are and shall be due and payable on the first
Business Day immediately following the Due Date for such Payments and in such
event, the interest which accrues on the Loan from the Due Date to the first
Business Day immediately following the Due Date shall not be due and payable
until the next succeeding Due Date and shall not be compounded.
(c) On each Interest Determination Date until all sums due under this Note
and the other Loan Documents have been paid in
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<PAGE>
full, the LIBOR Rate shall be the rate (expressed as a percentage per annum)
for deposits in U.S. Dollars for a one (1) month period that appears on
Telerate Page 3750 (or on such page as may replace Telerate Page 3750 on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying such rate all as
determined by Payee in its sole but good faith discretion) as of 11:00 a.m.,
London time, of such Interest Determination Date to the extent available. If
such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London
time, on the applicable Interest Determination Date, the LIBOR Rate will be
the arithmetic mean of the offered rates (expressed as a percentage per
annum) for deposits in U.S. dollars for a one (1) month period that appear on
the Reuters Screen LIBO Page as of 11:00 a.m., London time, on such Interest
Determination Date, if at least two such offered rates so appear. If fewer
than two such offered rates appear on the Reuters Screen LIBO Page as of
11:00 a.m., London time, on the applicable Interest Determination Date, the
Payee will request the principal London office of any four (4) major
reference banks in the London interbank market selected by the Payee in its
sole discretion to provide such bank's offered quotation (expressed as a
percentage per annum) to prime banks in the London interbank market for
deposits in U.S. dollars for a one (1) month period as of 11:00 a.m., London
time, on such Interest Determination Date for amounts of not less than
$1,000,000.00. If at least two such offered quotations are so provided, the
LIBOR Rate will be the arithmetic mean of such quotation. If fewer than two
such quotations are so provided, the Payee will request any three (3) major
banks in New York City selected by the Payee in its sole discretion to
provide such bank's rate (expressed as a percentage per annum) for loans in
U.S. dollars to leading European banks for a one (1) month period as of
approximately 11:00 a.m. New York City time, on the applicable Interest
Determination Date for amounts of not less than $1,000,000.00. If at least
two such rates are so provided, the LIBOR Rate will be the arithmetic mean of
such rates. If fewer than two such rates are so provided, then the LIBOR
Rate will be the LIBOR Rate in effect on the preceding Interest Determination
Date. The LIBOR Rate for any Interest Accrual Period shall be adjusted from
time to time, by increasing the rate thereof to compensate Payee for any
aggregate reserve requirements (including, without limitation, all basic,
supplemental, marginal and other reserve requirements and taking into account
any transactional adjustments or other
4
<PAGE>
scheduled changes in reserve requirements during any Interest Accrual Period)
which are required to be maintained by Payee with respect to "Eurodollar
liabilities" (as presently defined in Regulation D of the Board of Governors
of the Federal Reserve System) of the same term under Regulation D, or any
other regulations of a Governmental Authority having jurisdiction over Payee.
The establishment of the LIBOR Rate on each Interest Determination Date by
the Payee and the Payee's calculation of the rate of interest applicable to
this Note shall (in the absence of manifest error) be final and binding.
(d) If 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 or any change therein or in the interpretation or
application thereof, shall make it unlawful for the Payee to make or maintain
the interest rate based upon the LIBOR Rate plus the LIBOR Margin or to give
effect to its obligations as contemplated hereby, then upon notice by the Payee
to Maker, the Interest Rate shall be automatically converted to the interest
rate which was established on the immediately preceding Interest Determination
Date.
Section 2.02. APPLICATION OF PAYMENTS.
(a) Each and every payment (a "PAYMENT") made by Maker to Payee in
accordance with the terms of this Note and/or the terms of any one or more of
the other Loan Documents and all other proceeds received by Payee with respect
to the Debt shall be applied as follows:
(1) Payments, other than Unscheduled Payments, shall be applied
(i) first, to all interest (other than Default Rate Interest) which shall
be due and payable pursuant to the terms hereof as of the date the Payment
is received (including any Interest Shortfalls and interest thereon to the
extend permitted by applicable law); and (ii) second, to all Late Charges,
Default Rate Interest or premiums, if any, and other sums payable
hereunder or under the other Loan Documents (other than those sums
included in clauses (i) and (ii)
5
<PAGE>
of this Section 2.02(a)(1)) in such order and priority as determined by
Payee in its sole discretion.
(2) Unscheduled Payments shall be applied at the end of the Interest
Accrual Period in which such Unscheduled Payments are received (i) first,
to the Principal Amount until the entire outstanding Principal Amount has
been fully paid, and (ii) second, the balance, if any, in the manner
provided in subparagraph (1) above of this Section 2.02(a) (to the extent
applicable after giving effect to any payments previously made pursuant to
this Section 2.02).
(b) To the extent that Maker makes a Payment or Payee receives any Payment
or proceeds for Maker's benefit, which are subsequently invalidated, declared to
be fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to such extent, the
obligations of Maker hereunder intended to be satisfied by such Payment or
proceeds shall be revived and continue as if such Payment or proceeds had not
been received by Payee.
Section 2.03. DEFAULT RATE. Time is of the essence with respect to the
times set forth herein for the repayment of the Principal Amount and the
interest thereon. Should any amounts due hereunder or under any other Loan
Document not be paid in full on the date when the same shall be due and payable
(whether by acceleration, prepayment permitted hereunder or otherwise), then in
such event, the rate of interest to be paid on the entire Principal Amount of
this Note and all such other amounts shall be increased to the Default Rate and
shall be computed from the Due Date through and including the date, if any, upon
which such Default is fully cured. The foregoing provisions shall not be
construed as a waiver by Payee of its right to pursue any other remedies
available to it under the Mortgages or any other Loan Document, nor shall it be
construed to limit in any way the application of the Default Rate.
Section 2.04. VOLUNTARY PREPAYMENTS. Maker shall be permitted to repay
the Principal Amount of this Loan only on the terms and conditions and to the
extent provided in Article XV of
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<PAGE>
the Mortgages. All such repayments shall be applied in accordance with
Section 2.02(a)(2) hereof.
SECTION 3. DEFAULTS
Section 3.01. DEFAULTS. This Note is secured, INTER ALIA, by (i) certain
mortgages, deeds of trust and deeds to secure debt, security agreements,
assignments of rents and fixture filings (each herein referred to as a
"MORTGAGE" and collectively as the "MORTGAGES") all of even date herewith
covering property, of Maker, as more particularly described in each Mortgage,
and (ii) certain assignments of leases and rents and security deposits of even
date herewith made by Maker. All terms, covenants, conditions and agreements of
the Loan Documents, including without limitation, the Mortgages, and the due on
sale provision contained within the Mortgages, hereby constitute part of this
Note, as if the same had been fully set forth herein. The Mortgages specify
various Events of Default, upon the happening of which all or portions of the
sums owing under this Note may be declared immediately due and payable as more
specifically provided therein. Each Event of Default under the Mortgages shall
be an Event of Default hereunder.
Section 3.02. REMEDIES. If an Event of Default shall occur hereunder or
under any other Loan Documents, interest on the principal Amount and, to the
extent permitted by applicable law, all accrued but unpaid interest on the
Principal Amount shall, commencing on the date of the occurrence of such Event
of Default, at the option of Payee, immediately and without notice to Maker,
accrue interest at the Default Rate until such Event of Default is cured. The
foregoing provision shall not be construed as a waiver by Payee of its right to
pursue any other remedies available to it under the Mortgage, or any other
instrument evidencing or securing the Loan, nor shall it be construed to limit
in any way the application of the Default Rate. Failure to exercise this option
shall not constitute a waiver of the right to exercise the same in the event of
any subsequent Default or to exercise any other remedy available to Payee
relating to such Default. If there is more than one Maker of this Note, subject
to the provisions of Section 4.04 hereof, the undersigned Persons shall each be
jointly and severally liable to pay the entire Loan Amount and all other sums
becoming due hereunder or under the other Loan Documents.
7
<PAGE>
SECTION 4. MISCELLANEOUS
Section 4.01. WAIVERS. (a) Maker acknowledges that the Loan evidenced by
this Note is a commercial transaction and, to the fullest extent permitted by
Legal Requirements, as to this Note, the Mortgages and any other Loan Documents
securing this Note, Maker hereby waives all applicable exemption rights, whether
under the constitution of the State of New York or otherwise and also waives
valuation and appraisement, presentment, protest and demand, notice of protest,
demand and dishonor and nonpayment of this Note and, except as specifically
provided herein or in the other Loan Documents, all other notices or demands to
the fullest extent permitted pursuant to Legal Requirements, and hereby
expressly agrees that the maturity of this Note or payment hereunder, may be
extended from time to time without in any way affecting the liability of Maker
or of any guarantor of this Note. No notice to, or demand on Maker shall
entitle Maker to any other or future notice or demand in the same, similar or
other circumstances. Maker further consents to the release of any Person liable
for this obligation without affecting the liability of any other party hereto or
any guarantor hereof. The remedies of Payee provided herein, in the Mortgages
and the other Loan Documents, are cumulative and concurrent, and may be pursued
singly, successively, or together, at the sole discretion of Payee, and may be
exercised as often as the occasion therefor shall occur. Any delay on the part
of Payee in exercising any right hereunder shall not operate as a waiver of any
right, and any waiver granted for one occasion shall not operate as a waiver in
the event of a subsequent Default.
(b) No modification, amendment, extension, discharge, termination or
waiver (a "MODIFICATION") of any provision of this Note, the Mortgage or any one
or more of the other Loan Documents, nor consent to any departure by Maker
therefrom, shall in any event be effective unless the same shall be in a writing
signed by the party against whom enforcement is sought, and then such waiver or
consent shall be effective only in the specific instance, and for the purpose,
for which given. Except as otherwise expressly provided herein, no notice to,
or demand on, Maker shall entitle Maker to any other or future notice or demand
in the same, similar or other circumstances. Payee does not hereby agree to,
nor does Payee hereby commit itself to, enter into any
8
<PAGE>
Modification. However, in the event Payee does ever agree to a Modification,
such Modification shall only be upon the terms and conditions set forth in
the Mortgage. All rights and remedies herein specified are intended to be
cumulative and not in substitution for any right or remedy otherwise
available. In any action or proceeding to recover any sum herein provided
for, to the extent permitted by applicable Legal Requirements, no defense of
adequacy of security, or that resort must first be had to any other Person,
shall be asserted. All references herein to Maker and to Payee shall be
deemed to include its successors and assigns.
Section 4.02. TAXES. Maker agrees that if, at any time, the United States
of America, or any State or Commonwealth thereof or any subdivision of any such
State, shall require revenue or other stamps to be affixed to this Note or the
Mortgages, or impose any other tax or charges on the same, Maker will pay the
same, with interest and penalties thereon, if any.
Section 4.03. INVALIDITY. Wherever possible, each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note is held to be invalid or
unenforceable by a court of competent jurisdiction, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, and the other provisions of this Note shall remain in full force and
effect and shall be liberally construed in favor of Payee in order to effect the
provisions of this Note.
Section 4.04. EXCULPATION.
Notwithstanding anything to the contrary contained in this Note or the
other Loan Documents, the obligations of Maker hereunder shall be non-recourse
except with respect to the Mortgaged Property, which for the purposes of this
Note shall be deemed to include the term Trust Property, if applicable, and as
otherwise provided in Section 18.32 of the Mortgage, the terms of which are
incorporated herein.
9
<PAGE>
Section 4.05. GOVERNING LAW. (a) This Note was negotiated in New York,
and delivered by Maker and accepted by Payee in the State of New York, and the
proceeds of this Note were disbursed from New York, which State Maker agrees has
a substantial relationship to Payee and Maker and to the transaction embodied
hereby, in all respects, including, without limiting the generality of the
foregoing, matters of construction, validity, enforceability and performance.
This Note and the obligations arising hereunder shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and performed in such State (without regard to the conflicts of
law rules thereof) and any applicable law of the United States of America,
except that at all times the provisions for the creation, perfection, and
enforcement of the liens and security interests created pursuant to the
Mortgages and pursuant to the other Loan Documents shall be governed by and
construed according to the law of the State in which the applicable Cross-
collateralized Property is located, it being understood that, to the fullest
extent permitted by law of such State, the law of the State of New York shall
govern the validity and the enforceability of all Loan Documents, and the
obligations arising hereunder or thereunder. To the fullest extent permitted by
law, Maker hereby unconditionally and irrevocably waives any claim to assert
that the law of any other jurisdiction governs this Note and this Note shall be
governed by and construed in accordance with the laws of the State of New York
pursuant to Section 5-1401 of the New York General Obligations Law.
(b) Any legal suit, action or proceeding against Maker or Payee arising
out of or relating to this Note shall be instituted in any federal or state
court in New York, New York, pursuant to Section 5-1402 of the New York General
Obligations Law, and Maker waives any objection which it may now or hereafter
have to the laying of venue of any such suit, action or proceeding, and Maker
hereby irrevocably submits to the jurisdiction of any such court in any suit,
action or proceeding. Maker does hereby designate and appoint the Secretary of
the State of New York as its authorized agent to accept and acknowledge on its
behalf service of any and all process which may be served in any such suit,
action or proceeding in any federal or state court in New York, New York, and
agrees that service of process upon said agent at said address and written
notice of said service of Maker mailed or delivered to Maker in the manner
provided in the Mortgages,
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<PAGE>
shall be deemed in every respect effective service of process upon Maker, in
any such suit, action or proceeding in the State of New York. Maker (i)
shall give prompt notice to the Payee of any changed address of its
authorized agent hereunder, (ii) may at any time and from time to time
designate a substitute authorized agent with an office in New York, New York
(which office shall be designated as the address for service of process), and
(iii) shall promptly designate such a substitute if its authorized agent
ceases to have an office in New York, New York or is dissolved without
leaving a successor.
Section 4.06. FURTHER ASSURANCES. Maker shall execute and acknowledge (or
cause to be executed and acknowledged) and deliver to Payee all documents, and
take all actions, required by Payee from time to time to confirm the rights
created or now or hereafter intended to be created under this Note and the other
Loan Documents, to protect and further the validity, priority and enforceability
of this Note and the other Loan Documents, to subject to the Loan Documents any
property of Maker intended by the terms of any one or more of the Loan Documents
to be encumbered by the Loan Documents, or otherwise carry out the purposes of
the Loan Documents and the transactions contemplated thereunder; PROVIDED,
HOWEVER, that no such further actions, assurances and confirmations shall
increase Maker's obligations under this Note.
Section 4.07. MAXIMUM AMOUNT. (a) It is the intention of Maker and Payee
to conform strictly to the usury and similar laws relating to interest from time
to time in force, and all agreements between Maker and Payee, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever, whether by acceleration
of maturity hereof or otherwise, shall the amount paid or agreed to be paid in
the aggregate to Payee as interest hereunder or under the other Loan Documents
exceed the maximum permissible under applicable usury or such other laws (the
"MAXIMUM AMOUNT"). If under any circumstances whatsoever fulfillment of any
provision hereof, or any of the other Loan Documents, at the time performance of
such provision shall be due, shall involve transcending the Maximum Amount, then
IPSO FACTO, the obligation to be fulfilled shall be reduced to the Maximum
Amount. For the purposes of calculating the actual amount of interest paid
and/or payable hereunder, in respect of
11
<PAGE>
laws pertaining to usury or such other laws, all sums paid or agreed to be
paid to the holder hereof for the use, forbearance or detention of the Debt,
outstanding from time to time shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread from the date of
disbursement of the proceeds of this Note until payment in full of all of the
Debt, so that the actual rate of interest on account of the Debt is uniform
through the term hereof. The terms and provisions of this Section 4.07 shall
control and supersede every other provision of all agreements between Maker
or any endorser and Payee.
(b) If under any circumstances Payee shall ever receive an amount which
would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the Loan Amount owing hereunder and any other obligation of Maker
in favor of Payee, and shall be so applied in accordance with Section 2.2
hereof, or if such excessive interest exceeds the unpaid balance of the Loan
Amount and any other obligation of Maker in favor of Payee, the excess shall be
deemed to have been a payment made by mistake and shall be refunded to Maker.
Section 4.08. COSTS OF COLLECTION. Maker agrees to pay all costs and
expenses of collection incurred by Payee, in addition to principal, interest,
and premiums, if any, and Late Charges, including, without limitation,
reasonable attorneys' fees and disbursements, all costs and expenses incurred in
connection with the pursuit by Payee of any of its rights or remedies hereunder,
under the Mortgages or any of the other Loan Documents or the protection of or
realization of collateral or in connection with Payee's collection efforts,
whether or not suit on this Note, on any of the other Loan Documents or any
foreclosure proceeding is filed, and all such costs and expenses shall be
payable on demand with interest thereon to be calculated at the Default Rate and
shall be secured by the Mortgages and all other collateral at any time held by
Payee as security for Maker's obligations to Payee.
Section 4.09. WAIVER OF JURY TRIAL. Maker, to the fullest extent it may
lawfully do so, waives any right it may have to trial by jury in any action,
including, without limitation, any tort action, to interpose any counterclaim in
any action (other than a compulsory counterclaim), and to have the same
consolidated with any other or separate action brought on or with respect to
this Note, the Mortgages or any other Loan Document.
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Section 4.10. HEADINGS. The section headings in this Note are included
herein for convenience of reference only and shall not constitute a part of this
Note for any other purpose.
Section 4.11. PARTICIPATION. Payee shall have the right to transfer, sell
and assign this Note in whole, but not in part, the Mortgages and/or any of the
other Loan Documents, and to transfer, assign or sell participation and
subparticipations (including blind or undisclosed participation and
subparticipations) in the Mortgages and the other Loan Documents and the
obligations hereunder to any Person; provided, however, that no participation
shall increase, decrease or otherwise affect either Maker's or Payee's
obligations hereunder, under the Mortgages or under any of the other Loan
Documents.
Section 4.12. LATE PAYMENT CHARGE. If any portion of the Debt is not paid
in full within five (5) days after the date on which it is due and payable
hereunder, Maker shall pay to Payee an amount equal to three percent (3%) of
such unpaid portion of the Debt to defray the expense incurred by Payee in
handling and processing such delinquent payment, and such amount shall
constitute a part of the Debt.
Section 4.13 SEVERABILITY.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
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IN WITNESS WHEREOF, this Note has been duly executed by Maker, as of the
day and year first above written.
Witness: HOST VENTURES, INC., Maker,
a Maryland Corporation,
By: /s/ Michael S. McNulty
------------------------------
Michael S. McNulty
President
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<PAGE>
DRAFT 3/12/97
================================================================================
HOST VENTURES, INC.,
as Grantor
to
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC,
as Beneficiary
DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND FIXTURE FILING
-------------------------
Dated: March __, 1997
PREPARED BY AND UPON RECORDATION RETURN TO:
Brown & Wood LLP
One World Trade Center
57th Floor
New York, New York 10048
Attention: John L. Kelly, Esq.
================================================================================
<PAGE>
INDEX
PAGE
----
ARTICLE I: DEFINITIONS
Section 1.01. Certain Definitions. . . . . . . . . . . . . . . . . . . 6
ARTICLE II: COVENANTS, WARRANTIES
AND REPRESENTATIONS OF Grantor
Section 2.01. Payment of Debt. . . . . . . . . . . . . . . . . . . . . 33
Section 2.02. Representations and Warranties of Grantor. . . . . . . . 33
Section 2.03. Further Acts, etc. . . . . . . . . . . . . . . . . . . . 43
Section 2.04. Recording of Deed of Trust, etc. . . . . . . . . . . . . 43
Section 2.05. Representations and Warranties as to the Trust
Property . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 2.06. Removal of Lien. . . . . . . . . . . . . . . . . . . . . 50
Section 2.07. Cost of Defending and Upholding this Deed of
Trust Lien . . . . . . . . . . . . . . . . . . . . . . . 52
Section 2.08. Use of the Trust Property. . . . . . . . . . . . . . . . 52
Section 2.09. Financial Reports. . . . . . . . . . . . . . . . . . . . 52
Section 2.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . 55
Section 2.11. Intentionally Omitted. . . . . . . . . . . . . . . . . . 55
Section 2.12. Updates of Representations . . . . . . . . . . . . . . . 55
ARTICLE III: INSURANCE AND CASUALTY RESTORATION
Section 3.01. Insurance Coverage . . . . . . . . . . . . . . . . . . . 55
Section 3.02. Policy Terms . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.03. Assignment of Policies . . . . . . . . . . . . . . . . . 59
Section 3.04. Casualty Restoration . . . . . . . . . . . . . . . . . . 61
Section 3.05. Compliance with Insurance Requirements . . . . . . . . . 65
Section 3.06. Event of Default During Restoration. . . . . . . . . . . 67
Section 3.07. Application of Proceeds to Debt Reduction. . . . . . . . 67
ARTICLE IV: IMPOSITIONS
Section 4.01. Payment of Impositions, Utilities and
Taxes, etc . . . . . . . . . . . . . . . . . . . . . . . 67
Section 4.02. Deduction from Value . . . . . . . . . . . . . . . . . . 68
i
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INDEX
PAGE
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Section 4.03. No Joint Assessment. . . . . . . . . . . . . . . . . . . 69
Section 4.04. Right to Contest . . . . . . . . . . . . . . . . . . . . 69
Section 4.05. No Credits on Account of the Debt. . . . . . . . . . . . 70
Section 4.06. Documentary Stamps.. . . . . . . . . . . . . . . . . . . 70
ARTICLE V: CENTRAL CASH MANAGEMENT
Section 5.01. Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . 70
Section 5.02. Establishment of Sub-Accounts. . . . . . . . . . . . . 72
Section 5.03. Permitted Investments. . . . . . . . . . . . . . . . . . 73
Section 5.04. Interest on Accounts . . . . . . . . . . . . . . . . . . 73
Section 5.05. Monthly Funding of Sub-Accounts. . . . . . . . . . . . . 74
Section 5.06. Payment of Basic Carrying Costs. . . . . . . . . . . . . 76
Section 5.07. Debt Service Payment Sub-Account . . . . . . . . . . . . 77
Section 5.08. Recurring Replacement Reserve Sub-Account. . . . . . . . 77
Section 5.09. Operation and Maintenance Expense Sub-Account. . . . . . 77
Section 5.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 5.11. Curtailment Reserve Sub-Account. . . . . . . . . . . . . 78
Section 5.12. Performance of Engineering Work. . . . . . . . . . . . . 79
Section 5.13. Loss Proceeds. . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE VI: CONDEMNATION
Section 6.01. Condemnation . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE VII: LEASES AND RENTS
Section 7.01. Assignment . . . . . . . . . . . . . . . . . . . . . . . 82
Section 7.02. Management of Trust Property . . . . . . . . . . . . . . 83
ARTICLE VIII: MAINTENANCE AND REPAIR
Section 8.01. Maintenance and Repair of the Trust Property;
Alterations; Replacement of Equipment . . . . . . . . . 88
ii
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INDEX
PAGE
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ARTICLE IX: TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY
Section 9.01. Other Encumbrances . . . . . . . . . . . . . . . . . . . 90
Section 9.02. No Transfer. . . . . . . . . . . . . . . . . . . . . . . 90
Section 9.03. Due on Sale. . . . . . . . . . . . . . . . . . . . . . . 90
Section 9.04. Permitted Sale . . . . . . . . . . . . . . . . . . . . . 90
ARTICLE X: CERTIFICATES
Section 10.01. Estoppel Certificates . . . . . . . . . . . . . . . . . 92
ARTICLE XI: NOTICES
Section 11.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . 93
ARTICLE XII: INDEMNIFICATION
Section 12.01. Indemnification Covering Trust Property . . . . . . . . 93
ARTICLE XIII: DEFAULTS
Section 13.01. Events of Default . . . . . . . . . . . . . . . . . . . 95
Section 13.02. Remedies. . . . . . . . . . . . . . . . . . . . . . . . 97
Section 13.03. Payment of Debt After Default . . . . . . . . . . . . . 102
Section 13.04. Possession of the Trust Property. . . . . . . . . . . . 102
Section 13.05. Interest After Default. . . . . . . . . . . . . . . . . 102
Section 13.06. Grantor's Actions After Default . . . . . . . . . . . . 103
Section 13.07. Control by Beneficiary After Default. . . . . . . . . . 103
Section 13.08. Right to Cure Defaults. . . . . . . . . . . . . . . . . 103
Section 13.09. Late Payment Charge . . . . . . . . . . . . . . . . . . 104
Section 13.10. Recovery of Sums Required to Be Paid. . . . . . . . . . 104
Section 13.11. Marshalling and Other Matters . . . . . . . . . . . . . 105
Section 13.12. Tax Reduction Proceedings . . . . . . . . . . . . . . . 105
Section 13.13. General Provisions Regarding Remedies . . . . . . . . . 105
iii
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INDEX
PAGE
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ARTICLE XIV: COMPLIANCE WITH REQUIREMENTS
Section 14.01. Compliance with Legal Requirements. . . . . . . . . . . 106
Section 14.02. Compliance with Recorded Documents; No
Future Grants . . . . . . . . . . . . . . . . . . . . . 107
ARTICLE XV: PREPAYMENT; RELEASE
Section 15.01. Prepayment. . . . . . . . . . . . . . . . . . . . . . . 108
Section 15.02. Release of Trust Property . . . . . . . . . . . . . . . 108
ARTICLE XVI: ENVIRONMENTAL COMPLIANCE
Section 16.01. Covenants, Representations and Warranties . . . . . . . 109
Section 16.02. Environmental Indemnification . . . . . . . . . . . . . 113
ARTICLE XVII: ASSIGNMENTS
Section 17.01. Participations and Assignments. . . . . . . . . . . . . 114
ARTICLE XVIII: MISCELLANEOUS
Section 18.01. Right of Entry. . . . . . . . . . . . . . . . . . . . . 115
Section 18.02. Cumulative Rights . . . . . . . . . . . . . . . . . . . 115
Section 18.03. Liability . . . . . . . . . . . . . . . . . . . . . . . 115
Section 18.04. Exhibits Incorporated . . . . . . . . . . . . . . . . . 115
Section 18.05. Severable Provisions. . . . . . . . . . . . . . . . . . 115
Section 18.06. Duplicate Originals . . . . . . . . . . . . . . . . . . 115
Section 18.07. No Oral Change. . . . . . . . . . . . . . . . . . . . . 115
SECTION 18.08. WAIVER OF COUNTERCLAIM, ETC.. . . . . . . . . . . . . . 116
Section 18.09. Headings; Construction of Documents; etc. . . . . . . . 116
Section 18.10. Sole Discretion of Beneficiary. . . . . . . . . . . . . 116
Section 18.11. Waiver of Notice. . . . . . . . . . . . . . . . . . . . 116
Section 18.12. Covenants Run with the Land . . . . . . . . . . . . . . 116
SECTION 18.13. APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . 117
Section 18.14. Security Agreement. . . . . . . . . . . . . . . . . . . 117
Section 18.15. Actions and Proceedings . . . . . . . . . . . . . . . . 118
iv
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INDEX
PAGE
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Section 18.16. Usury Laws. . . . . . . . . . . . . . . . . . . . . . . 119
Section 18.17. Remedies of Grantor . . . . . . . . . . . . . . . . . . 119
Section 18.18. Offsets, Counterclaims and Defenses . . . . . . . . . . 119
Section 18.19. No Merger . . . . . . . . . . . . . . . . . . . . . . . 119
Section 18.20. Restoration of Rights . . . . . . . . . . . . . . . . . 120
Section 18.21. Waiver of Statute of Limitations. . . . . . . . . . . . 120
Section 18.22. Advances. . . . . . . . . . . . . . . . . . . . . . . . 120
Section 18.23. Application of Default Rate Not a Waiver. . . . . . . . 120
Section 18.24. Intervening Lien. . . . . . . . . . . . . . . . . . . . 120
Section 18.25. No Joint Venture or Partnership . . . . . . . . . . . . 120
Section 18.26. Time of the Essence.. . . . . . . . . . . . . . . . . . 121
Section 18.27. Grantor's Obligations Absolute. . . . . . . . . . . . . 121
Section 18.28. Publicity . . . . . . . . . . . . . . . . . . . . . . . 121
Section 18.29. Securitization Opinions . . . . . . . . . . . . . . . . 122
Section 18.30. Cooperation with Rating Agencies. . . . . . . . . . . . 122
Section 18.31. Securitization Financials . . . . . . . . . . . . . . . 122
Section 18.32. Exculpation . . . . . . . . . . . . . . . . . . . . . . 122
Section 18.33. Concerning the Deed Trustee . . . . . . . . . . . . . . 125
Section 18.34. Deed Trustee's Fees . . . . . . . . . . . . . . . . . . 125
Section 18.35. Intentionally Deleted . . . . . . . . . . . . . . . . . 125
Section 18.36. Certain Matters Relating to Trust Property
Located in the States of California and Arizona . . . . 126
Section 18.37. Intentionally Deleted . . . . . . . . . . . . . . . . . 131
Section 18.38. Certain Matters Relating to Trust Property
in the State of Missouri . . . . . . . . . . . . . . . 131
Section 18.39. Certain Matters Relating to Trust Property
Located in the State of Arizona . . . . . . . . . . . . 132
v
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INDEX
Exhibit A - Legal Description of Premises
Exhibit B - Initial Sub-Account Deposits
Exhibit C - Form of Cash Flow Statement
Exhibit D - Required Engineering Work
Exhibit E - Form of Sufficiency Notice
Exhibit F - Cross-collateralized Properties
Exhibit G - Form of Credit Card Payments Direction Letter
Exhibit H - Existing Operating Lease
vi
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THIS DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND
FIXTURE FILING is made as of the ____ day of March, 1997, by the party set forth
on the signature page hereto as Grantor, having the address set forth on the
signature page hereto (hereinafter referred to as "Grantor"), to
____________________, having an address at____________________________________
____, (hereinafter referred to as "Deed Trustee") for the benefit of CREDIT
SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, having an address at Eleven Madison
Avenue, New York, New York 10010 (hereinafter referred to as "BENEFICIARY").
W I T N E S S E T H:
WHEREAS, Beneficiary has authorized a loan (hereinafter referred to as
the "LOAN") to Grantor in the maximum principal sum of EIGHT MILLION SEVEN
HUNDRED TWENTY FIVE THOUSAND DOLLARS and NO/100 ($8,725,000.00) hereof
(hereinafter referred to as the "LOAN AMOUNT"), which Loan is evidenced by that
certain note, dated the date hereof (together with any supplements, amendments,
modifications or extensions thereof) (hereinafter referred to as the "NOTE")
given by Grantor, as maker, to Beneficiary, as payee;
WHEREAS, in consideration of the Loan, Grantor has agreed to make
payments in amounts sufficient to pay and redeem, and provide for the payment
and redemption of the principal of, premium, if any, and interest on the Note
when due;
WHEREAS, Grantor desires by this Deed of Trust to provide for, among
other things, the issuance of the Note and for the deposit, deed and pledge by
Grantor with, and the creation of a security interest in favor of, Beneficiary,
as security for Grantor's obligations to Beneficiary from time to time pursuant
to the Note and the other Loan Documents;
WHEREAS, Grantor and Beneficiary intend these recitals to be a
material part of this Deed of Trust; and
WHEREAS, all things necessary to make this Deed of Trust the valid and
legally binding obligation of Grantor in accordance with its terms, for the uses
and purposes herein set forth, have been done and performed.
<PAGE>
NOW THEREFORE, to secure the payment of the principal of, prepayment
premium (if any) and interest on the Note and all other obligations, liabilities
or sums due or to become due under this Deed of Trust, the Note or any other
Loan Document, including, without limitation, interest on said obligations,
liabilities or sums (said principal, premium, interest and other sums being
hereinafter referred to as the "DEBT"), and the performance of all other
covenants, obligations and liabilities of Grantor pursuant to the Loan
Documents, Grantor has executed and delivered this Deed of Trust; and Grantor
has irrevocably
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<PAGE>
granted, and by these presents and by the execution and delivery hereof does
hereby irrevocably grant, bargain, sell, alien, demise, release, convey, assign,
transfer, deed, hypothecate, pledge, set over, warrant, deed of trust and
confirm to Deed Trustee, its successors and assigns, in trust, for the benefit
of Beneficiary, forever with power of sale and right of entry and possession,
all right, title and interest of Grantor in and to all of the following
property, rights, interests and estates and Grantor hereby grants to Beneficiary
a security interest in all of Grantor's right, title and interest in and to that
portion of the Trust Property (as defined below) which is personal property or
is otherwise covered by the UCC:
(a) the plot(s), piece(s) or parcel(s) of real property
described in EXHIBIT A attached hereto and made a part hereof
(individually and collectively, hereinafter referred to as the
"PREMISES");
(b) (i) all buildings, foundations, structures, fixtures,
additions, enlargements, extensions, modifications, repairs,
replacements and improvements of every kind or nature now or hereafter
located on the Premises, including, without limitation, the Hotel (as
hereinafter defined) (hereinafter collectively referred to as the
"IMPROVEMENTS"); and (ii) to the extent permitted by law, the name or
names, if any, as may now or hereafter be used for each Improvement,
and the goodwill associated therewith;
(c) all easements, rights-of-way, strips and gores of land,
streets, ways, alleys, passages, sewer rights, water, water courses,
water rights and powers, ditches, ditch rights, reservoirs and
reservoir rights, air rights and development rights, lateral support,
drainage, gas, oil and mineral rights, tenements, hereditaments and
appurtenances of any nature whatsoever, in any way belonging, relating
or pertaining to the Premises or the Improvements and the reversion
and reversions, remainder and remainders, whether existing or
hereafter acquired, and all land lying in the bed of any street, road
or avenue, opened or proposed, in front of or adjoining the Premises
to the center line thereof and any and all sidewalks, drives, curbs,
passageways, streets, spaces and alleys adjacent to or used in
3
<PAGE>
connection with the Premises and/or Improvements and all the estates,
rights, titles, interests, property, possession, claim and demand
whatsoever, both in law and in equity, of Grantor of, in and to the
Premises and Improvements every part and parcel thereof, with the
appurtenances thereto;
(d) all machinery, equipment, fittings, apparatus, appliances,
furniture, furnishings, tools, fixtures (including but not limited to
all Inventory (as hereinafter defined) and articles of personal
property and accessions thereof and renewals, replacements thereof and
substitutions therefor (including, but not limited to, office
furniture, beds, bureaus, chiffonniers, chests, chairs, desks, lamps,
mirrors, bookcases, tables, rugs, carpeting, drapes, draperies,
curtains, shades, venetian blinds, screens, paintings, hangings,
pictures, divans, couches, luggage carts, luggage racks, stools,
sofas, chinaware, linens, pillows, blankets, glassware, foodcarts,
cookware, dry cleaning facilities, dining room wagons, keys or other
entry systems, bars, bar fixtures, liquor and other drink dispensers,
icemakers, radios, television sets, intercom and paging equipment,
electric and electronic equipment, dictating equipment, private
telephone systems, medical equipment, potted plants, heating, lighting
and plumbing fixtures, fire prevention and extinguishing apparatus,
cooling and air-conditioning systems, elevators, escalators, fittings,
plants, apparatus, stoves, ranges, refrigerators, laundry machines,
tools, machinery, engines, dynamos, motors, boilers, incinerators,
switchboards, conduits, compressors, vacuum cleaning systems, floor
cleaning, waxing and polishing equipment, call systems, brackets,
signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers,
shelving, spotlighting equipment, dishwashers, garbage disposals,
washers and dryers)), other customary hotel equipment and other
property of every kind and nature whatsoever owned by Grantor, or in
which Grantor has or shall have an interest, now or hereafter located
upon, or in, and used in connection with the Premises or the
Improvements, or
4
<PAGE>
appurtenant thereto, and all building equipment, materials and
supplies of any nature whatsoever owned by Grantor, or in which
Grantor has or shall have an interest, now or hereafter located upon,
or in, and used in connection with the Premises or the Improvements
or appurtenant thereto, (hereinafter, all of the foregoing items
described in this paragraph (d) are collectively called the
"EQUIPMENT"), all of which, and any replacements, modifications,
alterations and additions thereto, to the extent permitted by
applicable law, shall be deemed to constitute fixtures (the
"FIXTURES"), and are part of the real estate and security for the
payment of the Debt and the performance of Grantor's obligations. To
the extent any portion of the Equipment is not real property or
Fixtures under applicable law, it shall be deemed to be personal
property, and this Deed of Trust shall constitute a security agreement
creating a security interest therein in favor of Beneficiary under the
UCC;
(e) all awards or payments, including interest thereon, which
may hereafter be made with respect to the Premises, the Improvements,
the Fixtures, or the Equipment, whether from the exercise of the right
of eminent domain (including but not limited to any transfer made in
lieu of or in anticipation of the exercise of said right), or for a
change of grade, or for any other injury to or decrease in the value
of the Premises, the Improvements or the Equipment or refunds with
respect to the payment of property taxes and assessments, and all
other proceeds of the conversion, voluntary or involuntary, of the
Premises, Improvements, Equipment, Fixtures or any other Trust
Property or part thereof into cash or liquidated claims;
(f) all leases, tenancies, Licenses and Permits, Property
Agreements and other agreements affecting the use, enjoyment or
occupancy of the Premises, the Improvements, the Fixtures, or the
Equipment or any portion thereof now or hereafter entered into,
whether before or after the filing by or against Grantor of any
petition for relief under the Bankruptcy Code and all reciprocal
easement agreements, license agreements and other agreements with Pad
Owners, including, without limitation the Existing Operating Lease
(hereinafter collectively referred to as the "LEASES"), together with
all receivables, revenues, rentals, receipts and all payments received
from the rental of guest rooms, beverage or food sales, and all other
payments received from guests or visitors of the Premises, and other
items of revenue, receipts or income as identified in the Uniform
5
<PAGE>
System of Accounts (as hereinafter defined), all cash or security
deposits, lease termination payments, advance rentals and payments of
similar nature and guarantees or other security held by Grantor in
connection therewith to the extent of Grantor's right or interest
therein and all remainders, reversions and other rights and estates
appurtenant thereto, and all base, fixed, percentage or additional
rents, and other rents, oil and gas or other mineral royalties, and
bonuses, issues, profits and rebates and refunds or other payments
made by any Governmental Authority from or relating to the Premises,
the Improvements, the Fixtures or the Equipment plus all rents, common
area charges and other payments, whether paid or accruing before or
after the filing by or against Grantor of any petition for relief
under the Bankruptcy Code (the "RENTS") and all proceeds from the sale
or other disposition of the Leases and the right to receive and apply
the Rents to the payment of the Debt;
(g) all proceeds of and any unearned premiums on any insurance
policies covering the Premises, the Improvements, the Fixtures, the
Rent or the Equipment, including, without limitation, the right to
receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Premises, the
Improvements, the Fixtures or the Equipment and all refunds or rebates
of Impositions, and interest paid or payable with respect thereto;
(h) all monies deposited or to be deposited in any funds or
accounts maintained or deposited with Grantor or Beneficiary, or its
assigns, in connection herewith, including, without limitation, the
Capital Expenditure Reserve Account (as defined in the Existing
Operating Lease) the Rent Account, the Security Deposit Account (to
the extent permitted by law), the Engineering Escrow Sub-Account, the
Central Account, the Basic Carrying Costs Sub-Account, the Debt
Service Payment Sub-Account, the Recurring Replacement Reserve Sub-
Account, the Operation and Maintenance Expense Sub-Account and the
Curtailment Reserve Sub-Account;
6
<PAGE>
(i) all accounts receivable, contract rights, franchises,
interests, estate or other claims, both at law and in equity, relating
to the Premises, the Improvements, the Fixtures or the Equipment, not
included in Rents;
(j) all claims against any Person with respect to any
damage to the Premises, the Improvements, the Fixtures or Equipment,
including, without limitation, damage arising from any defect in or
with respect to the design or construction of the Improvements, the
Fixtures or the Equipment and any damage resulting therefrom;
(k) all deposits or other security or advance payments,
including rental payments made by or on behalf of Grantor to others,
with respect to (i) insurance policies, (ii) utility services, (iii)
cleaning, maintenance, repair or similar services, (iv) refuse removal
or sewer service, (v) parking or similar services or rights and (vi)
rental of Equipment, if any, relating to or otherwise used in the
operation of the Premises, Improvements, the Fixtures or Equipment;
(l) all intangible property relating to the Premises, the
Improvements, the Fixtures or the Equipment or its operation,
including, without limitation, trade names, trademarks, logos,
building names and goodwill;
(m) all advertising material, guaranties, warranties, building
permits, other permits, licenses, plans and specifications, shop and
working drawings, soil tests, appraisals and other documents,
materials and/or personal property of any kind now or hereafter
existing in or relating to the Premises, the Improvements, the
Fixtures, and the Equipment;
(n) all drawings, designs, plans and specifications prepared by
the architects, engineers, interior designers, landscape designers and
any other consultants or professionals for the design, development,
construction, repair and/or improvement of the Trust Property, as
amended from time to time;
7
<PAGE>
(o) the right, in the name of and on behalf of Grantor, to
appear in and defend any action or proceeding brought with respect to
the Premises, the Improvements, the Fixtures or the Equipment and to
commence any action or proceeding to protect the interest of
Beneficiary in the Premises, the Improvements, the Fixtures or the
Equipment; and
(p) all proceeds, products, substitutions and accessions
(including claims and demands therefor) of each of the foregoing.
All of the foregoing items (a) through (p), together with all of the
right, title and interest of Grantor therein, are collectively referred to as
the "TRUST PROPERTY".
TO HAVE AND TO HOLD the above granted and described Trust Property
unto Deed Trustee and its successors and assigns for the proper use and benefit
of Beneficiary, and the successors and assigns of Beneficiary in fee simple,
forever.
PROVIDED, ALWAYS, and these presents are upon this express condition,
if Grantor shall well and truly pay and discharge the Debt and perform and
observe the terms, covenants and conditions set forth in the Loan Documents,
then these presents and the estate hereby granted shall cease and be void.
This Deed of Trust constitutes a security agreement between Grantor
and Beneficiary with respect to that portion of the Trust Property in which
Beneficiary is granted a security interest and cumulative all other rights and
remedies of Beneficiary hereunder. Beneficiary shall have all other rights and
remedies of a secured party under the UCC.
AND Grantor covenants with and warrants to Beneficiary that:
ARTICLE I: DEFINITIONS
Section 1.01. CERTAIN DEFINITIONS.
For all purposes of this Deed of Trust, except as otherwise expressly
provided or unless the context clearly indicates a contrary intent:
8
<PAGE>
(1) the capitalized terms defined in this Section have
the meanings assigned to them in this Section, and include the plural
as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(3) the words "herein", "hereof", and "hereunder" and other
words of similar import refer to this Deed of Trust as a whole and not
to any particular Section, or other subdivision.
"AFFILIATE" of any specified Person shall mean any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.
"AGGREGATE DEBT SERVICE COVERAGE" shall mean the quotient obtained by
dividing the aggregate Net Operating Income for all of the Cross-collateralized
Properties for a trailing twelve (12) month period by the aggregate payments of
interest, principal, and all other sums (not including the amount of principal
payable upon Maturity) due for such period under the Note (determined as of the
date the calculation of Aggregate Debt Service Coverage is required or requested
hereunder).
"ALLOCATED LOAN AMOUNT" shall mean the Initial Allocated Loan Amount
of each Cross-collateralized Property as such amount may be adjusted from time
to time as hereinafter set forth. Upon each adjustment in the principal portion
of the Debt (each a "TOTAL ADJUSTMENT"), whether as a result of amortization,
prepayment, defeasance or as otherwise expressly provided herein or in any other
Loan Document, each Allocated Loan Amount shall be increased or decreased, as
the case may be, by an amount equal to the product of (i) the Total Adjustment,
and (ii) a fraction, the numerator of which is the applicable Allocated Loan
Amount (prior to the adjustment in question) and the denominator of
9
<PAGE>
which is the Debt prior to the adjustment to the principal portion of the
Debt which results in the recalculation of the Allocated Loan Amount.
However, when the principal portion of the Debt is reduced as a result of
Beneficiary's receipt of (i) a Release Price or, in connection with a
Release, funds sufficient to prepay a portion of the Debt in the amount of
the Release Price, the Allocated Loan Amount for the Cross-collateralized
Property being released and discharged from the encumbrance of the applicable
Cross-collateralized Deed of Trust and related Loan Documents shall be
reduced to zero (the amount by which such Allocated Loan Amount is reduced
being referred to as the "RELEASED ALLOCATED AMOUNT"), and each other
Allocated Loan Amount shall be decreased by an amount equal to the product of
(1) the excess of (a) the Release Price over (b) the Released Allocated
Amount and (2) a fraction, the numerator of which is the applicable Allocated
Loan Amount (prior to the adjustment in question) and the denominator of
which is the aggregate of all of the Allocated Loan Amounts other than the
Allocated Loan Amount applicable to the Cross-collateralized Property for
which the Release Price was paid, or (ii) Net Proceeds, the Allocated Loan
Amounts for the Cross-collateralized Property with respect to which the Net
Proceeds were received shall be reduced to zero (the amount by which such
Allocated Loan Amount is reduced being referred to as the "FORECLOSED
ALLOCATED AMOUNT") and each other Allocated Loan Amount shall (x) if the Net
Proceeds exceed the Foreclosed Allocated Amount (such excess being referred
to as the "SURPLUS NET PROCEEDS"), be decreased by an amount equal to the
product of (1) the Surplus Net Proceeds and (2) a fraction, the numerator of
which is the applicable Allocated Loan Amount (prior to the adjustment in
question) and the denominator of which is the aggregate of all of the
Allocated Loan Amounts (prior to the adjustment in question) other than the
Allocated Loan Amount applicable to the Cross-collateralized Property with
respect to which the Net Proceeds were received (such fraction being referred
to as the "NET PROCEEDS ADJUSTMENT FRACTION"), (y) if the Foreclosed
Allocated Amount exceeds the Net Proceeds (such excess being referred to as
the "NET PROCEEDS DEFICIENCY"), be increased by an amount equal to the
product of (1) the Net Proceeds Deficiency and (2) the Net Proceeds
Adjustment Fraction, or (z) if the Net Proceeds equal the Foreclosed
Allocated Amount, remain unadjusted, or (iii) Loss Proceeds or partial
prepayments or defeasances, as applicable, made in accordance with Section
15.01 hereof, the Allocated Loan Amount for the Cross-
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collateralized Property with respect to which the Loss Proceeds or voluntary
prepayments or defeasances, as applicable, were received shall be decreased
by an amount equal to the sum of (A) with respect to Loss Proceeds, Loss
Proceeds which are applied towards the reduction of the Debt as set forth in
Article III hereof, if any, and (B) with respect to voluntary prepayments or
defeasances, the amount of any such voluntary prepayment which is applied
towards the reduction of the Debt in accordance with the provisions of the
Note, if any, but in no event shall the Allocated Loan Amount for the
Cross-collateralized Property with respect to which the Loss Proceeds or
voluntary prepayments or defeasances, as applicable, were received be reduced
to an amount less than zero (the amount by which such Allocated Loan Amount
is reduced being referred to as the "LOSS PROCEEDS OR PREPAYMENT ALLOCATED
AMOUNT") and each other Allocated Loan Amount shall be decreased by an amount
equal to the product of (1) the excess of (a) the Loss Proceeds or such
partial prepayments or defeasances as applicable, over (b) the Loss Proceeds
or Prepayment Allocated Amount, and (2) a fraction, the numerator of which is
the applicable Allocated Loan Amount (prior to the adjustment in question)
and the denominator of which is the aggregate of all of the Allocated Loan
Amounts (prior to the adjustment in question) other than the Allocated Loan
Amount applicable to the Cross-collateralized Property to which such Loss
Proceeds or partial prepayments were applied.
"ANNUAL BUDGET" shall have the meaning set forth in Section 2.09(i)
hereof.
"APPRAISAL" shall mean the appraisal of the Trust Property and all
supplemental reports or updates thereto previously delivered to Beneficiary in
connection with the Loan.
"APPRAISER" shall mean the Person who prepared the Appraisal.
"APPROVED OPERATOR STANDARD" shall mean the standard of business
operations, practices and procedures customarily employed by entities having a
senior executive with at least seven (7) years' experience in the management of
motel properties which manages not less than 2,500 rooms, including, without
limitation, certain motels which contain more than 100 rooms.
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"ARCHITECT" shall have the meaning set forth in Section 3.04(b)(i)
hereof.
"ASSIGNMENT" shall mean the Assignment of Leases and Rents and
Security Deposits of even date herewith relating to the Trust Property given by
Grantor to Beneficiary.
"BANK" shall mean LaSalle National Bank, or any successor bank
hereafter selected by Beneficiary.
"BANKRUPTCY CODE" shall mean 11 U.S.C. Section 101 et seq., as amended
from time to time.
"BASIC CARRYING COSTS" shall mean the sum of the following costs
associated with the Trust Property: (a) Impositions and (b) insurance premiums.
"BASIC CARRYING COSTS MONTHLY INSTALLMENT" shall mean Beneficiary's
estimate of one-twelfth (1/12th) of the annual amount for Basic Carrying Costs.
"Basic Carrying Costs Monthly Installment" shall also include, if required by
Beneficiary, a sum of money which, together with such monthly installments, will
be sufficient to make the payment of each such Basic Carrying Cost at least
thirty (30) days prior to the date initially due. Should such Basic Carrying
Costs not be ascertainable at the time any monthly deposit is required to be
made, the Basic Carrying Costs Monthly Installment shall be determined by
Beneficiary in its reasonable discretion on the basis of the aggregate Basic
Carrying Costs for the prior Fiscal Year or month or the prior payment period
for such cost. Notwithstanding the foregoing, provided no Event of Default has
occurred, "Basic Carrying Costs Monthly Installment" shall only include Basic
Carrying Costs to the extent Grantor is required to pay same under an Operating
Lease or other agreement, provided that such Operating Lease or other agreement
is in full force and effect. As soon as the Basic Carrying Costs are fixed for
the then current Fiscal Year, month or period, the next ensuing Basic Carrying
Costs Monthly Installment shall be adjusted to reflect any deficiency or surplus
in prior monthly payments. If at any time during the term of the Loan
Beneficiary determines that there will be insufficient funds in the Basic
Carrying Costs Sub-Account to make payments when they become due and payable,
Beneficiary shall have the right to adjust the Basic Carrying Costs Monthly
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Installment such that there will be sufficient funds to make such payments.
"BASIC CARRYING COSTS SUB-ACCOUNT" shall mean the Sub-Account of the
Central Account established pursuant to Section 5.02 hereof and maintained
pursuant to Section 5.06 hereof.
"BENEFICIARY" shall mean the beneficiary named herein and its
successors and assigns.
"BUSINESS DAY" shall mean any day other than (a) a Saturday or Sunday,
or (b) a day on which banking and savings and loan institutions in the State of
New York are authorized or obligated by law or executive order to be closed, or
at any time during which the Loan is an asset of a securitization, the cities,
states and/or commonwealths used in the comparable definition of "Business Day"
in the securitization documents.
"BUYER" shall have the meaning set forth in Section 9.04 hereof.
"CENTRAL ACCOUNT" shall mean an Eligible Account, maintained at the
Bank, in the name of Beneficiary or its successors or assigns (as secured party)
as may be designated by Beneficiary.
"CLOSING DATE" shall mean the date of the Note.
"CODE" shall mean the Internal Revenue Code of 1986, as amended and as
it may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto.
"COLLECTION ACCOUNT" shall mean a demand deposit account designated by
Beneficiary, which shall be an Eligible Account, to which payments of Debt are
transferred.
"CONDEMNATION PROCEEDS" shall mean all of the proceeds in respect to
any Taking or purchase in lieu thereof.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of the
property owned by it is bound.
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"CPI" shall mean "The Consumer Price Index (New Series) (Base Period
1982-84=100) (all items for all urban consumers)" issued by the Bureau of Labor
Statistics of the United States Department of Labor (the "BUREAU"). If the CPI
ceases to use the 1982-84 average equaling 100 as the basis of calculation, or
if a change is made in the term, components or number of items contained in said
index, or if the index is altered, modified, converted or revised in any other
way, then the index shall be adjusted to the figure that would have been arrived
at had the change in the manner of computing the index in effect at the date of
this Deed of Trust not been altered. If at any time during the term of this
Deed of Trust the CPI shall no longer be published by the Bureau, then any
comparable index issued by the Bureau or similar agency of the United States
issuing similar indices shall be used in lieu of the CPI.
"CREDIT CARD COMPANY" shall have the meaning set forth in Section 5.01
hereof.
"CREDIT CARD PAYMENT DIRECTION LETTER" shall have the meaning set
forth in Section 5.01 hereof.
"CROSS-COLLATERALIZED DEED OF TRUST" shall mean each mortgage, deed of
trust, deed to secure debt, security agreement, assignment of rents and fixture
filings as originally executed or as same may hereafter from time to time be
supplemented, amended, modified or extended by one or more indentures
supplemental thereto granted by Grantor to Beneficiary as security for the Note.
"CROSS-COLLATERALIZED PROPERTY" shall mean each parcel or parcels of
real property encumbered by a Cross-collateralized Deed of Trust as identified
on EXHIBIT F attached hereto and made a part hereof.
"CURRENT MONTH" shall mean each Interest Accrual Period.
"CURTAILMENT RESERVE SUB-ACCOUNT" shall mean the Sub-Account
established pursuant to Section 5.02 hereof and maintained pursuant to Section
5.11 hereof for the purpose of holding certain Excess Rent.
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"DEBT" shall have the meaning set forth in the recitals hereto.
"DEBT SERVICE" shall mean the amount of interest and principal
payments due and payable in accordance with the Note during an applicable
period.
"DEBT SERVICE COVERAGE" shall mean, for any specified period, the
quotient obtained by dividing Net Operating Income for such specified period by
the sum of the (a) aggregate payments of interest, principal assuming payments
based on the greater of (x) a constant rate of 10.48% per annum and (y) the
actual constant rate at the time of such determination, plus all other sums due
for such specified period under the Note (determined as of the date the
calculation of Debt Service Coverage is required or requested hereunder) and (b)
aggregate payments of interest, principal and all other sums due for such
specified period pursuant to the terms of subordinate financing, if any, then
affecting the Trust Property or, if Debt Service Coverage is being calculated in
connection with a request for consent to any subordinate financing, then
proposed.
"DEBT SERVICE PAYMENT SUB-ACCOUNT" shall mean the Sub-Account of the
Central Account established pursuant to Section 5.02 hereof and maintained
pursuant to Section 5.07 hereof for the purposes of making Debt Service payments
and payments of any servicer or trustee fees.
"DEED OF TRUST" shall mean this Deed of Trust as originally executed
or as it may hereafter from time to time be supplemented, amended, modified or
extended by one or more indentures supplemental hereto.
"DEED TRUSTEE" shall mean the Person or Persons identified in this
Deed of Trust as Deed Trustee and its or their successors and assigns.
"DEFAULT" shall mean any Event of Default or event which would
constitute an Event of Default if all requirements in connection therewith for
the giving of notice, the lapse of time, and the happening of any further
condition, event or act, had been satisfied.
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"DEFAULT COLLATERAL" shall have the meaning set forth in Section 18.32
hereof.
"DEFAULT RATE" shall mean the lesser of (a) the highest rate allowable
at law and (b) eight hundred and fifty (850) basis points above the LIBOR Rate.
"DEFAULT RATE INTEREST" shall mean, to the extent the Default Rate
becomes applicable, interest in excess of the interest which would have accrued
on (a) the principal amount of the Loan which is outstanding from time to time
and (b) any accrued but unpaid interest, if the Default Rate was not applicable.
"DEVELOPMENT LAWS" shall mean all applicable subdivision, zoning,
environmental protection, wetlands protection, or land use laws or ordinances,
and any and all applicable rules and regulations of any Governmental Authority
promulgated thereunder or related thereto.
"DSC QUARTERLY TEST DATE" shall mean June 30th, 1997 and each
September 31st, December 31st, March 31st and June 30th thereafter.
"ELIGIBLE ACCOUNT" shall mean a segregated account which is either (i)
an account or accounts maintained with a depository institution or trust company
the long term unsecured debt obligations of which are rated by each of the
Rating Agencies (or, if not rated by Duff & Phelps Credit Rating Co. ("DCR") or
Fitch Investors Services L.P. ("FITCH"), otherwise acceptable to DCR or Fitch,
as applicable, as confirmed in writing that such account would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then current
ratings assigned to any certificates issued in connection with a Securitization)
in its highest rating category at all times (or, in the case of the Rent Account
and Basic Carrying Costs Sub-Account, the long term unsecured debt obligations
of which are rated at least "AA" or the equivalent by each of the Rating
Agencies (or, if not rated by DCR or Fitch, otherwise acceptable to DCR or
Fitch, as applicable, as confirmed in writing that such account would not, in
and of itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any certificates issued in connection with a
Securitization) or, if
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the funds in such account are to be held in such account for less than 30
days, the short term obligations of which are rated by each of the Rating
Agencies (or, if not rated by DCR or Fitch, otherwise acceptable to DCR or
Fitch, as applicable, as confirmed in writing that such account would not, in
and of itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any certificates issued in connection with a
Securitization) in its highest rating category at all times) or (ii) a
segregated trust account or accounts maintained with a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution is
subject to regulations substantially similar to 12 C.F.R. Section 9.10(b),
having in either case a combined capital and surplus of at least $100,000,000
and subject to supervision or examination by federal and state authority, or
otherwise acceptable (as evidenced by a written confirmation from each Rating
Agency that such account would not, in and of itself, cause a downgrade,
qualification or withdrawal of the then current ratings assigned to any
certificates issued in connection with a Securitization) to each Rating
Agency, which may be an account maintained by Beneficiary or its agents.
Eligible Accounts may bear interest. The title of each Eligible Account
shall indicate that the funds held therein are held in trust for the uses and
purposes set forth herein.
"ENGINEER" shall have the meaning set forth in Section 3.04(b)(i)
hereof.
"ENGINEERING ESCROW SUB-ACCOUNT" shall mean the Sub-Account of the
Central Account established pursuant to Section 5.02 hereof, maintained pursuant
to Section 5.12 hereof and funded on the Closing Date relating to payments for
any Required Engineering Work.
"ENVIRONMENTAL PROBLEM" shall mean any of the following:
(a) the presence of any Hazardous Material on, in, under, or
above all or any portion of the Trust Property;
(b) the release or threatened release of any Hazardous Material
from or onto the Trust Property;
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(c) the violation or threatened violation of any Environmental
Statute with respect to the Trust Property; or
(d) the failure to obtain or to abide by the terms or conditions
of any permit or approval required under any Environmental Statute
with respect to the Trust Property.
A condition described above shall be an Environmental Problem regardless of
whether or not any Governmental Authority has taken any action in connection
with the condition and regardless of whether that condition was in existence on
or before the date hereof.
"ENVIRONMENTAL REPORT" shall mean the environmental audit report for
the Trust Property and any supplements or updates thereto, previously delivered
to Beneficiary in connection with the Loan.
"ENVIRONMENTAL STATUTE" shall mean any federal, state or local
statute, ordinance, rule or regulation, any judicial or administrative order
(whether or not on consent) or judgment applicable to Grantor or the Trust
Property including, without limitation, any judgment or settlement based on
common law theories, and any provisions or condition of any permit, license or
other authorization binding on Grantor relating to (a) the protection of the
environment, the safety and health of persons (including employees) or the
public welfare from actual or potential exposure (or effects of exposure) to any
actual or potential release, discharge, disposal or emission (whether past or
present) of any Hazardous Materials or (b) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Materials, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
Section 9601 ET SEQ., the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous
Waste Amendments of 1984, 42 U.S.C. Section 6901 ET SEQ., the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
Section 1251 ET SEQ., the Toxic Substances Control Act of 1976, 15 U.S.C.
Section 2601 ET SEQ., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. Section 1101 ET SEQ., the Clean Air Act of 1966, as amended, 42
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U.S.C. Section 7401 ET SEQ., the National Environmental Policy Act of 1975, 42
U.S.C. Section 4321, the Rivers and Harbours Act of 1899, 33 U.S.C. Section 401
ET SEQ., the Endangered Species Act of 1973, as amended, 16 U.S.C. Section 1531
ET SEQ., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C.
Section 651 ET SEQ., and the Safe Drinking Water Act of 1974, as amended, 42
U.S.C. Section 300(f) ET SEQ., and all rules, regulations and guidance documents
promulgated or published thereunder.
"EQUIPMENT" shall have the meaning set forth in granting clause (d) of
this Deed of Trust.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated thereunder.
Section references to ERISA are to ERISA, as in effect at the date of this Deed
of Trust and, as of the relevant date, any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean any corporation or trade or business that
is a member of any group of organizations (a) described in Section 414(b) or (c)
of the Code of which Grantor or Guarantor is a member and (b) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which Grantor or Guarantor is a member.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 13.01
hereof.
"EXCESS RENT" shall have the meaning set forth in Section 5.05 hereof.
"EXISTING OPERATING LEASE" shall mean have the meaning set forth in
EXHIBIT H hereto.
"FEDERAL OBLIGATIONS" shall mean non-callable direct obligations, as
chosen by Grantor, subject to the approval of Beneficiary, of or fully
guaranteed as to payment of principal and interest by, the United States of
America or any agency or
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instrumentality thereof provided that such obligations are backed by the full
faith and credit of the United States of America.
"FIRST INTEREST ACCRUAL PERIOD" shall mean the period commencing on
the Closing Date and ending on the last day of the month in which the Closing
Date occurs.
"FIRST PAYMENT DATE" shall mean the Payment Date in the month
following the month in which the Loan is initially funded.
"FISCAL YEAR" shall mean the twelve month period commencing on January
1 and ending on December 31 during each year of the term of this Deed of Trust,
or such other fiscal year of Grantor as Grantor may select from time to time
with the prior written consent of Beneficiary.
"FIXTURES" shall have the meaning set forth in granting clause (d) of
this Deed of Trust.
"FRANCHISE AGREEMENT" shall mean that certain franchise agreement
relating to the operation of the Premises, a copy of which was previously
delivered to Beneficiary in connection with the Loan, together with all renewals
and replacements thereof.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as of the date of the applicable financial report,
consistently applied.
"GENERAL PARTNER" shall mean, if Grantor is a partnership, each
general partner of Grantor and, if applicable, each general partner of such
general partner.
"GOVERNMENTAL AUTHORITY" shall mean, with respect to any Person, any
federal or State government or other political subdivision thereof and any
entity, including any regulatory or administrative authority or court,
exercising executive, legislative, judicial, regulatory or administrative or
quasi-administrative functions of or pertaining to government, and any
arbitration board or tribunal in each case, having jurisdiction over such
applicable Person or such Person's property and any stock exchange on which
shares of capital stock of such Person are listed or admitted for trading.
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"GRANTOR" shall mean the Grantor named herein and any successor to the
obligations of Grantor under the Loan Documents.
"GUARANTOR" shall mean any Person guaranteeing, in whole or in part,
the obligations of Grantor under the Loan Documents.
"HAZARDOUS MATERIAL" shall mean any (a) crude oil, petroleum or any
fraction thereof, flammable substances, explosives, radioactive materials,
hazardous wastes or substances, toxic wastes or substances or any other wastes,
materials or pollutants which cause the Trust Property or any part thereof to be
in violation of any Environmental Statutes; (b) friable or potentially friable
asbestos or asbestos-containing material (as those terms are defined in any
Environmental Statutes now in effect or hereafter enacted or amended), urea
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated byphenyls, or radon gas;
(c) chemical, material or substance defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "pollutant", "restricted hazardous waste", or "toxic
substances" or words of similar import under any applicable Environmental
Statutes now or hereafter in effect; (d) other chemical, material or substance,
including bacteria, spores or other indoor airborne microbial contaminants
exposure to which is now or hereafter prohibited, limited or regulated by any
Environmental Statutes or is likely to pose a material hazard to the health and
safety of the employees or occupants of the Trust Property or the owners and/or
occupants of property adjacent to or surrounding the Premises, or any other
Person coming upon the Trust Property or adjacent property; and (e) other
chemical, materials or substance which is likely to pose a material hazard to
the environment or the removal of which is required or the use, production,
storage, handling, labeling, sale, transfer, refinement, manufacturing,
maintenance, ownership, presence, treatment, processing, transport, generation,
emission, removal, remediation, manufacture, discharge, release or threatened
release, control or disposal or other management of which is restricted,
prohibited, regulated or penalized by any Environmental Statutes (including,
without limitation, the Occupational Safety and Health Act and 29 C.F.R. Part
1910 subpart z).
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"HOST" shall have the meaning set forth in Section 2.09 hereof.
"HOTEL" shall mean all buildings, structures, improvements and
appurtenances located on the Trust Property including, without limitation, all
guests rooms, each with bath; all restaurants, bars, banquet, meeting and other
public rooms; shop units and all other space and concessions for the sale of
goods, merchandise and services; garage and parking spaces; support and back of
the house areas, including kitchens, storerooms and maintenance areas;
recreational and health club facilities (including swimming pools); public
grounds and spaces located on or constituting all or a portion of the Trust
Property, and any rooms, facilities or parking spaces which may hereinafter be
located on the Trust Property.
"IMPOSITIONS" shall mean all taxes (including, without limitation, all
real estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible, transaction, privilege
or license or similar taxes), assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not commenced or completed
within the term of this Deed of Trust), ground rents, water, sewer or other
rents and charges, excises, levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Trust Property and/or any Rent (including all interest and penalties thereon),
which at any time prior to, during or in respect of the term hereof may be
assessed or imposed on or in respect of or be a lien upon (a) Grantor
(including, without limitation, all franchise, single business or other taxes
imposed on Grantor for the privilege of doing business in the jurisdiction in
which the Trust Property or any other collateral delivered or pledged to
Beneficiary in connection with the Loan is located) or Beneficiary, (b) the
Trust Property or any part thereof or any Rent therefrom or any estate, right,
title or interest therein, or (c) any occupancy, operation, use or possession
of, or sales from, or activity conducted on, or in connection with the Trust
Property, or any part thereof, or the leasing or use of the Trust Property, or
any
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part thereof, or the acquisition or financing of the acquisition of the
Trust Property, or any part thereof, by Grantor. Nothing contained herein shall
require Grantor to pay municipal, state, or federal income taxes imposed on
Beneficiary or any corporate or franchise tax imposed on Beneficiary, or any
other tax payable by Beneficiary upon the payments made by Beneficiary to
Grantor under this Deed of Trust.
"IMPROVEMENTS" shall have the meaning set forth in the granting clause
(b) of this Deed of Trust.
"INDEPENDENT" shall mean, when used with respect to any Person, a
Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in Grantor, or in any
Affiliate of Grantor or any constituent partner, shareholder, member or
beneficiary of Grantor and (c) is not connected with Grantor or any Affiliate of
Grantor or any constituent partner, shareholder, member or beneficiary of
Grantor as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions. Whenever it is herein provided
that any Independent Person's opinion or certificate shall be provided, such
opinion or certificate shall state that the Person executing the same has read
this definition and is Independent within the meaning hereof.
"INITIAL ALLOCATED LOAN AMOUNT" shall mean the portion of the Loan
Amount allocated to each Cross-collateralized Property as set forth on EXHIBIT F
annexed hereto and made a part hereof.
"INITIAL BASIC CARRYING COSTS DEPOSIT" shall equal the amount set
forth on EXHIBIT B attached hereto and made a part hereof.
"INITIAL CENTRAL ACCOUNT DEPOSIT" shall equal the amount set forth on
EXHIBIT B attached hereto and made a part hereof.
"INITIAL ENGINEERING DEPOSIT" shall equal the amount set forth on
EXHIBIT B attached hereto and made a part hereof.
"INSTITUTIONAL LENDER" shall mean any of the following Persons:
(a) any bank, savings and loan association, savings institution, trust company
or national banking association,
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acting for its own account or in a fiduciary capacity, (b) any charitable
foundation, (c) any insurance company or pension and/or annuity company, (d)
any fraternal benefit society, (e) any pension, retirement or profit sharing
trust or fund within the meaning of Title I of ERISA or for which any bank,
trust company, national banking association or investment adviser registered
under the Investment Advisers Act of 1940, as amended, is acting as trustee
or agent, (f) any investment company or business development company, as
defined in the Investment Company Act of 1940, as amended, (g) any small
business investment company licensed under the Small Business Investment Act
of 1958, as amended, (h) any broker or dealer registered under the Securities
and Exchange Act of 1934, or any investment adviser registered under the
Investment Adviser Act of 1940, as amended, (i) any government, any public
employees' pension or retirement system, or any other government agency
supervising the investment of public funds, or (j) any other entity all of
the equity owners of which are Institutional Lenders; provided that each of
said Persons shall have net assets equal to or greater than $500,000,000, be
in the business of making commercial mortgage loans, secured by properties of
like type, size and value as the Trust Property and have a long term credit
rating which is not less than BBB (or its equivalent) from the Rating Agency.
"INSURANCE PROCEEDS" shall mean all of the proceeds received under
the insurance policies required to be maintained by Grantor pursuant to
Article III hereof.
"INSURANCE REQUIREMENTS" shall mean all terms of any insurance
policy required by this Deed of Trust, all requirements of the issuer of any
such policy, and all regulations and then current standards applicable to or
affecting the Trust Property or any use or condition thereof, which may, at
any time, be recommended by the Board of Fire Underwriters, if any, having
jurisdiction over the Trust Property, or such other Person exercising similar
functions.
"INTEREST ACCRUAL PERIOD" shall mean the First Interest Accrual
Period and, thereafter, each one (1) month period, which shall be a calendar
month.
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"INTEREST RATE" shall have the meaning set forth in the Note.
"INTEREST SHORTFALL" shall mean any shortfall in the amount of
interest required to be paid with respect to the Loan Amount on any Payment
Date.
"INVENTORY" shall have the meaning as such term is defined in the
Uniform Commercial Code applicable in the State in which the Trust Property is
located.
"LATE CHARGE" shall have the meaning set forth in Section 13.09
hereof.
"LEASES" shall have the meaning set forth in granting clause (f) of
this Deed of Trust.
"LEGAL REQUIREMENT" shall mean as to any Person, the certificate of
incorporation, by-laws, certificate of limited partnership, agreement of limited
partnership or other organization or governing documents of such Person, and any
law, statute, order, ordinance, judgment, Licenses and Permits, decree,
injunction, treaty, rule or regulation (including, without limitation,
Environmental Statutes, Development Laws and Use Requirements) or determination
of an arbitrator or a court or other Governmental Authority and all covenants,
agreements, restrictions and encumbrances contained in any instruments, 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.
"LIBOR RATE" shall mean the London interbank offered rate for thirty
(30) day United States Dollar deposits established monthly by the Beneficiary in
accordance with the terms of the Note.
"LICENSES AND PERMITS" shall mean all building permits, certificates
of occupancy and other permits, licenses and authorizations of any Governmental
Authority, including all supplements, amendments and modifications thereto,
necessary to own, use, occupy, operate or maintain the Trust Property.
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"LOAN" shall have the meaning set forth in the Recitals hereto.
"LOAN AMOUNT" shall have the meaning set forth in the Recitals hereto.
"LOAN DOCUMENTS" shall mean this Deed of Trust, the Note, the
Assignment, and any and all other agreements, instruments, certificates or
documents executed and delivered by Grantor or Affiliate of Grantor in
connection with the Loan.
"LOAN YEAR" shall mean each 365 day period (or 366 day period if the
month of February in a leap year is included) commencing on the first day of the
month following the Closing Date (provided, however, that the first Loan Year
shall also include the period from the Closing Date to the end of the month in
which the Closing Date occurs).
"LOSS PROCEEDS" shall mean, collectively, all Insurance Proceeds and
all Condemnation Proceeds.
"LUMP SUM ADVANCE PAYMENTS" shall have the meaning set forth in
Section 7.02(g) hereof.
"MATERIAL ADVERSE EFFECT" shall mean any event or condition that has a
material adverse effect on (a) the Trust Property, (b) the business, prospects,
profits, operations or condition (financial or otherwise) of Grantor, (c) the
enforceability, validity, perfection or priority of the lien of any Loan
Document or (d) the ability of Grantor to perform any obligations under any Loan
Document; PROVIDED, HOWEVER, that in determining such effect, consideration
shall be given to any condition(s) or event(s) that in the aggregate should
offset the effect of any adverse effect or condition.
"MATURITY", when used with respect to the Note, shall mean the
Maturity Date set forth in the Note or such other date pursuant to the Note on
which the final payment of principal, and premium, if any, on which the Note
becomes due and payable as therein or herein provided, whether at Stated
Maturity or by declaration of acceleration, or otherwise.
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"MATURITY DATE" shall mean the Maturity Date set forth in the Note.
"MONTHLY DEBT SERVICE PAYMENT" shall mean a monthly payment of
principal in an amount equal to that which is required to fully amortize the
Loan based upon a twenty year level amortization schedule, together with a
monthly payment of interest on the Principal Amount and all monthly servicing
and trustee fees incurred in connection with the Loan.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been, or were required to
have been, made by Grantor, Guarantor or any ERISA Affiliate and which is
covered by Title IV of ERISA.
"NET OPERATING INCOME" shall mean in each Fiscal Year or portion
thereof during the term hereof, Operating Income less Operating Expenses.
"NET PROCEEDS" shall mean the excess of (i)(x) the purchase price (at
foreclosure or otherwise) actually received by Beneficiary with respect to the
Trust Property as a result of the exercise by Beneficiary of its rights, powers,
privileges and other remedies after the occurrence of an Event of Default, or
(y) in the event that Beneficiary (or Beneficiary's nominee) is the purchaser at
foreclosure by credit bid, then the amount of such credit bid, in either case,
over (ii) all costs and expenses, including, without limitation, all attorneys'
fees and disbursements and any brokerage fees, if applicable, incurred by
Beneficiary in connection with the exercise of such remedies, including the sale
of such Trust Property after a foreclosure against the Trust Property.
"NOTE" shall have the meaning set forth in the recitals hereof.
"NOTICE DATE" shall have the meaning set forth in Section 5.05 hereof.
"OFFICER'S CERTIFICATE" shall mean a certificate delivered to
Beneficiary by Grantor which is signed on behalf of Grantor by an authorized
representative of Grantor which states that the
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items set forth in such certificate are true, accurate and complete in all
respects.
"O&M OPERATIVE PERIOD" shall have the meaning set forth in Section
5.01 hereof.
"OPERATING AGREEMENT" shall have the meaning set forth in Section 7.02
hereof.
"OPERATING EXPENSES" shall mean, in each Fiscal Year or portion
thereof during the term hereof, all expenses directly attributable to the
operation, repair and/or maintenance of the Trust Property (including, without
limitation, Impositions, insurance premiums, management fees, at the rate of the
greater of (a) four percent (4%) of Operating Income or (b) the actual
management fee, franchise or licensing fees at the rate of the greater rate of
(a) five percent (5%) of Operating Income or (b) actual franchise or licensing
fees, and Recurring Replacement Expenditures at the Recurring Replacement
Expenditure Monthly Amount and costs attributable to the operation, repair and
maintenance of the systems for heating, ventilating and air conditioning the
Improvements) and actually paid for by Grantor. Operating Expenses shall not
include interest, principal and premium, if any, due under the Note or otherwise
in connection with the Debt, income taxes, capital improvements costs, or any
non-cash charge or expense such as depreciation or amortization.
"OPERATING INCOME" shall mean, for any specified period, including
without limitation, the Fiscal Year or portion thereof during the term hereof,
all revenue derived by Grantor arising from the Trust Property including,
without limitation, room revenues, vending machines revenues, beverage revenues,
food revenues, and packaging revenues, rental revenues (whether denominated as
basic rent, additional rent, or otherwise) and other fees and charges payable
pursuant to Leases or otherwise in connection with the Trust Property, and
business interruption, rent or other similar insurance proceeds. Operating
Income shall not include (a) Insurance Proceeds (other than proceeds of rent,
business interruption or other similar insurance allocable to the applicable
period) and Condemnation Proceeds (other than Condemnation Proceeds arising from
a temporary taking or the use and occupancy of all or part of the applicable
Trust Property allocable to the applicable period), or interest accrued on such
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Condemnation Proceeds, (b) proceeds of any financing, (c) proceeds of any sale,
exchange or transfer of the Trust Property or any part thereof or interest
therein, (d) capital contributions or loans to Grantor or an Affiliate of
Grantor, (e) any item of income otherwise includable in Operating Income but
paid directly by any tenant to a Person other than Grantor except for real
estate taxes paid directly to any taxing authority by any tenant, (f) any other
extraordinary, non-recurring revenues, (g) Rent paid by or on behalf of any
lessee under a Operating Lease which is the subject of any proceeding or action
relating to its bankruptcy, reorganization or other arrangement pursuant to
federal bankruptcy law or any similar federal or state law or which has been
adjudicated a bankrupt or insolvent unless such Operating Lease has been
affirmed by the trustee in such proceeding or action, (h) Rent paid by or on
behalf of any lessee under a Lease the demised premises of which are not
occupied either by such lessee or by a sublessee thereof; (i) Rent derived from
rental of guest rooms in excess of seventy-five percent (75%) of the guest
rooms, during any period of time when the guest room occupancy rate for the
Trust Property exceeds seventy-five percent (75%); (j) Rent paid by or on behalf
of any lessee under a Lease in whole or partial consideration for the
termination of any Lease, or (k) sales tax rebates from any Governmental
Authority.
"OPERATING LEASE" shall mean any Lease (including Existing Operating
Lease) of the Trust Property to an Operator or any other agreement pursuant to
which the Operator assumes responsibility for the operation and management of
the Trust Property, as the same may be amended from time to time.
"OPERATION AND MAINTENANCE EXPENSE MONTHLY INSTALLMENT" shall mean
with respect to each Current Month in which funds are required to be allocated
or distributed pursuant to the terms of Section 5.05(d), or if an Event of
Default has occurred and is continuing, the lesser of all amounts remaining in
the Central Account after the distributions made pursuant to clauses (a) through
(d) of Section 5.05 or (b) an amount equal to (i) either (x) 1/12 of the
Operating Expenses set forth in the Annual Budget, or, in the event that
Beneficiary has not approved the Annual Budget, (y) 1/12 of the product of (A)
1.05 and (B) the actual Operating Expenses (exclusive of Basic Carrying Costs)
for the immediately preceding Fiscal Year and (ii) 1/12 of the yearly
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management fees due under any property management agreement or lease with
respect to the Premises which has been approved by Beneficiary.
"OPERATION AND MAINTENANCE EXPENSE SUB-ACCOUNT" shall mean the Sub-
Account of the Central Account established pursuant to Section 5.02 hereof and
maintained pursuant to Section 5.09 hereof relating to the payment of Operating
Expenses (exclusive of Basic Carrying Costs).
"OPERATOR" shall mean the Person, other than Grantor, which operates
the Trust Property pursuant to an Operating Lease or any management agreement or
Operating Agreement. As of the date hereof, Operator shall mean Crossroads
Hospitality Tenant Company, L.L.C.
"OPERATOR CERTIFICATION" shall have the meaning set forth in Section
2.09 hereof.
"OPERATOR CONTROL NOTICE" shall have the meaning set forth in Section
7.02 hereof.
"OPTIONAL PREPAYMENT DATE" shall mean the Payment Date occurring in
October, 1997.
"PAD OWNERS" shall mean any owner of any fee interest in property
contiguous to or surrounded by the Trust Property who has entered into a
reciprocal easement agreement or other agreement or agreements with Grantor
either (a) in connection with an existing or potential improvement on such
property or (b) relating to or affecting the Trust Property.
"PAYMENT DATE" shall mean, with respect to each month, the first (1st)
calendar day in such month, or if such day is not a Business Day, the next
following Business Day.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in Section
2.05(a) hereof.
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"PERMITTED INVESTMENTS" shall mean any one or more of the following
obligations or securities payable on demand or having a scheduled maturity on or
before the Business Day preceding the date upon which funds in the Central
Account are required to be drawn, and having at all times the required ratings,
if any, provided for in this definition, unless, upon and subsequent to a
Securitization, each Rating Agency shall have confirmed in writing to
Beneficiary that a lower rating would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization:
(a) obligations of, or obligations fully guaranteed as to
payment of principal and interest by, the United States of America or
any agency or instrumentality thereof provided such obligations are
backed by the full faith and credit of the United States of America
including, without limitation, obligations of: the U.S. Treasury (all
direct or fully guaranteed obligations), the Farmers Home
Administration (certificates of beneficial ownership), the General
Services Administration (participation certificates), the U.S.
Maritime Administration (guaranteed Title XI financing), the Small
Business Administration (guaranteed participation certificates and
guaranteed pool certificates), the U.S. Department of Housing and
Urban Development (local authority bonds) and the Washington
Metropolitan Area Transit Authority (guaranteed transit bonds);
PROVIDED, HOWEVER, that the investments described in this clause must
(A) have a predetermined fixed dollar of principal due at maturity
that cannot vary or change, (B) if rated by Standard & Poor's, must
not have an "r" highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, such interest rate must
be tied to a single interest rate index plus a fixed spread (if any)
and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their
maturity;
(b) Federal Housing Administration debentures;
(c) obligations of the following United States of America
government sponsored agencies: Federal Home Loan Mortgage Corp. (debt
obligations), the Farm Credit System
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(consolidated systemwide bonds and notes), the Federal Home
Loan Banks (consolidated debt obligations), the Federal
National Mortgage Association (debt obligations), the Student
Loan Marketing Association (debt obligations), the Financing Corp.
(debt obligations), and the Resolution Funding Corp. (debt
obligations); PROVIDED, HOWEVER, that the investments described
in this clause must (A) have a predetermined fixed dollar of
principal due at maturity that cannot vary or change, (B) if rated
by Standard & Poor's, must not have an "r" highlighter affixed to
their rating, (C) if such investments have a variable rate of
interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(d) federal funds, unsecured certificates of deposit, time
deposits, bankers' acceptances and repurchase agreements with
maturities of not more than 365 days of any bank, the short term
obligations of which are rated in the highest short term rating
category by each Rating Agency (or, if not rated by any Rating Agency
other than Standard & Poor's, otherwise acceptable to such Rating
Agency or Agencies, as applicable, as confirmed in writing that such
investment would not in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization);
PROVIDED, HOWEVER, that the investments described in this clause must
(A) have a predetermined fixed dollar of principal due at maturity
that cannot vary or change, (B) if rated by Standard & Poor's, must
not have an "r" highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, such interest rate must
be tied to a single interest rate index plus a fixed spread (if any)
and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their
maturity;
(e) fully Federal Deposit Insurance Corporation-insured demand
and time deposits in, or certificates of deposit of, or bankers'
acceptances issued by, any bank or trust company, savings and loan
association or savings bank, the short term obligations of which are
rated in the highest
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short term rating category by each Rating Agency (or, if not rated
by any Rating Agency other than Standard & Poor's, otherwise
acceptable to such Rating Agency or Agencies, as applicable, as
confirmed in writing that such investment would not, in and of itself,
result in a downgrade, qualification or withdrawal of the then current
ratings assigned to any certificates issued in connection with a
Securitization); PROVIDED, HOWEVER, that the investments described
in this clause must (A) have a predetermined fixed dollar of principal
due at maturity that cannot vary or change, (B) if rated by Standard &
Poor's, must not have an "r" highlighter affixed to their rating, (C)
if such investments have a variable rate of interest, such interest
rate must be tied to a single interest rate index plus a fixed spread
(if any) and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their
maturity;
(f) debt obligations with maturities of not more than 365 days
and rated by each Rating Agency (or, if not rated by any Rating Agency
other than Standard & Poor's, otherwise acceptable to such Rating
Agency or Agencies, as applicable, as confirmed in writing that such
investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization) in its
highest long-term unsecured rating category; PROVIDED, HOWEVER, that
the investments described in this clause must (A) have a predetermined
fixed dollar of principal due at maturity that cannot vary or change,
(B) if rated by Standard & Poor's, must not have an "r" highlighter
affixed to their rating, (C) if such investments have a variable rate
of interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(g) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on
demand or on a specified date not more than one year after the date of
issuance thereof) with maturities of not more than 365 days and that
is rated by
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each Rating Agency (or, if not rated by any Rating Agency other than
Standard & Poor's, otherwise acceptable to such Rating Agency or
Agencies, as applicable, as confirmed in writing that such investment
would not, in and of itself, result in a downgrade, qualification or
withdrawal of the then current ratings assigned to any certificates
issued in connection with a Securitization) in its highest short-term
unsecured debt rating; PROVIDED, HOWEVER, that the investments
described in this clause must (A) have a predetermined fixed dollar
of principal due at maturity that cannot vary or change, (B) if rated
by Standard & Poor's, must not have an "r" highlighter affixed to
their rating, (C) if such investments have a variable rate of
interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(h) the Federated Prime Obligation Money Market Fund (the
"FUND") so long as the Fund is rated "AAA" by each Rating Agency (or,
if not rated by any Rating Agency other than Standard & Poor's,
otherwise acceptable to such Rating Agency or Agencies, as applicable,
as confirmed in writing that such investment would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any certificates issued in connection with
a Securitization);
(i) any other demand, money market or time deposit, demand
obligation or any other obligation, security or investment, provided
that if the Loan has been included as an asset in a Securitization,
each Rating Agency has confirmed in writing to Beneficiary, that such
investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization); and
(j) such other obligations as are acceptable as Permitted
Investments to each Rating Agency, as confirmed in writing to
Beneficiary, that such obligations would not, in and of itself, result
in a downgrade, qualification or
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withdrawal of the then current ratings assigned to any certificates
issued in connection with a Securitization);
PROVIDED, HOWEVER, that, in the judgment of Beneficiary, such instrument
continues to qualify as a "cash flow investment" pursuant to Code Section
860G(a)(6) earning a passive return in the nature of interest and that no
instrument or security shall be a Permitted Investment if (i) such instrument or
security evidences a right to receive only interest payments or (ii) the right
to receive principal and interest payments derived from the underlying
investment provides a yield to maturity in excess of 120% of the yield to
maturity at par of such underlying investment.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, joint venture, estate, trust, unincorporated association,
any federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"PLAN" shall mean an employee benefit or other plan established or
maintained by Grantor, Guarantor or any ERISA Affiliate during the five-year
period ended prior to the date of this Deed of Trust to which Grantor, Guarantor
or any ERISA Affiliate makes, is obligated to make or has, within the five year
period ended prior to the date of this Deed of Trust, been required to make
contributions (whether or not covered by Title IV of ERISA or Section 302 of
ERISA or Section 401(a) or 412 of the Code), other than a Multiemployer Plan.
"PREMISES" shall have the meaning set forth in granting clause (a) of
this Deed of Trust.
"PRINCIPAL AMOUNT" shall mean the Loan Amount as such amount may be
reduced from time to time pursuant to the terms of this Deed of Trust, the Note
or the other Loan Documents.
"PRINCIPAL PAYMENTS" shall mean all payments of principal made
pursuant to the terms of the Note.
"PROPERTY AGREEMENTS" shall mean all agreements, grants of easements
and/or rights-of-way, reciprocal easement agreements,
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permits, declarations of covenants, conditions and restrictions, disposition
and development agreements, planned unit development agreements, management
or parking agreements, party wall agreements, Franchise Agreements or other
instruments affecting the Trust Property, including, without limitation any
Pad Owners, but not including any brokerage agreements, management
agreements, service contracts, Operating Leases or the Loan Documents.
"RATING AGENCY" shall mean Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc. ("STANDARD & POOR'S"), Fitch Investors Services, L.P., Duff
& Phelps Credit Rating Co., and Moody's Investors Service, Inc., collectively,
and any successor to any of them; provided, however, that at any time after a
Securitization, "Rating Agency" shall mean the rating agency or rating agencies
that from time to time rate the securities issued in connection with such
Securitization.
"REALTY" shall have the meaning set forth in Section 2.05(b) hereof.
"RECOURSE DISTRIBUTIONS" shall have the meaning set forth in Section
18.32 hereof.
"RECURRING REPLACEMENT EXPENDITURES" shall mean expenditures related
to the replacement of furniture, fixtures and equipment located at, or used in
connection with, the operation of the Trust Property from time to time.
"RECURRING REPLACEMENT EXPENDITURE MONTHLY AMOUNT" shall mean the
amount per month set forth on EXHIBIT B attached hereto and made a part hereof
(the "INITIAL RECURRING INSTALLMENTS") until the first (1st) anniversary of the
date hereof and an amount per month in each subsequent Loan Year or portion
thereof occurring prior to the Maturity Date equal to the greater of one-twelfth
of (a) five percent (5%) of the Operating Income for the previous Fiscal Year of
Grantor and (b) the amount set forth on Exhibit B under Initial Recurring
Replacement Installment.
"RECURRING REPLACEMENT RESERVE SUB-ACCOUNT" shall mean the Sub-Account
of the Central Account established pursuant to Section 5.02 hereof and
maintained pursuant to Section 5.08 hereof relating to the payment of Recurring
Replacement Expenditures.
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"RENT" shall have the meaning set forth in granting clause (f) of this
Deed of Trust.
"RENT ACCOUNT" shall mean an Eligible Account maintained in a bank
acceptable to Beneficiary in the joint names of Grantor and Beneficiary or such
other name as Beneficiary may designate in writing.
"RENT ROLL" shall have the meaning set forth in Section 2.05(o)
hereof.
"REQUIRED DEBT SERVICE COVERAGE" shall mean a Debt Service Coverage of
not less than 1.25.
"REQUIRED DEBT SERVICE PAYMENT" shall mean, as of any Payment Date,
the amount of interest and principal then due and payable pursuant to the Note,
together with any other sums due thereunder, including, without limitation, any
prepayments required to be made or for which notice has been given under this
Deed of Trust, Default Rate Interest and premium, if any, paid in accordance
therewith together with any servicer or trustee fees due and payable in
connection with the Loan.
"REQUIRED ENGINEERING WORK" shall have the meaning set forth in
Section 5.02 hereof.
"RETENTION AMOUNT" shall have the meaning set forth in
Section 3.04(b)(vii) hereof.
"SALE" shall have the meaning set forth in Section 9.04 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as the same
shall be amended from time to time.
"SECURITIZATION" shall mean a public or private offering of securities
by Beneficiary or any of its Affiliates or their respective successors and
assigns which are collateralized, in whole or in part, by this Deed of Trust.
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"SECURITY AGREEMENT" shall have the meaning set forth in Section 15.01
hereof.
"SECURITY DEPOSIT ACCOUNT" shall have the meaning set forth in Section
5.01 hereof.
"SINGLE PURPOSE ENTITY" shall mean a corporation, partnership, joint
venture, trust or unincorporated association, which is formed or organized
solely for the purpose of holding, directly, an ownership interest in the Trust
Property, does not engage in any business unrelated to the Trust Property, does
not have any assets other than those related to its interest in the Trust
Property or any indebtedness other than as permitted by this Deed of Trust the
other Loan Documents, has its own separate books and records and has its own
accounts, in each case which are separate and apart from the books and records
and accounts of any other Person, and holds itself out as being a Person,
separate and apart from any other Person and which otherwise satisfies the
criteria of the Rating Agency, as in effect on the Closing Date, for a special
purpose bankruptcy remote entity.
"SOLVENT" shall mean, as to any Person, that (a) the sum of the assets
of such Person, at a fair valuation, exceeds its liabilities, including
contingent liabilities, (b) such Person has sufficient capital with which to
conduct its business as presently conducted and as proposed to be conducted and
(c) such Person has not incurred debts, and does not intend to incur debts,
beyond its ability to pay such debts as they mature. For purposes of this
definition, "DEBT" means any liability on a claim, and "CLAIM" means (a) a right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, or (b) a right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured. With respect
to any such contingent liabilities, such liabilities shall be computed in
accordance with GAAP at the amount which, in light of all the facts and
circumstances existing at the time, represents the amount which can reasonably
be expected to become an actual or matured liability.
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"STATE" shall mean any of the states which are members of the United
States of America.
"STATED MATURITY", when used with respect to the Note or any
installment of interest and/or principal payment thereunder, shall mean the date
specified in the Note as the fixed date on which a payment of all or any portion
of principal and/or interest is due and payable.
"SUB-ACCOUNTS" shall have the meaning set forth in Section 5.02
hereof.
"SUBSTANTIAL CASUALTY" shall have the meaning set forth in Section
3.04 hereof.
"TAKING" shall mean a condemnation or taking pursuant to the lawful
exercise of the power of eminent domain.
"TOTAL GLA" shall mean the total gross leasable area of the Trust
Property.
"TRANSFER" shall mean the conveyance, assignment, sale, mortgaging,
encumbrance, pledging, hypothecation, granting of a security interest in,
granting of options with respect to, or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration or of record) all or any portion of any legal
or beneficial interest (a) in all or any portion of the Trust Property; (b) if
Grantor or, if Grantor is a partnership, any General Partner, is a corporation,
in the stock of Grantor or any General Partner; (c) in Grantor (or any trust of
which Grantor is a trustee); or (d) if Grantor is a limited or general
partnership, joint venture, trust, nominee trust, tenancy in common or other
unincorporated form of business association or form of ownership interest, in
any Person having a direct legal or beneficial ownership in Grantor, excluding
any legal or beneficial interest in any constituent limited partner of Grantor
but including any legal or beneficial interest in any General Partner and shall
also include, without limitation to the foregoing, the following: an
installment sales agreement wherein Grantor agrees to sell the Trust Property or
any part thereof or any interest therein for a price to be paid in installments;
an agreement by Grantor leasing all or a substantial part of the
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Trust Property to one or more Persons pursuant to a single or related
transactions, or a sale, assignment or other transfer of, or the grant of a
security interest in, Grantor's right, title and interest in and to any
Leases or any Rent; any instrument subjecting the Trust Property to a
condominium regime or transferring ownership to a cooperative corporation;
and the dissolution or termination of Grantor or the merger or consolidation
of Grantor with any other Person.
"TREASURY CONSTANT MATURITY YIELD INDEX" shall mean the average yield
for "This Week" as reported by the Federal Reserve Board in Federal Reserve
Statistical Release H.15 (519).
"TRUST PROPERTY" shall have the meaning set forth in the granting
clauses of this Deed of Trust.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
in which the Trust Property is located.
"UNDERWRITABLE NET CASH FLOW" shall mean the cash flow determined by
Beneficiary for the Cross-collateralized Properties in accordance with
Beneficiary's underwriting standards for financings similar to the Loan and in
conformance, to the extent reasonably possible, as determined by Beneficiary,
with the standards of the Rating Agencies.
"UNIFORM SYSTEM OF ACCOUNTS" shall mean the Uniform System of Accounts
for Hotels, 8th Edition, International Association of Hospitality Accountants
and Hotel Association of New York (1986), as from time to time amended.
"UNSCHEDULED PAYMENTS" shall mean (a) all Loss Proceeds that Grantor
has elected or is required to apply to the repayment of the Debt pursuant to
this Deed of Trust, the Note or any other Loan Documents, (b) any funds
representing a voluntary or involuntary principal prepayment other than
scheduled Principal Payments, (c) any Net Proceeds and (d) any amounts paid
from the Curtailment Reserve Sub-Account pursuant to Section 5.11 hereof.
"USE REQUIREMENTS" shall mean any and all building codes, permits,
certificates of occupancy or compliance, laws, regulations, or ordinances
(including, without limitation, health, pollution, fire protection, medical and
day-care
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facilities, waste product and sewage disposal regulations), restrictions of
record, easements, reciprocal easements, declarations or other agreements
affecting the use of the Trust Property or any part thereof.
"WELFARE PLAN" shall mean an employee welfare benefit plan as defined
in Section 3(1) of ERISA established or maintained by Grantor, Guarantor or any
ERISA Affiliate or that covers any current or forms employee of Grantor,
Guarantor or any ERISA Affiliate.
"WORK" shall have the meaning set forth in Section 3.04(a)(i) hereof.
ARTICLE II: COVENANTS, WARRANTIES
AND REPRESENTATIONS OF GRANTOR
Section 2.01. PAYMENT OF DEBT. Grantor will pay the Debt at the time
and in the manner provided in the Note and the other Loan Documents, all in
lawful money of the United States of America in immediately available funds,
subject to the limitations of liability as set forth in Section 18.32 hereof.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF GRANTOR. Grantor
represents and warrants to Beneficiary:
(a) ORGANIZATION AND AUTHORITY. Grantor (i) is a general
partnership, limited partnership or corporation, as the case may be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (ii) has all requisite power and authority and
all necessary Licenses and Permits to own and operate the Trust Property and to
carry on its business as now conducted and as presently proposed to be conducted
and (iii) is duly qualified, authorized to do business and in good standing in
the jurisdiction where the Trust Property is located and in each other
jurisdiction where the conduct of its business or the nature of its activities
makes such qualification necessary. If Grantor is a limited partnership or
general partnership, each general partner of Grantor which is a corporation is
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
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(b) POWER. Grantor and, if applicable, each General Partner has full
power and authority to execute, deliver and perform, as applicable, the Loan
Documents to which it is a party, to make the borrowings thereunder, to execute
and deliver the Note and to grant to Beneficiary a first, prior, perfected and
continuing lien on and security interest in the Trust Property, subject only to
the Permitted Encumbrances.
(c) AUTHORIZATION OF BORROWING. The execution, delivery and
performance of the Loan Documents to which Grantor is a party, the making of the
borrowings thereunder, the execution and delivery of the Note, the grant of the
liens on the Trust Property pursuant to the Loan Documents to which Grantor is a
party and the consummation of the Loan are within the powers of Grantor and have
been duly authorized by Grantor and, if applicable, the General Partners, by all
requisite action (and Grantor hereby represents that no approval or action of
any limited partner or shareholder, as applicable, of Grantor is required to
authorize any of the Loan Documents to which Grantor is a party) and will
constitute the legal, valid and binding obligation of Grantor, enforceable
against Grantor in accordance with their terms, except as enforcement may be
stayed or limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether considered in proceedings at law or in equity) and will not (i) violate
any provision of its partnership agreement or partnership certificate or
certificate of incorporation or by-laws, as applicable, or, to its knowledge,
any law, judgment, order, rule or regulation of any court, arbitration panel or
other Governmental Authority, domestic or foreign, or other Person affecting or
binding upon Grantor or the Trust Property, or (ii) violate any provision of any
indenture, agreement, mortgage, contract or other instrument to which Grantor
or, if applicable, any General Partner is a party or by which any of their
respective property, assets or revenues are bound, or be in conflict with,
result in an acceleration of any obligation or a breach of or constitute (with
notice or lapse of time or both) a default or require any payment or prepayment
under, any such indenture, agreement, mortgage, contract or other instrument, or
(iii) result in the creation or imposition of any lien, except those in favor of
Beneficiary as provided in the Loan Documents to which it is a party.
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(d) CONSENT. Neither Grantor nor, if applicable, any General
Partner, is required to obtain any consent, approval or authorization from, or
to file any declaration or statement with, any Governmental Authority or other
agency in connection with or as a condition to the execution, delivery or
performance of this Deed of Trust, the Note or the other Loan Documents which
has not been so obtained or filed.
(e) INTEREST RATE. The rate of interest paid under the Note and the
method and manner of the calculation thereof do not violate any usury or, to
their best knowledge, other law or applicable Legal Requirement.
(f) OTHER AGREEMENTS. Grantor is not a party to nor is otherwise
bound by any agreements or instruments which, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect. Neither Grantor nor,
if applicable, any General Partner, is in violation of its partnership agreement
or corporate organizational documents, as applicable, or other restriction or
any agreement or instrument by which it is bound, or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or Governmental Authority,
or any Legal Requirement, in each case, applicable to Grantor or the Trust
Property, except for such violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
(g) MAINTENANCE OF EXISTENCE. (i) Grantor is familiar with all of
the criteria of the Rating Agency required to qualify as a special purpose
bankruptcy remote entity and Grantor and, if applicable, each General Partner at
all times since their formation have been duly formed and existing and shall
preserve and keep in full force and effect their existence as a Single Purpose
Entity.
(ii) Grantor and, if applicable, each General Partner, at all
times since their organization have complied, and will continue to
comply, with the provisions of its certificate and agreement of
partnership or certificate of incorporation and by-laws, as amended
and as applicable, and the laws of its jurisdiction of organization
relating to partnerships or corporations, as applicable.
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(iii) All customary formalities regarding the partnership, or
corporate existence, as applicable, of Grantor, and if, applicable,
each General Partner have been observed at all times since its
formation and will continue to be observed.
(iv) Grantor and, if applicable, each General Partner, have at
all times accurately maintained, and will continue to accurately
maintain, their respective financial statements, accounting records
and other partnership or corporate documents separate from those of
any other Person. Grantor and, if applicable, each General Partner
have not at any time since their formation commingled, and will not
commingle, their respective assets with those of any other Person.
Grantor has at all times since its formation accurately maintained,
and will continue to accurately maintain, its own bank accounts
(subject to the creation of accounts and sub-accounts established for
the account of Borrower by prior lender), payroll and separate books
of account.
(v) Grantor and, if applicable, each General Partner, have at
all times paid, and will continue to pay, their own liabilities from
their own separate assets.
(vi) Grantor and, if applicable, each General Partner, have at
all times identified themselves, and will continue to identify
themselves, in all dealings with the public, under their own names and
as separate and distinct entities. Grantor and, if applicable, each
General Partner, have not at any time identified themselves, and will
not identify themselves, as being a division of any other Person.
(vii) Grantor and, if applicable, each General Partner, have
been at all times, and will continue to be, adequately capitalized in
light of the nature of their respective businesses.
(viii) Grantor (A) does not own and will not own any encumbered
asset other than the Trust Property, (B) is not engaged and will not
engage in any business other than the ownership, management and
operation of the Cross-
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collateralized Property, (C) will not enter into any contract or
agreement with any Affiliate of Grantor or, if applicable, any
Affiliate of a General Partner except upon terms and conditions that
are intrinsically fair and substantially similar to those that would
be available on an arm's-length basis with third parties other than
an Affiliate, (D) has not incurred and will not incur any debt,
secured or unsecured, direct or contingent (including, unless same
can be obligations of the Operator pursuant to an Operating Lease,
guaranteeing any obligation), other than the Loan and other than
Operating Expenses reasonably incurred pursuant to an Annual Budget
and trade payables incurred in the ordinary course of business
consistent with the Approval Operator Standard and prudent business
practices, and (E) has not made and will not make any loans or
advances to any Person (including any Affiliate).
(ix) Grantor will not change its name or principal place of
business without prior notice to, and consent of, the Lender.
(x) Grantor does not have, and will not have, any
subsidiaries.
(xi) Grantor will preserve and maintain its existence as a
Maryland corporation and all material rights, privileges, tradenames
and franchises.
(xii) Neither Grantor, nor, if applicable, any General Partner,
will merge or consolidate with, or sell all or substantially all of
its respective assets to any Person, or liquidate, wind up or dissolve
itself (or suffer any liquidation, winding up or dissolution).
Grantor will not acquire any business or assets from, or capital stock
or other ownership interest of, or be a party to any acquisition of,
any Person.
(xiii) Grantor has not at any time since its formation assumed or
guaranteed, and will not assume or guarantee, the liabilities of its
partners or shareholders or any predecessor corporation or
partnership, each as applicable, any Affiliates, or any other Persons.
Grantor has not at any time since its formation acquired, and will not
acquire,
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obligations or securities of its partners or shareholders or any
predecessor corporation or partnership, each as applicable, or any
Affiliates. Grantor has not at any time since its formation made, and
will not make, loans to its partners or shareholders or any
predecessor corporation or partnership, each as applicable, or any
Affiliates of any of such Persons. Grantor has no known contingent
liabilities nor does it have any material financial liabilities under
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Person is a party or by which it
is otherwise bound other than obligations incurred in the ordinary
course of the operation of the Trust Property and other than
obligations under the Loan Documents.
(xiv) Grantor has not at any time since its formation entered
into and was not a party to, and, will not enter into or be a party
to, any transaction with its shareholders or any Affiliates except on
terms which are no less favorable to Grantor than would be obtained in
a comparable arm's length transaction with an unrelated third party.
(h) NO DEFAULTS. No Default or Event of Default has occurred and is
continuing or would occur as a result of the consummation of the transactions
contemplated by the Loan Documents. Grantor is not in default in the payment or
performance of any of its Contractual Obligations in any respect which could
result in a Materially Adverse Effect.
(i) GOVERNMENTAL CONSENTS AND APPROVALS. Grantor and, if applicable,
each General Partner, have obtained or made all necessary, or have caused
Operator to obtain or make all necessary, (i) consents, approvals and
authorizations, and registrations and filings (including, without limitation,
all Licenses and Permits) of or with all Governmental Authorities and
(ii) consents, approvals, waivers and notifications of partners, stockholders,
creditors, lessors and other nongovernmental Persons, in each case, which are
required to be obtained or made by Grantor or, if applicable, the General
Partner, in connection with the execution and delivery of, and the performance
by Grantor of its obligations under, the Loan Documents.
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(j) INVESTMENT COMPANY ACT STATUS. Grantor is not an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
(k) COMPLIANCE WITH LAW. Grantor is in compliance in all material
respects with all Legal Requirements to which it or the Trust Property is
subject, including, without limitation, all Environmental Statutes, the
Occupational Safety and Health Act of 1970, the Americans with Disabilities Act
and ERISA. No portion or the Trust Property has been or will be purchased,
improved, fixtured, equipped or furnished with proceeds of any illegal activity.
(l) FINANCIAL INFORMATION. All financial data that has been
delivered by Grantor to Beneficiary (i) is true, complete and correct in all
material respects, (ii) accurately represents the financial condition and
results of operations of the Persons covered thereby in all material respects as
of the date on which the same shall have been furnished, and (iii) in the case
of audited financial statements, has been prepared in accordance with GAAP or
the Uniform System of Accounts (or such other accounting basis as is reasonably
acceptable to Beneficiary) throughout the periods covered. As of the date
hereof, neither Grantor nor, if applicable, any General Partner, has any
contingent liability, liability for taxes or other unusual or forward commitment
not reflected in such financial statements delivered to Beneficiary; since the
date of the last financial statements delivered by Grantor to Beneficiary except
as otherwise disclosed in such financial statements or notes thereto, there has
been no change in the assets, liabilities or financial position of Grantor nor,
if applicable, any General Partner, or in the results of operations of Grantor
which would have a Material Adverse Effect. Neither Grantor nor, if applicable,
any General Partner, has incurred any obligation or liability, contingent or
otherwise not reflected in such financial statements which would have a Material
Adverse Effect.
(m) TRANSACTION BROKERAGE FEES. Grantor has not dealt with any
financial advisors, brokers, underwriters, placement agents, agents or finders
in connection with the transactions contemplated by this Deed of Trust except
for Affiliates of Beneficiary or Grantor. All brokerage fees, commissions and
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other expenses payable in connection with the transactions contemplated by the
Loan Documents have been paid in full contemporaneously with the execution of
the Loan Documents and the funding of the Loan. Grantor hereby agrees to
indemnify and hold Beneficiary harmless from and against any and all claims,
liabilities, costs and expenses of any kind in any way relating to or arising
from (i) a claim by any Person that such Person acted on behalf of Grantor in
connection with the transactions contemplated herein or (ii) any breach of the
foregoing representation. The provisions of this subsection (m) shall survive
the repayment of the Debt.
(n) FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan
will be used for the purpose of purchasing or acquiring any "margin stock"
within the meaning of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System or for any other purpose which would be inconsistent with
such Regulations G, T, U or X or any other Regulations of such Board of
Governors, or for any purposes prohibited by Legal Requirements or by the terms
and conditions of the Loan Documents.
(o) PENDING LITIGATION. There are no actions, suits or proceedings
pending or, to the best knowledge of Grantor, threatened against or affecting
Grantor or the Trust Property in any court or before any Governmental Authority
which if adversely determined either individually or collectively has or is
reasonably likely to have a Material Adverse Effect.
(p) SOLVENCY; NO BANKRUPTCY. Each of Grantor and, if applicable, the
General Partner, (i) is and has at all times been Solvent and will remain
Solvent immediately upon the consummation of the transactions contemplated by
the Loan Documents and (ii) is free from bankruptcy, reorganization or
arrangement proceedings or a general assignment for the benefit of creditors and
is not contemplating the filing of a petition under any state or federal
bankruptcy or insolvency laws or the liquidation of all or a major portion of
such Person's assets or property and Grantor has no knowledge of any Person
contemplating the filing of any such petition against it or, if applicable, the
General Partner. None of the transactions contemplated hereby will be or have
been made with an intent to hinder, delay or defraud any present or future
creditors of Grantor and Grantor has received
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reasonably equivalent value in exchange for its obligations under the Loan
Documents. Grantor's assets do not, and immediately upon consummation of the
transaction contemplated in the Loan Documents will not, constitute
unreasonably small capital to carry out its business as presently conducted
or as proposed to be conducted. Grantor does not intend to, nor believe that
it will, incur debts and liabilities beyond its ability to pay such debts as
they may mature.
(q) USE OF PROCEEDS. The proceeds of the Loan shall be applied by
Grantor to, INTER ALIA, (i) satisfy certain deed of trust loans presently
encumbering all or a part of the Trust Property, (ii) fund the Sub-Accounts in
accordance with Article V hereof and (iii) pay certain transaction costs
incurred by Grantor in connection with the Loan. No portion of the proceeds of
the Loan will be used for family, personal, agricultural or household use.
(r) TAX FILINGS. Grantor and, if applicable, each General Partner,
have filed all federal, state and local tax returns required to be filed or have
filed appropriate applications for extension and have paid or made adequate
provision for the payment of all federal, state and local taxes, charges and
assessments payable by Grantor and, if applicable, the General Partners.
Grantor and, if applicable, the General Partners, believe that their respective
tax returns properly reflect the income and taxes of Grantor and said General
Partner, if any, for the periods covered thereby, subject only to reasonable
adjustments required by the Internal Revenue Service or other applicable tax
authority upon audit.
(s) NOT FOREIGN PERSON. Grantor is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Code.
(t) ERISA. (a) The assets of Grantor and Guarantor are not and will
not become treated as "plan assets", whether by operation of law or under
regulations promulgated under ERISA. Each Plan and Welfare Plan, and, to the
knowledge of Grantor, each Multiemployer Plan, is in compliance in all material
respects with, and has been administered in all material respects in compliance
with, its terms and the applicable provisions of ERISA, the Code and any other
applicable Legal Requirement, and no event or condition has occurred and is
continuing as to which
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Grantor would be under an obligation to furnish a report to Beneficiary under
clause (b)(i) of this Section. Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the Internal Revenue Service, the United States Department of
Labor or any court of competent jurisdiction related to any Plan or Welfare
Plan under which Grantor, Guarantor or any ERISA Affiliate, directly or
indirectly (through an indemnification agreement or otherwise), could be
subject to any material risk of liability under Section 409 or 502(i) of
ERISA or Section 4975 of the Code. No Welfare Plan provides or will provide
benefits, including, without limitation, death or medical benefits (whether
or not insured) with respect to any current or former employee of Grantor,
Guarantor or any ERISA Affiliate beyond his or her retirement or other
termination of service other than (i) coverage mandated by applicable law,
(ii) death or disability benefits that have been fully provided for by fully
paid up insurance or (iii) severance benefits.
(b) Grantor will furnish to Beneficiary as soon as possible, and
in any event within ten (10) days after Grantor knows or has reason to believe
that any of the events or conditions specified below with respect to any Plan,
Welfare Plan or Multiemployer Plan has occurred or exists, an Officer's
Certificate setting forth details respecting such event or condition and the
action, if any, that Grantor or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC (or any other relevant Governmental Authority) by Grantor or an
ERISA Affiliate with respect to such event or condition, if such report or
notice is required to be filed with the PBGC or any other relevant Governmental
Authority:
(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a
Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within thirty (30) days of the occurrence of such event (provided
that a failure to meet the minimum funding standard of Section
412 of the Code of Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a
required installment under Section 412(m) of the
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Code of Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code), and any request for a waiver under
Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a
notice of intent to terminate any Plan or any action taken by
Grantor or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by Grantor or any
ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by PBGC with respect to such Multiemployer
Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by Grantor or any ERISA Affiliate that results
in liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by Grantor or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against Grantor or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within thirty (30) days;
(vi) the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would
result in the loss of tax-exempt status of the trust of which
such Plan is a part if Grantor or an ERISA Affiliate fails to
timely provide security to the Plan in accordance with the
provisions of said Sections; or
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(vii) the imposition of a lien or a security interest in
connection with a Plan.
(c) Grantor shall not knowingly engage in or permit any
transaction in connection with which Grantor, Guarantor or any ERISA Affiliate
could be subject to either a civil penalty or tax assessed pursuant to Section
502(i) or 502(l) of ERISA or Section 4975 of the Code, permit any Welfare Plan
to provide benefits, including without limitation, medical benefits (whether or
not insured), with respect to any current or former employee of Grantor,
Guarantor or any ERISA Affiliate beyond his or her retirement or other
termination of service other than (i) coverage mandated by applicable law,
(ii) death or disability benefits that have been fully provided for by paid up
insurance or otherwise or (iii) severance benefits, permit the assets of Grantor
or Guarantor to become "plan assets", whether by operation of law or under
regulations promulgated under ERISA or adopt, amend (except as may be required
by applicable law) or increase the amount of any benefit or amount payable
under, or permit any ERISA Affiliate to adopt, amend (except as may be required
by applicable law) or increase the amount of any benefit or amount payable
under, any employee benefit plan (including, without limitation, any employee
welfare benefit plan) or other plan, policy or arrangement, except for normal
increases in the ordinary course of business consistent with past practice that,
in the aggregate, do not result in a material increase in benefits expense to
Grantor, Guarantor or any ERISA Affiliate.
(u) LABOR MATTERS. Grantor is not a party to any collective
bargaining agreements.
Section 2.03. FURTHER ACTS, ETC. Grantor will, at the cost of
Grantor, and without expense to Beneficiary, do, execute, acknowledge and
deliver all and every such further acts, deeds, conveyances, mortgages,
assignments, notices of assignments, transfers and assurances as Beneficiary
shall, from time to time, reasonably require, for the better assuring,
conveying, assigning, transferring, and confirming unto Beneficiary the property
and rights hereby mortgaged, given, granted, bargained, sold, alienated,
enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated, or which
Grantor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out or facilitating the performance of the terms of this
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Deed of Trust for filing, registering or recording this Deed of Trust and, on
demand, will execute and deliver and hereby authorizes Beneficiary in the
event Grantor fails to do so to execute in the name of Grantor or without the
signature of Grantor to the extent Beneficiary may lawfully do so, one or
more financing statements, chattel mortgages or comparable security
instruments, to evidence more effectively the lien hereof upon the Trust
Property. Grantor grants to Beneficiary an irrevocable power of attorney
coupled with an interest for the purpose of protecting, perfecting,
preserving and realizing upon the interests granted pursuant to this Deed of
Trust and to effect the intent hereof, all as fully and effectually as
Grantor might or could do; and Grantor hereby ratifies all that Beneficiary
shall lawfully do or cause to be done by virtue hereof.
Section 2.04. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith
upon the execution and delivery of this Deed of Trust and thereafter, from time
to time, will cause this Deed of Trust, and any security instrument creating a
lien or security interest or evidencing the lien hereof upon the Trust Property
and each instrument of further assurance to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, and all expenses incident
to the preparation, execution and acknowledgment of this Deed of Trust, any
mortgage supplemental hereto, any security instrument with respect to the Trust
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Deed of Trust, any
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance, except where prohibited by law
to do so, in which event Beneficiary may declare so much of the Debt as to be
immediately due and payable. Grantor shall hold harmless and indemnify
Beneficiary, and its successors and assigns, against any liability incurred as a
result of the imposition of any tax on the making and recording of this Deed of
Trust.
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Section 2.05. REPRESENTATIONS AND WARRANTIES AS TO THE TRUST
PROPERTY. Grantor represents and warrants with respect to the Trust Property as
follows:
(a) LIEN PRIORITY. This Deed of Trust is a valid and enforceable
first lien on the Trust Property, free and clear of all encumbrances and liens
having priority over the lien of this Deed of Trust, except for the items set
forth as exceptions to or subordinate matters in the title insurance policy
insuring the lien of this Deed of Trust, none of which, individually or in the
aggregate, materially interfere with the benefits of the security intended to be
provided by this Deed of Trust, materially affect the value or marketability of
the Trust Property, impair the use or operation of the Trust Property for the
use currently being made thereof or impair Grantor's ability to pay its
obligations in a timely manner (such items being the "PERMITTED ENCUMBRANCES").
(b) TITLE. Grantor has, subject only to the Permitted Encumbrances,
good, insurable and marketable fee simple title to the Premises, Improvements
and Fixtures (collectively the "REALTY") and to all easements and rights
benefitting the Realty and has the right, power and authority to mortgage, give,
grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign, and
hypothecate the Trust Property. Grantor will preserve its interest in and title
to the Trust Property and will forever warrant and defend the same to
Beneficiary against any and all claims made by, through or under Grantor and
will forever warrant and defend the validity and priority of the lien and
security interest created herein against the claims of all Persons whomsoever
claiming by, through or under Grantor. The foregoing warranty of title shall
survive the foreclosure of this Deed of Trust and shall inure to the benefit of
and be enforceable by Beneficiary in the event Beneficiary acquires title to the
Trust Property pursuant to any foreclosure. In addition, except as set forth in
the Existing Operating Lease, there are no outstanding options or rights of
first refusal to purchase the Trust Property or Grantor's ownership thereof.
(c) TAXES AND IMPOSITIONS. Grantor has paid, or has caused to be
paid, all taxes and other Impositions and governmental assessments due and owing
in respect of, and affecting, the Trust Property. Grantor has paid, or has
caused to be paid, all
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Impositions which constitute special governmental assessments in full, except
for those assessments which are permitted by applicable Legal Requirements to
be paid in installments, in which case all installments which are due and
payable have been paid in full. There are no pending, or to Grantor's best
knowledge, proposed special or other assessments for public improvements or
otherwise affecting the Trust Property, nor are there any contemplated
improvements to the Trust Property that may result in such special or other
assessments.
(d) CASUALTY; FLOOD ZONE. The Realty is in good repair and free and
clear of any damage, destruction or casualty (whether or not covered by
insurance) that would materially affect the value of the Realty or the use for
which the Realty was intended. No portion of the Premises is located in an
"area of special flood hazard," as that term is defined in the regulations of
the Federal Insurance Administration, Department of Housing and Urban
Development, under the National Flood Insurance Act of 1968, as amended (24 CFR
Section 1909.1) or Grantor has obtained the flood insurance required by Section
3.01(a)(vi) hereof. The Premises either does not lie in a 100 year flood plain
that has been identified by the Secretary of Housing and Urban Development or
any other Governmental Authority or, if it does, Grantor has obtained the flood
insurance required by Section 3.01(a)(vi) hereof.
(e) COMPLETION; ENCROACHMENT. All Improvements necessary for the
efficient use and operation of the Premises, including, without limitation, all
Improvements which were included for purposes of determining the appraised value
of the Trust Property in the Appraisal have been completed and none of said
Improvements lie outside the boundaries and building restriction lines of the
Premises. Except as set forth in the title insurance policy insuring the lien
of this Deed of Trust, no improvements on adjoining properties encroach upon the
Premises.
(f) SEPARATE LOT. The Premises are taxed separately without regard
to any other real estate and constitute a legally subdivided lot under all
applicable Legal Requirements (or, if not subdivided, no subdivision or platting
of the Premises is required under applicable Legal Requirements), and for all
purposes may be mortgaged, conveyed or otherwise dealt with as
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an independent parcel. The Trust Property does not benefit from any tax
abatement or exemption.
(g) USE. The existence of all Improvements, the present use and
operation thereof and the access of the Premises and the Improvements to all of
the utilities and other items referred to in paragraph (k) below are in
compliance in all material respects with all Leases affecting the Trust Property
and all applicable Legal Requirements, including, without limitation,
Environmental Statutes, Development Laws and Use Requirements. Grantor has not
received any notice from any Governmental Authority alleging any uncured
violation relating to the Trust Property of any applicable Legal Requirements.
(h) LICENSES AND PERMITS. Grantor or Operator currently holds and
will continue to hold all Licenses and Permits, registrations, consents,
franchises and approvals of any Governmental Authority or any other Person which
are material for the lawful occupancy and operation of the Realty or which are
material to the ownership or operation of the Trust Property or the conduct of
Grantor's business. All such Licenses and Permits, registrations, consents,
franchises and approvals are current and in full force and effect.
(i) ENVIRONMENTAL MATTERS. Grantor has received and reviewed the
Environmental Report and has no reason to believe that the Environmental Report
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein or herein, in light of
the circumstances under which such statements were made, not misleading.
(j) PROPERTY PROCEEDINGS. There are no actions, suits or proceedings
pending or threatened in any court or before any Governmental Authority or
arbitration board or tribunal (i) relating to (A) the zoning of the Premises or
any part thereof, (B) any certificates of occupancy, licenses, registrations,
permits, consents or approvals issued with respect to the Trust Property or any
part thereof, (C) the condemnation of the Trust Property or any part thereof, or
(D) the condemnation or relocation of any roadways abutting the Premises
required for access or the denial or limitation of access to the
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Premises or any part thereof from any point of access to the Premises, (ii)
asserting that (A) any such zoning, certificates of occupancy, licenses,
registrations, permits, consents and/or approvals do not permit the operation
of any material portion of the Realty as presently being conducted, (B) any
material improvements located on the Trust Property or any part thereof
cannot be located thereon or operated with their intended use or (C) the
operation of the Trust Property or any part thereof is in violation in any
material respect of any Environmental Statutes, Development Laws or other
Legal Requirements or Leases or Property Agreements or (iii) which (A) might
affect the validity or priority of any Loan Document or (B) have a Material
Adverse Effect. Grantor is not aware of any facts or circumstances which may
give rise to any actions, suits or proceedings described in the preceding
sentence.
(k) UTILITIES. The Premises has all necessary legal access to water,
gas and electrical supply, storm and sanitary sewerage facilities, other
required public utilities (with respect to each of the aforementioned items, by
means of either a direct connection to the source of such utilities or through
connections available on publicly dedicated roadways directly abutting the
Premises or through permanent insurable easements benefiting the Premises), fire
and police protection, parking, and means of direct access between the Premises
and public highways over recognized curb cuts (or such access to public highways
is through private roadways which may be used for ingress and egress pursuant to
permanent insurable easements).
(l) MECHANICS' LIENS. The Trust Property is free and clear of any
mechanics' liens or liens in the nature thereof, and no rights are outstanding
that under law could give rise to any such liens, any of which liens are or may
be prior to, or equal with, the lien of this Deed of Trust, except those which
are insured against by the title insurance policy insuring the lien of this Deed
of Trust.
(m) INSURANCE. The Trust Property is insured in accordance with the
requirements set forth in Article III hereof.
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(n) OPERATING LEASES.
(i) Grantor has delivered a true, correct and complete
schedule of the Operating Lease as of the date hereof, which
accurately and completely sets forth in all material respects, for
such Operating Lease, the following (collectively, the "RENT ROLL"):
the name and address of the tenant with the name, title and telephone
number of the contact person of such tenant; the lease expiration
date, extension and renewal provisions; the base rent and percentage
rent payable; all additional rent and pass-through obligations; and
the security deposit held thereunder and the location of such deposit.
(ii) The Operating Lease constitutes the legal, valid and
binding obligation of Grantor and, to the knowledge of Grantor, is
enforceable against the tenant thereof. No default exists, or with
the passing of time or the giving of notice would exist under any
Operating Lease which would, in the aggregate, have a Material Adverse
Effect.
(iii) No tenant under the Operating Lease has, as of the date
hereof, paid Rent more than thirty (30) days in advance, and the Rents
under such Operating Lease have not been waived, released, or
otherwise discharged or compromised.
(iv) Except as otherwise set forth in the Operating Lease, all
work to be performed by Grantor under the Operating Lease has been
substantially performed, all contributions to be made by Grantor to
the tenants thereunder have been made except for any held-back
amounts, and all other conditions precedent to each such tenant's
obligations thereunder have been satisfied.
(v) Except as previously disclosed to Beneficiary in writing,
there are no options to terminate any Operating Lease.
(vi) Each tenant under the Operating Lease has entered into
occupancy of the demised premises to the extent required under the
terms of its Operating Lease, and each
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such tenant is open and conducting business with the public in the
demised premises.
(vii) Grantor has delivered to Beneficiary true, correct and
complete copies of the Operating Lease described in the Rent Roll.
(viii) The Operating Lease is in full force and effect and
(except as disclosed on the Rent Roll) has not been assigned,
modified, supplemented or amended in any way.
(ix) Each tenant under the Operating Lease is free from
bankruptcy, reorganization or arrangement proceedings or a general
assignment for the benefit of creditors.
(x) No Operating Lease provides any party with the right to
obtain a lien or encumbrance upon the Trust Property superior to the
lien of this Deed of Trust.
(xi) There are no Leases for any portion of the Trust Property
other than the Operating Lease identified pursuant to subparagraph (i)
above. Grantor shall not enter into any Lease of any portion of the
Trust Property other than an Operating Lease without Grantor's prior
written consent.
(o) PROPERTY AGREEMENTS.
(i) Grantor has delivered to Beneficiary true, correct and
complete copies of all material Property Agreements (including all
Franchise Agreements).
(ii) No Property Agreement provides any party with the right to
obtain a lien or encumbrance upon the Trust Property superior to the
lien of this Deed of Trust.
(iii) No default exists or with the passing of time or the
giving of notice or both would exist under any Property Agreement
which would, individually or in the aggregate, have a Material Adverse
Effect.
(iv) Grantor has not received or given any written
communication which alleges that a default exists or, with
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the giving of notice or the lapse of time, or both, would exist under
the provisions of any Property Agreement.
(v) No condition exists whereby Grantor or any future owner of
the Trust Property may be required to purchase any other parcel of
land which is subject to any Property Agreement or, except as set
forth in the Existing Operating Lease, which gives any Person a right
to purchase, or right of first refusal with respect to, the Trust
Property.
(vi) To the best knowledge of Grantor, no offset or any right
of offset exists respecting continued contributions to be made by any
party to any Property Agreement except as expressly set forth therein.
Except as previously disclosed to Beneficiary in writing, no material
exclusions or restrictions on the utilization, leasing or improvement
of the Trust Property (including non-compete agreements) exists in any
Property Agreement.
(vii) All "pre-opening" requirements contained in all Property
Agreements (including, but not limited to, all off-site and on-site
construction requirements), if any, have been fulfilled, and, to the
best of Grantor's knowledge, no condition now exists whereby any party
to any such Property Agreement could refuse to honor its obligations
thereunder.
(viii) Except as otherwise provided in the Franchise Agreement,
all work, if any, to be performed by Grantor under each of the
Property Agreements has been substantially performed, all
contributions to be made by Grantor to any party to such Property
Agreements have been made, and all other conditions to such party's
obligations thereunder have been satisfied.
(p) PERSONAL PROPERTY. Grantor has delivered to Beneficiary a true,
correct and complete schedule of all personal property, if any, owned by Grantor
and located upon the Trust Property or used in connection with the use or
operation of the Trust Property and Grantor represents that it has good and
marketable title to all such personal property, free and clear of any liens,
except for liens created under the Loan Documents and
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liens which describe the equipment and other personal property owned by
tenants.
(q) LEASING BROKERAGE AND MANAGEMENT FEES. Except as previously
disclosed to Beneficiary in writing, there are no brokerage fees or commissions
payable by Grantor with respect to the leasing of space at the Trust Property
and there are no management fees payable by Grantor with respect to the
management of the Trust Property.
(r) SECURITY DEPOSITS. All security deposits with respect to the
Trust Property on the date hereof have been transferred to the Security Deposit
Account on the date hereof, and Grantor is in compliance with all Legal
Requirements relating to such security deposits as to which failure to comply
might, individually or in the aggregate, have a Material Adverse Effect.
(s) LOAN TO VALUE RATIO. To the best knowledge of Grantor, based on
the substantial real estate expertise of Grantor, Grantor's familiarity with the
Trust Property, and the Appraisal (which Grantor believes to contain a
reasonable assessment of the fair market value of the Trust Property), the
Initial Allocated Loan Amount does not exceed one hundred twenty-five percent
(125%) of the fair market value of the Trust Property. For the purposes of this
clause (s), the term "fair market value" shall be reduced by (i) the amount of
any indebtedness secured by a lien affecting the Trust Property that is prior
to, or on a parity with, the lien of this Deed of Trust, and (ii) the value of
any property that is not "real property" within the meaning of Treas. Reg.
Sections 1.860G-2 and 1.856-3(d).
(t) REPRESENTATIONS GENERALLY. The representations and warranties
contained in this Deed of Trust, and the review and inquiry made on behalf of
Grantor therefor, have all been made by Persons having the requisite expertise
and knowledge to provide such representations and warranties. No
representation, warranty or statement of fact made by or on behalf of Grantor in
this Deed of Trust or in any certificate, document or schedule furnished to
Beneficiary by Beneficiary or a consultant retained by Grantor in connection
herewith, contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained therein or herein not
misleading (which may be to Grantor's best knowledge where so provided herein).
There are no
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facts presently known to Grantor which have not been disclosed to Beneficiary
which would, individually or in the aggregate, have a Material Adverse Effect
nor as far as Grantor can reasonably foresee might, individually or in the
aggregate, have a Material Adverse Effect.
Section 2.06. REMOVAL OF LIEN. (a) Grantor shall, at its expense,
maintain this Deed of Trust as a first lien on the Trust Property and shall keep
the Trust Property free and clear of all liens of any kind and nature other than
the Permitted Encumbrances. Grantor shall promptly discharge of record, by bond
or otherwise, any such liens and, promptly upon request by Beneficiary, shall
deliver to Beneficiary evidence reasonably satisfactory to Beneficiary of the
discharge thereof.
(b) Without limitation to the provisions of Section 2.06(a) hereof,
Grantor shall (i) pay, from time to time when the same shall become due, all
claims and demands of mechanics, materialmen, laborers, and others which, if
unpaid, might result in, or permit the creation of, a lien on the Trust Property
or any part thereof, or on the revenues, rents, issues, income or profits
arising therefrom, (ii) cause to be removed of record (by payment or posting of
bond or settlement or otherwise) any mechanics', materialmens', laborers' or
other lien on the Trust Property, or any part thereof, or on the revenues,
rents, issues, income or profit arising therefrom, and (iii) in general, do or
cause to be done, without expense to Beneficiary, everything reasonably
necessary to preserve in full the lien of this Deed of Trust. If Grantor fails
to comply with the requirements of paragraph (b) of this Section 2.06, then,
upon five (5) Business Days' prior notice to Grantor, Beneficiary may, but shall
not be obligated to, pay any such lien, and Grantor shall, within five (5)
Business Days after Beneficiary's demand therefor, reimburse Beneficiary for all
sums so expended, together with interest thereon at the Default Rate from the
date advanced, all of which shall be deemed part of the Debt. Nothing contained
herein shall be deemed a consent or request of Beneficiary, express or implied,
by inference or otherwise, to the performance of any alteration, repair or other
work by any contractor, subcontractor or laborer or the furnishing of any
materials by any materialmen in connection therewith.
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(c) Notwithstanding the foregoing, Grantor may contest any lien
(other than a lien relating to non-payment of Impositions, the contest of which
shall be governed by Section 4.04 hereof) of the type set forth in subparagraph
(b)(ii) of this Section 2.06 provided that, following prior notice to
Beneficiary (i) Grantor is contesting the validity of such lien with due
diligence and in good faith and by appropriate proceedings, without cost or
expense to Beneficiary or any of its agents, employees, officers, or directors,
(ii) Grantor shall preclude the collection of, or other realization upon, any
contested amount from the Trust Property or any revenues from or interest in the
Trust Property, (iii) neither the Trust Property nor any part thereof nor
interest therein, shall be in any danger of being sold, forfeited or lost by
reason of such contest by Grantor, (iv) such contest by Grantor shall not affect
the ownership, use or occupancy of the Trust Property, (v) such contest by
Grantor shall not subject Beneficiary or Grantor to the risk of civil or
criminal liability (other than the civil liability of Grantor for the amount of
the lien in question), (vi) such lien is subordinate to the lien of this Deed of
Trust, (vii) Grantor has not consented to such lien, (viii) Grantor has given
Beneficiary prompt notice of the filing of such lien and the bonding thereof by
Grantor and, upon request by Beneficiary from time to time, notice of the status
of such contest by Grantor and/or confirmation of the continuing satisfaction of
the conditions set forth in this Section 2.06(c), (ix) Grantor shall promptly
pay the obligation secured by such lien upon a final determination of Grantor's
liability therefor, and (xi) Grantor shall deliver to Beneficiary cash, a bond
or other security acceptable to Beneficiary equal to 125% of the contested
amount pursuant to collateral arrangements reasonably satisfactory to
Beneficiary.
Section 2.07. COST OF DEFENDING AND UPHOLDING THIS DEED OF TRUST
LIEN. If any action or proceeding is commenced to which Beneficiary or Deed
Trustee is made a party relating to the Loan Documents and/or the Trust Property
or Beneficiary's interest therein or in which it becomes necessary to defend or
uphold the lien of this Deed of Trust or any other Loan Document, Grantor shall,
on demand, reimburse Beneficiary and/or Deed Trustee for all expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
incurred by Beneficiary and/or Deed Trustee in connection therewith, and such
sum, together with
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interest thereon at the Default Rate from and after such demand until fully
paid, shall constitute a part of the Debt.
Section 2.08. USE OF THE TRUST PROPERTY. Grantor will use, or cause
to be used, the Trust Property for such use as is permitted pursuant to
applicable Legal Requirements including, without limitation, under the
certificate of occupancy applicable to the Trust Property, and which is required
by the Loan Documents. Grantor shall not suffer or permit the Trust Property or
any portion thereof to be used by the public, any tenant, or any Person not
subject to a Lease, in a manner as is reasonably likely to impair Grantor's
title to the Trust Property, or in such manner as may give rise to a claim or
claims of adverse usage or adverse possession by the public, or of implied
dedication of the Trust Property or any part thereof.
Section 2.09. FINANCIAL REPORTS. (a) Grantor will keep and maintain
or will cause to be kept and maintained on a Fiscal Year basis, in accordance
with GAAP or the Uniform System of Accounts (or such other accounting basis
reasonably acceptable to Beneficiary) consistently applied, proper and accurate
books, records and accounts reflecting (i) all of the financial affairs of
Grantor and (ii) all items of income and expense in connection with the
operation of the Trust Property or in connection with any services, equipment or
furnishings provided in connection with the operation thereof, whether such
income or expense may be realized by Grantor or by any other Person whatsoever,
excepting lessees unrelated to and unaffiliated with Grantor who have leased
from Grantor portions of the Premises for the purpose of occupying the same.
Beneficiary shall have the right from time to time at all times during normal
business hours upon reasonable notice to examine such books, records and
accounts at the office of Grantor or other Person maintaining such books,
records and accounts and to make such copies or extracts thereof as Beneficiary
shall desire. After the occurrence of an Event of Default, Grantor shall pay
any costs and expenses incurred by Beneficiary to examine Grantor's accounting
records with respect to the Trust Property, as Beneficiary shall determine to be
necessary or appropriate in the protection of Beneficiary's interest.
(b) Grantor will furnish Beneficiary annually, as soon as performed
but in no event later than ninety (90) days following
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the end of each Fiscal Year of Grantor, with a complete copy of the
consolidated financial statements of Grantor and Host Funding, Inc. ("HOST")
audited by an Independent certified public accountant that is acceptable to
Beneficiary in accordance with GAAP or the Uniform System of Accounts (or
such other accounting basis reasonably acceptable to Beneficiary)
consistently applied covering, with respect to the Grantor and the Trust
Property, (i) all of the financial affairs of Grantor and (ii) the operation
of the Trust Property for such Fiscal Year and containing a statement of
revenues and expenses, a statement of assets and liabilities and a statement
of Grantor's equity. Notwithstanding the foregoing, for any Fiscal Year in
which an Event of Default has occurred or is continuing, Grantor shall
furnish to Beneficiary, as soon as performed, but in no event later than
ninety (90) days following the end of such Fiscal Year, a complete copy of a
financial statement of Grantor audited as provided above with respect to
Grantor's and Host's financial statement covering (i) the financial affairs
of Grantor and (ii) the operation of the Trust Property for such Fiscal Year
containing the information described above. Together with Host's or
Grantor's annual financial statements, Grantor shall furnish to Beneficiary
an Officer's Certificate certifying as of the date thereof (i) that the
annual financial statements accurately represent the results of operation and
financial condition of Grantor and the Trust Property all in accordance with
GAAP or the Uniform System of Accounts consistently applied, and (ii) whether
there exists an event or circumstance which constitutes, or which upon notice
or lapse of time or both would constitute, a Default under the Note or any
other Loan Document executed and delivered by Grantor, and if such event or
circumstance exists, the nature thereof, the period of time it has existed
and the action then being taken to remedy such event or circumstance.
(c) Grantor will furnish Beneficiary monthly, within twenty (20)
Business Days following the end of each month, with a true, complete and correct
cash flow statement with respect to the Trust Property in the form attached
hereto as EXHIBIT C and made a part hereof, showing (i) all cash receipts of any
kind whatsoever and all cash payments and disbursements, and (ii) year-to-date
summaries of such cash receipts, payments and disbursements together with a
certification of the Operator stating that such cash flow statement is true,
complete and correct.
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(d) Grantor will furnish Beneficiary monthly, within twenty (20) days
following the end of each month, with a certification of the Operator stating
that all Operating Expenses with respect to the Trust Property which had accrued
as of the last day of the month preceding the delivery of the cash flow
statement referred to in clause (c) above have been fully paid or otherwise
reserved or provided for by the Operator (any such certification or any
certification furnished by a Operator pursuant to clause (c) above, a "OPERATOR
CERTIFICATION").
(e) Grantor will furnish Beneficiary annually, upon request by
Beneficiary therefor, within thirty (30) days following receipt of such request,
with a true, complete and correct rent roll for the Trust Property, including a
list of which tenants are in default under their respective leases, dated as of
the date of Beneficiary's request, identifying each tenant, the monthly rent and
additional rent, if any, payable by such tenant, the expiration date of such
tenant's Lease, the security deposit, if any, held by Grantor under the Lease,
the space covered by the Lease, and the arrearages for such tenant, if any, and
such rent roll shall be accompanied by an Officer's Certificate, dated as of the
date of the delivery of such rent roll, certifying that such rent roll is true,
correct and complete in all material respects as of its date.
(f) Grantor shall furnish to Beneficiary, within thirty (30) days
after Beneficiary's request therefor, with such further detailed information
with respect to the operation of the Trust Property and the financial affairs of
Grantor as may be reasonably requested by Beneficiary.
(g) Intentionally Omitted.
(h) Grantor will furnish Beneficiary annually, within ninety (90)
days after the end of each Fiscal Year, with a report setting forth (i) the Net
Operating Income for such Fiscal Year, (ii) the average occupancy rate of the
Trust Property during such Fiscal Year, (iii) the capital repairs, replacements
and improvements performed at the Trust Property during such Fiscal Year and the
aggregate Recurring Replacement Expenditures made in connection therewith, and
(iv) the balance contained in each of the Sub-Accounts as of the end of such
Fiscal Year (which balance
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Beneficiary shall provide upon Grantor's written request therefor).
(i) Grantor will furnish Beneficiary, at least forty-five (45) days
prior to the end of each Fiscal Year, with an annual operating budget for the
forthcoming Fiscal Year (the "ANNUAL BUDGET") showing a budget by month and
quarter and for the forthcoming Fiscal Year as a whole which shall be in form
and substance reasonably acceptable to Beneficiary.
(j) Grantor shall cause Operator to keep and maintain on a Fiscal
Year basis, in accordance with GAAP or the Uniform System of Accounts (or such
other accounting basis reasonably acceptable to Beneficiary) consistently
applied, proper and accurate books, records and accounts reflecting (i) all of
the financial affairs of Operator and (ii) all items of income and expense in
connection with the operation of the Trust Property or in connection with any
services, equipment or furnishings provided in connection with the operation
thereof, whether such income or expense may be realized by Operator or by any
other Person whatsoever. Beneficiary shall have the right from time to time at
all times during normal business hours upon reasonable notice to examine such
books, records and accounts at the office of Operator or other Person
maintaining such books, records and accounts and to make such copies or extracts
thereof as Beneficiary shall desire. After the occurrence of an Event of
Default, Grantor shall pay any costs and expenses incurred by Beneficiary to
examine Operator's accounting records with respect to the Trust Property, as
Beneficiary shall determine to be necessary or appropriate in the protection of
Beneficiary's interest.
Section 2.10. LITIGATION. Grantor will give prompt written notice to
Beneficiary of any litigation or governmental proceedings pending or threatened
(in writing) against Grantor which might have a Material Adverse Effect.
Section 2.11. Intentionally Omitted.
Section 2.12. UPDATES OF REPRESENTATIONS. Grantor shall deliver to
Beneficiary within ten (10) Business Days of the request of Beneficiary (but not
more frequently than twice a year) an Officer's Certificate updating all of the
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representations and warranties contained in this Deed of Trust and the other
Loan Documents and certifying that all of the representations and warranties
contained in this Deed of Trust and the other Loan Documents, as updated
pursuant to such Officer's Certificate, are true, accurate and complete as of
the date of such Officer's Certificate.
ARTICLE III: INSURANCE AND CASUALTY RESTORATION
Section 3.01. INSURANCE COVERAGE. Grantor shall, at its expense,
maintain or shall cause Operator, at its expense, to maintain the following
insurance coverages with respect to the Trust Property during the term of this
Deed of Trust:
(a) (i) Insurance against loss or damage by fire, casualty and
other hazards included in an "all-risk" extended coverage endorsement
or its equivalent, with such endorsements as Beneficiary may from time
to time reasonably require and which are customarily required by
Institutional Lenders of similar properties similarly situated,
including, without limitation, if the Trust Property constitutes a
legal non-conforming use, an ordinance of law coverage endorsement
which contains "Demolition Cost", "Loss Due to Operation of Law" and
"Increased Cost of Construction" coverages, covering the Trust
Property in an amount not less than the greater of (A) 100% of the
insurable replacement value of the Trust Property (exclusive of the
Premises and footings and foundations) and (B) such other amount as is
necessary to prevent any reduction in such policy by reason of and to
prevent Grantor, Beneficiary or any other insured thereunder from
being deemed to be a co-insurer. Not less frequently than once every
three years, Grantor, at its option, shall either (A) have the
Appraisal updated or obtain a new appraisal of the Trust Property, (B)
have a valuation of the Trust Property made by or for its insurance
carrier conducted by an appraiser experienced in valuing properties of
similar type to that of the Trust Property is located or (C) provide
such other evidence as will, in Beneficiary's sole judgment, enable
Beneficiary to determine whether there shall have been an increase in
the insurable value of the Trust Property and Grantor shall deliver
such
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updated Appraisal, new appraisal, insurance valuation or other
evidence acceptable to Beneficiary, as the case may be, and, if
such updated Appraisal, new appraisal, insurance valuation, or
other evidence acceptable to Beneficiary reflects an increase in
the insurable value of the Trust Property, the amount of insurance
required hereunder shall be increased accordingly and Grantor shall
deliver evidence satisfactory to Beneficiary that such policy has
been so increased.
(ii) Commercial comprehensive general liability insurance
against claims for personal and bodily injury and/or death to one or
more persons or property damage, occurring on, in or about the Trust
Property (including the adjoining streets, sidewalks and passageways
therein) in such amounts as Beneficiary may from time to time
reasonably require (but in no event shall Beneficiary's requirements
be increased more frequently than once during each twelve (12) month
period) and which are customarily required by Institutional Lenders
for similar properties similarly situated, but not less than
$10,000,000.00.
(iii) Business interruption, rent loss or other similar
insurance (A) with loss payable to Beneficiary, (B) covering all risks
required to be covered by the insurance provided for in Section
3.01(a)(i) and (C) in an amount not less than 100% of the projected
Rents, for the succeeding eighteen (18) month period based on an
occupancy rate of 100%. The amount of such insurance shall be
determined upon the execution of this Deed of Trust, and not more
frequently than once each calendar year thereafter based on Grantor's
reasonable estimate of projected Rents, from the Trust Property for
the next succeeding eighteen (18) months. In the event the Trust
Property shall be damaged or destroyed, Grantor shall and hereby does
assign to Beneficiary all payment of claims under the policies of such
insurance, and all amounts payable thereunder, and all net amounts,
shall be collected by Beneficiary under such policies and shall be
applied in accordance with this Deed of Trust; provided, however, that
nothing herein contained shall be deemed to relieve Grantor of its
obligations to timely pay all amounts due under the Loan Documents.
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(iv) War risk insurance when such insurance is obtainable
from the United States of America or any agency or instrumentality
thereof at reasonable rates (for the maximum amount of insurance
obtainable) and if requested by Beneficiary, and such insurance is
then customarily required by Institutional Lenders of similar
properties similarly situated.
(v) Insurance against loss or damages from (A) leakage of
sprinkler systems and (B) explosion of steam boilers, air conditioning
equipment, pressure vessels or similar apparatus now or hereafter
installed at the Trust Property, in such amounts as Beneficiary may
from time to time reasonably require and which are then customarily
required by Institutional Lenders of similar properties similarly
situated.
(vi) Flood insurance in an amount equal to the full
insurable value of the Trust Property or the maximum amount available,
whichever is less, if the Improvements are located in an area
designated by the Secretary of Housing and Urban Development as being
"an area of special flood hazard" under the National Flood Insurance
Program (I.E., having a one percent or greater chance of flooding),
and if flood insurance is available under the National Flood Insurance
Act.
(vii) Worker's compensation insurance or other similar
insurance which may be required by Governmental Authorities or Legal
Requirements.
(viii) Such other insurance as may from time to time be
required by Beneficiary and which is then customarily required by
Institutional Lenders for similar properties similarly situated,
against other insurable hazards, including, but not limited to,
malicious mischief, vandalism, windstorm or earthquake, which at the
time are commonly insured against and generally available in the case
of properties similarly situated, due regard to be given to the size
and type of the Premises, Improvements, Fixtures and Equipment and
their location, construction and use.
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(b) If Grantor is a partnership, Grantor shall cause the General
Partner to maintain fidelity insurance in an amount equal to or
greater than the annual Operating Income of the Trust Property for the
six (6) month period immediately preceding the date on which the
premium for such insurance is due and payable.
(c) Grantor shall cause any Operator of the Trust Property to
maintain fidelity insurance in an amount equal to or greater than the
annual Operating Income of the Trust Property for the six (6) month
period immediately preceding the date on which the premium for such
insurance is due and payable or such lesser amount as Beneficiary
shall approve.
Section 3.02. POLICY TERMS. (a) All insurance required by this
Article III shall be in the form (other than with respect to Sections
3.01(a)(vi) and (vii) above when insurance in those two sub-sections is placed
with a governmental agency or instrumentality on such agency's forms) and amount
and with deductibles as, from time to time, shall be reasonably acceptable to
Beneficiary, under valid and enforceable policies issued by financially
responsible insurers authorized to do business in the State where the Trust
Property is located, shall have a claims paying ability rating of not less than
"AA" from Standard & Poor's. Originals or certified copies of all insurance
policies shall be delivered to and held by Beneficiary. All such policies
(except policies for worker's compensation) shall name Beneficiary as an
additional named insured, shall provide for loss payable to Beneficiary and
shall contain (or have attached): (i) standard "non-contributory beneficiary"
endorsement or its equivalent relating, INTER ALIA, to recovery by Beneficiary
notwithstanding the negligent or willful acts or omissions of Grantor; (ii) a
waiver of subrogation endorsement as to Beneficiary; (iii) an endorsement
indicating that neither Beneficiary nor Grantor shall be or be deemed to be a
co-insurer with respect to any casualty risk insured by such policies and shall
provide for a deductible per loss of an amount not more than that which is
customarily maintained by owners of similar properties similarly situated and,
in no event, shall the deductible exceed five percent (5%) of the full
replacement cost of the Trust Property, and (iv) a provision that such policies
shall not be canceled, terminated, denied renewal or amended, including, without
limitation, any amendment reducing the scope
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or limits of coverage, without at least thirty (30) days' prior written
notice to Beneficiary in each instance. Not less than thirty (30) days prior
to the expiration dates of the insurance policies obtained pursuant to this
Deed of Trust, originals or certified copies of renewals of such policies (or
certificates evidencing such renewals) bearing notations evidencing the
payment of premiums or accompanied by other reasonable evidence of such
payment (which premiums shall not be paid by Grantor through or by any
financing arrangement which would entitle an insurer to terminate a policy)
shall be delivered by Grantor to Beneficiary. Grantor shall not carry
separate insurance with respect to the Trust Property, concurrent in kind or
form or contributing in the event of loss, with any insurance required under
this Article III.
(b) If Grantor fails to maintain and deliver to Beneficiary or cause
to be maintained and delivered to Beneficiary the original policies or
certificates of insurance required by this Deed of Trust, or if there are
insufficient funds in the Basic Carrying Costs Sub-Account to pay the premiums
for same, Beneficiary may, at its option, procure such insurance, and Grantor
shall pay, or as the case may be, reimburse Beneficiary for, all premiums
thereon promptly, upon demand by Beneficiary, with interest thereon at the
Default Rate from the date paid by Beneficiary to the date of repayment and such
sum shall constitute a part of the Debt.
(c) Grantor shall notify or shall cause Operator to notify
Beneficiary of the renewal premium of each insurance policy and Beneficiary
shall with advance notice to Grantor be entitled to pay such amount on behalf of
Grantor from the Basic Carrying Costs Sub-Account. With respect to insurance
policies which require periodic payments (i.e., monthly or quarterly) of
premiums, Beneficiary shall be entitled to pay such amounts fifteen (15) days
(or such lesser number of days as Beneficiary shall determine) prior to the
respective due dates of such installments.
(d) The insurance required by this Deed of Trust may, at the option
of Grantor, be effected by blanket and/or umbrella policies issued to Grantor
covering the Trust Property provided that, in each case, the policies otherwise
comply with the provisions of this Deed of Trust and allocate to the Trust
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Property, from time to time (but in no event less than once a year), the
coverage specified by this Deed of Trust, without possibility of reduction or
coinsurance by reason of, or damage to, any other property (real or personal)
named therein. If the insurance required by this Deed of Trust shall be
effected by any such blanket or umbrella policies, Grantor shall furnish to
Beneficiary original policies or certified copies thereof, or an original
certificate of insurance together with reasonable access to the original of such
policy to review such policy's coverage of the Trust Property, with schedules
attached thereto showing the amount of the insurance provided under such
policies applicable to the Trust Property.
Section 3.03. ASSIGNMENT OF POLICIES. (a) Grantor hereby assigns,
or shall cause Operator to assign to Beneficiary the proceeds of all insurance
(other than worker's compensation and liability insurance) obtained pursuant to
this Deed of Trust, all of which proceeds shall be payable to Beneficiary as
collateral and further security for the payment of the Debt and the performance
of Grantor's obligations hereunder and under the other Loan Documents, and
Grantor hereby authorizes and directs the issuer of any such insurance to make
payment of such proceeds directly to Beneficiary. Except as otherwise expressly
provided in Section 3.04 or elsewhere in this Article III, Beneficiary shall
have the option, in its discretion, and without regard to the adequacy of its
security, to apply all or any part of the proceeds it may receive pursuant to
this Article in such manner as Beneficiary may elect to any one or more of the
following: (i) the payment of the Debt, whether or not then due, in any
proportion or priority as Beneficiary, in its discretion, may elect, (ii) the
repair or restoration of the Trust Property, (iii) the cure of any Default or
(iv) the reimbursement of the costs and expenses of Beneficiary incurred
pursuant to the terms hereof in connection with the recovery of the Insurance
Proceeds. Nothing herein contained shall be deemed to excuse Grantor from
repairing or maintaining the Trust Property as provided in this Deed of Trust or
restoring all damage or destruction to the Trust Property, regardless of the
sufficiency of the Insurance Proceeds, and the application or release by
Beneficiary of any Insurance Proceeds shall not cure or waive any Default or
notice of Default.
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(b) In the event of the foreclosure of this Deed of Trust or any
other transfer of title or assignment of all or any part of the Trust Property
in extinguishment, in whole or in part, of the Debt, all right, title and
interest of Grantor in and to all policies of insurance required by this Deed of
Trust shall inure to the benefit of the successor in interest to Grantor or the
purchaser of the Trust Property. If, prior to the receipt by Beneficiary of any
proceeds, the Trust Property or any portion thereof shall have been sold on
foreclosure of this Deed of Trust or by deed in lieu thereof or otherwise, or
any claim under such insurance policy arising during the term of this Deed of
Trust is not paid until after the extinguishment of the Debt, and Beneficiary
shall not have received the entire amount of the Debt outstanding at the time of
such extinguishment, whether or not a deficiency judgment on this Deed of Trust
shall have been sought or recovered or denied, then, the proceeds of any such
insurance to the extent of the amount of the Debt not so received, shall be paid
to and be the property of Beneficiary, together with interest thereon at the
Default Rate, and the reasonable attorney's fees, costs and disbursements
incurred by Beneficiary in connection with the collection of the proceeds which
shall be paid to Beneficiary and Grantor hereby assigns, transfers and sets over
to Beneficiary all of Grantor's right, title and interest in and to such
proceeds. Notwithstanding any provisions of this Deed of Trust to the contrary,
Beneficiary shall not be deemed to be a trustee or other fiduciary with respect
to its receipt of any such proceeds, which may be commingled with any other
monies of Beneficiary; provided, however, that Beneficiary shall use such
proceeds for the purposes and in the manner permitted by this Deed of Trust.
Any proceeds deposited with Beneficiary shall be held by Beneficiary in an
interest-bearing account, but Beneficiary makes no representation or warranty as
to the rate or amount of interest, if any, which may accrue on such deposit and
shall have no liability in connection therewith. Interest accrued, if any, on
the proceeds shall be deemed to constitute a part of the proceeds for purposes
of this Deed of Trust. The provisions of this Section 3.03(b) shall survive the
termination of this Deed of Trust by foreclosure, deed in lieu thereof or
otherwise as consequence of the exercise of the rights and remedies of
Beneficiary hereunder after a Default.
Section 3.04. CASUALTY RESTORATION. (a) (i) In the event of any
damage to or destruction of the Trust Property, Grantor
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shall give prompt written notice to Beneficiary (which notice shall set forth
Grantor's good faith estimate of the cost of repairing or restoring such
damage or destruction, or if Grantor cannot reasonably estimate the
anticipated cost of restoration, Grantor shall nonetheless give Beneficiary
prompt notice of the occurrence of such damage or destruction, and will
diligently proceed to obtain estimates to enable Grantor to quantify the
anticipated cost and time required for such restoration, whereupon Grantor
shall promptly notify Beneficiary of such good faith estimate) and, provided
that restoration does not violate any Legal Requirements, Grantor shall
promptly commence and diligently prosecute to completion the repair,
restoration or rebuilding of the Trust Property so damaged or destroyed to a
condition such that the Trust Property shall be at least equal in value to
that immediately prior to the damage to the extent practicable, in full
compliance with all Legal Requirements and the provisions of all Leases, and
in accordance with Section 3.04(b) below. Such repair, restoration or
rebuilding of the Trust Property are sometimes hereinafter collectively
referred to as the "WORK".
(ii) Neither Grantor nor Operator shall adjust, compromise or settle
any claim for Insurance Proceeds without the prior written consent of
Beneficiary, which shall not be unreasonably withheld or delayed; provided,
however, that, except during the continuance of an Event of Default,
Beneficiary's consent shall not be required with respect to the adjustment,
compromising or settlement of any claim for Insurance Proceeds in an amount less
than $25,000.
(iii) Subject to Section 3.04(a)(iv), Beneficiary shall apply any
Insurance Proceeds which it may receive towards the Work in accordance with
Section 3.04(b) and the other applicable sections of this Article III.
(iv) If (A) a Default shall have occurred, (B) Beneficiary is not
reasonably satisfied that the Debt Service Coverage, after substantial
completion of the Work, will be at least equal to the Required Debt Service
Coverage, (C) more than seventy-five percent (75%) of the reasonably estimated
aggregate insurable value of the Trust Property is damaged or destroyed, (D) any
Leases physically affected by such destruction shall not continue in full force
and effect, (E) Beneficiary is not reasonably
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satisfied that the Work can be completed six (6) months prior to Maturity or
(F) Beneficiary is not reasonably satisfied that the Work can be completed
within twelve (12) months of the damage or destruction of the Trust Property
(collectively, a "SUBSTANTIAL CASUALTY"), Beneficiary shall have the option,
in its sole discretion to apply any Insurance Proceeds it may receive
pursuant to this Deed of Trust (less any cost to Beneficiary of recovering
and paying out such proceeds incurred pursuant to the terms hereof and not
otherwise reimbursed to Beneficiary, including, without limitation,
reasonable attorneys' fees and expenses) to the payment of the Debt or to
allow such proceeds to be used for the Work pursuant to the terms and subject
to the conditions of Section 3.04(b) hereof and the other applicable sections
of this Article III.
(v) In the event that Beneficiary elects or is obligated hereunder
to allow Insurance Proceeds to be used for the Work, any excess proceeds
remaining after completion of such Work shall be applied to the payment of the
Debt.
(b) If any Condemnation Proceeds, in accordance with Section 6.01(a)
or any Insurance Proceeds in accordance with Section 3.04(a), are to be applied
to the repair, restoration or rebuilding of the Trust Property, then such
proceeds shall be deposited into a segregated interest-bearing bank account at
the Bank, which shall be an Eligible Account, held by Beneficiary and shall be
paid out from time to time to Grantor as the Work progresses (less any cost to
Beneficiary of recovering and paying out such proceeds, including, without
limitation, reasonable attorneys' fees and costs allocable to inspecting the
Work and the plans and specifications therefor) subject to Section 5.13 hereof
and to all of the following conditions:
(i) An architect or engineer selected by Grantor and reasonably
acceptable to Beneficiary (an "ARCHITECT" or "ENGINEER") or a Person
otherwise reasonably acceptable to Beneficiary, shall have delivered
to Beneficiary a certificate estimating the cost of completing the
Work, and, if the amount set forth therein is more than the sum of the
amount of Insurance Proceeds then being held by Beneficiary in
connection with a casualty and amounts agreed to be paid as part of a
final settlement under the insurance policy upon or before completion
of the Work, Grantor shall have
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delivered to Beneficiary (A) cash collateral in an amount equal to
such excess, (B) an unconditional, irrevocable, clean sight draft
letter of credit, in form, substance and issued by a bank reasonably
acceptable to Beneficiary, in the amount of such excess and draws
on such letter of credit shall be made by Beneficiary to make
payments pursuant to this Article III following exhaustion of the
Insurance Proceeds therefore or (C) a completion bond in form,
substance and issued by a surety company reasonably acceptable to
Beneficiary.
(ii) If the cost of the Work is reasonably estimated by an
Architect or Engineer in a certification reasonably acceptable to
Beneficiary to be equal to or exceed twenty percent (20%) of the
Allocated Loan Amount, such Work shall be performed under the
supervision of an Architect or Engineer, it being understood that the
plans and specifications with respect thereto shall provide for Work
so that, upon completion thereof, the Trust Property shall be at least
equal in replacement value and general utility to the Trust Property
prior to the damage or destruction.
(iii) Each request for payment shall be made on not less than
ten (10) days' prior notice to Beneficiary and shall be accompanied by
a certificate of an Architect or Engineer, or, if the Work is not
required to be supervised by an Architect or Engineer, by an Officer's
Certificate stating (A) that payment is for Work completed in
compliance with the plans and specifications, if required under clause
(ii) above, (B) that the sum requested is required to reimburse
Grantor for payments by Grantor to date, or is due to the contractor,
subcontractors, materialmen, laborers, engineers, architects or other
Persons rendering services or materials for the Work (giving a brief
description of such services and materials), and that when added to
all sums previously paid out by Beneficiary does not exceed the value
of the Work done to the date of such certificate, (C) if the sum
requested is to cover payment relating to repair and restoration of
personal property required or relating to the Trust Property, that
title to the personal property items covered by the request for
payment is vested in Grantor (unless Grantor is lessee of such
personal property), and (D) that the Insurance Proceeds and other
amounts deposited
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by Grantor held by Beneficiary after such payment is more than the
estimated remaining cost to complete such Work; provided, however,
that if such certificate is given by an Architect or Engineer, such
Architect or Engineer shall certify as to clause (A) above, and such
Officer's Certificate shall certify as to the remaining clauses
above, and provided, further, that Beneficiary shall not be obligated
to disburse such funds if Beneficiary determines, in Beneficiary's
reasonable discretion, that Grantor shall not be in compliance with
this Section 3.04(b). Additionally, each request for payment shall
contain a statement signed by Grantor stating that the requested
payment is for Work satisfactorily done to date.
(iv) Each request for payment shall be accompanied by waivers of
lien, to the extent permitted by law, in customary form and substance,
covering that part of the Work for which payment or reimbursement is
being requested and, if required by Beneficiary, a search prepared by
a title company or licensed abstractor, or by other evidence
satisfactory to Beneficiary that there has not been filed with respect
to the Trust Property any mechanic's or other lien or instrument for
retention of title relating to any part of the Work not discharged of
record. Additionally, as to any personal property covered by the
request for payment, Beneficiary shall be furnished with evidence of
having incurred a payment obligation therefor and such further
evidence reasonably satisfactory to assure Beneficiary that UCC
filings therefor provide a valid first lien on the personal property.
(v) Beneficiary shall have the right to inspect the Work at all
reasonable times upon reasonable prior notice and may condition any
disbursement of Insurance Proceeds upon satisfactory compliance by
Grantor with the provisions hereof. Neither the approval by
Beneficiary of any required plans and specifications for the Work nor
the inspection by Beneficiary of the Work shall make Beneficiary
responsible for the preparation of such plans and specifications, or
the compliance of such plans and specifications of the Work, with any
applicable law, regulation, ordinance, covenant or agreement.
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(vi) Insurance Proceeds shall not be disbursed more frequently
than once every thirty (30) days.
(vii) Until such time as the Work has been substantially
completed, Beneficiary shall not be obligated to disburse up to ten
percent (10%) of the cost of the Work (the "RETENTION AMOUNT") to
Grantor. Upon substantial completion of the Work, Grantor shall send
notice thereof to Beneficiary and, subject to the conditions of
Section 3.04(b)(i)-(iv), Beneficiary shall disburse one-half of the
Retention Amount to Grantor; provided, however, that the remaining
one-half of the Retention Amount shall be disbursed to Grantor when
Beneficiary shall have received copies of any and all final
certificates of occupancy or other certificates, licenses and permits
required for the ownership, occupancy and operation of the Trust
Property in accordance with all Legal Requirements. Grantor hereby
covenants to diligently seek to obtain any such certificates, licenses
and permits.
(viii) Upon failure on the part of Grantor promptly to commence
the Work or to proceed diligently and continuously to completion of
the Work, which failure shall continue after notice for thirty (30)
days, Beneficiary may apply any Insurance Proceeds or Condemnation
Proceeds it then or thereafter holds to the payment of the Debt in
accordance with the provisions of the Note; provided, however, that
Beneficiary shall be entitled to apply at any time all or any portion
of the Insurance Proceeds or Condemnation Proceeds it then holds to
the extent necessary to cure any Event of Default under this Deed of
Trust, the Note or any other Loan Document.
(c) If Grantor (i) within one hundred twenty (120) days after
occurrence of any damage to the Trust Property or any portion thereof (or such
shorter period as may be required under any Operating Lease) shall fail to
submit to Beneficiary for approval plans and specifications (if required
pursuant to Section 3.04(b)(ii) hereof) for the Work (approved by the Architect
and by all Governmental Authorities whose approval is required), (ii) after any
such plans and specifications are approved by all Governmental Authorities, the
Architect and Beneficiary, shall fail to promptly commence such Work or (iii)
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shall fail to diligently prosecute such Work to completion, then, in addition to
all other rights available hereunder, at law or in equity, Beneficiary, or any
receiver of the Trust Property or any portion thereof, upon five (5) days' prior
notice to Grantor (except in the event of emergency in which case no notice
shall be required), may (but shall have no obligation to) perform or cause to be
performed such Work, and may take such other steps as it reasonably deems
advisable. Grantor hereby waives, for Grantor, any claim, other than for gross
negligence or willful misconduct, against Beneficiary and any receiver arising
out of any act or omission of Beneficiary or such receiver pursuant hereto, and
Beneficiary may apply all or any portion of the proceeds of insurance (without
the need to fulfill any other requirements of this Section 3.04) to reimburse
Beneficiary and such receiver, for all costs not reimbursed to Beneficiary or
such receiver upon demand together with interest thereon at the Default Rate
from the date such amounts are advanced until the same are paid to Beneficiary
or the receiver.
(d) Grantor hereby irrevocably appoints Beneficiary as its attorney-
in-fact, coupled with an interest, to collect and receive any insurance proceeds
paid with respect to any portion of the Trust Property or the insurance policies
required to be maintained hereunder, and to endorse any checks, drafts or other
instruments representing any insurance proceeds whether payable by reason of
loss thereunder or otherwise.
Section 3.05. COMPLIANCE WITH INSURANCE REQUIREMENTS. Grantor
promptly shall comply with, and shall cause the Trust Property to comply with,
all Insurance Requirements, even if such compliance requires structural changes
or improvements or would result in interference with the use or enjoyment of the
Trust Property or any portion thereof provided Grantor shall have a right to
contest in good faith and with diligence such Insurance Requirements provided
(a) no Default or Event of Default shall exist during such contest and such
contest shall not subject the Trust Property or any portion thereof to any lien
or affect the priority of the lien of this Deed of Trust, (b) failure to comply
with such Insurance Requirements will not subject Beneficiary or any of its
agents, employees, officers or directors to any civil or criminal liability, (c)
such contest will not cause any reduction in insurance coverage, (d) such
contest shall not affect the ownership, use or occupancy of the Trust Property,
(e)
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the Trust Property or any part thereof or any interest therein shall not be
in any danger of being sold, forfeited or lost by reason of such contest by
Grantor, (f) Grantor has given Beneficiary prompt notice of such contest and,
upon request by Beneficiary from time to time, notice of the status of such
contest by Grantor and/or information of the continuing satisfaction of the
conditions set forth in clauses (a) through (e) of this Section 3.05, (g) upon a
final determination of such contest, Grantor shall promptly comply with the
requirements thereof, and (h) prior to and during such contest, Grantor shall
furnish to Beneficiary security satisfactory to Beneficiary, in its reasonable
discretion, against loss or injury by reason of such contest or the non-
compliance with such Insurance Requirement (and if such security is cash,
Beneficiary shall deposit the same in an interest-bearing account and interest
accrued thereon, if any, shall be deemed to constitute a part of such security
for purposes of this Deed of Trust, but Beneficiary (i) makes no representation
or warranty as to the rate or amount of interest, if any, which may accrue
thereon and shall have no liability in connection therewith and (ii) shall not
be deemed to be a trustee or fiduciary with respect to its receipt of any such
security and any such security may be commingled with other monies of
Beneficiary). If Grantor shall use the Trust Property or any portion thereof in
any manner which could permit the insurer to cancel any insurance required to be
provided hereunder, Grantor immediately shall obtain a substitute policy which
shall satisfy the requirements of this Deed of Trust and which shall be
effective on or prior to the date on which any such other insurance policy shall
be canceled. Grantor shall not by any action or omission invalidate any
insurance policy required to be carried hereunder unless such policy is replaced
as aforesaid, or materially increase the premiums on any such policy above the
normal premium charged for such policy. Grantor shall cooperate with
Beneficiary in obtaining for Beneficiary the benefits of any insurance proceeds
lawfully or equitably payable to Beneficiary in connection with the transaction
contemplated hereby.
Section 3.06. EVENT OF DEFAULT DURING RESTORATION. Notwithstanding
anything to the contrary contained in this Deed of Trust including, without
limitation, the provisions of this Article 3, if, at the time of any casualty
affecting the Trust Property or any part thereof, or at any time during any
Work, or
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at any time that Beneficiary is holding or is entitled to receive any
proceeds of any insurance pursuant to this Deed of Trust, a Default exists and
is continuing (whether or not it constitutes an Event of Default), Beneficiary
shall then have no obligation to make such proceeds available for Work and
Beneficiary shall have the right and option, to be exercised in its sole and
absolute discretion and election, with respect to the proceeds of any such
insurance, either to retain and apply such proceeds in reimbursement for the
actual costs, fees and expenses incurred by Beneficiary in accordance with the
terms hereof in connection with the adjustment of the loss and any balance
toward payment of the Debt in such priority and proportions as Beneficiary, in
its sole discretion, shall deem proper, or towards the Work, upon such terms and
conditions as Beneficiary shall determine, or to cure such Event of Default, or
to any one or more of the foregoing as Beneficiary, in its sole and absolute
discretion, may determine. If Beneficiary shall receive and retain such
Insurance Proceeds, the lien of this Deed of Trust shall be reduced only by the
amount thereof received, after reimbursement to Beneficiary of expenses of
collection, and actually applied by Beneficiary in reduction of the principal
sum payable under the Note in accordance with the Note.
Section 3.07. APPLICATION OF PROCEEDS TO DEBT REDUCTION. (a) No
damage to the Trust Property, or any part thereof, by fire or other casualty
whatsoever, whether such damage be partial or total, shall relieve Grantor from
its liability to pay in full the Debt and to perform its obligations under this
Deed of Trust and the other Loan Documents except to the extent any rent
(business interruption) insurance is paid to Beneficiary and applied to the
Debt, and subject to the provisions of Section 18.32 hereof.
(b) If any Insurance Proceeds are applied to reduce the Debt,
Beneficiary shall apply the same in accordance with the provisions of the Note.
ARTICLE IV: IMPOSITIONS
Section 4.01. PAYMENT OF IMPOSITIONS, UTILITIES AND TAXES, ETC. (a)
Grantor shall pay or cause to be paid all Impositions at least five (5) days
prior to the date upon which any fine,
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penalty, interest or cost for nonpayment is imposed, and furnish to
Beneficiary, upon request, receipted bills of the appropriate taxing
authority or other documentation reasonably satisfactory to Beneficiary
evidencing the payment thereof. If Grantor shall fail to pay any Imposition
in accordance with this Section and is not contesting or causing a contesting
of such Imposition in accordance with Section 4.04 hereof, or if there are
insufficient funds in the Basic Carrying Costs Sub-Account to pay any
Imposition, Beneficiary shall have the right, but shall not be obligated, to
pay that Imposition, and Grantor shall repay to Beneficiary, on demand, any
amount paid by Beneficiary, with interest thereon at the Default Rate from
the date of the advance thereof to the date of repayment, and such amount
shall constitute a portion of the Debt secured by this Deed of Trust and the
other Cross-collateralized Deed of Trusts.
(b) Grantor shall, prior to the date upon which any fine, penalty,
interest or cost for the nonpayment is imposed, pay or cause to be paid all
charges for electricity, power, gas, water and other services and utilities in
connection with the Trust Property, and shall, upon request, deliver to
Beneficiary receipts or other documentation reasonably satisfactory to
Beneficiary evidencing payment thereof. If Grantor shall fail to pay any amount
required to be paid by Grantor pursuant to this Section 4.01 and is not
contesting such charges in accordance with Section 4.04 hereof, Beneficiary
shall have the right, but shall not be obligated, to pay that amount, and
Grantor will repay to Beneficiary, on demand, any amount paid by Beneficiary
with interest thereon at the Default Rate from the date of the advance thereof
to the date of repayment, and such amount shall constitute a portion of the Debt
secured by this Deed of Trust and the other Cross-collateralized Deed of Trusts.
(c) Grantor shall pay all taxes, charges, filing, registration and
recording fees, excises and levies imposed upon Beneficiary by reason of or in
connection with its ownership of any Loan Document or any other instrument
related thereto, or resulting from the execution, delivery and recording of, or
the lien created by, or the obligation evidenced by, any of them, other than
income, franchise and other similar taxes imposed on Beneficiary and shall pay
all corporate stamp taxes, if any, and other taxes, required to be paid on the
Loan Documents. If Grantor shall fail to make any such payment within ten (10)
days
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after written notice thereof from Beneficiary, Beneficiary shall have the
right, but shall not be obligated, to pay the amount due, and Grantor shall
reimburse Beneficiary therefor, on demand, with interest thereon at the Default
Rate from the date of the advance thereof to the date of repayment, and such
amount shall constitute a portion of the Debt secured by this Deed of Trust and
the other Cross-collateralized Deed of Trusts.
Section 4.02. DEDUCTION FROM VALUE. In the event of the passage
after the date of this Deed of Trust of any Legal Requirement deducting from the
value of the Trust Property for the purpose of taxation, any lien thereon or
changing in any way the Legal Requirements now in force for the taxation of this
Deed of Trust, the other Cross-collateralized Deed of Trusts and/or the Debt for
federal, state or local purposes, or the manner of the operation of any such
taxes so as to adversely affect the interest of Beneficiary, or impose any tax
or other charge on any Loan Document, then Grantor will pay such tax, with
interest and penalties thereon, if any, within the statutory period. In the
event the payment of such tax or interest and penalties by Grantor would be
unlawful, or taxable to Beneficiary or unenforceable or provide the basis for a
defense of usury, then in any such event, Beneficiary shall have the option, by
written notice of not less than thirty (30) days, to declare the Debt
immediately due and payable.
Section 4.03. NO JOINT ASSESSMENT. Grantor shall not consent to or
initiate the joint assessment of the Premises or the Improvements (a) with any
other real property constituting a separate tax lot and Grantor represents and
covenants that the Premises and the Improvements are and shall remain a separate
tax lot or (b) with any portion of the Trust Property which may be deemed to
constitute personal property, or any other procedure whereby the lien of any
taxes which may be levied against such personal property shall be assessed or
levied or charged to the Trust Property as a single lien.
Section 4.04. RIGHT TO CONTEST. Grantor shall have the right, after
prior notice to Beneficiary, at its sole expense, to contest by appropriate
legal proceedings diligently conducted in good faith, without cost or expense to
Beneficiary or Deed Trustee or any of its agents, employees, officers or
directors, the validity, amount or application of any Imposition or any
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charge described in Section 4.01(b), provided that (a) no Default or Event of
Default shall exist during such proceedings and such contest shall not
(unless Grantor shall comply with clause (d) of this Section 4.04) subject
the Trust Property or any portion thereof to any lien or affect the priority
of the lien of this Deed of Trust, (b) failure to pay such Imposition or
charge will not subject Beneficiary or any of its agents, employees, officers
or directors to any civil or criminal liability, (c) the contest suspends
enforcement of the Imposition or charge (unless Grantor first pays the
Imposition or charge), (d) prior to and during such contest, Grantor shall
furnish to Beneficiary security satisfactory to Beneficiary, in its
reasonable discretion, against loss or injury by reason of such contest or
the non-payment of such Imposition or charge (and if such security is cash,
Beneficiary may deposit the same in an interest-bearing account and interest
accrued thereon, if any, shall be deemed to constitute a part of such
security for purposes of this Deed of Trust, but Beneficiary (i) makes no
representation or warranty as to the rate or amount of interest, if any,
which may accrue thereon and shall have no liability in connection therewith
and (ii) shall not be deemed to be a trustee or fiduciary with respect to its
receipt of any such security and any such security may be commingled with
other monies of Beneficiary), (e) such contest shall not affect the
ownership, use or occupancy of the Trust Property, (f) the Trust Property or
any part thereof or any interest therein shall not be in any danger of being
sold, forfeited or lost by reason of such contest by Grantor, (g) Grantor has
given Beneficiary notice of the commencement of such contest and upon request
by Beneficiary, from time to time, notice of the status of such contest by
Grantor and/or confirmation of the continuing satisfaction of clauses (a)
through (f) of this Section 4.04, and (h) upon a final determination of such
contest, Grantor shall promptly comply with the requirements thereof. Upon
completion of any contest, Grantor shall immediately pay the amount due, if
any, and deliver to Beneficiary proof of the completion of the contest and
payment of the amount due, if any, following which, Beneficiary shall return
the security, if any, deposited with Beneficiary pursuant to clause (d) of
this Section 4.04. Grantor shall not pay any Imposition in installments
unless permitted by applicable Legal Requirements, and shall, upon the
request of Beneficiary, deliver copies of all notices relating to any
Imposition or other charge covered by this Article IV to Beneficiary.
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Section 4.05. NO CREDITS ON ACCOUNT OF THE DEBT. Grantor will not
claim or demand or be entitled to any credit or credits on account of the Debt
for any part of the Impositions assessed against the Trust Property or any part
thereof and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Debt. In the event such claim, credit or deduction shall be
required by Legal Requirements, Beneficiary shall have the option, by written
notice of not less than thirty (30) days, to declare the Debt immediately due
and payable, and Grantor hereby agrees to pay such amounts not later than thirty
(30) days after such notice.
Section 4.06. DOCUMENTARY STAMPS. If, at any time, the United States
of America, any State or Commonwealth thereof or any subdivision of any such
State shall require revenue or other stamps to be affixed to the Note or this
Deed of Trust, or impose any other tax or charges on the same, Grantor will pay
the same, with interest and penalties thereon, if any.
ARTICLE V: CENTRAL CASH MANAGEMENT
Section 5.01. CASH FLOW. Grantor hereby acknowledges and agrees that
the Rent (which for the purposes of this Section 5.01 shall not include security
deposits from tenants under valid Leases held by Grantor and not applied towards
Rent) derived from the Trust Property and Loss Proceeds shall be utilized (a) to
fund the Basic Carrying Costs Sub-Account, (b) to pay all amounts to become due
and payable under the Note by funding the Debt Service Payment Sub-Account, (c)
to fund the Recurring Replacement Reserve Sub-Account, (d) to fund the Operation
and Maintenance Expense Sub-Account to the extent required and (e) to fund the
Curtailment Reserve Sub-Account. Grantor shall cause the Operator to collect
all security deposits from tenants under valid Leases, which shall be held by
the Operator, as agent for Grantor, in accordance with applicable law and in a
segregated demand deposit bank account at such commercial or savings bank or
banks as may be reasonably satisfactory to Beneficiary (the "SECURITY DEPOSIT
ACCOUNT"). Grantor shall notify Beneficiary of any security deposits held as
letters of credit and, upon Beneficiary's request, such letters of credit shall
be promptly delivered to Beneficiary. Grantor shall have no right to
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withdraw funds from the Security Deposit Account; PROVIDED that, prior to the
occurrence of an Event of Default, Grantor may withdraw funds from the
Security Deposit Account to refund or apply security deposits as required by
the Leases or by applicable Legal Requirements. After the occurrence of an
Event of Default, all withdrawals from the Security Deposit Account must be
approved by Beneficiary, subject however, to tenant's rights under the
Operating Lease. All rental payments made by tenants and other payments
constituting Rent, other than direct payments by credit cards which shall be
paid directly into the Rent Account, shall be delivered to the Operator. The
Operator shall collect all of such Rent and shall deposit such funds, within
one (1) Business Day after receipt thereof in the Rent Account, the name and
address of the bank in which such account is located and the account number
of which to be identified in writing by Operator to Beneficiary. Grantor
shall cause the Operator to give to the bank in which the Rent Account is
located an irrevocable written instruction that all funds deposited in such
account shall be automatically transferred through automated clearing house
funds ("ACH") or by Federal wire to the Central Account prior to 5:00 p.m.
(New York City time) on a daily basis. Within two (2) Business Days of the
Closing Date, Grantor shall deliver to Beneficiary a copy of the irrevocable
notice which Grantor delivered to the bank in which the Rent Account is
located pursuant to the provisions of this Section 5.01, the receipt of which
is acknowledged in writing by such bank. Additionally, Grantor shall, or
shall cause Operator to send to each respective credit card company or credit
card clearing bank with which Grantor or the Operator has entered into
merchant's agreements (each, a "CREDIT CARD COMPANY") a direction letter in
the form of EXHIBIT G annexed hereto and made a part hereof (the "CREDIT CARD
PAYMENT DIRECTION LETTER") directing such Credit Card Company to make all
payments due in connection with goods or services furnished at or in
connection with the Trust Property by Federal wire or through ACH directly to
the Central Account. Without the prior written consent of Beneficiary,
neither Grantor nor the Operator shall (i) terminate, amend, revoke or modify
any Credit Card Payment Direction Letter in any manner or (ii) direct or
cause any Credit Card Company to pay any amount in any manner other than as
specifically provided in the related Credit Card Payment Direction Letter.
Beneficiary may elect to change the financial institution in which the
Central Account shall be maintained; HOWEVER, Beneficiary shall give Grantor
and the bank
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in which the Rent Account is located not fewer than five (5) Business Days'
prior notice of such change. Neither Grantor nor Operator shall change such
bank or the Rent Account without the prior written consent of Beneficiary.
All fees and charges of the bank(s) in which the Rent Account and the Central
Account is located shall be paid by Grantor. Notwithstanding anything
contained in this Section 5.01 to the contrary, provided that (a) the
Existing Operating Lease is in full force and effect and no default, or event
which with the passing of time or the giving of notice would become a default
under the Existing Operating Lease has occurred and (b) no Event of Default
hereunder has occurred (the period of time covered by (a) and (b) shall be
referred to herein as the "O&M OPERATIVE PERIOD"), Grantor shall be deemed in
compliance with the provisions of Section 5.01 by causing the Operator to
make all payments due to Grantor as Lessor under the Existing Operating Lease
(including, without limitation, all payments of Base Rent and Percentage Rent
(each as defined in the Existing Operating Lease) by federal wire or through
ACH, directly to the Central Account.
Section 5.02. ESTABLISHMENT OF SUB-ACCOUNTS. Beneficiary has
established the Central Account and the Rent Account in the name of Beneficiary.
The Central Account and the Rent Account shall be under the sole dominion and
control of Beneficiary. Grantor hereby irrevocably directs and authorizes
Beneficiary to withdraw funds from the Rent Account, and to deposit into and
withdraw funds from the Central Account, all in accordance with the terms and
conditions of this Deed of Trust. Grantor shall have no right of withdrawal in
respect of the Rent Account or the Central Account. Each transfer of funds to
be made hereunder shall be made only to the extent that funds are on deposit in
the Rent Account, the Central Account or the affected Sub-Account, and
Beneficiary shall have no responsibility to make additional funds available in
the event that funds on deposit are insufficient. The Central Account shall
contain the Engineering Escrow Sub-Account, the Basic Carrying Costs Sub-
Account, the Debt Service Payment Sub-Account, the Recurring Replacement Reserve
Sub-Account, the Operation and Maintenance Expense Sub-Account and the
Curtailment Reserve Sub-Account (to the extent applicable), each of which
accounts shall be Eligible Accounts (each a "SUB-ACCOUNT" and collectively, the
"SUB-ACCOUNTS") to which certain funds shall be allocated and from which
disbursements shall be made pursuant to the terms of this Deed of Trust. On the
date
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hereof, Grantor has deposited from the proceeds of the Loan the Initial
Central Account Deposit in the Central Account. In addition, on the date
hereof the Central Account shall also contain a Sub-Account entitled the
"ENGINEERING ESCROW SUB-ACCOUNT" which initially shall be funded with the
Initial Engineering Deposit (representing the sum applicable to certain
engineering work as set forth on EXHIBIT D, attached hereto and made a part
hereof (collectively, "REQUIRED ENGINEERING WORK")). Disbursements from the
Engineering Escrow Sub-Account shall be made in accordance with Section 5.12
hereof.
Section 5.03. PERMITTED INVESTMENTS. Upon the written request of
Grantor, Beneficiary shall direct the Bank to invest and reinvest any balance in
the Central Account from time to time in Permitted Investments as instructed by
Grantor (which instruction may be made no more than one time per month),
PROVIDED that (a) if Grantor fails to so instruct Beneficiary, or upon the
occurrence of an Event of Default, Beneficiary may direct the Bank to invest and
reinvest such balance in Permitted Investments as Beneficiary shall determine in
its sole discretion, (b) the maturities of the Permitted Investments on deposit
in the Central Account shall, to the extent such dates are ascertainable, be
selected and coordinated to become due not later than the day before any
disbursements from the applicable Sub-Accounts must be made, (c) all such
Permitted Investments shall be held in the name and be under the sole dominion
and control of Beneficiary, and (d) no Permitted Investment shall be made unless
Beneficiary shall retain a perfected first priority lien in such Permitted
Investment securing the Debt and all filings and other actions necessary to
ensure the validity, perfection, and priority of such lien have been taken. It
is the intention of the parties hereto that the entire amounts deposited in the
Central Account (or as much thereof as Beneficiary may reasonably arrange to
invest) shall at all times be invested in Permitted Investments, and that the
Central Account shall be a so-called "zero balance" account. All funds in the
Central Account that are invested in a Permitted Investment are deemed to be
held in the Central Account for all purposes of this Deed of Trust and the other
Loan Documents. Beneficiary shall not have any liability for any loss in
investments of funds in the Central Account that are invested in Permitted
Investments whether Grantor or Beneficiary selected such Permitted Investment in
accordance herewith and no such loss shall affect Grantor's obligation to fund,
or liability for
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funding, the Central Account and each Sub-Account, as the case may be.
Grantor agrees that Grantor shall include all such earnings on the Central
Account as income of Grantor (and, if Grantor is a partnership or other
pass-through entity, the partners, members or beneficiaries of Grantor, as
the case may be) for federal and applicable state and local tax purposes.
Grantor shall have no right whatsoever to direct the investment of the
proceeds in the Collection Account.
Section 5.04. INTEREST ON ACCOUNTS. All interest paid or other
earnings on the Permitted Investments of funds deposited into the Central
Account made hereunder shall be deposited into the Central Account and shall be
allocated to the Sub-Account which contained the funds with respect to which
such interest was paid or other earnings earned. All such interest and
earnings, once so allocated, shall be treated as Rent allocated to such Sub-
Account. All interest paid or other earnings on funds deposited into the Rent
Account (i.e., those funds not transferred to the Central Account) shall be
deposited into the Rent Account and shall be treated as Rent deposited into such
account as of the day such interest and earnings are deposited therein.
Section 5.05. MONTHLY FUNDING OF SUB-ACCOUNTS. On each Notice Date
during the term of the Loan, commencing on the first (1st) Notice Date occurring
after the month in which the Loan is initially funded, Beneficiary shall
allocate all funds transferred or deposited into the Central Account among the
Sub-Accounts as follows and in the following priority:
(a) first, to the Basic Carrying Costs Sub-
Account, until an amount equal to the Basic Carrying Costs Monthly
Installment for such Current Month has been allocated to the Basic
Carrying Costs Sub-Account;
(b) second, to the Debt Service Payment Sub-
Account, until an amount equal to the Required Debt Service Payment
for the Payment Date occurring in such Current Month has been
allocated to the Debt Service Payment Sub-Account;
(c) third, to the Recurring Replacement Reserve
Sub-Account, until an amount equal to the sum of (x)
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the amount, if any, deducted therefrom during any preceding month
to pay any amounts due pursuant to clauses (a) or (b) above, to the
extent not previously reimbursed to such Sub-Account, plus (y) an
amount equal to the Recurring Replacement Reserve Monthly
Installment for such month has been allocated to the Recurring
Replacement Reserve Sub-Account;
(d) fourth, but not during the O&M Operative
Period to the Operation and Maintenance Expense Sub-Account, until an
amount equal to the amount, if any, deducted therefrom during any
preceding month to pay any amounts due pursuant to clauses (a) or (b)
above, to the extent not previously reimbursed to such Sub-Account and
then until an amount equal to the Operation and Maintenance Expense
Monthly Installment has been allocated to such Sub-Account; and
(e) fifth, with respect to any Current Month for
which funds are to be allocated to the Curtailment Reserve Sub-Account
pursuant to Section 5.11 hereof, all Excess Rent shall be allocated to
the Curtailment Reserve Sub-Account.
All amounts (other than Loss Proceeds or Lump Sum Advance
Payments deposited therein) available in the Central Account in any Current
Month after the allocations under clauses (a) through (d) above have been made
(hereinafter, "EXCESS RENT") shall be distributed to Grantor within ten (10)
Business Days after application of funds as set forth in clauses (a) through (d)
above, provided, however: (i) in the event that, as of any DSC Quarterly Test
Date, the Aggregate Debt Service Coverage, as determined by Beneficiary, for the
prior trailing twelve (12) months is less than 1.25%, all Excess Rent shall be
retained by Beneficiary in the Central Account and shall not be distributed to
Grantor until such time as Beneficiary determines, as of a DSC Quarterly Test
Date, that the Aggregate Debt Service Coverage for the preceding trailing twelve
(12) month period is at least 1.25%; and (ii) after the occurrence, and during
the continuance, of an Event of Default, no funds held in the Central Account,
shall be distributed to, or withdrawn by, Grantor, and Beneficiary shall have
the right to apply all or any portion of the funds held in either or both of
such accounts to the Debt in Beneficiary's sole discretion.
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In the event that sufficient funds to fund all of the Sub-
Accounts pursuant to this Section 5.05 for the Payment Date in any Current Month
are not on deposit in the Central Account prior to 2:00 p.m. (New York City
time) on the Business Day immediately preceding the Payment Date (the "NOTICE
DATE") for the then Current Month, Beneficiary shall deliver to Grantor, via
telecopy, on or before 4:00 P.M. (New York City time) on the Notice Date a
certificate in the form set forth as EXHIBIT E attached hereto and made a part
hereof stating that sufficient funds have not theretofore been deposited into
the Central Account for allocation to the various Sub-Accounts pursuant to this
Section 5.05. If any such certificate is delivered, Grantor shall be obligated
to deposit immediately available United States funds (in addition to Rent) into
the Central Account, prior to such Payment Date, in the amount of such
deficiency, and failure to make such deposit shall be an Event of Default
hereunder. Failure to provide such certificate shall not release Grantor from
any obligation to make any payment which is due on each Payment Date. If, on
any Payment Date, the aggregate balance in the Central Account (excluding funds
allocated to any Sub-Account other than funds allocated to the Debt Service
Payment Sub-Account or the Basic Carrying Costs Sub-Account) is insufficient to
make the payment of the Basic Carrying Costs Monthly Installment and the
Required Debt Service Payment required to be made pursuant to clauses (a) and
(b) of this Section 5.05, then an Event of Default shall exist hereunder.
Beneficiary may (but shall not be obligated to) withdraw funds and pay such
deficiency from any Sub-Account in such order of priority as Beneficiary
determines in Beneficiary's sole discretion (in each case to the extent funds
are available in each such Sub-Account).
In the event that Beneficiary elects to apply the proceeds of any
Sub-Account to pay any Required Debt Service Payment or to fund any Basic
Carrying Costs, Grantor shall, upon demand, repay to Beneficiary the amount of
the funds so applied to replenish such Sub-Account up to the amount contained
therein immediately prior to such application (i.e., including interest earned
on the balance prior to withdrawal), and if Grantor shall fail to repay such
amounts within five (5) Business Days after such application, an Event of
Default shall exist hereunder, which Event of Default shall not be cured unless
and until Grantor repays such amount or all Sub-Accounts have been fully funded
from Rent for the then applicable Current Month and all
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prior months. Beneficiary may, at its sole option, replenish such
Sub-Account(s) out of available Rent in subsequent months which Grantor would
have otherwise been entitled to receive.
Section 5.06. PAYMENT OF BASIC CARRYING COSTS. Grantor hereby agrees
to pay all Basic Carrying Costs with respect to Grantor, the Trust Property and
any Rent derived therefrom or with respect thereto. At least five (5) Business
Days prior to the due date of any Basic Carrying Costs, and not more frequently
than once each month, Grantor may notify Beneficiary in writing and request that
Beneficiary pay such Basic Carrying Costs on behalf of Grantor on or prior to
the due date thereof, and, provided that no Event of Default has occurred and
that there are sufficient funds available in the Basic Carrying Costs Sub-
Account, Beneficiary shall make such payments out of the Basic Carrying Costs
Sub-Account before same shall be delinquent. Together with each such request,
Grantor shall furnish Beneficiary with bills and all other documents necessary,
as reasonably determined by Beneficiary, for the payment of the Basic Carrying
Costs which are the subject of such request. Grantor's obligation to pay (or
cause Beneficiary to pay) Basic Carrying Costs pursuant to this Deed of Trust
shall include, to the extent permitted by applicable law, Impositions resulting
from future changes in law which impose upon Beneficiary an obligation to pay
any property taxes or other Impositions or which otherwise adversely affect
Beneficiary's interests.
Provided that no Event of Default shall have occurred, all funds
deposited into the Basic Carrying Costs Sub-Account shall be held by Beneficiary
pursuant to the provisions of this Deed of Trust and shall be applied in payment
of Basic Carrying Costs in accordance with the terms hereof. Should an Event of
Default occur, the proceeds on deposit in the Basic Carrying Costs Sub-Account
may be applied by Beneficiary in payment of any Basic Carrying Costs or may be
applied to the payment of the Debt or any other charges affecting all or any
portion of the Cross-collateralized Properties as Beneficiary in its sole
discretion may determine; PROVIDED, HOWEVER, that no such application shall be
deemed to have been made by operation of law or otherwise until actually made by
Beneficiary as herein provided.
Section 5.07. DEBT SERVICE PAYMENT SUB-ACCOUNT. On each Payment Date
during the term of the Loan, Beneficiary shall
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transfer to the Collection Account, from the Debt Service Payment
Sub-Account, an amount equal to the sum of (a) the Required Debt Service
Payment for such Payment Date and (b) any amounts deposited into the Central
Account that are either (i) Loss Proceeds that Beneficiary has elected to
apply to reduce the Debt in accordance with the terms of Article III hereof
or (ii) excess Loss Proceeds remaining after the completion of any
restoration required hereunder.
Section 5.08. RECURRING REPLACEMENT RESERVE SUB-ACCOUNT. Grantor
hereby agrees to pay all Recurring Replacement Expenditures with respect to
Grantor and the Trust Property (without regard to the amount of money then
available in the Recurring Replacement Reserve Sub-Account). Provided that
Beneficiary has received written notice from Grantor at least five (5) Business
Days prior to the due date of any payment relating to Recurring Replacement
Expenditures and not more frequently than once each month, and further provided
that no Event of Default has occurred, that there are sufficient funds available
in the Recurring Replacement Reserve Sub-Account and Grantor shall have
theretofore furnished Beneficiary with lien waivers, copies of bills, invoices
and other reasonable documentation as may be required by Beneficiary to
establish that the Recurring Replacement Expenditures which are the subject of
such request represent amounts due for completed or partially completed capital
work and improvements performed at the Trust Property, Beneficiary shall make
such payments out of the Recurring Replacement Reserve Sub-Account.
Provided that no Event of Default shall have occurred, all funds
deposited into the Central Account relating to Recurring Replacement
Expenditures shall be held by Beneficiary pursuant to the provisions of this
Deed of Trust and shall be applied in payment of Recurring Replacement
Expenditures. Should an Event of Default occur, the proceeds on deposit in the
Recurring Replacement Reserve Sub-Account may be applied by Beneficiary in
payment of any Recurring Replacement Expenditures or may be applied to the
payment of the Debt or any other charges affecting all or any portion of the
Cross-collateralized Properties, as Beneficiary in its sole discretion may
determine; PROVIDED, HOWEVER, that no such application shall be deemed to have
been made by operation of law or otherwise until actually made by Beneficiary as
herein provided.
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Section 5.09. OPERATION AND MAINTENANCE EXPENSE SUB-ACCOUNT. Grantor
hereby agrees to pay all Operating Expenses with respect to the Trust Property
(without regard to the amount of money then available in the Operation and
Maintenance Expense Sub-Account). All funds allocated to the Operation and
Maintenance Expense Sub-Account shall be held by Beneficiary pursuant to the
provisions of this Deed of Trust. Any sums held in the Operation and
Maintenance Expense Sub-Account shall be disbursed to Grantor within five (5)
Business Days of receipt by Beneficiary from Grantor of (a) a written request
for such disbursement which shall indicate the Operating Expenses (exclusive of
Basic Carrying Costs) for which the required disbursement is to pay and (b) an
Officer's Certificate stating that no Operating Expenses with respect to the
Property are more than sixty (60) days past due; PROVIDED, HOWEVER, in the event
that Grantor legitimately disputes any invoice for an Operating Expense, and (i)
no Event of Default has occurred and is continuing hereunder, (ii) Grantor shall
demonstrate its ability to pay to the satisfaction of Beneficiary such disputed
sums together with all interest and late fees thereon when due, (iii) Grantor
has complied with all the requirements of this Deed of Trust relating thereto,
and (iv) the contesting of such sums shall not constitute a default under any
other instrument, agreement, or document to which Grantor is a party, then
Grantor may, after certifying to Beneficiary as to items (i) through (iv)
hereof, contest such invoice. Together with each such request, Grantor shall
furnish Beneficiary with bills and all other documents necessary for the payment
of the Operating Expenses which are the subject of such request. Grantor may
request a disbursement from the Operation and Maintenance Expense Sub-Account no
more than one (1) time per calendar month. Should an Event of Default occur and
be continuing, the proceeds on deposit in the Operation and Maintenance Expense
Sub-Account may be applied by Beneficiary in payment of any Operating Expenses
for the Trust Property or may be applied to the payment of the Debt or other
charges affecting all or any portion of the Trust Property as Beneficiary, in
its sole discretion, may determine; PROVIDED, HOWEVER, that no such application
shall be deemed to have been made by operation of law or otherwise until
actually made by Beneficiary as herein provided. All sums, if any, remaining in
the Operation and Maintenance Expense Sub-Account after the payment of all
Operating Expenses for the then Current
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Month shall be deposited into the Curtailment Reserve Sub-Account, as set
forth in Section 5.05 hereof.
Section 5.10. INTENTIONALLY OMITTED.
Section 5.11. CURTAILMENT RESERVE SUB-ACCOUNT. Commencing on or
after the occurrence and during the continuance of an Event of Default, all
Excess Rent shall be allocated to the Curtailment Reserve Sub-Account in
accordance with Section 5.05(e) until such time as the Debt has been repaid in
full. On each Payment Date during any period for which funds have been
allocated to the Curtailment Reserve Sub-Account, Beneficiary shall transfer to
the Collection Account an amount equal to the lesser of (a) the amount available
in the Curtailment Reserve Sub-Account, and (b) the total Debt then outstanding
under the Note and the other Loan Documents.
Section 5.12. PERFORMANCE OF ENGINEERING WORK. (a) Grantor shall
promptly commence and diligently thereafter pursue to completion (without regard
to the amount of money then available in the Engineering Escrow Sub-Account) the
Required Engineering Work as follows: (i) work designated as either "approved
work" or "urgent work" on EXHIBIT D attached hereto and made a part hereof shall
be completed by no later than the six month anniversary of the date hereof, and
(ii) work designated as "deferred work" shall be completed by no later than the
one year anniversary of the date hereof. After Grantor completes an item of
Required Engineering Work set forth on EXHIBIT D hereto, Grantor may submit to
Beneficiary an invoice therefor with lien waivers and a statement from the
Engineer, reasonably acceptable to Beneficiary, indicating that the portion of
the Required Engineering Work in question has been completed in compliance with
all Legal Requirements, and Beneficiary shall, within twenty (20) days
thereafter, although in no event more frequently than once each month, reimburse
such amount to Grantor from the Engineering Escrow Sub-Account; PROVIDED,
HOWEVER, that Grantor shall not be reimbursed more than the amount set forth on
EXHIBIT D hereto as the amount allocated to the portion of the Required
Engineering Work for which reimbursement is sought.
(b) From and after the date all of the Required Engineering Work
is substantially completed, Grantor may submit a written request, which request
shall be delivered together with
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final lien waivers and a statement from the Engineer, as the case may be,
reasonably acceptable to Beneficiary, indicating that all of the Required
Engineering Work has been completed in compliance with all Legal
Requirements, and Beneficiary shall, within twenty (20) days thereafter,
disburse any balance of the Engineering Escrow Sub-Account to Grantor.
Section 5.13. LOSS PROCEEDS. In the event of a casualty to the Trust
Property, unless Beneficiary elects, or is required pursuant to Article III
hereof to make all of the Insurance Proceeds available to Grantor for
restoration, Beneficiary and Grantor shall cause all such Insurance Proceeds to
be paid by the insurer directly to the Central Account, whereupon Beneficiary
shall, after deducting Beneficiary's third-party costs of recovering and paying
out such Insurance Proceeds, including without limitation, reasonable attorneys'
fees, apply same to reduce the Debt in accordance with the terms of the Note;
PROVIDED, HOWEVER, that if Beneficiary elects, or is deemed to have elected, to
make the Insurance Proceeds available for restoration, all Insurance Proceeds in
respect of rent loss, business interruption or similar coverage shall be
maintained in the Central Account, to be applied by Beneficiary in the same
manner as Rent received with respect to the operation of the Trust Property;
PROVIDED, FURTHER, HOWEVER, that in the event that the Insurance Proceeds of
such rent loss, business interruption or similar insurance policy are paid in a
lump sum in advance, Beneficiary shall hold such Insurance Proceeds in a
segregated interest-bearing escrow account, which shall be an Eligible Account,
shall estimate, in Beneficiary's reasonable discretion, the number of months
required for Grantor to restore the damage caused by the casualty, shall divide
the aggregate rent loss, business interruption or similar Insurance Proceeds by
such number of months, and shall disburse from such escrow account into the
Central Account each month during the performance of such restoration such
monthly installment of said Insurance Proceeds. In the event that Insurance
Proceeds are to be applied toward restoration, Beneficiary shall hold such funds
in a segregated bank account at the Bank, which shall be an Eligible Account,
and shall disburse same in accordance with the provisions of Section 3.04
hereof. Unless Beneficiary elects, or is required pursuant to Section 6.01(a)
hereof to make all of the Condemnation Proceeds available to Grantor for
restoration, Beneficiary and Grantor shall cause all such Condemnation
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Proceeds to be paid to the Central Account, whereupon Beneficiary shall,
after deducting Beneficiary's costs of recovering and paying out such
Condemnation Proceeds, including without limitation, reasonable attorneys'
fees, apply same, by transferring such amounts to the Collection Account, to
reduce the Debt in accordance with the terms of the Note; PROVIDED, HOWEVER,
that any Condemnation Proceeds received in connection with a temporary Taking
shall be maintained in the Central Account, to be applied by Beneficiary in
the same manner as Rent received with respect to the operation of the Trust
Property; PROVIDED, FURTHER, HOWEVER, that in the event that the Condemnation
Proceeds of any such temporary Taking are paid in a lump sum in advance,
Beneficiary shall hold such Condemnation Proceeds in a segregated
interest-bearing escrow account, which shall be an Eligible Account.
Beneficiary shall estimate, in Beneficiary's reasonable discretion, the
number of months that the Trust Property shall be affected by such temporary
Taking, shall divide the aggregate Condemnation Proceeds in connection with
such temporary Taking by such number of months, and shall disburse from such
escrow account into the Central Account each month during the pendency of
such temporary Taking such monthly installment of said Condemnation Proceeds.
In the event that Condemnation Proceeds are to be applied toward restoration,
Beneficiary shall hold such funds in a segregated bank account at the Bank,
which shall be an Eligible Account, and shall disburse same in accordance
with the provisions of Section 3.04 hereof. If any Loss Proceeds are
received by Grantor, such Loss Proceeds shall be received in trust for
Beneficiary, shall be segregated from other funds of Grantor, and shall be
forthwith paid into the Central Account, or paid to Beneficiary to hold in a
segregated bank account at the Bank, in each case to be applied or disbursed
in accordance with the foregoing. Any Loss Proceeds made available to
Grantor for restoration in accordance herewith, to the extent not used by
Grantor in connection with, or to the extent they exceed the cost of, such
restoration, shall be deposited into the Central Account, whereupon
Beneficiary shall apply the same to reduce the Debt in accordance with the
terms of the Note.
ARTICLE VI: CONDEMNATION
Section 6.01. CONDEMNATION. (a) Grantor shall notify Beneficiary
promptly of the commencement or threat of any Taking
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of the Trust Property or any portion thereof. Beneficiary is hereby
irrevocably appointed as Grantor's attorney-in-fact, coupled with an
interest, with exclusive power to collect, receive and retain the proceeds of
any such Taking and to make any compromise or settlement in connection with
such proceedings (subject to Grantor's reasonable approval, except after the
occurrence of an Event of Default, in which event Grantor's approval shall
not be required), subject to the provisions of this Deed of Trust; provided,
however, that Grantor may participate in any such proceedings and shall be
authorized and entitled to compromise or settle any such proceeding with
respect to Condemnation Proceeds in an amount less than five percent (5%) of
the outstanding principal sum of the Loan. Grantor shall execute and deliver
to Beneficiary any and all instruments reasonably required in connection with
any such proceeding promptly after request therefor by Beneficiary. Except
as set forth above, Grantor shall not adjust, compromise, settle or enter
into any agreement with respect to such proceedings without the prior consent
of Beneficiary which consent may not be unreasonably withheld or delayed.
All Condemnation Proceeds are hereby assigned to and shall be paid to
Beneficiary. With respect to Condemnation Proceeds in an amount in excess of
five percent (5%) of the outstanding principal sum of the Loan, Grantor
hereby authorizes Beneficiary to compromise, settle, collect and receive such
Condemnation Proceeds, and to give proper receipts and acquittance therefor.
Beneficiary shall have the option, in Beneficiary's sole discretion, to apply
such Condemnation Proceeds (less any cost to Beneficiary of recovering and
paying out such proceeds, including, without limitation, reasonable
attorneys' fees and disbursements and costs allocable to inspecting any
repair, restoration or rebuilding work and the plans and specifications
therefor) toward the payment of the Debt or to allow such proceeds to be used
for the Work. In the event Beneficiary elects to make Condemnation Proceeds
available to be used toward the restoration or rebuilding of the Trust
Property to a usable whole, such Condemnation Proceeds shall be disbursed in
the manner and subject to the conditions set forth in Section 3.04(b). Any
excess proceeds remaining after completion of such restoration or rebuilding
shall be applied to the repayment of the Debt. If the Condemnation Proceeds
are used to reduce the Debt, they shall be applied in accordance with the
provisions of the Note. Grantor shall promptly execute and deliver all
instruments requested by Beneficiary for the purpose of
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confirming the assignment of the Condemnation Proceeds to Beneficiary.
(b) Application of all or any part of the Condemnation Proceeds to
the Debt shall be made in accordance with the provisions of Sections 3.06 and
3.07. No application of the Condemnation Proceeds to the reduction of the Debt
shall have the effect of releasing the lien of this Deed of Trust until the
remainder of the Debt has been paid in full. In the case of any Taking,
Beneficiary, to the extent that Beneficiary has not been reimbursed by Grantor,
shall be entitled, as a first priority out of any Condemnation Proceeds, to
reimbursement for all costs, fees and expenses reasonably incurred in the
determination and collection of any Condemnation Proceeds. All Condemnation
Proceeds deposited with Beneficiary pursuant to this Section, until expended or
applied as provided herein, may be commingled with the general funds of
Beneficiary and shall constitute additional security for the payment of the Debt
and the payment and performance of Grantor's obligations, but Beneficiary shall
not be deemed a trustee or other fiduciary with respect to its receipt of such
Condemnation Proceeds or any part thereof. All awards so deposited with
Beneficiary shall be held by Beneficiary in an Eligible Account and invested in
Permitted Investments, but Beneficiary makes no representation or warranty as to
the rate or amount of interest, if any, which may accrue on any such deposit and
shall have no liability in connection therewith. For purposes hereof, any
reference to the award shall be deemed to include interest, if any, which has
accrued thereon.
ARTICLE VII: LEASES AND RENTS
Section 7.01. ASSIGNMENT. (a) Grantor does hereby bargain, sell,
assign and set over unto Beneficiary, all of Grantor's interest in the Leases
and Rents. The assignment of Leases and Rents in this Section 7.01 is an
absolute, unconditional and present assignment from Grantor to Beneficiary and
not an assignment for security and the existence or exercise of Grantor's
revocable license to collect Rent shall not operate to subordinate this
assignment to any subsequent assignment. The exercise by Beneficiary of any of
its rights or remedies pursuant to this Section 7.01 shall not be deemed to make
Beneficiary a beneficiary-in-possession. In addition to the provisions of this
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Article VII, Grantor shall comply with all terms, provisions and conditions of
the Assignment.
(b) So long as there shall exist and be continuing no Event of
Default, Grantor shall have a revocable license to take all actions with respect
to all Leases and Rents, present and future, including the right to collect and
use the Rents, subject to the terms of this Deed of Trust and the Assignment.
(c) In a separate instrument Grantor shall, as requested from time to
time by Beneficiary, assign to Beneficiary or its nominee by specific or general
assignment, any and all Leases, such assignments to be in form and content
reasonably acceptable to Beneficiary, but subject to the provisions of Section
7.01(b) hereof. Grantor agrees to deliver to Beneficiary, within thirty (30)
days after Beneficiary's request, a true and complete copy of every Lease and,
within ten (10) days after Beneficiary's request, a complete list of the Leases,
certified by Grantor to be true, accurate and complete and stating the demised
premises, the names of the lessees, the Rent payable under the Leases, the date
to which such Rents have been paid, the material terms of the Leases, including,
without limitation, the dates of occupancy, the dates of expiration, any Rent
concessions, work obligations or other inducements granted to the lessees
thereunder, and any renewal options.
(d) The rights of Beneficiary contained in this Article VII, the
Assignment or any other assignment of any Lease shall not result in any
obligation or liability of Beneficiary to Grantor or any lessee under a Lease or
any party claiming through any such lessee.
(e) At any time after an Event of Default, the license granted
hereinabove may be revoked by Beneficiary, and Beneficiary or a receiver
appointed in accordance with this Deed of Trust may enter upon the Trust
Property, and collect, retain and apply the Rents toward payment of the Debt in
such priority and proportions as Beneficiary in its sole discretion shall deem
proper.
(f) In addition to the rights which Beneficiary may have herein, upon
the occurrence of any Event of Default, Beneficiary, at its option, may require
Grantor to pay monthly in advance to
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Beneficiary, or any receiver appointed to collect the Rents, the fair and
reasonable rental value for the use and occupation of such part of the Trust
Property as may be used and occupied by Grantor and may require Grantor to
vacate and surrender possession of the Trust Property to Beneficiary or to
such receiver and, in default thereof, Grantor may be evicted by summary
proceedings or otherwise.
Section 7.02. MANAGEMENT OF TRUST PROPERTY. (a) Grantor shall
manage the Trust Property or cause the Trust Property to be managed in a manner
which is consistent with the Approved Operator Standard. All Leases shall
provide for rental rates comparable to then existing local market rates and
terms and conditions which constitute good and prudent business practice and are
consistent with prevailing market terms and conditions, and shall be arms-length
transactions. All Leases shall provide that they are subordinate to this Deed
of Trust and that the lessees thereunder attorn to Beneficiary. Grantor shall
deliver copies of all Leases, amendments, modifications and renewals to
Beneficiary.
(b) Grantor (i) shall observe and perform all of its material
obligations under the Leases pursuant to applicable Legal Requirements and shall
not do or permit to be done anything to impair the value of the Leases as
security for the Debt; (ii) shall promptly send copies to Beneficiary of all
notices of default which Grantor shall receive under the Leases; (iii) shall,
consistent with the Approved Operator Standard, enforce all of the terms,
covenants and conditions contained in the Leases to be observed or performed;
(iv) shall not collect any of the Rents under the Leases more than one (1) month
in advance (except that Grantor may collect in advance such security deposits as
are permitted pursuant to applicable Legal Requirements and are commercially
reasonable in the prevailing market); (v) shall not execute any other assignment
of lessor's interest in the Leases or the Rents except as otherwise expressly
permitted pursuant to this Deed of Trust; (vi) shall not cancel or terminate any
of the Leases or accept a surrender thereof in any manner inconsistent with the
Approved Operator Standard; (vii) shall not convey, transfer or suffer or permit
a conveyance or transfer of all or any part of the Premises or the Improvements
or of any interest therein so as to effect a merger of the estates and rights
of, or a termination or diminution of
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the obligations of, lessees thereunder; (viii) shall notify Beneficiary of
any material alteration, modification or change in the terms of any guaranty
of any Operating Lease or cancellation or termination of such guaranty
promptly upon effectuation of same unless altered, cancelled, modified or
changed in the ordinary course of business; (ix) shall, in accordance with
the Approved Operator Standard, make all reasonable efforts to seek lessees
for space as it becomes vacant and enter into Leases in accordance with the
terms hereof; (x) shall not materially modify, alter or amend any Operating
Lease or Property Agreement with any Pad Owner without Beneficiary's consent,
which consent will not be unreasonably withheld or delayed; (xi) shall notify
Beneficiary promptly if any Pad Owner shall cease business operations which
cessation may adversely affect the Trust Property or of the occurrence of any
event of which it becomes aware affecting a Pad Owner or its property which
might have any material effect on the Trust Property; and (xii) shall,
without limitation to any other provision hereof, execute and deliver at the
request of Beneficiary all such further assurances, confirmations and
assignments in connection with the Trust Property as are required herein and
as Beneficiary shall from time to time reasonably require.
(c) All security deposits of lessees, whether held in cash or any
other form, shall be treated by Grantor as trust funds, but shall not be
commingled with any other funds of Grantor and, if cash, shall be deposited by
Grantor in the Security Deposit Account. Any bond or other instrument which
Grantor is permitted to hold in lieu of cash security deposits under applicable
Legal Requirements shall be maintained in full force and effect unless replaced
by cash deposits as hereinabove described, shall be issued by a Person
reasonably satisfactory to Beneficiary, shall, if permitted pursuant to Legal
Requirements, at Beneficiary's option, name Beneficiary as payee or beneficiary
thereunder or be fully assignable to Beneficiary and shall, in all respects,
comply with applicable Legal Requirements and otherwise be reasonably
satisfactory to Beneficiary. Grantor shall, upon request, provide Beneficiary
with evidence reasonably satisfactory to Beneficiary of Grantor's compliance
with the foregoing. Following the occurrence and during the continuance of any
Event of Default, Grantor shall, upon Beneficiary's request, if permitted by
applicable Legal Requirements, turn over the security deposits (and any interest
thereon) to Beneficiary
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to be held by Beneficiary in accordance with the terms of the Leases and all
Legal Requirements.
(d) Grantor covenants and agrees with Beneficiary that (i) the Trust
Property will be managed at all times by the Operator pursuant to an Operating
Lease or management agreement approved by Beneficiary (the "OPERATING
AGREEMENT"), (ii) after Grantor has knowledge of a fifty percent (50%) or more
change in control of the ownership of the Operator, Grantor will promptly give
Beneficiary notice thereof (a "OPERATOR CONTROL NOTICE") and (iii) the Operating
Agreement may be terminated by Beneficiary at any time for cause (including, but
not limited to, Operator's gross negligence, willful misconduct or fraud) or at
any time following either (A) the occurrence of an event of default under the
Operating Agreement, or (B) the receipt of a Operator Control Notice, and a
substitute managing agent shall be appointed by Grantor, subject to
Beneficiary's approval, which may be given or withheld in Beneficiary's sole
discretion. Grantor may from time to time appoint a successor manager to manage
the Trust Property with Beneficiary's prior written consent which consent shall
not be unreasonably withheld or delayed, provided that, any such successor
manager shall be a reputable management company having a senior executive with
at least seven (7) years' experience in the management of motel properties in
the State, shall be the manager of at least 2,500 rooms, including, without
limitation, certain complexes which contain more than 100 rooms, and shall be
reasonably acceptable to Beneficiary. Grantor further covenants and agrees that
Grantor shall require the Operator (or any successor managers) to maintain at
all times during the term of the Loan worker's compensation insurance as
required by Governmental Authorities.
(e) Intentionally Omitted.
(f) Grantor shall (i) pay or shall cause to be paid all sums required
to be paid by Grantor under the Franchise Agreement and Operating Lease, (ii)
diligently perform and observe all of the terms, covenants and conditions of the
Franchise Agreement on the part of Grantor to be performed and observed to the
end that all things shall be done which are necessary to keep unimpaired the
rights of Grantor under the Franchise Agreement and Operating Lease, and (iii)
promptly notify Beneficiary of the giving of any notice to Grantor of any
default by Grantor in the performance or
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observance of any of the terms, covenants or conditions of the Franchise
Agreement or Operating Lease on the part of Grantor to be performed and
observed and deliver to Beneficiary a true copy of each such notice. Grantor
shall not, without the prior consent of the Beneficiary, surrender the
Franchise Agreement or Operating Lease or terminate or cancel the Franchise
Agreement or modify, change, supplement, alter or amend the Franchise
Agreement or Operating Lease, in any respect, either orally or in writing,
and Grantor hereby assigns to Beneficiary as further security for the payment
of the Debt and for the performance and observance of the terms, covenants
and conditions of this Deed of Trust, all the rights, privileges and
prerogatives of Grantor to surrender the Franchise Agreement or Operating
Lease or to terminate, cancel, modify, change, supplement, alter or amend the
Franchise Agreement or Operating Lease in any respect, and any such surrender
of the Franchise Agreement or termination, cancellation, modification,
change, supplement, alteration or amendment of the Franchise Agreement or
Operating Lease without the prior consent of Beneficiary shall be void and of
no force and effect. If Grantor shall default in the performance or
observance of any material term, covenant or condition of the Franchise
Agreement or Operating Lease on the part of Grantor to be performed or
observed, then, without limiting the generality of the other provisions of
this Deed of Trust, and without waiving or releasing Grantor from any of its
obligations hereunder, Beneficiary shall have the right, but shall be under
no obligation, to pay any sums and to perform any act or take any action as
may be appropriate to cause all the terms, covenants and conditions of the
Franchise Agreement or Operating Lease on the part of Grantor to be performed
or observed to be promptly performed or observed on behalf of Grantor, to the
end that the rights of Grantor in, to and under the Franchise Agreement and
Operating Lease shall be kept unimpaired and free from default. Beneficiary
and any Person designated by Beneficiary shall have, and are hereby granted,
the right to enter upon the Trust Property at any time and from time to time
for the purpose of taking any such action. If the franchisor under the
Franchise Agreement or Lessee under an Operating Lease shall deliver to
Beneficiary a copy of any notice sent to Grantor of default under the
Franchise Agreement or Operating Lease, as applicable, such notice shall
constitute full protection to Beneficiary for any action taken or omitted to
be taken by Beneficiary in good faith, in reliance thereon. Grantor shall,
from time to time, use its
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best efforts to obtain from the franchisor or lessee under the Franchise
Agreement such certificates of estoppel with respect to compliance by Grantor
with the terms of the Franchise Agreement as may be requested by Beneficiary.
Grantor shall exercise each individual option, if any, to extend or renew
the term of the Franchise Agreement within four (4) months of the last day
upon which any such option may be exercised, unless Beneficiary consents to
the non-renewal of such Franchise Agreement in writing, and Grantor hereby
expressly authorizes and appoints Grantor its attorney-in-fact to exercise
any such option in the name of and upon behalf of Grantor, which power of
attorney shall be irrevocable and shall be deemed to be coupled with an
interest.
(g) Grantor covenants that it shall not, nor permit Operator, to sell
or deliver rooms or suites and accept payment therefor for more than thirty (30)
days in advance of delivery. Notwithstanding the foregoing, and provided no
Event of Default has occurred, such payments made more than (30) days in advance
of delivery ("LUMP SUM ADVANCE PAYMENTS") may be accepted by Grantor or
Operator, so long as Grantor shall or shall cause Operator to deposit such
payments in the Rent Account as provided in Section 5.01 hereof, provided that
such deposit shall not be required during the O&M Operative Period. Beneficiary
shall disburse from the Rent Account into the Central Account each month that
portion of the Lump Sum Advance Payments on deposit in the Rent Account equal to
the aggregate of Lump Sum Prepayments divided by the number of months for which
such payments were accepted by Grantor or Operator.
(h) Grantor shall fund and operate, or shall cause Operator to fund
and operate, the Trust Property in a manner consistent with a hotel of the same
type and category as the Trust Property and in compliance with any Franchise
Agreement and Operating Lease.
(i) Grantor shall maintain or cause Operator to maintain Inventory in
kind and amount sufficient to meet hotel industry standards for hotels
comparable to the Hotel and at levels sufficient for the operation of the Hotel
at historic occupancy levels.
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(j) Grantor shall deliver to Beneficiary all notices of default or
termination received by Grantor or Operator with respect to any Licenses and
Permits, contracts, Property Agreements, Leases or insurance policies within
three (3) Business Days of receipt of the same.
(k) Grantor shall not permit any Equipment or other personal property
to be removed from the Trust Property unless the removed item is consumed or
sold on the ordinary course of business, removed temporarily for maintenance and
repair, or, if removed permanently, replaced by an article of equivalent
suitability and not materially less value, owned by Grantor free and clear of
any lien.
ARTICLE VIII: MAINTENANCE AND REPAIR
Section 8.01. MAINTENANCE AND REPAIR OF THE TRUST PROPERTY;
ALTERATIONS; REPLACEMENT OF EQUIPMENT. Grantor hereby covenants and agrees:
(a) Grantor shall not (i) desert or abandon the Trust Property, (ii)
change the use of the Trust Property or cause or permit the use or occupancy of
any part of the Trust Property to be discontinued if such discontinuance or use
change would violate any zoning or other law, ordinance or regulation; (iii)
consent to or seek any lowering of the zoning classification, or greater zoning
restriction affecting the Trust Property; or (iv) take any steps whatsoever to
convert the Trust Property, or any portion thereof, to a condominium or
cooperative form of ownership.
(b) Grantor shall, at its expense, (i) take good care of the Trust
Property including grounds generally, and utility systems and sidewalks, roads,
alleys, and curbs therein, and shall keep the same in good, safe and insurable
condition and in compliance with all applicable Legal Requirements, (ii) in the
ordinary course, exercising good business judgment and consistent with the
Approved Operator Standard make all repairs to the Trust Property, above grade
and below grade, interior and exterior, structural and nonstructural, ordinary
and extraordinary, unforeseen and foreseen, and maintain the Trust Property in a
manner appropriate for the facility and (iii) not commit or
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suffer to be committed any waste of the Trust Property or do or suffer to be
done anything which will increase the risk of fire or other hazard to the
Trust Property or impair the value thereof. Grantor shall keep the
sidewalks, vaults, gutters and curbs comprising, or adjacent to, the Trust
Property, clean and free from dirt, snow, ice, rubbish and obstructions. All
repairs made by Grantor shall be made in a good and workmanlike manner, using
materials consistent with the Approved Operator Standard and shall be equal
or better in quality and class to the original work and shall comply with all
applicable Legal Requirements and Insurance Requirements. To the extent any
of the above obligations are obligations of tenants under Operating Leases or
Pad Owners or other Persons under Property Agreements, Grantor may fulfill
its obligations hereunder by causing such tenants, Pad Owners or other
Persons, as the case may be, to perform their obligations thereunder. As
used herein, the terms "repair" and "repairs" shall be deemed to include all
necessary replacements.
(c) Grantor shall not demolish, remove, construct, or, except as
otherwise expressly provided herein, restore, or alter the Trust Property or any
portion thereof, nor consent to or permit any such demolition, removal,
construction, restoration, addition or alteration which would diminish the value
of the Trust Property without Beneficiary's prior written consent in each
instance, which consent shall not be unreasonably withheld or delayed.
(d) Grantor represents and warrants to Beneficiary that (i) there are
no fixtures, machinery, apparatus, tools, equipment or articles of personal
property attached or appurtenant to, or located on, or used in connection with
the management, operation or maintenance of the Trust Property, except for the
Equipment and equipment leased or owned by Grantor or Operator for the
management, operation or maintenance of the Trust Property in accordance with
the Loan Documents; (ii) the Equipment and the leased equipment constitutes all
of the fixtures, machinery, apparatus, tools, equipment and articles of personal
property necessary to the proper operation and maintenance of the Trust
Property; and (iii) all of the Equipment is free and clear of all liens, except
for the lien of this Deed of Trust and the Permitted Encumbrances. All rights,
title and interest of Grantor in and to all extensions, improvements,
betterment, renewals, appurtenances to, the Trust Property hereafter acquired
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by, or released to, Grantor or constructed, assembled or placed by Grantor in
the Trust Property, and all changes and substitutions of the security
constituted thereby, shall be and, in each such case, without any further
mortgage, conveyance, assignment or other act by Beneficiary or Grantor, shall
become subject to the lien and security interest of this Deed of Trust as fully
and completely, and with the same effect, as though now owned by Grantor and
specifically described in this Deed of Trust, but at any and all times Grantor
shall execute and deliver to Beneficiary any documents Beneficiary may
reasonably deem necessary or appropriate for the purpose of specifically
subjecting the same to the lien and security interest of this Deed of Trust.
(e) Notwithstanding the provisions of this Deed of Trust to the
contrary, Grantor shall have the right, at any time and from time to time, to
remove and dispose of Equipment which may have become obsolete or unfit for use
or which is no longer useful in the management, operation or maintenance of the
Trust Property. Grantor shall promptly replace any such Equipment so disposed
of or removed with other Equipment of equal value and utility, free of any
security interest or superior title, liens or claims; except that, if by reason
of technological or other developments, replacement of the Equipment so removed
or disposed of is not necessary or desirable for the proper management,
operation or maintenance of the Trust Property, Grantor shall not be required to
replace the same. All such replacements or additional equipment shall be deemed
to constitute "Equipment" and shall be covered by the security interest herein
granted.
ARTICLE IX: TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY
Section 9.01. OTHER ENCUMBRANCES. Grantor shall not further encumber
or permit the further encumbrance in any manner (whether by grant of a pledge,
security interest or otherwise) of the Trust Property or any part thereof or
interest therein, including, without limitation, of the Rents therefrom. In
addition, Grantor shall not further encumber and shall not permit the further
encumbrance in any manner (whether by grant of a pledge, security interest or
otherwise) of Grantor or any interest in Grantor except as expressly permitted
pursuant to this Deed of Trust.
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Section 9.02. NO TRANSFER. Grantor acknowledges that Beneficiary has
examined and relied on the expertise of Grantor and, if applicable, each General
Partner, in owning and operating properties such as the Trust Property in
agreeing to make the Loan and will continue to rely on Grantor's ownership of
the Trust Property as a means of maintaining the value of the Trust Property as
security for repayment of the Debt and Grantor acknowledges that Beneficiary has
a valid interest in maintaining the value of the Trust Property. Grantor shall
not Transfer, nor permit the Transfer of, (a) the Trust Property or any part
thereof, or any interest therein or (b) any or all of the interests in Grantor,
or if Grantor is a partnership, of any General Partner, without the prior
written consent of Beneficiary, which consent Beneficiary may withhold in its
sole and absolute discretion. 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 Debt immediately due and payable upon a Transfer without
Beneficiary's consent. This provision shall apply to every Transfer regardless
of whether voluntary or not, or whether or not Beneficiary has consented to any
previous Transfer.
Section 9.03. DUE ON SALE. Beneficiary may declare the Debt
immediately due and payable upon any Transfer or further encumbrance without
Beneficiary's consent without regard to whether any impairment of its security
or any increased risk of default hereunder can be demonstrated. This provision
shall apply to every Transfer or further encumbrance of the Trust Property or
any part thereof or interest in the Trust Property or in Grantor regardless of
whether voluntary or not, or whether or not Beneficiary has consented to any
previous Transfer or further encumbrance of the Trust Property or interest in
Grantor.
Section 9.04. PERMITTED SALE. Notwithstanding the foregoing
provisions of this Article IX, Beneficiary shall consent to a one time Transfer
of the Trust Property in its entirety (hereinafter, "SALE") provided that each
of the following terms and conditions are, in the sole judgment of Beneficiary,
satisfied: (i) no Default is then continuing hereunder; (ii) Grantor gives
Beneficiary written notice of the terms of such prospective Sale not less than
thirty (30) days before the date on which such Sale is scheduled to close and,
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concurrently therewith, gives Beneficiary all such information concerning the
proposed transferee of the Trust Property (hereinafter, "BUYER") as Beneficiary
would require in evaluating an initial extension of credit to a borrower and
pays to Beneficiary a non-refundable application fee in the amount of $5,000;
(iii) Grantor pays Beneficiary, concurrently with the closing of such Sale, a
non-refundable assumption fee in an amount equal to all out-of-pocket costs and
expenses, including, without limitation, reasonable attorneys' fees, incurred by
Beneficiary in connection with the Sale, plus an amount equal to one percent
(1.0%) of the then outstanding principal balance of the Note; (iv) the Buyer
assumes and agrees to pay the Debt subject to the provisions of the Note, this
Deed of Trust and the other Loan Documents and, prior to or concurrently with
the closing of such Sale, the Buyer executes, without any cost or expense to
Beneficiary, such documents and agreements as Beneficiary shall reasonably
require to evidence and effectuate said assumption and delivers such legal
opinions as Beneficiary may require; (v) Grantor delivers to Beneficiary,
without any cost or expense to Beneficiary, such endorsements to Beneficiary's
title insurance policy, hazard insurance policy endorsements or certificates and
other similar materials as Beneficiary may deem necessary or desirable at the
time of the Sale, all in form and substance satisfactory to Beneficiary,
including, without limitation, an endorsement or endorsements to Beneficiary's
title insurance policy insuring the lien of this Deed of Trust, extending the
effective date of such policy to the date of execution and delivery (or, if
later, of recording) of the assumption agreement referenced above in clause (iv)
above, with no additional exceptions added to such policy, and insuring that fee
title to the Trust Property is vested in the Buyer; (vi) Grantor executes and
delivers to Beneficiary, without any cost or expense to Beneficiary, a release
of Beneficiary, its officers, directors, employees and agents, from all claims
and liability relating to the transactions evidenced by the Loan Documents,
through and including the date of the closing of the Sale, which agreement shall
be in form and substance satisfactory to Beneficiary and shall be binding upon
the Buyer; (vii) the Aggregate Debt Service Coverage and the loan to value ratio
of the Trust Property (with the value of the Trust Property established as the
price received by Grantor in consideration for such sale) are no less and no
greater, respectively, than as of the Closing Date; (vii) in the event that the
proposed Sale is to
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occur prior to a Securitization, Grantor shall have, in its sole and absolute
discretion, consented to the Sale, and if the proposed Sale is to occur at
any time after a Securitization, the Rating Agencies have provided to
Beneficiary written confirmation that any rating issued in connection with a
Securitization will not, as a result of the proposed Sale be downgraded from
the current ratings thereof, qualified or withdrawn; (viii) such Sale is not
construed so as to relieve Grantor of any personal liability under the Note
or any of the other Loan Documents for any acts or events occurring or
obligations arising prior to or simultaneously with the closing of such Sale,
and Grantor executes, without any cost or expense to Beneficiary, such
documents and agreements as Beneficiary shall reasonably require to evidence
and effectuate the ratification of said personal liability; (ix) such Sale is
not construed so as to relieve any Guarantor of its obligations under any
guaranty or indemnity agreement executed in connection with the Loan and each
such Guarantor executes, without any cost or expense to Beneficiary, such
documents and agreements as Beneficiary shall reasonably require to evidence
and effectuate the ratification of each such guaranty agreement, provided
that if Buyer or a party associated with Buyer approved by Beneficiary in its
sole discretion assumes the obligations of the current Guarantor under its
guaranty and Buyer or such party associated with Buyer, as applicable,
executes, without any cost or expense to Beneficiary, a new guaranty in
similar form and substance to the existing guaranty and otherwise
satisfactory to Beneficiary, then Beneficiary shall release the current
Guarantor from all obligations arising under its guaranty after the closing
of such Sale; and (x) Buyer is a Single Purpose Entity and Beneficiary
receives a non-consolidation opinion relating to Buyer from Buyer's counsel,
which opinion is in form and substance acceptable to Beneficiary.
ARTICLE X: CERTIFICATES
Section 10.01. ESTOPPEL CERTIFICATES. (a) After request by
Beneficiary, Grantor, within fifteen (15) days and at its expense, will furnish
Beneficiary with a statement, duly acknowledged and certified, setting forth (i)
the amount of the original principal amount of the Note, and the unpaid
principal amount of the Note, (ii) the rate of interest of the Note, (iii) the
date payments of interest and/or principal were last paid, (iv) any
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offsets or defenses to the payment of the Debt, and if any are alleged, the
nature thereof, (v) that the Note and this Deed of Trust have not been
modified or if modified, giving particulars of such modification and (vi)
that there has occurred and is then continuing no Default or if such Default
exists, the nature thereof, the period of time it has existed, and the action
being taken to remedy such Default.
(b) Within fifteen (15) days after written request by Grantor, not
more than four times a year Beneficiary shall furnish to Grantor a written
statement confirming the amount of the Debt, the maturity date of the Note, the
date to which interest has been paid, and whether any Event of Default or other
Default has occurred and is then continuing.
(c) Grantor shall use all reasonable efforts to obtain estoppels from
tenants that may be required hereunder or under the Loan Documents.
ARTICLE XI: NOTICES
Section 11.01. NOTICES. Any notice, demand, statement, request or
consent made hereunder shall be in writing and delivered personally or sent to
the party to whom the notice, demand or request is being made by Federal Express
or other nationally recognized overnight delivery service, as follows and shall
be deemed given when delivered personally or one (1) Business Day after being
deposited with Federal Express or such other nationally recognized delivery
service:
If to Beneficiary: To Beneficiary, at the address first written
above,
with a copy to:
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Attn: John L. Kelly, Esq.
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If to Grantor: To Grantor, at the address set forth on the signature
page hereto,
with copy to:
James M. Duncan, Esq.
703 McKinney Avenue
Suite 432
Dallas, Texas 75202
or such other address as either Grantor or Beneficiary shall hereafter specify
by not less than ten (10) days prior written notice as provided herein,
provided, however, that notwithstanding any provision of this Article to the
contrary, such notice of change of address shall be deemed given only upon
actual receipt thereof. Rejection or other refusal to accept or the inability
to deliver because of changed addresses of which no notice was given as herein
required.
ARTICLE XII: INDEMNIFICATION
Section 12.01. INDEMNIFICATION COVERING TRUST PROPERTY. In addition,
and without limitation, to any other provision of this Deed of Trust or any
other Loan Document, Grantor shall protect, indemnify and save harmless
Beneficiary and its successors and assigns, and each of their agents, employees,
officers and directors, from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expense (including, without
limitation, reasonable attorneys' fees and expenses, whether incurred within or
outside the judicial process), imposed upon or incurred by or asserted against
Beneficiary and its assigns, or any of their agents, employees, officers or
directors, by reason of (a) ownership of this Deed of Trust, the Assignment, the
Trust Property or any part thereof or any interest therein or receipt of any
Rents; (b) any accident, injury to or death of any person or loss of or damage
to property occurring in, on or about the Trust Property or any part thereof or
on the adjoining sidewalks, curbs, parking areas, streets or ways; (c) any use,
nonuse or condition in, on or about, or possession, alteration, repair,
operation, maintenance or management of, the Trust Property or any part thereof
or on the adjoining sidewalks, curbs, parking areas, streets or ways; (d)
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any failure on the part of Grantor to perform or comply with any of the terms
of this Deed of Trust or the Assignment; (e) performance of any labor or
services or the furnishing of any materials or other property in respect of
the Trust Property or any part thereof; (f) any claim by brokers, finders or
similar Persons claiming to be entitled to a commission in connection with
any Lease or other transaction involving the Trust Property or any part
thereof; (g) any Imposition including, without limitation, any Imposition
attributable to the execution, delivery, filing, or recording of any Loan
Document, Lease or memorandum thereof; (h) any lien or claim arising on or
against the Trust Property or any part thereof under any Legal Requirement or
any liability asserted against Beneficiary with respect thereto; (i) any
claim arising out of or in any way relating to any tax or other imposition on
the making and/or recording of this Deed of Trust, the Note or any of the
other Loan Documents, (j) a Default under Sections 2.02(f) or 2.02(g) hereof
or (k) the claims of any lessee or any Person acting through or under any
lessee or otherwise arising under or as a consequence of any Lease.
Notwithstanding the foregoing provisions of this Section 12.01 to the
contrary, Grantor shall have no obligation to indemnify Beneficiary pursuant
to this Section 12.01 for liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses relative to the foregoing
which result from Beneficiary's, and its successors' or assigns', willful
misconduct or gross negligence. Any amounts payable to Beneficiary by reason
of the application of this Section 12.01 shall constitute a part of the Debt
secured by this Deed of Trust and other Loan Documents and shall become
immediately due and payable and shall bear interest at the Default Rate from
the date the liability, obligation, claim, cost or expense is sustained by
Beneficiary, as applicable, until paid. The provisions of this Section 12.01
shall survive the termination of this Deed of Trust whether by repayment of
the Debt, foreclosure or delivery of a deed in lieu thereof, assignment or
otherwise.
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ARTICLE XIII: DEFAULTS
Section 13.01. EVENTS OF DEFAULT. The Debt shall become immediately
due at the option of Beneficiary upon any one or more of the following events
("EVENT OF DEFAULT"):
(a) if the final payment or prepayment premium, if any, due
under the Note shall not be paid on Maturity;
(b) if any monthly payment of interest and/or principal due
under the Note (other than the sums described in (a) above) shall not
be fully paid on the date upon which the same is due and payable
thereunder;
(c) if payment of any sum (other than the sums described in (a)
above or (b) above) required to be paid pursuant to the Note, this
Deed of Trust or any other Loan Document shall not be paid within five
(5) days after Beneficiary delivers written notice to Grantor that
same is due and payable thereunder or hereunder;
(d) if Grantor, Guarantor or, if Grantor or Guarantor is a
partnership, any general partner of Grantor or Guarantor shall
institute or cause to be instituted any proceeding for the termination
or dissolution of Grantor, Guarantor or any such general partner;
(e) if the insurance policies required hereunder are not kept in
full force and effect, or if the insurance policies are not assigned
and delivered to Beneficiary as herein provided;
(f) if Grantor or Guarantor attempts to assign its rights under
this Deed of Trust or any other Loan Document or any interest herein
or therein, or if any Transfer occurs other than in accordance with
the provisions hereof;
(g) if any representation or warranty of Grantor or Guarantor
made herein or in any other Loan Document or in any certificate,
report, financial statement or other instrument or agreement furnished
to Beneficiary shall prove false or misleading in any material
respect;
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(h) if Grantor, Guarantor or any general partner of Grantor or
Guarantor shall make an assignment for the benefit of creditors or
shall admit in writing its inability to pay its debts generally as
they become due;
(i) if a receiver, liquidator or trustee of Grantor, Guarantor
or any general partner of Grantor or Guarantor shall be appointed or
if Grantor, Guarantor or their respective general partners shall be
adjudicated a bankrupt or insolvent, or if any petition for
bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by
or against, consented to, or acquiesced in by, Grantor, Guarantor or
their respective general partners or if any proceeding for the
dissolution or liquidation of Grantor, Guarantor or their respective
general partners shall be instituted; however, if such appointment,
adjudication, petition or proceeding was involuntary and not consented
to by Grantor, Guarantor or their respective general partners, as
applicable, upon the same not being discharged, stayed or dismissed
within sixty (60) days or if Grantor, Guarantor or their respective
general partners shall generally not be paying its debts as they
become due;
(j) if Grantor shall be in default beyond any notice or grace
period, if any, under any other mortgage or deed of trust or security
agreement covering any part of the Trust Property without regard to
its priority relative to this Deed of Trust; provided, however, this
provision shall not be deemed a waiver of the provisions of Article IX
prohibiting further encumbrances affecting the Trust Property or any
other provision of this Deed of Trust;
(k) if the Trust Property becomes subject (i) to any lien which
is superior to the lien of this Deed of Trust, other than a lien for
real estate taxes and assessments not due and payable, or (ii) to any
mechanic's, materialman's or other lien which is or is asserted to be
superior to the lien of this Deed of Trust, and such lien shall remain
undischarged (by payment, bonding, or otherwise) for ten (10) Business
Days unless contested in accordance with the terms hereof;
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(l) if Grantor discontinues the operation of the Trust Property
or any part thereof for reasons other than repair or restoration
arising from a casualty or condemnation for ten (10) days or more;
(m) except as permitted in this Deed of Trust, any material
alteration, demolition or removal of any of the Improvements without
the prior consent of Beneficiary;
(n) if any Franchise Agreement or Operating Lease is terminated,
other than a termination of an Operating Lease by Beneficiary in
accordance with the terms of this Deed of Trust or a termination by an
Operator under an Existing Operating Lease without a substitute
operator which as been approved by Grantee;
(o) if Grantor consummates a transaction which would cause this
Deed of Trust or Beneficiary's rights under this Deed of Trust, the
Note or any other Loan Document to constitute a non-exempt prohibited
transaction under ERISA or result in a violation of a state statute
regulating government plans subjecting Beneficiary to liability for a
violation of ERISA or a state statute;
(p) if an Event of Default shall occur under any of the other
Cross-collateralized Deed of Trusts; or
(q) if Grantor shall be in default under any of the other terms,
covenants or conditions of the Note (other than as set forth in (a)
through (p) above), this Deed of Trust or any other Loan Document,
other than as set forth in (a) through (p) above, for ten (10)
Business Days after notice from Beneficiary in the case of any default
which can be cured by the payment of a sum of money, or for thirty
(30) days after notice from Beneficiary in the case of any other
default or an additional thirty (30) days if Grantor is diligently and
continuously effectuating a cure of a curable non-monetary default,
other than as set forth in (a) through (p) above.
Section 13.02. REMEDIES. (a) Upon the occurrence and during the
continuance of any Event of Default, Beneficiary may, in addition to any other
rights or remedies available to it
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hereunder or under any other Loan Document, at law or in equity, take such
action, without notice or demand, as it reasonably deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property or
any one or more of the Cross-collateralized Properties or any one or more of
them, including, but not limited to, the following actions, each of which may
be pursued singly, concurrently or otherwise, at such time and in such order
as Beneficiary may determine, in its sole discretion, without impairing or
otherwise affecting any other rights and remedies of Beneficiary hereunder,
at law or in equity: (i) declare all or any portion of the unpaid Debt to be
immediately due and payable; provided, however, that upon the occurrence of
any of the events specified in Section 13.01(i), the entire Debt will be
immediately due and payable without notice or demand or any other declaration
of the amounts due and payable; or (ii) bring an action to foreclose this
Deed of Trust and without applying for a receiver for the Rents, but subject
to the rights of the tenants under the Leases, enter into or upon the Trust
Property or any part thereof, either personally or by its agents, nominees or
attorneys, and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (A) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with all and every part of the
Trust Property and conduct the business thereat, (B) make alterations,
additions, renewals, replacements and improvements to or on the Trust
Property or any part thereof, (C) exercise all rights and powers of Grantor
with respect to the Trust Property or any part thereof, whether in the name
of Grantor or otherwise, including, without limitation, the right to make,
cancel, enforce or modify leases, obtain and evict tenants, and demand, sue
for, collect and receive all earnings, revenues, rents, issues, profits and
other income of the Trust Property and every part thereof, and (D) apply the
receipts from the Trust Property or any part thereof to the payment of the
Debt, after deducting therefrom all expenses (including, without limitation,
reasonable attorneys' fees and disbursements) reasonably incurred in
connection with the aforesaid operations and all amounts necessary to pay the
Impositions, insurance and other charges in connection with the Trust
Property or any part thereof, as well as just and reasonable compensation for
the services of Beneficiary's third-party agents; or (iii) have an appraisal
or other valuation of the Trust Property or any part thereof performed by an
Appraiser (and Grantor covenants and agrees it shall cooperate in
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causing any such valuation or appraisal to be performed) and any cost or
expense incurred by Beneficiary in connection therewith shall constitute a
portion of the Debt and be secured by this Deed of Trust and shall be
immediately due and payable to Beneficiary with interest, at the Default
Rate, until the date of receipt by Beneficiary; or (iv) sell the Trust
Property or institute proceedings for the complete foreclosure of this Deed
of Trust, or take such other action as may be allowed pursuant to Legal
Requirements, at law or in equity, for the enforcement of this Deed of Trust
in which case the Trust Property or any part thereof may be sold for cash or
credit in one or more parcels; or (v) with or without entry, and to the
extent permitted and pursuant to the procedures provided by applicable Legal
Requirements, institute proceedings for the partial foreclosure of this Deed
of Trust, or take such other action as may be allowed pursuant to Legal
Requirements, at law or in equity, for the enforcement of this Deed of Trust
for the portion of the Debt then due and payable, subject to the lien of this
Deed of Trust continuing unimpaired and without loss of priority so as to
secure the balance of the Debt not then due; or (vi) sell the Trust Property
or any part thereof and any or all estate, claim, demand, right, title and
interest of Grantor therein and rights of redemption thereof, pursuant to
power of sale or otherwise, at one or more sales, in whole or in parcels, in
any order or manner, at such time and place, upon such terms and after such
notice thereof as may be required or permitted by law, at the discretion of
Beneficiary, and in the event of a sale, by foreclosure or otherwise, of less
than all of the Trust Property, this Deed of Trust shall continue as a lien
on the remaining portion of the Trust Property; or (vii) institute an action,
suit or proceeding in equity for the specific performance of any covenant,
condition or agreement contained in the Loan Documents, or any of them; or
(viii) recover judgment on the Note or any guaranty either before, during or
after (or in lieu of) any proceedings for the enforcement of this Deed of
Trust or (ix) apply, or instruct Deed Trustee to apply, EX PARTE, for the
appointment of a custodian, trustee, receiver, liquidator or conservator of
the Trust Property or any part thereof, irrespective of the adequacy of the
security for the Debt and without regard to the solvency of Grantor or of any
Person liable for the payment of the Debt, to which appointment Grantor does
hereby consent and such receiver or other official shall have all rights and
powers permitted by applicable law and such other
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rights and powers as the court making such appointment may confer, but the
appointment of such receiver or other official shall not impair or in any
manner prejudice the rights of Beneficiary to receive the Rent with respect
to any of the Trust Property pursuant to this Deed of Trust or the
Assignment; or (x) require, at Beneficiary's option, Grantor to pay monthly
in advance to Beneficiary, or any receiver appointed to collect the Rents,
the fair and reasonable rental value for the use and occupation of any
portion of the Trust Property occupied by Grantor and may require Grantor to
vacate and surrender possession to Beneficiary of the Trust Property or to
such receiver and Grantor may be evicted by summary proceedings or otherwise;
or (xi) without notice to Grantor (A) apply all or any portion of the cash
collateral in the Basic Carrying Costs Sub-Account, including any interest
and/or earnings therein, to carry out the obligations of Grantor under this
Deed of Trust and the other Loan Documents, to protect and preserve the Trust
Property and for any other purpose permitted under this Deed of Trust and the
other Loan Documents and/or (B) have all or any portion of such cash
collateral immediately paid to Beneficiary to be applied against the Debt in
the order and priority set forth in the Note; or (xii) pursue any or all such
other rights or remedies as Beneficiary may have under applicable law or in
equity; provided, however, that the provisions of this Section 13.02(a) shall
not be construed to extend or modify any of the notice requirements or grace
periods provided for hereunder or under any of the other Loan Documents.
Grantor hereby waives, to the fullest extent permitted by Legal Requirements,
any defense Grantor might otherwise raise or have by the failure to make any
tenants parties defendant to a foreclosure proceeding and to foreclose their
rights in any proceeding instituted by Beneficiary.
(b) Any time after an Event of Default Beneficiary shall have the
power to sell the Trust Property or any part thereof at public auction, in such
manner, at such time and place, upon such terms and conditions, and upon such
public notice as Beneficiary may deem best for the interest of Beneficiary, or
as may be required or permitted by applicable law, consisting of advertisement
in a newspaper of general circulation in the jurisdiction and for such period as
applicable law may require and at such other times and by such other methods, if
any, as may be required by law to convey the Trust Property in fee simple by
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Beneficiary's deed with special warranty of title to and at the cost of the
purchaser, who shall not be liable to see to the application of the purchase
money. The proceeds or avails of any sale made under or by virtue of this
Section 13.02, together with any other sums which then may be held by
Beneficiary under this Deed of Trust, whether under the provisions of this
Section 13.02 or otherwise, shall be applied as follows:
First: To the payment of the third-party costs and expenses
reasonably incurred in connection with any such sale and to
advances, fees and expenses, including, without limitation,
reasonable fees and expenses of Beneficiary's legal counsel as
applicable, and of any judicial proceedings wherein the same may
be made, and of all expenses, liabilities and advances reasonably
made or incurred by Beneficiary under this Deed of Trust,
together with interest as provided herein on all such advances
made by Beneficiary, and all Impositions, except any Impositions
or other charges subject to which the Trust Property shall have
been sold;
Second: To the payment of the whole amount then due, owing and
unpaid under the Note for principal and interest thereon, with
interest on such unpaid principal at the Default Rate from the
date of the occurrence of the earliest Event of Default that
formed a basis for such sale until the same is paid;
Third: To the payment of any other portion of the Debt required
to be paid by Grantor pursuant to any provision of this Deed of
Trust, the Note, or any of the other Loan Documents; and
Fourth: The surplus, if any, to Grantor unless otherwise
required by Legal Requirements.
Beneficiary and any receiver or custodian of the Trust Property or any part
thereof shall be liable to account for only those rents, issues, proceeds and
profits actually received by it.
(c) Beneficiary may adjourn from time to time any sale by it to be
made under or by virtue of this Deed of Trust by
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announcement at the time and place appointed for such sale or for such
adjourned sale or sales and, except as otherwise provided by any applicable
provision of Legal Requirements, Beneficiary or Deed Trustee, without further
notice or publication, may make such sale at the time and place to which the
same shall be so adjourned.
(d) Upon the completion of any sale or sales made by Beneficiary or
Deed Trustee under or by virtue of this Section 13.02, Beneficiary, or any
officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, granting, conveying, assigning and transferring all
estate, right, title and interest in and to the property and rights sold.
Beneficiary is hereby irrevocably appointed the true and lawful attorney-in-fact
of Grantor (coupled with an interest), in its name and stead, to make all
necessary conveyances, assignments, transfers and deliveries of the property and
rights so sold and for that purpose Beneficiary and Deed Trustee may execute all
necessary instruments of conveyance, assignment, transfer and delivery, and may
substitute one or more Persons with like power, Grantor hereby ratifying and
confirming all that its said attorney-in-fact or such substitute or substitutes
shall lawfully do by virtue hereof. Nevertheless, Grantor, if so requested by
Beneficiary, shall ratify and confirm any such sale or sales by executing and
delivering to Beneficiary, or to such purchaser or purchasers all such
instruments as may be advisable, in the sole judgement of Beneficiary, for such
purpose, and as may be designated in such request. Any such sale or sales made
under or by virtue of this Section 13.02, whether made under the power of sale
herein granted or under or by virtue of judicial proceedings or a judgment or
decree of foreclosure and sale, shall operate to divest all the estate, right,
title, interest, claim and demand whatsoever, whether at law or in equity, of
Grantor in and to the property and rights so sold, and shall, to the fullest
extent permitted under Legal Requirements, be a perpetual bar, both at law and
in equity against Grantor and against any and all Persons claiming or who may
claim the same, or any part thereof, from, through or under Grantor.
(e) In the event of any sale made under or by virtue of this Section
13.02 (whether made under the power of sale herein
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granted or under or by virtue of judicial proceedings or a judgment or decree
of foreclosure and sale), the entire Debt immediately thereupon shall,
anything in the Loan Documents to the contrary notwithstanding, become due
and payable.
(f) Upon any sale made under or by virtue of this Section 13.02
(whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or a judgment or decree of foreclosure and sale),
Beneficiary may bid for and acquire the Trust Property or any part thereof and
in lieu of paying cash therefor may make settlement for the purchase price by
crediting upon the Debt the net sales price after deducting therefrom the
expenses of the sale and the costs of the action.
(g) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or any part thereof or upon
any other property of Grantor shall release the lien of this Deed of Trust upon
the Trust Property or any part thereof, or any liens, rights, powers or remedies
of Beneficiary hereunder, but such liens, rights, powers and remedies of
Beneficiary shall continue unimpaired until all amounts due under the Note, this
Deed of Trust and the other Loan Documents are paid in full.
Section 13.03. PAYMENT OF DEBT AFTER DEFAULT. If following the
occurrence of any Event of Default, Grantor shall tender payment of an amount
sufficient to satisfy the Debt in whole or in part at any time prior to a
foreclosure sale of the Trust Property, and if at the time of such tender
prepayment of the principal balance of the Note is not permitted by the Note,
Grantor shall, in addition to the entire Debt, also pay to Beneficiary a sum
equal to interest which would have accrued on the principal balance of the Note
at the Interest Rate from the date of such tender to the earlier of (a) the
Maturity Date or (b) the first day of the period during which prepayment of the
principal balance of the Note would have been permitted together with a
prepayment consideration equal to the prepayment consideration which would have
been payable as of the first day of the period during which prepayment would
have been permitted. If at the time of such tender, prepayment of the principal
balance of the Note is permitted, such tender by Grantor shall be deemed to be a
voluntary prepayment of the principal balance of the Note, and Grantor shall, in
addition to the entire Debt, also
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pay to Beneficiary the applicable prepayment consideration specified in the
Note and this Deed of Trust.
Section 13.04. POSSESSION OF THE TRUST PROPERTY. Upon the occurrence
of any Event of Default hereunder and the acceleration of the Debt or any
portion thereof, Grantor, if an occupant of the Trust Property or any part
thereof, upon demand of Beneficiary, shall immediately surrender possession of
the Trust Property (or the portion thereof so occupied) to Beneficiary, and if
Grantor is permitted to remain in possession, the possession shall be as a
month-to-month tenant of Beneficiary and, on demand, Grantor shall pay to
Beneficiary monthly, in advance, a reasonable rental for the space so occupied
and in default thereof Grantor may be dispossessed. The covenants herein
contained may be enforced by a receiver of the Trust Property or any part
thereof. Nothing in this Section 13.04 shall be deemed to be a waiver of the
provisions of this Deed of Trust making the Transfer of the Trust Property or
any part thereof without Beneficiary's prior written consent an Event of
Default.
Section 13.05. INTEREST AFTER DEFAULT. If any amount due under the
Note, this Deed of Trust or any of the other Loan Documents is not paid within
any applicable notice and grace period after same is due, whether such date is
the stated due date, any accelerated due date or any other date or at any other
time specified under any of the terms hereof or thereof, then, in such event,
Grantor shall pay interest on the amount not so paid from and after the date on
which such amount first becomes due at the Default Rate; and such interest shall
be due and payable at such rate until the earlier of the cure of all Events of
Default or the payment of the entire amount due to Beneficiary, whether or not
any action shall have been taken or proceeding commenced to recover the same or
to foreclose this Deed of Trust. All unpaid and accrued interest shall be
secured by this Deed of Trust as part of the Debt. Nothing in this Section
13.05 or in any other provision of this Deed of Trust shall constitute an
extension of the time for payment of the Debt.
Section 13.06. GRANTOR'S ACTIONS AFTER DEFAULT. After the happening
of any Event of Default and immediately upon the commencement of any action,
suit or other legal proceedings by Beneficiary to obtain judgment for the Debt,
or of any other nature in aid of the enforcement of the Loan Documents, Grantor
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will (a) after receipt of notice of the institution of any such action, waive
the issuance and service of process and enter its voluntary appearance in such
action, suit or proceeding, and (b) if required by Beneficiary, consent to the
appointment of a receiver or receivers of the Trust Property or any part thereof
and of all the earnings, revenues, rents, issues, profits and income thereof.
Section 13.07. CONTROL BY BENEFICIARY AFTER DEFAULT. Notwithstanding
the appointment of any custodian, receiver, liquidator or trustee of Grantor, or
of any of its property, or of the Trust Property or any part thereof, to the
extent permitted by Legal Requirements, Beneficiary shall be entitled to obtain
possession and control of all property now and hereafter covered by this Deed of
Trust and the Assignment in accordance with the terms hereof.
Section 13.08. RIGHT TO CURE DEFAULTS. (a) Upon the occurrence of
any Event of Default, Beneficiary or its agents may, but without any obligation
to do so and without notice to or demand on Grantor and without releasing
Grantor from any obligation hereunder, make or do the same in such manner and to
such extent as Beneficiary may deem necessary to protect the security hereof.
Beneficiary and its agents are authorized to enter upon the Trust Property or
any part thereof for such purposes, or appear in, defend, or bring any action or
proceedings to protect Beneficiary's interest in the Trust Property or any part
thereof or to foreclose this Deed of Trust or collect the Debt, and the cost and
expense thereof (including reasonable attorneys' fees to the extent permitted by
law), with interest as provided in this Section 13.08, shall constitute a
portion of the Debt and shall be immediately due and payable to Beneficiary upon
demand. All such costs and expenses incurred by Beneficiary or its agents in
remedying such Event of Default or in appearing in, defending, or bringing any
such action or proceeding shall bear interest at the Default Rate, for the
period from the date so demanded to the date of payment to Beneficiary. All
such costs and expenses incurred by Beneficiary or its agents together with
interest thereon calculated at the above rate shall be deemed to constitute a
portion of the Debt and be secured by this Deed of Trust.
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(b) If Beneficiary makes any payment or advance that Beneficiary is
authorized by this Deed of Trust to make in the place and stead of Grantor (i)
relating to the Impositions or tax liens asserted against the Trust Property,
Beneficiary may do so according to any bill, statement or estimate procured from
the appropriate public office without inquiry into the accuracy of the bill,
statement or estimate or into the validity of any of the Impositions or the tax
liens or claims thereof; (ii) relating to any apparent or threatened adverse
title, lien, claim of lien, encumbrance, claim or charge, Beneficiary will be
the sole judge of the legality or validity of same; or (iii) relating to any
other purpose authorized by this Deed of Trust but not enumerated in this
Section 13.08, Beneficiary may do so whenever, in its judgment and discretion,
the payment or advance seems necessary or desirable to protect the Trust
Property and the full security interest intended to be created by this Deed of
Trust. In connection with any payment or advance made pursuant to this Section
13.08, Beneficiary has the option and is authorized, but in no event shall be
obligated, to obtain a continuation report of title prepared by a title
insurance company. The payments and the advances made by Beneficiary pursuant
to this Section 13.08 and the cost and expenses of said title report will be due
and payable by Grantor on demand, together with interest at the Default Rate,
and will be secured by this Deed of Trust.
Section 13.09. LATE PAYMENT CHARGE. If any portion of the Debt is
not paid in full within five (5) days after the date on which it is due and
payable hereunder, Grantor shall pay to Beneficiary an amount equal to three
percent (3%) of such unpaid portion of the Debt (the "Late Charge") to defray
the expense incurred by Beneficiary in handling and processing such delinquent
payment, and such amount shall constitute a part of the Debt.
Section 13.10. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Debt as the same become due and payable hereunder
(after the expiration of any grace period or the giving of any notice herein
provided, if any), without regard to whether or not the balance of the Debt
shall be due, and without prejudice to the right of Beneficiary thereafter to
bring an action of foreclosure, or any other
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action, for a default or defaults by Grantor existing at the time such
earlier action was commenced.
Section 13.11. MARSHALLING AND OTHER MATTERS. Grantor hereby waives,
to the fullest extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, redemption (both equitable and
statutory) and homestead laws now or hereafter in force and all rights of
marshalling in the event of any sale hereunder of the Trust Property or any part
thereof or any interest therein. Nothing herein or in any other Loan Document
shall be construed as requiring Beneficiary to resort to any particular Cross-
collateralized Property for the satisfaction of the Debt in preference or
priority to any other Cross-collateralized Property but Beneficiary may seek
satisfaction out of all the Cross-collateralized Properties or any part thereof
in its absolute discretion. Further, Grantor hereby expressly waives any and
all rights of redemption from sale under any order or decree of foreclosure of
this Deed of Trust on behalf of Grantor, whether equitable or statutory and on
behalf of each and every Person acquiring any interest in or title to the Trust
Property or any part thereof subsequent to the date of this Deed of Trust and on
behalf of all Persons to the fullest extent permitted by applicable law.
Section 13.12. TAX REDUCTION PROCEEDINGS. After an Event of Default,
Grantor shall be deemed to have appointed Beneficiary as its attorney-in-fact to
seek a reduction or reductions in the assessed valuation of the Trust Property
for real property tax purposes or for any other purpose and to prosecute any
action or proceeding in connection therewith. This power, being coupled with an
interest, shall be irrevocable for so long as any part of the Debt remains
unpaid and any Event of Default shall be continuing.
Section 13.13. GENERAL PROVISIONS REGARDING REMEDIES.
(a) RIGHT TO TERMINATE PROCEEDINGS. Beneficiary may terminate or
rescind any proceeding or other action brought in connection with its exercise
of the remedies provided in Section 13.02 at any time before the conclusion
thereof, as determined in Beneficiary's sole discretion and without prejudice to
Beneficiary.
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(b) NO WAIVER OR RELEASE. The failure of Beneficiary to exercise any
right, remedy or option provided in the Loan Documents shall not be deemed a
waiver of such right, remedy or option or of any covenant or obligation
contained in the Loan Documents. No acceptance by Beneficiary of any payment
after the occurrence of an Event of Default and no payment by Beneficiary of any
payment or obligation for which Grantor is liable hereunder shall be deemed to
waive or cure any Event of Default. No sale of all or any portion of the Trust
Property, no forbearance on the part of Beneficiary, and no extension of time
for the payment of the whole or any portion of the Debt or any other indulgence
given by Beneficiary to Grantor or any other Person, shall operate to release or
in any manner affect the interest of Beneficiary in the Trust Property or the
liability of Grantor to pay the Debt. No waiver by Beneficiary shall be
effective unless it is in writing and then only to the extent specifically
stated.
(c) NO IMPAIRMENT; NO RELEASES. The interests and rights of
Beneficiary under the Loan Documents shall not be impaired by any indulgence,
including (i) any renewal, extension or modification which Beneficiary may grant
with respect to any of the Debt; (ii) any surrender, compromise, release,
renewal, extension, exchange or substitution which Beneficiary may grant with
respect to the Trust Property or any portion thereof; or (iii) any release or
indulgence granted to any maker, endorser, guarantor or surety of any of the
Debt.
(d) EFFECT ON JUDGMENT. No recovery of any judgment by Beneficiary
and no levy of an execution under any judgment upon any Trust Property or any
portion thereof shall affect in any manner or to any extent the lien of the
other Cross-collateralized Deed of Trusts upon the remaining Cross-
collateralized Properties or any portion thereof, or any rights, powers or
remedies of Beneficiary hereunder or thereunder. Such lien, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(e) CERTAIN MATTERS RELATING TO CERTAIN STATES. With respect to any
Trust Property in a State in which there are certain matters relating to the
exercise of remedies in Article XVIII hereof, such Article shall govern with
respect to the exercise of any remedies under this Article XIII, as applicable.
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ARTICLE XIV: COMPLIANCE WITH REQUIREMENTS
Section 14.01. COMPLIANCE WITH LEGAL REQUIREMENTS. (a) Grantor
shall promptly comply with all present and future Legal Requirements, foreseen
and unforeseen, ordinary and extraordinary, whether requiring structural or
nonstructural repairs or alterations including, without limitation, all zoning,
subdivision, building, safety and environmental protection, land use and
development Legal Requirements, all Legal Requirements which may be applicable
to the curbs adjoining the Trust Property or to the use or manner of use
thereof, and all rent control, rent stabilization and all other similar Legal
Requirements relating to rents charged and/or collected in connection with the
Leases. Grantor represents and warrants that the Trust Property is in
compliance in all material respects with all Legal Requirements as of the date
hereof, no notes or notices of violations of any Legal Requirements have been
entered or received by Grantor and to best of Grantor's knowledge, there is no
basis for the entering of such note or notices.
(b) Grantor shall have the right to contest by appropriate legal
proceedings diligently conducted in good faith, without cost or expense to
Beneficiary or Deed Trustee, the validity or application of any Legal
Requirement and to suspend compliance therewith if permitted under applicable
Legal Requirements, provided (i) failure to comply therewith may not subject
Beneficiary or Deed Trustee to any civil or criminal liability, (ii) prior to
and during such contest, Grantor shall furnish to Beneficiary security
reasonably satisfactory to Beneficiary, in its discretion, against loss or
injury by reason of such contest or non-compliance with such Legal Requirement,
(iii) no Default or Event of Default shall exist during such proceedings and
such contest shall not otherwise violate any of the provisions of any of the
Loan Documents, (iv) such contest shall not, (unless Grantor shall comply with
the provisions of clause (ii) of this Section 14.01(b)) subject the Trust
Property to any lien or encumbrance the enforcement of which is not suspended or
otherwise affect the priority of the lien of this Deed of Trust; (v) such
contest shall not affect the ownership, use or occupancy of the Trust Property;
(vi) the Trust Property or any part thereof or any interest therein shall not be
in any danger of being sold, forfeited or lost by reason of such contest by
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Grantor; (vii) Grantor shall give Beneficiary prompt notice of the commencement
of such proceedings and, upon request by Beneficiary, notice of the status of
such proceedings and/or confirmation of the continuing satisfaction of the
conditions set forth in clauses (i)-(vi) of this Section 14.01(b); and (viii)
upon a final determination of such proceeding, Grantor shall take all steps
necessary to comply with any requirements arising therefrom.
(c) Grantor shall at all times comply with all applicable Legal
Requirements with respect to the construction, use and maintenance of any vaults
adjacent to the Trust Property. If by reason of the failure to pay taxes,
assessments, charges, permit fees, franchise taxes or levies of any kind or
nature, the continued use of the vaults adjacent to Trust Property or any part
thereof is discontinued, Grantor nevertheless shall, with respect to any vaults
which may be necessary for the continued use of the Trust Property, take such
steps (including the making of any payment) to insure the continued use of
vaults or replacements.
Section 14.02. COMPLIANCE WITH RECORDED DOCUMENTS; NO FUTURE GRANTS.
Grantor shall promptly perform and observe or cause to be performed and
observed, all of the terms, covenants and conditions of all Property Agreements
and all things necessary to preserve intact and unimpaired any and all
appurtenances or other interests or rights affecting the Trust Property.
ARTICLE XV: PREPAYMENT; RELEASE
Section 15.01. PREPAYMENT. (a) Except as set forth in the Note, and
this Section 15.01 and except with respect to prepayments arising from the
application of Loss Proceeds, no prepayment of the Debt may be made in whole or
in part.
(b) (i) At any time subsequent to the Optional Prepayment Date,
Grantor may prepay the Loan in whole, or from time to time, in part, as of the
last day of an Interest Accrual Period, in accordance with the following
provisions:
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(i) Beneficiary shall have received from Grantor, not less
than fifteen (15) days', nor more than ninety (90) days', prior
written notice specifying the date proposed for such prepayment and
the amount which is to be prepaid which proposed date shall be a
Payment Date.
(ii) Grantor shall also pay to Beneficiary all interest due
through and including the last day of the Interest Accrual Period
ending on the day prior to the Payment Date in which such prepayment
is being made, together with any and all other amounts due and owing
pursuant to the terms of the Note, this Deed of Trust or the other
Loan Documents.
(iii) No Event of Default shall have occurred and be
continuing.
(iv) Grantor shall pay Beneficiary a prepayment fee in an
amount equal to one percent (1%) of the amount of such prepayment.
(v) Any partial prepayment of the Principal Amount,
including, without limitation, Unscheduled Payments, shall be applied
to the installments of principal last due hereunder and shall not
release or relieve Grantor from the obligation to pay the regularly
scheduled installments of principal becoming due under the Note.
Notwithstanding anything to the contrary contained herein, subsequent
to the Payment Date in March 1998, Grantor shall not be required to pay the
prepayment fee set forth in subsection (iv) hereof.
Section 15.02. RELEASE OF TRUST PROPERTY. If (A) Grantor makes a
prepayment pursuant to Section 15.01(c) hereof or (C) if Beneficiary applies
Loss Proceeds from the Trust Property towards the repayment of the Debt,
Beneficiary shall, promptly upon satisfaction of all the following terms and
conditions execute, acknowledge and deliver to Grantor a release of this Deed of
Trust (a "RELEASE") in recordable form with respect to the Trust Property:
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(a) If such prepayment is a prepayment in part, but not in whole,
Beneficiary shall have received on the date proposed for such prepayment an
amount equal to the greater of (i) the sum of (A) one hundred percent (100%) of
the Allocated Loan Amount, plus (B) twenty-five percent (25%) of the Initial
Allocated Loan Amount and (ii) ninety percent (90%) of the gross sales price or
gross refinancing proceeds of the Trust Property (the "RELEASE PRICE").
(b) In the event of a prepayment pursuant to Section 15.01(c) hereof
(except for prepayment, as applicable, which are made contemporaneously with the
application of Loss Proceeds towards the payment of the Debt where such Loss
Proceeds constitute at least fifty percent (50%) of the Release Price),
Beneficiary shall have received from Grantor evidence in form and substance
satisfactory to Beneficiary that the pro forma Aggregate Debt Service Coverage
of all Cross-collateralized Properties immediately following the Release is at
least equal to the greater of the Aggregate Debt Service Coverage as of the
Closing Date and the Aggregate Debt Service Coverage immediately prior to
effecting such Release, accompanied by an Officer's Certificate stating that the
statements, calculations and information comprising such evidence are true,
correct and complete in all respects.
(c) Grantor shall, at its sole expense, prepare any and all documents
and instruments necessary to effect the Release, all of which shall be subject
to the reasonable approval of Beneficiary, and Grantor shall pay all costs
reasonably incurred by Beneficiary (including, but not limited to, reasonable
attorneys' fees and disbursements, title search costs or endorsement premiums)
in connection with the review, execution and delivery of the Release.
(d) No Event of Default has occurred and is continuing.
ARTICLE XVI: ENVIRONMENTAL COMPLIANCE
Section 16.01. COVENANTS, REPRESENTATIONS AND WARRANTIES. (a)
Grantor has not, at any time, and, to Grantor's best knowledge after due inquiry
and investigation, except as set forth in the Environmental Report, no other
Person has at any
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time, handled, buried, stored, retained, refined, transported, processed,
manufactured, generated, produced, spilled, allowed to seep, leak, escape or
leach, or pumped, poured, emitted, emptied, discharged, injected, dumped,
transferred or otherwise disposed of or dealt with Hazardous Materials on, to
or from the Premises or any other real property owned and/or occupied by
Grantor, and Grantor does not intend to and shall not use the Trust Property
or any part thereof or any such other real property for the purpose of
handling, burying, storing, retaining, refining, transporting, processing,
manufacturing, generating, producing, spilling, seeping, leaking, escaping,
leaching, pumping, pouring, emitting, emptying, discharging, injecting,
dumping, transferring or otherwise disposing of or dealing with Hazardous
Materials, except for use and storage for use of heating oil, cleaning
fluids, pesticides and other substances customarily used in the operation of
properties that are being used for the same purposes as the Trust Property is
presently being used, provided such use and/or storage for use is in
compliance with the requirements hereof and the other Loan Documents and does
not give rise to liability under applicable Legal Requirements or
Environmental Statutes or be the basis for a lien against the Trust Property
or any part thereof. In addition, without limitation to the foregoing
provisions, Grantor represents and warrants that, to the best of its
knowledge, after due inquiry and investigation, except as previously
disclosed in writing to Beneficiary, there is no asbestos in, on, over, or
under all or any portion of the fire-proofing or any other portion of the
Trust Property.
(b) Grantor, to the best of its knowledge, after due inquiry and
investigation, knows of no seepage, leak, escape, leach, discharge, injection,
release, emission, spill, pumping, pouring, emptying or dumping of Hazardous
Materials into waters on, under or adjacent to the Trust Property or any part
thereof or any other real property owned and/or occupied by Grantor, or onto
lands from which such Hazardous Materials might seep, flow or drain into such
waters, except as disclosed in the Environmental Report.
(c) Grantor shall not permit any Hazardous Materials to be handled,
buried, stored, retained, refined, transported, processed, manufactured,
generated, produced, spilled, allowed to seep, leak, escape or leach, or to be
pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or
otherwise
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disposed of or dealt with on, under, to or from the Trust Property or any
portion thereof at any time, except for use and storage for use of heating
oil, ordinary cleaning fluids, pesticides and other substances customarily
used in the operation of properties that are being used for the same purposes
as the Trust Property is presently being used, provided such use and/or
storage for use is in compliance with the requirements hereof and the other
Loan Documents and does not give rise to liability under applicable Legal
Requirements or be the basis for a lien against the Trust Property or any
part thereof.
(d) Grantor represents and warrants that no actions, suits, or
proceedings have been commenced, or are pending, or to the best knowledge of
Grantor, are threatened in writing with respect to any Legal Requirement
governing the use, manufacture, storage, treatment, transportation, or
processing of Hazardous Materials with respect to the Trust Property or any part
thereof. Grantor has received no notice of, and, except as disclosed in the
Environmental Report, after due inquiry and investigation has no knowledge of
any fact, condition, occurrence or circumstance which with notice or passage of
time or both would give rise to a claim under or pursuant to any Environmental
Statute pertaining to Hazardous Materials on, in, under or originating from the
Trust Property or any part thereof or any other real property owned or occupied
by Grantor or arising out of the conduct of Grantor, including, without
limitation, pursuant to any Environmental Statute.
(e) Grantor has not waived any Person's liability with regard to the
Hazardous Materials in, on, under or around the Trust Property, nor has Grantor
retained or assumed, contractually or by operation of law, any other Person's
liability relative to Hazardous Materials or any claim, action or proceeding
relating thereto.
(f) In the event that there shall be filed a lien against the Trust
Property or any part thereof pursuant to any Environmental Statute pertaining to
Hazardous Materials, Grantor shall, within sixty (60) days or, in the event that
the applicable Governmental Authority has commenced steps to cause the Premises
or any part thereof to be sold pursuant to the lien, within fifteen (15) days,
from the date that Grantor receives notice of such lien, either (i) pay the
claim and remove the lien
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from the Trust Property, or (ii) furnish (A) a bond satisfactory to
Beneficiary in the amount of the claim out of which the lien arises, (B) a
cash deposit in the amount of the claim out of which the lien arises, or (C)
other security reasonably satisfactory to Beneficiary in an amount sufficient
to discharge the claim out of which the lien arises.
(g) Grantor represents and warrants that (i) except as disclosed in
the Environmental Report, Grantor has no knowledge of any violation of any
Environmental Statute or any Environmental Problem in connection with the Trust
Property, nor has Grantor been requested or required by any Governmental
Authority to perform any remedial activity or other responsive action in
connection with any Environmental Problem and (ii) neither the Trust Property
nor any other property owned by Grantor is included or, to Grantor's best
knowledge, after due inquiry and investigation, proposed for inclusion on the
National Priorities List issued pursuant to CERCLA by the United States
Environmental Protection Agency (the "EPA") or on the inventory of other
potential "Problem" sites issued by the EPA and has not otherwise been
identified by the EPA as a potential CERCLA site or included or, to Grantor's
knowledge, after due inquiry and investigation, proposed for inclusion on any
list or inventory issued pursuant to any other Environmental Statute, if any, or
issued by any other Governmental Authority. Grantor covenants that Grantor will
comply with all Environmental Statutes affecting or imposed upon Grantor or the
Trust Property.
(h) Grantor covenants that it shall promptly notify Beneficiary of
the presence and/or release of such Hazardous Material and of any request for
information or any inspection of the Trust Property or any part thereof by any
Governmental Authority with respect to any Hazardous Materials and provide
Beneficiary with copies of such request and any response to any such request or
inspection. Grantor covenants that it shall, in compliance with applicable
Legal Requirements, conduct and complete all investigations, studies, sampling
and testing (and promptly shall provide Beneficiary with copies of any such
studies and the results of any such test) and all remedial, removal and other
actions necessary to clean up and remove all Hazardous Materials in, on, over,
under, from or affecting the Trust Property or any part thereof in accordance
with all such
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Legal Requirements applicable to the Trust Property or any part thereof to
the satisfaction of Beneficiary.
(i) Following the occurrence of an Event of Default hereunder, and
without regard to whether Beneficiary shall have taken possession of the Trust
Property or a receiver has been requested or appointed or any other right or
remedy of Beneficiary has or may be exercised hereunder or under any other Loan
Document, Beneficiary shall have the right (but no obligation) to conduct such
investigations, studies, sampling and/or testing of the Trust Property or any
part thereof as Beneficiary may, in its discretion, and consistent with
reasonable safety standards, determine to conduct, relative to Hazardous
Materials. All costs and expenses incurred in connection therewith including,
without limitation, consultants' fees and disbursements and laboratory fees,
shall constitute a part of the Debt and shall, upon demand by Beneficiary, be
immediately due and payable and shall bear interest at the Default Rate from the
date so demanded by Beneficiary until reimbursed. Grantor shall, at its sole
cost and expense, fully and expeditiously cooperate in all such investigations,
studies, samplings and/or testings, including without limitation, providing all
relevant information and making knowledgeable people available for interviews.
(j) Grantor represents and warrants that the paint and painted
surfaces existing within the interior or on the exterior of the Trust Property
are not flaking, peeling, cracking, blistering, or chipping, and do not contain
unlawful amounts of lead or are maintained in a condition that prevents exposure
of young children to lead-based paint, as of the date hereof, and that the
current inspections, operation, and maintenance program at the Trust Property
with respect to lead-based paint is consistent with FNMA guidelines and
sufficient to ensure that all painted surfaces within the Trust Property shall
be maintained in a condition that prevents exposure of residents to lead-based
paint. To Grantor's knowledge, there have been no claims for adverse health
effects from exposure on the Trust Property to lead-based paint or requests for
the investigation, assessment or removal of lead-based paint at the Trust
Property.
(k) Grantor represents and warrants that except in accordance with
all applicable Environmental Statutes and as
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disclosed in the Environmental Report, (i) no underground treatment or
storage tanks or pumps or water, gas, or oil wells are or have been located
about the Trust Property, (ii) no PCBs or transformers, capacitors, ballasts
or other equipment that contain dielectric fluid containing PCBs are located
about the Trust Property, (iii) no insulating material containing urea
formaldehyde is located about the Trust Property and (iv) no
asbestos-containing material is located about the Trust Property.
Section 16.02. ENVIRONMENTAL INDEMNIFICATION. Grantor shall defend,
indemnify and hold harmless Beneficiary, and its successors and assigns, and its
employees, agents, officers and directors from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature, known or unknown, contingent or otherwise, whether
incurred or imposed within or outside the judicial process, including, without
limitation, reasonable attorneys' and consultants' fees and disbursements and
investigations and laboratory fees arising out of, or in any way related to any
Environmental Problem, including without limitation:
(a) the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release or threat of release of any
Hazardous Materials in, on, over, under, from or affecting the Trust
Property or any part thereof whether or not disclosed by the
Environmental Report relative to the Trust Property;
(b) any personal injury (including wrongful death, disease
or other health condition related to or caused by, in whole or in
part, any Hazardous Materials) or property damage (real or personal)
arising out of or related to any Hazardous Materials in, on, over,
under, from or affecting the Trust Property or any part thereof
whether or not disclosed by the Environmental Report relative to the
Trust Property;
(c) any action, suit or proceeding brought or threatened,
settlement reached, or order of any Governmental Authority relating to
such Hazardous Material whether or not disclosed by the Environmental
Report relative to the Trust Property; and/or
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(d) any violation of the provisions, covenants,
representations or warranties of Section 16.01 hereof or of any Legal
Requirement which is based on or in any way related to any Hazardous
Materials in, on, over, under, from or affecting the Trust Property or
any part thereof including, without limitation, the cost of any work
performed and materials furnished in order to comply therewith whether
or not disclosed by the Environmental Report relative to the Trust
Property.
Notwithstanding the foregoing provisions of this Section 16.02 to the
contrary, Grantor shall have no obligation to indemnify Beneficiary for
liabilities, claims, damages, penalties, causes of action, costs and expenses
relative to the foregoing which result directly from Beneficiary's willful
misconduct or gross negligence. Any amounts payable to Beneficiary by reason of
the application of this Section 16.02 shall be secured by this Deed of Trust and
shall, upon demand by Beneficiary, become immediately due and payable and shall
bear interest at the Default Rate from the date so demanded by Beneficiary until
paid.
This indemnification shall survive the termination of this Deed of
Trust whether by repayment of the Debt, foreclosure or deed in lieu thereof,
assignment, or otherwise. The indemnity provided for in this Section 16.02
shall not be included in any exculpation of Grantor from personal liability
provided for in this Deed of Trust or in any of the other Loan Documents.
Nothing in this Section 16.02 shall be deemed to deprive Beneficiary of any
rights or remedies otherwise available to Beneficiary, including, without
limitation, those rights and remedies provided elsewhere in this Deed of Trust
or the other Loan Documents.
ARTICLE XVII: ASSIGNMENTS
Section 17.01. PARTICIPATIONS AND ASSIGNMENTS. Beneficiary shall
have the right to assign this Deed of Trust and/or any of the Loan Documents,
and to transfer, assign or sell participations and subparticipations (including
blind or undisclosed participations and subparticipations) in the Loan Documents
and the obligations hereunder to any Person; provided,
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however, that no such participation shall increase, decrease or otherwise
affect either Grantor's or Beneficiary's obligations under this Deed of Trust
or the other Loan Documents.
ARTICLE XVIII: MISCELLANEOUS
Section 18.01. RIGHT OF ENTRY. Beneficiary and its agents shall have
the right to enter and inspect the Trust Property or any part thereof at all
reasonable times, and subject to the rights of guests and tenants and, except in
the event of an emergency, upon reasonable notice and to inspect Grantor's books
and records and to make abstracts and reproductions thereof.
Section 18.02. CUMULATIVE RIGHTS. The rights of Beneficiary under
this Deed of Trust shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Beneficiary shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Beneficiary shall not be limited exclusively
to the rights and remedies herein stated but shall be entitled, subject to the
terms of this Deed of Trust, to every right and remedy now or hereafter afforded
by law.
Section 18.03. LIABILITY. If Grantor consists of more than one
Person, the obligations and liabilities of each such Person hereunder shall be
joint and several.
Section 18.04. EXHIBITS INCORPORATED. The information set forth on
the cover hereof, and the Exhibits annexed hereto, are hereby incorporated
herein as a part of this Deed of Trust with the same effect as if set forth in
the body hereof.
Section 18.05. SEVERABLE PROVISIONS. If any term, covenant or
condition of the Loan Documents including, without limitation, the Note or this
Deed of Trust, is held to be invalid, illegal or unenforceable in any respect,
such Loan Document shall be construed without such provision.
Section 18.06. DUPLICATE ORIGINALS. This Deed of Trust may be
executed in any number of duplicate originals and each such duplicate original
shall be deemed to constitute but one and the same instrument.
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Section 18.07. NO ORAL CHANGE. The terms of this Deed of Trust,
together with the terms of the Note and the other Loan Documents constitute the
entire understanding and agreement of the parties hereto and supersede all prior
agreements, understandings and negotiations between Grantor and Beneficiary with
respect to the Loan. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act on the part of Grantor or Beneficiary, but only by an agreement in
writing signed by the party against whom enforcement of any modification,
amendment, waiver, extension, change, discharge or termination is sought.
SECTION 18.08. WAIVER OF COUNTERCLAIM, ETC. Grantor HEREBY WAIVES
THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY
ACTION OR PROCEEDING BROUGHT AGAINST IT BY Beneficiary OR ITS AGENTS, AND WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER OR IN ANY COUNTERCLAIM Grantor MAY BE PERMITTED TO ASSERT HEREUNDER OR
WHICH MAY BE ASSERTED BY Beneficiary OR ITS AGENTS, AGAINST Grantor, OR IN ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS DEED OF
TRUST OR THE DEBT.
Section 18.09. HEADINGS; CONSTRUCTION OF DOCUMENTS; ETC. The table
of contents, headings and captions of various paragraphs of this Deed of Trust
are for convenience of reference only and are not to be construed as defining or
limiting, in any way, the scope or intent of the provisions hereof. Grantor
acknowledges that it was represented by competent counsel in connection with the
negotiation and drafting of this Deed of Trust and the other Loan Documents and
that neither this Deed of Trust nor the other Loan Documents shall be subject to
the principle of construing the meaning against the Person who drafted same.
Section 18.10. SOLE DISCRETION OF BENEFICIARY. Whenever Beneficiary
exercises any right given to it to approve or disapprove, or any arrangement or
term is to be satisfactory to Beneficiary, the decision of Beneficiary to
approve or disapprove or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Beneficiary (except where
otherwise herein expressly provided) and shall be
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final and conclusive, except as may be otherwise specifically provided herein.
Section 18.11. WAIVER OF NOTICE. Grantor shall not be entitled to
any notices of any nature whatsoever from Beneficiary except with respect to
matters for which this Deed of Trust specifically and expressly provides for the
giving of notice by Beneficiary to Grantor and except with respect to matters
for which Grantor is not, pursuant to applicable Legal Requirements, permitted
to waive the giving of notice.
Section 18.12. COVENANTS RUN WITH THE LAND. All of the grants,
covenants, terms, provisions and conditions herein shall run with the Premises,
shall be binding upon Grantor and shall inure to the benefit of Beneficiary,
subsequent holders of this Deed of Trust and their successors and assigns.
Without limitation to any provision hereof, the term "Grantor" shall include and
refer to the grantor named herein, any subsequent owner of the Trust Property,
and its respective heirs, executors, legal representatives, successors and
assigns. The representations, warranties and agreements contained in this Deed
of Trust and the other Loan Documents are intended solely for the benefit of the
parties hereto, shall confer no rights hereunder, whether legal or equitable, in
any other Person and no other Person shall be entitled to rely thereon.
SECTION 18.13. APPLICABLE LAW. THIS DEED OF TRUST WAS NEGOTIATED IN
NEW YORK, AND MADE BY Grantor AND ACCEPTED BY Beneficiary IN THE STATE OF NEW
YORK, AND THE PROCEEDS OF THE NOTE WERE DISBURSED FROM NEW YORK, WHICH STATE THE
PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE
UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. THIS DEED OF TRUST AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW
OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE
CREATION, PERFECTION, PRIORITY, ENFORCEMENT AND FORECLOSURE OF THE LIENS AND
SECURITY INTERESTS CREATED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE TRUST PROPERTY IS LOCATED, IT
BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT
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PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL
GOVERN THE VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS, AND THE DEBT OR
OBLIGATIONS ARISING HEREUNDER.
Section 18.14. SECURITY AGREEMENT. (a) (i) This Deed of Trust is
both a real property mortgage and a "security agreement" within the meaning of
the UCC. The Trust Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of Grantor
in the Trust Property. This Deed of Trust is filed as a fixture filing and
covers goods which are or are to become fixtures on the Trust Property. Grantor
by executing and delivering this Deed of Trust has granted to Beneficiary, as
security for the Debt, a security interest in the Trust Property to the full
extent that the Trust Property may be subject to the UCC of the State in which
the Trust Property is located (said portion of the Trust Property so subject to
the UCC being called in this Section 18.14 the "COLLATERAL"). If an Event of
Default shall occur, Beneficiary, in addition to any other rights and remedies
which it may have, shall have and may exercise immediately and without demand,
any and all rights and remedies granted to a secured party upon default under
the UCC, including, without limiting the generality of the foregoing, the right
to take possession of the Collateral or any part thereof, and to take such other
measures as Beneficiary may deem necessary for the care, protection and
preservation of the Collateral. Upon request or demand of Beneficiary following
an Event of Default, Grantor shall, at its expense, assemble the Collateral and
make it available to Beneficiary at a convenient place acceptable to
Beneficiary. Grantor shall pay to Beneficiary on demand any and all expenses,
including reasonable legal expenses and attorneys' fees, incurred or paid by
Beneficiary in protecting its interest in the Collateral and in enforcing its
rights hereunder with respect to the Collateral. Any disposition pursuant to
the UCC of so much of the Collateral as may constitute personal property shall
be considered commercially reasonable if made pursuant to a public sale which is
advertised at least twice in a newspaper in which sheriff's sales are advertised
in the county where the Premises is located. Any notice of sale, disposition or
other intended action by Beneficiary with respect to the Collateral given to
Grantor in accordance with the provisions hereof at least ten (10) days prior to
such action, shall constitute reasonable notice to Grantor. The proceeds of any
disposition of the
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Collateral, or any part thereof, may be applied by Beneficiary to the payment
of the Debt in such priority and proportions as Beneficiary in its discretion
shall deem proper.
(ii) The mention in a financing statement filed in the records
normally pertaining to personal property of any portion of the Trust Property
shall not derogate from or impair in any manner the intention of this Deed of
Trust. Beneficiary hereby declares that all items of Collateral are part of the
real property encumbered hereby to the fullest extent permitted by law,
regardless of whether any such item is physically attached to the Improvements
or whether serial numbers are used for the better identification of certain
items. Specifically, the mention in any such financing statement of any items
included in the Trust Property shall not be construed to alter, impair or impugn
any rights of Beneficiary as determined by this Deed of Trust or the priority of
Beneficiary's lien upon and security interest in the Trust Property in the event
that notice of Beneficiary's priority of interest as to any portion of the Trust
Property is required to be filed in accordance with the UCC to be effective
against or take priority over the interest of any particular class of persons,
including the federal government or any subdivision or instrumentality thereof.
(b) Grantor hereby irrevocably appoints Beneficiary as its attorney-
in-fact, coupled with an interest, to file with the appropriate public office on
its behalf any financing or other statements signed only by Beneficiary, as
secured party, in connection with the Collateral covered by this Deed of Trust.
Section 18.15. ACTIONS AND PROCEEDINGS. Beneficiary has the right to
appear in and defend any action or proceeding brought with respect to the Trust
Property in its own name or, if required by Legal Requirements or, if in
Beneficiary's reasonable judgment, it is necessary, in the name and on behalf of
Grantor, which Beneficiary believes will adversely affect the Trust Property or
this Deed of Trust and to bring any action or proceedings, in its name or in the
name and on behalf of Grantor, which Beneficiary, in its discretion, decides
should be brought to protect its interest in the Trust Property.
Section 18.16. USURY LAWS. This Deed of Trust and the Note are
subject to the express condition, and it is the expressed
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intent of the parties, that at no time shall Grantor be obligated or required
to pay interest on the principal balance due under the Note at a rate which
could subject the holder of the Note to either civil or criminal liability as
a result of being in excess of the maximum interest rate which Grantor is
permitted by law to contract or agree to pay. If by the terms of this Deed
of Trust or the Note, Grantor is at any time required or obligated to pay
interest on the principal balance due under the Note at a rate in excess of
such maximum rate, such rate of interest shall be deemed to be immediately
reduced to such maximum rate and the interest payable shall be computed at
such maximum rate and all prior interest payments in excess of such maximum
rate shall be applied and shall be deemed to have been payments in reduction
of the principal balance of the Note.
Section 18.17. REMEDIES OF GRANTOR. In the event that a claim or
adjudication is made that Beneficiary has acted unreasonably or unreasonably
delayed acting in any case where by law or under the Note, this Deed of Trust or
the Loan Documents, it has an obligation to act reasonably or promptly,
Beneficiary shall not be liable for any monetary damages, and Grantor's remedies
shall be limited to injunctive relief or declaratory judgment.
Section 18.18. OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of
this Deed of Trust, the Assignment and the Note shall take the same free and
clear of all offsets, counterclaims or defenses which are unrelated to the Note,
the Assignment or this Deed of Trust which Grantor may otherwise have against
any assignor of this Deed of Trust, the Assignment and the Note and no such
unrelated counterclaim or defense shall be interposed or asserted by Grantor in
any action or proceeding brought by any such assignee upon this Deed of Trust,
the Assignment or the Note and any such right to interpose or assert any such
unrelated offset, counterclaim or defense in any such action or proceeding is
hereby expressly waived by Grantor.
Section 18.19. NO MERGER. If Grantor's and Beneficiary's estates
become the same including, without limitation, upon the delivery of a deed by
Grantor in lieu of a foreclosure sale, or upon a purchase of the Trust Property
by Beneficiary in a foreclosure sale, this Deed of Trust and the lien created
hereby shall not be destroyed or terminated by the application of the
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doctrine of merger and in such event Beneficiary shall continue to have and
enjoy all of the rights and privileges of Beneficiary as to the separate
estates; and, as a consequence thereof, upon the foreclosure of the lien
created by this Deed of Trust, any Leases or subleases then existing and
created by Grantor shall not be destroyed or terminated by application of the
law of merger or as a result of such foreclosure unless Beneficiary or any
purchaser at any such foreclosure sale shall so elect. No act by or on
behalf of Beneficiary or any such purchaser shall constitute a termination of
any Lease or sublease unless Beneficiary or such purchaser shall give written
notice thereof to such lessee or sublessee.
Section 18.20. RESTORATION OF RIGHTS. In case Beneficiary shall have
proceeded to enforce any right under this Deed of Trust by foreclosure sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely, then, in every
such case, Grantor and Beneficiary shall be restored to their former positions
and rights hereunder with respect to the Trust Property subject to the lien
hereof.
Section 18.21. WAIVER OF STATUTE OF LIMITATIONS. The pleadings of
any statute of limitations as a defense to any and all obligations secured by
this Deed of Trust are hereby waived to the full extent permitted by Legal
Requirements.
Section 18.22. ADVANCES. This Deed of Trust shall cover any and all
advances made pursuant to the Loan Documents, rearrangements and renewals of the
Debt and all extensions in the time of payment thereof, even though such
advances, extensions or renewals be evidenced by new promissory notes or other
instruments hereafter executed and irrespective of whether filed or recorded.
Likewise, the execution of this Deed of Trust shall not impair or affect any
other security which may be given to secure the payment of the Debt, and all
such additional security shall be considered as cumulative. The taking of
additional security, execution of partial releases of the security, or any
extension of time of payment of the Debt shall not diminish the force, effect or
lien of this Deed of Trust and shall not affect or impair the liability of
Grantor and shall not affect or impair the liability of any maker, surety, or
endorser for the payment of the Debt.
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Section 18.23. APPLICATION OF DEFAULT RATE NOT A WAIVER. Application
of the Default Rate shall not be deemed to constitute a waiver of any Default or
Event of Default or any rights or remedies of Beneficiary under this Deed of
Trust, any other Loan Document or applicable Legal Requirements, or a consent to
any extension of time for the payment or performance of any obligation with
respect to which the Default Rate may be invoked.
Section 18.24. INTERVENING LIEN. To the fullest extent permitted by
law, any agreement hereafter made pursuant to this Deed of Trust shall be
superior to the rights of the holder of any intervening lien.
Section 18.25. NO JOINT VENTURE OR PARTNERSHIP. Grantor and
Beneficiary intend that the relationship created hereunder be solely that of
grantor and beneficiary or borrower and lender, as the case may be. Nothing
herein is intended to create a joint venture, partnership, tenancy-in-common, or
joint tenancy relationship between Grantor and Beneficiary nor to grant
Beneficiary any interest in the Trust Property other than that of beneficiary or
lender.
Section 18.26. TIME OF THE ESSENCE. Time shall be of the essence in
the performance of all obligations of Grantor hereunder.
Section 18.27. GRANTOR'S OBLIGATIONS ABSOLUTE. Grantor acknowledges
that Beneficiary and/or certain Affiliates of Beneficiary are engaged in the
business of financing, owning, operating, leasing, managing, and brokering real
estate and in other business ventures which may be viewed as adverse to or
competitive with the business, prospect, profits, operations or condition
(financial or otherwise) of Grantor. Except as set forth to the contrary in the
Loan Documents, all sums payable by Grantor hereunder shall be paid without
notice or demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Grantor hereunder, subject to Section 18.32 hereof, shall in
no way be released, discharged, or otherwise affected (except as expressly
provided herein) by reason of: (a) any damage to or destruction of or any
Taking of the Trust Property or any portion thereof or any other Cross-
collateralized Property; (b) any restriction or prevention of or
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interference with any use of the Trust Property or any portion thereof or any
other Cross-collateralized Property; (c) any title defect or encumbrance or
any eviction from the Premises or any portion thereof by title paramount or
otherwise; (d) any bankruptcy proceeding relating to Grantor, any General
Partner, or any guarantor or indemnitor, or any action taken with respect to
this Deed of Trust or any other Loan Document by any trustee or receiver of
Grantor or any such General Partner, guarantor or indemnitor, or by any
court, in any such proceeding; (e) any claim which Grantor has or might have
against Beneficiary; (f) any default or failure on the part of Beneficiary to
perform or comply with any of the terms hereof or of any other agreement with
Grantor; or (g) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing, whether or not Grantor shall have notice or
knowledge of any of the foregoing.
Section 18.28. PUBLICITY. All promotional news releases, publicity
or advertising by Operator, Grantor or their respective Affiliates through any
media intended to reach the general public shall not refer to the Loan Documents
or the financing evidenced by the Loan Documents, or to Beneficiary or to Credit
Suisse First Boston Corporation ("CSFB") without the prior written approval of
Beneficiary or CSFB, as applicable, in each instance, such approval not to be
unreasonably withheld or delayed. Beneficiary shall be authorized to provide
information relating to the Trust Property, the Loan and matters relating
thereto to rating agencies, underwriters, potential securities investors,
auditors, regulatory authorities and to any Persons which may be entitled to
such information by operation of law.
Section 18.29. SECURITIZATION OPINIONS. In the event the Loan is
included as an asset of a securitization by Beneficiary or any of its
Affiliates, Grantor shall, within ten (10) Business Days after Beneficiary's
written request therefor, at Grantor's sole cost and expense, deliver opinions
in form and substance and delivered by counsel reasonably acceptable to
Beneficiary and the Rating Agency, as may be reasonably required by Beneficiary
and/or the Rating Agency in connection with such securitization. Grantor's
failure to deliver the opinions required hereby within such ten (10) Business
Day period shall constitute an "Event of Default" hereunder.
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Section 18.30. COOPERATION WITH RATING AGENCIES. Grantor covenants
and agrees that in the event the Loan is included as an asset of a
Securitization, Grantor shall (a) gather any environmental information
reasonably required by the Rating Agency in connection with such a
Securitization, (b) at Beneficiary's request, meet with representatives of the
Rating Agency to discuss the business and operations of the Trust Property, and
(c) cooperate with the reasonable requests of the Rating Agency and Beneficiary
in connection with all of the foregoing and the preparation of any offering
documents with respect thereof.
Section 18.31. SECURITIZATION FINANCIALS. Grantor covenants and
agrees that, upon Beneficiary's written request therefor in connection with a
Securitization in which the Loan is to be included as an asset, Grantor shall,
at Grantor's sole cost and expense, promptly deliver audited financial
statements and related documentation prepared by an Independent certified public
accountant that satisfy securities laws and requirements for use in a public
registration statement (which may include up to three (3) years of historical
audited financial statements).
Section 18.32. EXCULPATION. Notwithstanding anything herein or in
any other Loan Document to the contrary, Beneficiary shall not enforce the
liability and obligation of Grantor or (a) if Grantor is a partnership, its
constituent partners or any of their respective partners, (b) if Grantor is a
trust, its beneficiaries or any of their respective Partners (as hereinafter
defined), (c) if Grantor is a corporation, any of its shareholders, directors,
principals, officers or employees, or (d) if Grantor is a limited liability
company, any of its members (the Persons described in the foregoing clauses (a)-
(d), as the case may be, are hereinafter referred to as the "PARTNERS") to
perform and observe the obligations contained in this Deed of Trust or any of
the other Loan Documents by any action or proceeding wherein a money judgment
shall be sought against Grantor or the Partners, except that Beneficiary may
bring a foreclosure action, action for specific performance, or other
appropriate action or proceeding (including, without limitation, an action to
obtain a deficiency judgment) solely for the purpose of enabling Beneficiary to
realize upon (i) Grantor's interest in the Trust Property, (ii) the Rent to the
extent (x) received by Grantor (or actually received by its Partners) after the
occurr-
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ence of an Event of Default, or (y) distributed to Grantor (or its
Partners, but only to the extent received by its Partners) during or with
respect to any period for which Beneficiary did not receive a Operator
Certification accurate in all material respects confirming and certifying that
all Operating Expenses with respect to the Trust Property which had accrued as
of the applicable date of such Operator Certification had been paid (or if same
had not been paid, that Operator had taken adequate reserves therefor) (all Rent
covered by clauses (x) and (y) being hereinafter referred to as the "RECOURSE
DISTRIBUTIONS") and (iii) any other collateral given to Beneficiary under the
Loan Documents (collectively, the "DEFAULT COLLATERAL"); PROVIDED, HOWEVER, that
any judgment in any such action or proceeding shall be enforceable against
Grantor and the Partners only to the extent of any such Default Collateral. The
provisions of this Section shall not, however, (a) impair the validity of the
Debt evidenced by the Note or in any way affect or impair the lien of this Deed
of Trust or any of the other Loan Documents or the right of Beneficiary to
foreclose this Deed of Trust following the occurrence of an Event of Default;
(b) impair the right of Beneficiary to name Grantor as a party defendant in any
action or suit for judicial foreclosure and sale under this Deed of Trust; (c)
affect the validity or enforceability of the Note, this Deed of Trust, or any of
the other Loan Documents, or impair the right of Beneficiary to seek a personal
judgment against the Guarantor; (d) impair the right of Beneficiary to obtain
the appointment of a receiver; (e) impair the enforcement of the Assignment; (f)
impair the right of Beneficiary to bring suit for a monetary judgement with
respect to fraud or intentional misrepresentation by Grantor, or any other
Person in connection with this Deed of Trust, the Note or the other Loan
Documents, and the foregoing provisions shall not modify, diminish or discharge
the liability of Grantor or the Partners with respect to same; (g) impair the
right of Beneficiary to bring suit for a monetary judgment to obtain the
Recourse Distributions received by Grantor including, without limitation, the
right to bring suit for a monetary judgement to proceed against any Partner, to
the extent of any such Recourse Distributions theretofore distributed to and
received by such Partner, and the foregoing provisions shall not modify,
diminish or discharge the liability of Grantor or the Partners with respect to
same; (h) impair the right of Beneficiary to bring suit for a monetary judgment
with respect to Grantor's misappropriation of tenant security deposits or Rent
collected in
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advance, and the foregoing provisions shall not modify, diminish or discharge
the liability of Grantor or the Partners with respect to same; (i) impair the
right of Beneficiary to obtain Loss Proceeds due to Beneficiary pursuant to
this Deed of Trust; (j) impair the right of Beneficiary to enforce the
provisions of Sections 12.01, 16.01 or 16.02, inclusive of this Deed of
Trust, even after repayment in full by Grantor of the Debt or to bring suit
for a monetary judgment with respect to any obligation set forth in said
Sections; (k) prevent or in any way hinder Beneficiary from exercising, or
constitute a defense, or counterclaim, or other basis for relief in respect
of the exercise of, any other remedy against any or all of the collateral
securing the Note as provided in the Loan Documents; (l) impair the right of
Beneficiary to bring suit for a monetary judgment with respect to any
misapplication or conversion of Loss Proceeds, and the foregoing provisions
shall not modify, diminish or discharge the liability of Grantor or the
Partners with respect to same; (m) impair the right of Beneficiary to sue
for, seek or demand a deficiency judgment against Grantor solely for the
purpose of foreclosing the Trust Property or any part thereof, or realizing
upon the Default Collateral; PROVIDED, HOWEVER, that any such deficiency
judgment referred to in this clause (m) shall be enforceable against Grantor
and the Partners (but only to the extent distributed to and actually received
by such Partner) only to the extent of any of the Default Collateral; (n)
impair the ability of Beneficiary to bring suit for a monetary judgment with
respect to intentional damage to or waste of the Trust Property; (o) impair
the right of Beneficiary to bring a suit for a monetary judgment in the event
of the exercise of any right or remedy under any federal, state or local
forfeiture laws resulting in the loss of the lien of this Deed of Trust, or
the priority thereof, against the Trust Property; (p) be deemed a waiver of
any right which Beneficiary may have under Sections 5.06(a), 5.06(b), 1111(b)
or any other provision of the Bankruptcy Code to file a claim for the full
amount of the Debt or to require that all collateral shall continue to secure
all of the Debt; (q) impair the right of Beneficiary to bring suit for
monetary judgment with respect to any losses resulting from any claims,
actions or proceedings initiated by Grantor (or any Affiliate of Grantor)
alleging that the relationship of Grantor and Beneficiary is that of joint
ventures, partners, tenants in common, joint tenants or any relationship
other than that of debtor and creditor; or (r) impair the right or
Beneficiary to
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bring suit for a monetary judgment in the event of a Transfer in violation of
the provisions of Article IX hereof. The provisions of this Section 18.32
shall be inapplicable to Grantor if any proceeding, action, petition or
filing under the Bankruptcy Code, or any similar state or federal law now or
hereafter in effect relating to bankruptcy, reorganization or insolvency, or
the arrangement or adjustment of debts, shall be filed by, consented to or
acquiesced in by or with respect to Grantor, or if Grantor shall institute
any proceeding for its dissolution or liquidation, or shall make an
assignment for the benefit of creditors, in which event Beneficiary shall
have recourse against all of the assets of Grantor including, without
limitation, any right, title and interest of Grantor in and to the Trust
Property, any partnership interests in Grantor and any Recourse Distributions
received by the Partners of Grantor (but excluding the other assets of such
Partners to the extent Beneficiary would not have had recourse thereto other
than in accordance with the provisions of this Section 18.32).
Section 18.33. CONCERNING THE DEED TRUSTEE. Deed Trustee shall be
under no duty to take any action hereunder except as expressly required
hereunder or by law, or to perform any act which would involve Deed Trustee in
any expense or liability or to institute or defend any suit in respect hereof,
unless properly indemnified to Deed Trustee's reasonable satisfaction. Deed
Trustee, by acceptance of this Deed of Trust, covenants to perform and fulfill
the trust herein created, being liable, however, only for willful negligence or
misconduct, and hereby waives any statutory fee and agrees to accept reasonable
compensation, in lieu thereof, for any services rendered by Deed Grantor in
accordance with the terms hereof. Deed trustee may resign at any time upon
giving thirty (30) days' notice to Grantor and to Beneficiary. Beneficiary may
remove Trustee at any time or form time to time and select a successor trustee.
In the event of the death, removal, resignation, refusal to act, or inability to
act of Deed Trustee, or in its sole discretion for any reason whatsoever
Beneficiary may, without notice and without specifying any reasons therefor and
without applying to any court, select and appoint a successor trustee, by an
instrument recorded wherever this Deed of Trust is recorded, and all powers,
rights, duties and authority of Deed Trustee, as aforesaid, shall thereupon
become vested in such successor. Such substitute trustee shall not be required
to give bond for the faithful
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performance of the duties of Deed Trustee hereunder unless required by
Beneficiary. The procedure provided for in this paragraph for substitution
of Deed Trustee shall be in addition to and not in exclusion of any other
provisions for substitution, by law or otherwise.
Section 18.34. DEED TRUSTEE'S FEES. Grantor shall pay all costs,
fees and expenses incurred by Deed Trustee and Deed Trustee's agent and counsel
in connection with the performance by Deed Trustee of Deed Trustee's duties
hereunder, and all such costs, fees and expenses shall be secured by this Deed
of Trust.
Section 18.35. INTENTIONALLY DELETED.
Section 18.36. CERTAIN MATTERS RELATING TO TRUST PROPERTY LOCATED IN
THE STATES OF CALIFORNIA AND ARIZONA
With respect to the Trust Property which is located in the States of
California and Arizona, notwithstanding anything contained herein to the
contrary:
(a) CONCERNING THE DEED TRUSTEE. (i) Should Beneficiary elect
to foreclose by exercise of the power of sale herein contained, Beneficiary
shall notify Deed Trustee and Deed Trustee shall institute a proceeding or
proceedings, by advertisement, judicial process or otherwise, as provided under
applicable law, for the complete or partial foreclosure of this Deed of Trust or
the complete or partial sale of the Trust Property under the power of sale
hereunder or under any applicable provision of law. To the extent permitted by
applicable law, any sale may be adjourned by announcement at the time and place
appointed for such sale without further notice except as may be required by law.
After each sale, Deed Trustee shall make to the purchaser or purchasers at such
sale good and sufficient conveyances in the name of Grantor, conveying the Trust
Property so sold to the purchaser or purchasers with general warranty of title
by Grantor, subject to the Permitted Exceptions and to such Leases and other
matters, if any, as Deed Trustee may elect upon request of Beneficiary, and
shall receive the proceeds of said sale or sales and apply the same as herein
provided. Payment of the purchase price to the Deed Trustee shall satisfy the
obligation of the purchaser at such sale therefor, and such purchaser shall not
be responsible for the
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application thereof. Deed Trustee is specifically empowered to sell or offer
for sale the Trust Property in such portions, order and parcels as
Beneficiary may request. The power of sale granted herein shall not be
exhausted by any sale held hereunder by Deed Trustee or its substitute or
successor, and such power of sale may be exercised from time to time and as
many times as Beneficiary may deem necessary until all of the Trust Property
has been duly sold and all Debt has been fully paid. In the event any sale
hereunder is not completed or is defective in the opinion of Beneficiary,
such sale shall not exhaust the power of sale hereunder and Beneficiary shall
have the right to cause a subsequent sale or sales to be made hereunder.
(ii) Beneficiary may, by following the procedures and satisfying
the requirements prescribed by applicable law, request Deed Trustee to foreclose
on only a portion of the Trust Property and, in such event, said foreclosure
shall not affect the lien of this Deed of Trust on the remaining portion of the
Trust Property not foreclosed. The sale by Deed Trustee of less than the whole
of the Trust Property shall not exhaust the power of sale herein granted, and
Deed Trustee is specifically empowered to make successive sale or sales under
such power until the whole of the Trust Property shall be sold. If the proceeds
of such sale of less than the whole of the Trust Property shall be less than the
aggregate of the Debt secured hereby and the expense of executing this trust as
provided herein, this Deed of Trust and the lien hereof shall remain in full
force and effect as to the unsold portion of the Trust Property just as though
no sale had been made, provided that Grantor shall never have the right to
require the sale of less than the whole of the Trust Property but Beneficiary
shall have the right, at its sole election, to request Deed Trustee to sell less
than the whole of the Trust Property.
(iii) Deed Trustee may, after any request or direction of
Beneficiary, sell not only the real property but also the personal property and
other interests which are a part of the Trust Property, or any part thereof, as
a unit and as a part of a single sale, or may sell any part of the Trust
Property separately from the remainder of the Trust Property.
(iv) Any and all statements of fact or other recitals made in
any deed or deeds given by Deed Trustee or any successor or
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substitute appointed hereunder as to nonpayment of the secured Debt or as to
the occurrence of any default, or as to Beneficiary having declared all of
the secured Debt to be due and payable, or as to the request to sell, or as
to notice of time, place and terms of sale and the properties to be sold
having been duly given, or as to the refusal, failure or inability to act of
Deed Trustee or any successor or substitute appointed hereunder, or as to the
appointment of any successor or substitute trustee, or as to any other act or
thing having been duly done by Beneficiary or by such Deed Trustee,
substitute or successor, shall be taken as prima facia evidence of the truth
of the facts so stated and recited.
(v) Deed Trustee or its successor or substitute may appoint or
delegate any one or more persons as agent to perform any act or acts necessary
or incident to any sale held by Deed Trustee, including the posting of notices
and the conduct of sale, but in the name and on behalf of Deed Trustee, its
successor or substitute. If Deed Trustee or his successor or substitute shall
have given notice of sale hereunder, any successor or substitute trustee
thereafter appointed may complete the sale and the conveyance of the Trust
Property pursuant thereto as if such notice had been given by the successor or
substitute trustee conducting the sale.
(vi) At the option of Beneficiary, this instrument shall be
effective as a mortgage as well as a deed of trust and upon the occurrence of an
event of default may be foreclosed as to any of the Trust Property in any manner
permitted by the laws of the states in which any part of the Trust Property is
situated, and any foreclosure suit may be brought by Deed Trustee or by
Beneficiary. To the extent, if any, required to cause this instrument to be so
effective as a mortgage as well as a deed of trust, Grantor hereby mortgages the
Trust Property to Beneficiary. In the event a foreclosure hereunder shall be
commenced by Deed Trustee, or its substitute or successor, Beneficiary may at
any time before the sale of the Trust Property direct Deed Trustee to abandon
the sale, and may then institute suit for the collection of the Note and the
other secured indebtedness and for the foreclosure of this Deed of Trust. It is
agreed that if Beneficiary should institute a suit for the collection of the
Note or any other secured indebtedness and for the foreclosure of this Deed of
Trust, Beneficiary may at any
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time before the entry of a final judgment in said suit dismiss the same and
require Deed Trustee, its substitute or successor, to sell the Trust Property
in accordance with the provisions of this Deed of Trust.
(vii) Beneficiary shall have the right to become the purchaser
at any sale held by Deed Trustee or its substitute or successor or by a receiver
or public officer or at public sale, and shall have the right to credit upon the
amount of the bid made therefor, to the extent necessary to satisfy such bid,
the secured indebtedness owing to Beneficiary.
(viii) Beneficiary shall have the right to proceed with
foreclosure (judicial or non-judicial) of the liens and security interests
hereunder without declaring the entire secured Debt due, and in such event any
such foreclosure sale may be made subject to the unmatured part of the secured
Debt. Any such sale shall not in any manner affect the unmatured part of the
secured Debt, but as to such unmatured part this Deed of Trust shall remain in
full force and effect as though no sale had been made. The proceeds of such
sale shall be applied as provided in Section 13.02, except that the amount paid
under Section 13.02(b) shall be only the matured portion of the secured Debt and
any proceeds of such sale in excess of those provided for in the first through
third paragraphs of Section 13.02 (modified as provided above) shall be applied
to the prepayment of any other secured Debt in such manner and order and to such
extent as Beneficiary deems advisable; the remainder, if any, shall be applied
as provided in Section 13.02(b) hereof. Several sales may be made hereunder
without exhausting the right of sale for any unmatured part of the secured
indebtedness.
(b) ACCEPTANCE BY DEED TRUSTEE. Deed Trustee accepts this trust
when this Deed of Trust, duly executed and acknowledged, is made a public record
as provided by law. Deed Trustee is not obligated to notify any party hereto of
pending sale under any other deed of trust or of any action or proceeding in
which Grantor, Beneficiary or Deed Trustee shall be a party unless brought by
Deed Trustee.
(c) RIGHTS AND DUTIES. It shall be no part of the duty of Deed
Trustee to see to any recording, filing or registration of this Deed of Trust or
any other instrument in
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addition or supplemental hereto, or to give any notice thereof, or to see to
the payment of or be under any duty in respect of any tax or assessment or
other governmental charge which may be levied or assessed on the Trust
Property, or any part thereof, or against Deed Trustee, or to see to the
performance or observance by Deed Trustee of any of the covenants and
agreements contained herein. Deed Trustee shall not be responsible for the
execution, acknowledgement or validity of this Deed of Trust or of any
instrument in addition or supplemental hereto or for the sufficiency of the
security purported to be created hereby, and makes no representation in
respect thereof or in respect of the rights of Beneficiary. Deed Trustee
shall have the right to advice of counsel upon any matters arising hereunder
and shall be fully protected in relaying as to legal matters on the advice of
counsel. Deed Trustee shall not incur any personal liability hereunder
except for its own gross negligence or willful misconduct and Deed Trustee
shall have the right to rely on any instrument, document or signature
authorizing or supporting any action taken or proposed to be taken by Deed
Trustee hereunder and believed by Deed Trustee in good faith to be genuine.
(d) SUBROGATION TO EXISTING LIENS; VENDOR'S LIEN. To the extent
that proceeds of the Note are used to pay Debt secured by any outstanding lien,
security interest, charge or prior encumbrance against the Trust Property, such
proceeds have been advanced by Beneficiary at Deed Trustee's request, and
Beneficiary shall be subrogated to any and all rights, security interests and
liens owned by any owner or holder of such outstanding liens, security
interests, charges or encumbrances, however remote, irrespective of whether said
liens, security interests, charges or encumbrances are released, and all of the
same are recognized as valid and subsisting and are renewed and continued and
merged herein to secured the Debt, but the terms and provisions of this Deed of
Trust shall govern and control the manner and terms of enforcement of the liens,
security interests, charges and encumbrances to which Beneficiary is subrogated
hereunder. It is expressly understood that, in consideration of the payment of
such indebtedness by Beneficiary, Grantor hereby waives and releases all demands
and causes of action for offsets and payments in connection with the said
indebtedness. If all or any portion of the proceeds of the loan evidenced by
the Note or of any other secured indebtedness has been advanced for the purpose
of paying the purchase price for all or a part of the
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Trust Property, no vendor's lien is waived; and Beneficiary shall have, and
is hereby granted, a vendor's lien on the Trust Property as cumulative
additional security for the secured indebtedness. Beneficiary may foreclose
under this Deed of Trust or under the vendor's lien without waiving the other
or may foreclose under both.
(e) SUBSTITUTE DEED TRUSTEE. Deed Trustee may resign by an
instrument in writing addressed to Beneficiary, or Deed Trustee may be removed
at any time with or without cause by an instrument in writing executed by
Beneficiary. In case of the death, resignation, removal or disqualification of
Deed Trustee, or if for any reason Beneficiary shall deem it desirable to
appoint a substitute or successor trustee to act instead of the herein named
trustee or any substitute or successor trustee, then Beneficiary shall have the
right and is hereby authorized and empowered to appoint a successor trustee, or
a substitute trustee, without other formality than appointment and designation
in writing executed by Beneficiary, and the authority hereby conferred shall
extend to the appointment of other successor and substitute trustees
successively until the Debt secured hereby has been paid in full, or until the
Trust Property is fully and finally sold hereunder. In the event that the Debt
is owned by more than one person or entity, the holder or holders of not less
than a majority in amount of such indebtedness shall have the right and
authority to make the appointment of a successor or substitute trustee as
provided for in the preceding sentence or to remove Deed Trustee as provided in
the first sentence of this Section. Such appointment and designation by
Beneficiary, or by the holder or holders of not less than a majority of the Debt
secured hereby, shall be full evidence of the right and authority to make the
same and of all facts therein recited. If Beneficiary is a corporation or
association or trust and such appointment is executed in its behalf by an
officer or trustee of such corporation or association or trust, such appointment
shall be conclusively presumed to be executed with authority and shall be valid
and sufficient without proof of any action by the board of directors or any
superior officer of the corporation or association or trust. Upon the making of
any such appointment and designation, all of the estate and title of Deed
Trustee in the Trust Property shall vest in the named successor or substitute
trustee, and it shall thereupon succeed to and shall hold, possess and execute,
all of the rights, powers, privileges,
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immunities and duties herein conferred upon Deed Trustee; but, nevertheless,
upon the written request of Beneficiary or of the successor or substitute
trustee, the trustee ceasing to act shall execute and deliver an instrument
transferring to such successor or substitute trustee all of the estate and
title in the Trust Property of the trustee so ceasing to act, together with
all the rights, powers, privileges, immunities and duties herein conferred
upon the Deed Trustee, and shall duly assign, transfer and deliver any of the
properties and moneys held by said trustee hereunder to said successor or
substitute trustee. All references herein to "Deed Trustee" shall be deemed
to refer to Deed Trustee (including any successor substitute appointed and
designated as herein provided) from time to time acting hereunder.
(f) NO LIABILITY OF DEED TRUSTEE. DEED TRUSTEE SHALL NOT BE
LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY Deed Trustee IN GOOD FAITH, OR
BE OTHERWISE RESPONSIBLE OR ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER
(INCLUDING DEED TRUSTEE'S NEGLIGENCE), EXCEPT FOR DEED TRUSTEE'S GROSS
NEGLIGENCE OR MISCONDUCT. Deed Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by it hereunder, believed by it in good faith to be
genuine. All moneys received by Deed Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated in any manner from any other moneys (except to the
extent required by law), and Deed Trustee shall be under no liability for
interest on any moneys received by it hereunder. Deed Trustee hereby ratifies
and confirms any and all acts which the herein-named Deed Trustee or its
successor or successors, substitute or substitutes, in this trust, shall do
lawfully by virtue hereof.
Section 18.37. INTENTIONALLY DELETED.
Section 18.38. CERTAIN MATTERS RELATING TO TRUST PROPERTY IN THE STATE
OF MISSOURI.
With respect to the Trust Property which is located in the State of
Missouri, notwithstanding anything contained herein to the contrary:
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(a) Upon the occurrence of an Event of Default, Deed Trustee at
any time, at Deed Trustee's option, may commence and maintain suit in any court
of competent jurisdiction and obtain the aid and direction of said court in the
execution by the Deed Trustee of the trusts or any of them, herein expressed or
contained, and, in such suit, may obtain the orders or decrees, interlocutory or
final of said court directing the execution of said trusts, and confirming and
approving Deed Trustee's acts, or any of them, or any sales of conveyances made
by Deed Trustee, and adjudging the validity thereof, and directing that the
purchasers of the Trust Property sold and conveyed be let into immediate
possession thereof, and providing for orders of court or other process requiring
the Sheriff of the county in which said Trust Property is situated to place and
maintain said purchasers in quiet and peaceable possession of the property so
purchased by them, and the whole thereof.
(b) Deed Trustee hereby lets the Trust Property to Grantor and
assigns until this Deed of Trust is released and satisfied or until the
occurrence of an Event of Default, on the following terms: Grantor and all
persons claiming or possessing the Trust Property or any part thereof shall pay
rent therefore during the term at one cent (1 CENT) per month payable upon
demand, and shall and will surrender peaceful possession of the Trust Property,
and every party thereof, to Deed Trustee immediately on the occurrence of an
Event of Default and without notice or demand therefore, and thereupon Deed
Trustee shall be entitled to the rents, revenues, incomes and profits therefrom
as hereinabove provided; provided nothing in this Deed of Trust shall be
construed to prevent Beneficiary from having and taking every legal means to
enforce payment of the Note, and each installment thereof, without having first
enforced this Deed of Trust; provided that if Grantor shall well and truly pay
or cause to be paid to Beneficiary, the Note, and perform all and singular the
several covenants and agreements herein set forth, and if the amounts expended
as aforesaid shall be repaid on demand as aforesaid, then this trust shall cease
and be void and the property hereinbefore conveyed shall be released at the cost
of the Grantor.
(c) The Beneficiary may from time to time, substitute a
successor or successors to any Deed Trustee named herein acting hereunder to
execute this Deed of Trust. Upon such appointment
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and without conveyance to the successor trustee, the latter shall be vested
with all title, powers and duties conferred upon Deed Trustee herein named or
acting hereunder. Each such appointment and substitution shall be made by
written instrument given by Beneficiary, containing reference to this Deed of
Trust, and its place of record, which when recorded in the office of the
county or counties in which the property is situated, shall be conclusive
proof of proper appointment of the successor trustee.
Section 18.39. CERTAIN MATTERS RELATING TO TRUST PROPERTY LOCATED IN
THE STATE OF ARIZONA.
With respect to the Trust Property which is located in the State of
Arizona, notwithstanding anything contained herein to the contrary:
Without obtaining the prior written consent of Beneficiary, Grantor
shall not consent to, or vote in favor of, the inclusion of all or any part of
the Trust Property in any Community Facilities District formed pursuant to the
Community Facilities District Act, A.R.S. Section 48-701, ET SEQ., as amended
from time to time. Grantor shall immediately give notice to Beneficiary of any
notification or advice that Grantor may receive from any municipality or other
third party of any intent or proposal to include all or any part of the Trust
Property in a Community Facilities District. Beneficiary shall have the right
to file a written objection to the inclusion of all or any part of the Trust
Property in a Community Facilities District, either in its own name or in the
name of Grantor, and to appear at, and participate in, any hearing with respect
to the formation of any such district.
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IN WITNESS WHEREOF, Grantor has duly executed this Deed of Trust the
day and year first above written.
Grantor's Address HOST VENTURES, INC., Grantor
14800 Quorum Drive By:
Suite 510 ----------------------------------
Dallas, TX 75240 Name:
Title: [Corporate Officer]
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<PAGE>
EXHIBIT A
Legal Description
<PAGE>
EXHIBIT B
Initial Sub-Account Deposits
Initial Basic Carrying Costs Deposit: $
-----------
Initial Central Account Deposit: $
-----------
Initial Engineering Deposit
[125% OF THE ESTIMATED REPAIR COST]: $
-----------
Initial Recurring Replacement Installments: $
-----------
<PAGE>
EXHIBIT C ** TO BE MODIFIED BY CSFB **
Property:
---------------------------
Location:
---------------------------
Cash Flow Statement for Month of:____________ Year:
Current Year to
Month Date
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
REVENUE
Net Rental Revenue
Other Revenue
------------ ------------
Effective Gross Income
OPERATING EXPENSES
Common Area Maintenance
Payroll
Administration
Leasing
Service
Clean & Decorate
Utilities
Repairs & Maintenance
Taxes
Insurance
Management Fees
Other
------------ ------------
Total Operating Expenses ------------ ------------
Net Operating Income
RECURRING EXPENSES
To Include Expenses for: Carpet
Replacement, Appliance Replacement,
HVAC/Water Heater Replacement;
Miniblinds/Drapes/Ceiling Fans: ------------ ------------
<PAGE>
NON-RECURRING EXPENSES
To Include Capital Expenses for:
Playground, Major Signage,
Lawns/Trees/Shrubs, Paving/Parking, Roof
Replacement, Carpentry/Siding/Balconies,
Exterior Paint, Major Concrete/Sidewalks,
Foundations, Major Exterior, Boiler
Replacement, Major HVAC Replacement,
Plumbing Replace, Electrical Replace,
Other Major, Fire & Storm, Ins. Loss
Recovery:
Net Cash Flow ------------ ------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Certified By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Management Company:
----------------------------
<PAGE>
EXHIBIT D
Required Engineering Work
<PAGE>
EXHIBIT E
Re: [DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF
RENTS AND FIXTURE FILING] dated as of ________,
199_ by ____________ as Grantor, to
________________________ AS BENEFICIARY (THE "DEED
OF TRUST")
Gentlemen:
This certificate is delivered in accordance with Article V of the Deed
of Trust. All capitalized terms not defined herein shall have the meanings
described to them in the Deed of Trust.
To date, the funds deposited into the Central Account are not
sufficient to fund or pay, to the extent required to be funded or paid, the Debt
Service Payment Sub-Account, the Basic Carrying Costs Sub-Account, the Operation
and Maintenance Expense Sub-Account, and the Recurring Replacement Reserve Sub-
Account, and the Curtailment Reserve Sub-Account. The amount of the deficiency
is ___________ Dollars ($______), and such amount must be deposited into the
Central Account prior to the next Payment Date or an Event of Default will exist
under the Deed of Trust.
_________________________, Beneficiary
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT F
Cross-collateralized Properties
<PAGE>
EXHIBIT G
[BORROWER'S LETTERHEAD]
__________ __. 199_
[Credit Card Company]
Re: [$_________] Loan made by [Lender] to [Borrower]
Premises:
-------------------------------------
-------------------------------------
The undersigned hereby directs and authorizes
____________________ to deliver all sums payable to or on behalf of [Borrower]
or [Property Operator] by __________________ in connection with the [Property]
to the following account:
Account No.
------------------------
ABA No.
----------------------------
Account of [Lender]
------------------------------------
This letter and the direction and authorization contained herein
may not be amended, modified, revoked or superseded without the prior written
consent of [Lender] its successors or assigns in each instance.
Very truly yours,
[Borrower]
Acknowledged and Agreed to:
<PAGE>
[Credit Card Company]
By:
-----------------------
Name:
Title:
<PAGE>
EXHIBIT H
Existing Operating Lease
The Existing Operating Lease shall mean that certain Master Agreement
between Crosshost, Inc., Crossroads Hospitality Tenant Company, L.L.C. and
Crossroads Hospitality Company L.L.C. dated _______________, 1996 and the Lease
Agreement between Crosshost, Inc. and Crossroads Hospitality Tenant Company,
L.L.C dated _____________, 1996 with respect to the Trust Property, as assigned
to Grantor pursuant to that certain Assignment and Assumption Agreement dated
________ as amended from time to time.
<PAGE>
LEASE AGREEMENT
(SUPER 8, Flagstaff, Arizona)
between
HOST VENTURES, INC.
and
CROSSROADS HOSPITALITY TENANT COMPANY, L. L. C.
March 14th, 1997
<PAGE>
LEASE AGREEMENT
(SUPER 8, FLAGSTAFF, ARIZONA)
THIS LEASE AGREEMENT (hereinafter called this "Lease"), made as of the_____
day of March, 1997, by and between HOST VENTURES, INC., a Maryland corporation
(hereinafter called "Lessor") and CROSSROADS HOSPITALITY TENANT COMPANY,
L. L. C., a Delaware limited liability company (hereinafter called "Lessee"),
provides as follows.
WITNESSETH:
Lessor will hold and own clear and marketable title to a hotel commonly
known as the Super 8, Flagstaff, Arizona ("Leased Property", as more fully
described in Section 1.1 hereof).
NOW, THEREFORE, Lessor, in consideration of the payment of rent by Lessee
and the other covenants and agreements to be performed by Lessee, and upon the
terms and conditions hereinafter stated, does hereby rent and lease unto Lessee,
and Lessee does hereby rent and lease from Lessor, the Leased Property.
SECTION 1.
1.1 LEASED PROPERTY. The Leased Property is comprised of Lessor's
interest in the following:
1.1.1 the land described in Exhibit "A" attached hereto and by
reference incorporated herein (the "Land");
1.1.2 all buildings, structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and offsite), parking areas and
roadways appurtenant to such buildings and structures presently situated upon
the Land (collectively, the "Leased Improvements");
1.1.3 all easements, rights and appurtenances relating to the Land
and the Leased Improvements;
1.1.4 all equipment, machinery, fixtures, and other items of
property required or incidental to the use of the Leased Improvements as a
hotel, including all components thereof, now and hereafter permanently affixed
to or incorporated into the Leased Improvements, including, without limitation,
all furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which to the
greatest extent permitted by law are hereby deemed by the parties
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<PAGE>
hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto (collectively, the
"Fixtures"); and
1.1.5 all furniture and furnishings, Inventory and all other items
of personal property (excluding Inventory and other personal property owned by
Lessee) located on, and used in connection, with the operation of the Leased
Improvements as a hotel, together with all replacements, modifications,
alterations and additions thereto.
EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, THE LEASED PROPERTY IS DEMISED IN
ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY BY LESSOR AND SUBJECT
TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE
INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS
OF RECORD INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING
INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER
MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY
AN ACCURATE SURVEY THEREOF.
1.2 TERM.
(A) The term of the Lease (the "Term") shall commence (the "Commencement
Date") on the date of closing of that certain Agreement to Purchase Motel, as
from time to time amended, by and between Teachers' Retirement System of the
State of Illinois, as Seller, and Host Funding, Inc., a Maryland corporation,
and/or assigns, as Purchaser, and covering the sale to Lessor of the Leased
Property (said Agreement to Purchase Motel, as assigned by Host Funding, Inc. to
Lessor, herein called the "Contract of Purchase and Sale"), and shall end on the
fifteenth annual anniversary of the last day of the month in which the
Commencement Date occurs, unless sooner terminated in accordance with the
provisions hereof. Because of the lack of certainty of the actual date of the
Commencement Date, the Lessor shall provide to Lessee at least five (5) days
prior written notice of the Commencement Date.
(B) In addition to the other termination provisions contained in this
Lease, this Lease shall terminate if: (a) the Lessor shall have sold the
Leased Property to a third party that is not an Affiliate, (b) the Lessor shall
have provided to the Lessee Notice as set forth in Section 44 hereof of
termination, if the obligations of the Lessor shall not have been expressly
assumed by a purchaser approved by the Lessee and, the Lessor shall have paid
to the Lessee a lease cancellation fee (the " Lease Cancellation Fee") or
accrued but unpaid Negative Base Rent, as applicable all as more fully described
on EXHIBIT "B" attached hereto and made a part hereof.
SECTION 2 - DEFINITIONS.
For all purposes of this Lease, except as otherwise expressly provided or
unless the context otherwise requires, (a) the terms defined in this Section
have the meanings assigned to them in this
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<PAGE>
Section and include the plural as well as the singular, (b) all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles and the Uniform
System as are at the time applicable, all references in this Lease to
designated "Sections" and other subdivisions are to the designated Sections
and other subdivisions of this Lease, and (d) the words "herein", "hereof"
and "hereunder" and other words of similar import refer to this Lease as a
whole and not to any particular Section or other subdivision:
ADDITIONAL CHARGES: As defined in Section 3.5 of this Lease.
AFFILIATES: As used in this Lease the term "Affiliate" of a person shall
mean (a) any person that, directly or indirectly, controls or is controlled by
or is under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, five percent or more of the outstanding
capital stock, shares or equity interests of such person, or any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations,
general and limited partnerships, stock companies or associations, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts, or other entities and governments and agencies and political
subdivisions thereof. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership of voting securities,
partnership interests or other equity interests.
AWARD: As defined in Section 15.1.3 of this Lease.
BASE MANAGEMENT FEE: An amount equal to five percent (5%) of Gross
Revenues (as defined in the Uniform System) which shall be an imputed amount
retained by Lessee as a management fee and charged as a Gross Operating Expense
of the Hotel.
BASE RATE: The rate of interest announced publicly by Bank of America in
San Francisco, California from time to time, as such bank's base rate. If no
such rate is announced or becomes discontinued, then such other rate as Lessor
may reasonably designate.
BASE RENT: As defined in Section 3.1(A) of this Lease.
BREAK-EVEN THRESHOLD: Such amount of Gross Revenues for the Leased
Property as set forth on Exhibit E attached hereto and made a part hereof.
CAPITAL EXPENDITURE BUDGET: As defined in Section 40 of this Lease.
CAPITAL EXPENDITURE RESERVE ACCOUNT: As defined in Section 40 of this
Lease.
4
<PAGE>
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
CODE: The Internal Revenue Code of 1986, as amended.
COMMENCEMENT DATE: As defined in Section 1.2(A) of the Lease.
CONDEMNATION, CONDEMNOR: As defined in Section 15.1 of this Lease.
DATE OF TAKING: As defined in Section 15.1(2) of this Lease.
ENCUMBRANCE: As defined in Section 35.1 of this Lease.
ENVIRONMENTAL AUTHORITY: Any department, agency or other body or component
of any Government that exercises any form of jurisdiction or authority under any
Environmental Law.
ENVIRONMENTAL AUTHORIZATION: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
ENVIRONMENTAL LAWS: All applicable federal, state, local and foreign laws
and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include, but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
ENVIRONMENTAL LIABILITIES: Any and all obligations to pay the amount of
any judgment or settlement, the cost of complying with any settlement, judgment
or order for injunctive or other equitable relief, the cost of compliance or
corrective action in response to any notice, demand or request from an
Environmental Authority, the amount of any civil penalty or criminal fine, and
any court costs and reasonable amounts for attorneys' fees, fees for witnesses
and experts, and costs of investigation and preparation for defense of any claim
or any Proceeding, regardless of whether such Proceeding is threatened, pending
or completed, that may be or have been asserted against or imposed upon Lessor,
Lessee, any Predecessor, the Leased Property or any property used therein and
arising out of:
(a) Failure of Lessee, Lessor, any Predecessor or the Leased Property to
comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under, at or in any way
affecting the Leased Property;
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<PAGE>
(c) A Release at any time of any Hazardous Materials on, in, at, under in
any way affecting the Leased Property;
(d) Identification of Lessee, Lessor or any Predecessor as a potentially
responsible party under CERCLA or under any Environmental Law similar to CERCLA;
(e) Presence at any time of any above-ground and/or underground storage
tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or
under the Leased Property or any adjacent site or facility; or
(f) Any and all claims for injury or damage to persons or property arising
out of exposure to Hazardous Materials originating or located at the Leased
Property, or resulting from operation thereof or any adjoining property.
EVENT OF DEFAULT: As defined in Section 16.1 of this Lease.
FACILITY: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
FAIR MARKET RENTAL: The fair market rental of the Leased Property means
the rental which a willing tenant not compelled to rent would pay a willing
landlord not compelled to lease for the use and occupancy of such Leased
Property pursuant to the Lease for the term in question, (a) assuming that
Lessee is not in default thereunder, and (b) determined in accordance with the
appraisal procedures set forth in Section 34 or in such other manner as shall be
mutually acceptable to Lessor and Lessee.
FAIR MARKET VALUE: The fair market value of the Leased Property means an
amount equal to the price that a willing buyer not compelled to buy would pay a
willing seller not compelled to sell for such Leased Property, (a) assuming the
same is unencumbered by this Lease, (b) determined in accordance with the
appraisal procedures set forth in Section 34 or in such other manner as shall be
mutually acceptable to Lessor and Lessee, assuming that such seller must pay
customary closing costs and title premiums, and (d) taking into account the
positive or negative effect on the value of the Leased Property attributable to
the interest rate, amortization schedule, maturity date, prepayment penalty and
other terms and conditions of any encumbrance that is assumed by the transferee.
In addition, in determining the Fair Market Value with respect to damaged or
destroyed Leased Property, such value shall be determined as if such Leased
Property had not been so damaged or destroyed.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.
FINANCIALS: For any Fiscal Year or other accounting period for Lessee,
statements of earnings and retained earnings and of changes in financial
position for such period and for the period from the beginning of the respective
Fiscal Year to the end of such period and the related balance sheet
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<PAGE>
as at the end of such period, together with the notes thereto, all in
reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding Fiscal Year, and
prepared in accordance with generally accepted accounting principles and
audited by independent certified public accountants acceptable to Lessor in
its sole discretion.
FISCAL YEAR: The 12-month period from January 1 to December 31.
FIXTURES: As defined in Section 1.1.4 of this Lease.
FRANCHISE AGREEMENT: Any franchise agreement or license agreement with a
franchisor under which the Facility is operated.
FF&E: All furniture, fixtures, equipment, wall coverings, and hotel
systems located at, or used in connection with the Leased Property, together
with all replacements therefor and additions thereto, including, without
limitation, (i) all equipment and systems required for the operation of
kitchens and bars, if any, laundry and dry cleaning facilities, (ii) office
equipment, (iii) dining room wagons, materials handling equipment, cleaning
and engineering equipment, (iv) telephone and computerized accounting systems
and (v) vehicles.
GOVERNING STATE LAW: The laws of the State in which the Leased Property
is situated shall govern this Agreement.
GOVERNMENT: The United States of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any political subdivision
of any of the foregoing.
GROSS OPERATING EXPENSES: All expenses incurred in the ordinary course
of operating the Leased Property as defined in the Uniform System.
GROSS OPERATING PROFIT: The amount by which Gross Revenues exceeds Gross
Operating Expenses as such calculation is more fully described in the Uniform
System.
GROSS REVENUES: All receipts, revenues, income and proceeds of sales of
every kind received by Tenant directly or indirectly from the operation of
the Leased Property as more fully described in the Uniform System.
GROSS ROOM REVENUES: All revenues derived from the rental, sale, use or
occupancy of guest rooms or meeting rooms within the Leased Property,
including cash and credit transactions, but excluding sales taxes or other
taxes collected from guests, or in conjunction with the rental of guest rooms
or meeting rooms.
HAZARDOUS MATERIALS: All chemicals, pollutants, contaminants, wastes and
toxic substances, including without limitation:
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(a) Solid or hazardous waste, as defined in RCRA or in any Environmenta
Law;
(b) Hazardous substances, as defined in CERCLA or in any Environmental
Law;
(c) Toxic substances, as defined in TSCA or in any Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or in
any Environmental Law; and
(e) Gasoline or any other petroleum product or byproduct, polychlorinated
biphenols, asbestos and urea formaldehyde.
IMPOSITIONS: Collectively, all taxes (including, without limitation, all
ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property) assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof
provided that said improvements are completed within the Term and whether or
not to be completed within the Term), ground rents, water, sewer or other
rents and charges, excises, tax inspection, authorization and similar fees
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property or the business conducted thereon by Lessee,
(including all interest and penalties thereon caused by any failure in
payment by Lessee), which at any time prior to, during or with respect to the
Term hereof may be assessed or imposed on or with respect to or be a lien
upon (a) Lessor's interest in the Leased Property, (b) the Leased Property,
or any part thereof or any rent therefrom or any estate, right, title or
interest therein, or (c) any occupancy, operation, use or possession of, or
sales from, or activity conducted on or in connection with the Leased
Property, or the leasing or use of the Leased Property or any part thereof by
Lessee. Notwithstanding the foregoing or anything otherwise contained in this
definition of Impositions or elsewhere in this Lease shall be construed to
require Lessee to prepare tax returns or reports for, or pay (1) any tax
based on net income (whether denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other person, or (2) any net revenue tax
of Lessor or any other person, or (3) any tax imposed with respect to the
sale, exchange or other disposition by Lessor of any Leased Property or the
proceeds thereof, (4) any real estate or personal property taxes imposed upon
the Lessor's property including but not limited to the Leased Property or (5)
any single business, gross receipts (including any tax on any rent received
by Lessor from Lessee), transaction, privilege or similar taxes as the same
relate to or are imposed upon Lessor, except to the extent that any tax,
assessment, tax levy or charge that Lessee is obligated to pay pursuant to
the first sentence of this definition and that is in effect at any time
during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (1) or (2) is levied,
assessed or imposed expressly in lieu thereof.
INDEMNIFIED PARTY: Either a Lessee Indemnified Party or a Lessor
Indemnified Party.
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INDEMNIFYING PARTY: Any party obligated to indemnify an Indemnified Party
pursuant to Sections 8.3 or 23.1 of this Lease.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy.
INVENTORY: All "Inventories of Merchandise" and "Inventories of Supplies"
as defined in the Uniform System of Accounts for Hotels (8th Revised Edition,
1986) as published by the Hotel Association of New York City, Inc., as same may
hereafter be revised.
LAND: As defined in Section 1 of this Lease.
LEASE: This Lease.
LEASED IMPROVEMENTS: LEASED PROPERTY: Each as defined in Section 1 of this
Lease.
LEGAL REQUIREMENTS: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting either the Leased Property or
the maintenance, construction, use or alteration thereof (whether by Lessee
or otherwise), whether or not hereafter enacted and in force, including (a)
all laws, rules or regulations pertaining to the environment, occupational
health and safety and public health, safety or welfare, and (b) any laws,
rules or regulations that may (1) require repairs, modifications or
alterations in or to the Leased Property, or (2) in any way adversely affect
the use and enjoyment thereof; and all permits, licenses and authorizations
and regulations relating thereto and all covenants, agreements, restrictions
and encumbrances contained in any instruments, either of record or known to
Lessee (other than encumbrances created by Lessor without the consent of
Lessee), at any time in force affecting the Leased Property.
LESSEE: The Lessee designated on this Lease and its permitted successors
and assigns.
LESSEE INDEMNIFIED PARTY: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's
interest or partnership interest) in Lessee, the officers, directors,
stockholders, employees, agents and representatives of Lessee and any partner,
corporate stockholder, agent, or representative of Lessee, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, partner, stockholder, employee, agent or representative.
LESSOR: The Lessor designated on this Lease and its successors and
assigns.
LESSOR INDEMNIFIED PARTY: Lessor, any Affiliate of Lessor, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's or
partnership interest) in Lessor, the officers, directors,
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stockholders, employees, agents and representatives of the general partner of
Lessor and any partner, agent, or representative of Lessor, and the
respective heirs, personal representatives, successors and assigns of any
such officer, director, partner, stockholder, employee, agent or
representative.
MINIMUM PRICE: The sum of (a) the equity in the Leased Property at the
time of acquisition of the Leased Property by Lessor (i.e., that portion of the
acquisition price of the Leased Property paid by Lessor in cash and/or the
original exchange value of its common shares) as more fully described on Exhibit
I attached hereto and made a part hereof, plus (b) other capital expenditures on
the Leased Property by Lessor after the date hereof, plus the unpaid principal
balance of all encumbrances against the Leased Property at the time of purchase
of the Leased Property by Lessee, less (x) all proceeds received by Lessor from
any financing or refinancing of the Leased Property after the date hereof (after
payment of any debt refinanced and net of any costs and expenses incurred in
connection with such financing or refinancing, including, without limitation,
loan points, commitment fees and commissions and legal fees) and (y) the net
amount (after deduction of all reasonable legal fees and other costs and
expenses, including without limitation expert witness fees, incurred by Lessor
in connection with obtaining any such proceeds or award) of all insurance
proceeds received by Lessor and Awards received by Lessor from any Partial
Taking of the Leased Property that are not applied to restoration.
NEGATIVE BASE RENT. To the extent that at any time during the first four
(4) years after the Commencement Date the Property Cash Flow from the Leased
Property is less than the Base Rent, then Lessee will be allowed to accrue the
difference as Negative Base Rent. The Negative Base Rent shall be cumulative
but shall not bear interest.
NOTICE: A notice given pursuant to Section 33 of this Lease.
OFFICER'S CERTIFICATE: A certificate of Lessee signed by the chief
financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.
OVERDUE RATE: On any date, a rate equal to the Base Rate plus 2% per
annum, but in no event greater than the maximum rate then permitted under
applicable law.
PAYMENT DATE: Any due date for the payment of any installment of Rent.
PERCENTAGE RENT: As defined in Section 3.1(B) of this Lease.
PERSON: Any Government, natural person, corporation, partnership or other
legal entity.
PREDECESSOR: Any Person whose liabilities arising under any Environmental
Law have or may have been retained or assumed by Lessee, either contractually or
by operation of law, relating to the Leased Property.
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PRIMARY INTENDED USE: As defined in Section 7.2.2 of this Lease.
PROCEEDING: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
PROPERTY CASH FLOW: Gross Operating Profit less capital expenditures,
the amount of the imputed Base Management Fee and property insurance required
pursuant to Section 13 hereof.
RCRA: The Resource Conservation and Recovery Act, as amended.
REAL ESTATE TAXES: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land, and any improvements
thereon.
REJECTABLE OFFER PRICE: An amount equal to the greater of (a) the Fair
Market Value, determined as of the applicable purchase date, or (b) the Minimum
Price.
RELEASE: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
RENT: Collectively, the Base Rent, Percentage Rent, and Additional
Charges.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.
SECURITY DEPOSIT: As defined in Section 47 of this Lease.
STATE: The State or Commonwealth of the United States in which the Leased
Property is located.
TAKING: A taking or voluntary conveyance during the Term hereof of all or
part of the Leased Property, or any interest therein or right accruing thereto
or use thereof, as the result of, or in settlement of, any Condemnation or other
eminent domain proceeding affecting the Leased Property whether or NOT the same
shall have actually been commenced.
TERM: As defined in Section 1.2(A) of this Lease.
TSCA: The Toxic Substances Control Act, as amended.
UNECONOMIC FOR ITS PRIMARY INTENDED USE: A state or condition of the
Facility such that in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board
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of directors or other governing body of Lessee, the Facility cannot be
operated on a commercially practicable basis for its Primary Intended Use,
taking into account, among other relevant factors, the number of usable rooms
and projected revenues, such that Lessee intends to, and shall, complete the
cessation of operations from the Leased Facility.
UNIFORM SYSTEM: Shall mean the Uniform System of Accounts for Hotels (8th
Revised Edition, 1986) as published by the Hotel Association of New York City,
Inc., as same may hereafter be revised.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: A state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, due to casualty damage or loss through Condemnation, the
Facility cannot function as an integrated hotel facility consistent with
standards applicable to a well maintained and operated hotel.
SECTION 3.
3.1 RENT. Lessee will pay to Lessor in lawful money of the United States
of America which shall be legal tender for the payment of public and private
debts, in immediately available funds, at Lessor's address set forth in Section
33 hereof or at such other place or to such other Person, as Lessor from time to
time may designate in a Notice, all Base Rent, Percentage Rent and Additional
Charges, during the Term, as follows:
(A) BASE RENT: Beginning with March 31, 1997, in consecutive
monthly installments, on or before the last day of each calendar month of the
Term ("Base Rent") an amount corresponding to the amounts set forth on
EXHIBIT D attached hereto and made a part hereof, provided, however, that the
first and last monthly payments of Base Rent shall be pro-rated as to any
partial month (subject to adjustment as provided in Sections 5.2, 14.5, 15.3,
15.5, and 15.6). If required by any mortgagee of Lessor and at the request of
Lessor, Base Rent payments shall in a timely fashion be wired or mailed to an
account designated by any such mortgagee for such Base Rent payments.
(B) PERCENTAGE RENT: For each Fiscal Year during the Term (and
commencing with the second quarter of the Fiscal Year beginning January 1,
1997), Tenant shall pay percentage rent ("Percentage Rent")on a quarterly
basis within twenty (20) days after the end of each calendar quarter and in
an amount calculated in accordance with the formula set forth on EXHIBIT E
attached hereto and made a part hereof (and with the first such quarterly
Percentage Rent payment due within twenty (20) days after June 30, 1997). If
required by any mortgagee of Lessor and at the request of Lessor, Percentage
Rent payments shall in a timely fashion be wired or mailed to an account
designated by any such mortgagee for such Percentage Rent payments.
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(C) OFFICER'S CERTIFICATES: Additionally, an Officer's Certificate
shall be delivered to Lessor quarterly, together with such quarterly
Percentage Rent payment, setting forth the calculation of such rent payment
for such quarter within 20 days after each of the first three quarters of
each Fiscal Year (or part thereof) in the Term. Such quarterly payments
shall be based on the formula set forth on EXHIBIT E.
In addition, on or before March 31 of each year, commencing with March
31, 1998, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation of the actual Percentage
Rent that accrued for each quarter of the Fiscal Year that ended on the
immediately preceding December 31 and shall pay Percentage Rent to Lessor, if
due and payable, for the last quarter of the applicable Fiscal Year.
Additionally, if the annual Percentage Rent due and payable for any Fiscal
Year (as shown in the applicable Officer's Certificate) exceeds the amount
actually paid as Percentage Rent by Lessee for such year, Lessee also shall
pay such excess to Lessor at the time such certificate is delivered. If the
Percentage Rent actually due and payable for such Fiscal Year is shown by
such certificate to be less than the amount actually paid as Percentage Rent
for the applicable Fiscal Year, Lessor shall reimburse such amount to Lessee.
The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term, and a final reconciliation, taking into
account, among other relevant adjustments, any adjustments which are accrued
after such expiration or termination date but which related to Percentage
Rent accrued prior to such termination date, and Lessee's good faith best
estimate of the amount of any unresolved contractual allowances, shall be
made not later than two years after such expiration or termination date, but
Lessee shall advise Lessor within 60 days after such expiration or
termination date of Lessee's best estimate at that time of the approximate
amount of such adjustments, which estimate shall not be binding on Lessee or
have any legal effect whatsoever.
3.2 CONFIRMATION OF PERCENTAGE RENT. Lessee shall utilize, or cause to
be utilized, an accounting system for the Leased Property in accordance with
its usual and customary practices, and in accordance with generally accepted
accounting principles and the Uniform System, that will accurately record all
data necessary to compute Percentage Rent, and Lessee shall retain, for at
least four years after the expiration of each Fiscal Year (and in any event
until the reconciliation described in Section 3.1 for such Fiscal Year has
been made), reasonably adequate records conforming to such accounting system
showing all data necessary to compute Percentage Rent for the applicable
Fiscal Years. Lessor, at its expense (except as provided hereinbelow), shall
have the right from time to time by its accountants or representatives to
audit the information that formed the basis for the data set forth in any
Officer's Certificate provided under Section 3.1 and, in connection with such
audits, to examine all Lessee's records (including supporting data and sales
and excise tax returns) reasonably required to verify Percentage Rent,
subject to any prohibitions or limitations on disclosure of any such data
under Legal Requirements. If any such audit discloses a deficiency in the
payment of Percentage Rent, and either Lessee agrees with the result of such
audit or the matter is otherwise determined or compromised, Lessee shall
forthwith pay to Lessor the amount of the deficiency, as finally agreed or
determined. If any such audit discloses that the Percentage Rent actually
due from Lessee for any Fiscal Year exceed those reported by Lessee by more
than 10%,
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Lessee shall pay the cost of such audit and examination. Any proprietary
information obtained by Lessor pursuant to the provisions of this Section
shall be treated as confidential, except that such information may be used,
subject to appropriate confidentiality safeguards, in any litigation between
the parties and except further that Lessor may disclose such information to
prospective lenders for the Leased Property. The obligations of Lessee
contained in this Section shall survive the expiration or earlier termination
of this Lease.
3.3 ANNUAL BUDGET. The Lessee shall, on or before the Commencement Date,
submit the Annual Budget for 1997 (or the remainder thereof) to the Lessor for
Lessor's approval within thirty (30) days of its receipt of such Annual Budget.
For all Fiscal Years thereafter, not later than October 31 of each Fiscal Year,
Lessee shall submit the Annual Budget for the next fiscal year to Lessor for
Lessor's approval. The Annual Budget for 1997 and all Fiscal Years thereafter
shall by month and quarter contain the following:
(a) Lessee's reasonable estimate of Gross Revenues (including room
rates), Gross Operating Expenses, and Gross Operating Profits for the
forthcoming Fiscal Year itemized on schedules prepared by Lessee, as same may be
revised or replaced from time to time by Lessee and approved by Lessor, together
with the assumptions, in narrative form, forming the basis of such schedules.
(b) The Capital Expenditure Budget described in Section 40 hereof.
(c) A cash flow projection.
(d) A narrative description of the program for advertising and
marketing the Leased Property for the forthcoming Fiscal Year containing a
detailed budget itemization of the proposed advertising expenditures by category
and the assumptions, in narrative form forming the basis of such budget
itemization.
Notwithstanding the foregoing, if Lessor and Lessee are unable to agree
upon the Annual Budget or any details thereof, the final Annual Budget shall be
determined by arbitration in accordance with the provisions of SECTION 43
hereof, it being understood that only those details, line items or portions of
the Annual Budget which are in dispute shall be the subject of such arbitration.
Pending the conclusion of any such arbitration proceeding, the Annual Budget for
all purposes under this Lease shall be the Annual Budget for the prior Fiscal
Year, modified by increasing the Lease expenses by a factor of ten percent
(10%). Lessor and Lessee agree that arbitration shall be the sole procedure for
resolving any dispute regarding the Annual Budget. Lessee shall diligently
pursue all feasible measures to enable the Leased Property to adhere to the
Annual Budget, provided, however, Lessor acknowledges and agrees that Lessee
will not be responsible for any variances from the Annual Budget.
3.4 BOOKS AND RECORDS. Lessee shall keep full and adequate books of
account and other records reflecting the results of operation of the Leased
Property (including those relating to
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Negative Base Rent) on an accrual basis, all in accordance with the Uniform
System and generally accepted accounting principles and the obligations of
Lessee under this Lease Agreement. The books of account and all other
records relating to or reflecting the operation of the Leased Property shall
be kept either at the Leased Property or at Lessee's offices in Orlando,
Florida and/or Pittsburgh, Pennsylvania and shall be available to Lessor and
its representatives and its auditors or accountants, at all reasonable times
for examination, audit, inspection, and transcription. All of such books and
records pertaining to the Leased Property including, without limitation,
books of account, guest records and front office records, at all times shall
be the property of Lessor and shall not be removed from the Leased Property
or Lessor's offices by Lessee without Lessor's Approval. For at least seven
(7) years after the termination of this Lease upon the prior written approval
of Lessor which shall not be unreasonably withheld or delayed, the Lessor
shall provide to Lessee access to all such books and records during
reasonable business hours and upon reasonable notice.
3.5 ADDITIONAL CHARGES. In addition to the Base Rent and Percentage
Rent, (a) Lessee also will pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions that Lessee agrees to
pay under this Lease, and (b) in the event of any failure on the part of
Lessee to pay any of those items referred to in clause (a) of this Section
3.5, Lessee also will promptly pay and discharge every fine, penalty,
interest and cost that may be added for non-payment or late payment of such
items (the items referred to in clauses (a) and (b) of this Section 3.5 being
additional rent hereunder and being referred to herein collectively as the
"Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Additional Charges as
in the case of non-payment of the Base Rent and Percentage Rent. Subject to
the other terms and conditions of this Lease, if any installment of Base
Rent, Percentage Rent or Additional Charges (but only as to those Additional
Charges that are payable directly to Lessor) shall not be paid on its due
date, Lessee will pay Lessor on demand, as Additional Charges, a late charge
(to the extent permitted by law) computed at the Overdue Rate on the amount
of such installment, from the due date of such installment to the date of
payment thereof. To the extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of
its obligation to pay such Additional Charges to the entity to which they
would otherwise be due and Lessor shall pay same from monies received from
Lessee.
3.6 NET LEASE PROVISION. Subject to the other provisions contained
within this Lease and the Lessee's express rights to abatement of Rent, the
Rent shall be paid absolutely net to Lessor, so that this Lease shall yield
to Lessor the full amount of the installments of Rent throughout the Term,
all as more fully set forth in Section 5, but subject to any other provisions
of this Lease that expressly provide for adjustment or abatement of Rent or
other charges or expressly provide that certain expenses or maintenance shall
be paid or performed by Lessor.
SECTION 4
4.1 PAYMENT OF IMPOSITIONS. Subject to Section 12 relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions (excluding
Real Estate Taxes and personal property
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taxes imposed upon the Leased Property and all of the Lessor's other
property) before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments.
Lessee's obligation to pay such Impositions shall be deemed absolutely fixed
upon the date such Impositions become a lien upon the Leased Property or any
part thereof. If any such Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee may exercise the option to pay the
same (and any accrued interest on the unpaid balance of such Imposition) in
installments and in such event, shall pay such installments during the Term
hereof (subject to Lessee's right of contest pursuant to the provisions of
Section 12) as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto. Lessor, at its
expense, shall, to the extent required or permitted by applicable law,
prepare and file all tax returns in respect of Lessor's net income, gross
receipts, sales and use, single business, transaction privilege, rent, ad
valorem, franchise taxes, Real Estate Taxes and taxes on its capital stock,
and Lessee, at its expense, shall, to the extent required or permitted by
applicable laws and regulations, prepare and file all other tax returns and
reports in respect of any Imposition as may be required by governmental
authorities and pay all amounts due pursuant to such filings and reports. If
any refund shall be due from any taxing authority in respect of any
Imposition paid by Lessee, the same shall be paid over to or retained by
Lessee if no Event of Default shall have occurred hereunder and be
continuing. If an Event of Default shall have occurred and be continuing,
any such refund shall be paid over to or retained by Lessor. Any such funds
retained by Lessor due to an Event of Default shall be applied as provided in
Section 16. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect
to the Leased Property as may be necessary to prepare any required returns
and reports. Lessor shall file all personal property tax returns, including
tax payments, in such jurisdictions where it is legally required to so file.
Lessor will maintain and prepare all cost and depreciation records necessary
for filing returns for any property so classified as personal property.
Where Lessor is legally required to file personal property tax returns,
Lessor shall provide Lessee with copies of assessment notices in sufficient
time for Lessee to file a protest.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt Notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such Notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but such
failure shall obviate any default hereunder for a reasonable time after
Lessee receives Notice of any Imposition which it is obligated to pay during
the first taxing period applicable thereto.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after termination shall survive such termination.
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4.4 UTILITY CHARGES. After the Commencement Date, Lessee will be solely
responsible for maintaining utility services to the Leased Property and will pay
or cause to be paid all charges for electricity, gas, oil, water, sewer and
other utilities used in the Leased Property after the Commencement Date and
during the Term; provided, however, Lessor shall provide to Lessee any and all
amounts necessary as security deposits to obtain such utility service.
4.5 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all premiums
for the insurance coverages required to be maintained by it under Section 13.
4.6 FRANCHISE FEES. Lessee will pay or cause to be paid all franchise
fees due and owing in accordance with the terms and conditions of the Franchise
Agreement.
SECTION 5.
5.1 NO TERMINATION, ABATEMENT, ETC. Except as otherwise specifically
provided in this Lease, and except for loss of the Franchise Agreement solely by
reason of any action or inaction by Lessor, Lessee, to the extent permitted by
law, shall remain bound by this Lease in accordance with its terms and shall
neither take any action without the written consent of Lessor to modify,
surrender or terminate the same, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of the Rent, or set off against the Rent.
5.2 ABATEMENT PROCEDURES. In the event of a Partial Taking as described
in Section 15.5 and/or a Temporary Taking as described in Section 15.6, the
Lease shall not terminate, but the Base Rent shall be abated in the manner and
to the extent that is fair, just and equitable to both Lessee and Lessor, taking
into consideration, among other relevant factors, the number of usable rooms,
the amount of square footage, or the revenues affected by such Partial Taking
and/or a Temporary Taking and the allocation to the parties of any Award. If
Lessor and Lessee are unable to agree upon the amount of such abatement within
30 days after such Partial Taking and/or Temporary Taking, the matter may be
submitted by either party to arbitration in accordance with the provisions of
Section 43 hereof for resolution.
SECTION 6
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the Leased
Property will, subject to the closing of the Contract of Purchase and Sale, be
the property of Lessor and that Lessee has only the right to the possession and
use of the Leased Property upon the terms and conditions of this Lease.
6.2 LESSEE'S PERSONAL PROPERTY. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner contemplated by this Lease. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee. Lessee, at the commencement of the Term,
and
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from time to time thereafter, shall provide Lessor with an accurate list of
all such items of Lessee's personal property (collectively, the "Lessee's
Personal Property"). Lessee may, subject to the first sentence of this
Section 6.2 and the conditions set forth below, remove any of Lessee's
Personal Property set forth on such list at any time during the Term or upon
the expiration or any prior termination of the Term. All of Lessee's
Personal Property, other than Inventory, not removed by Lessee within sixty
(60) days following the expiration or earlier termination of the Term shall
be considered abandoned by Lessee and may be appropriated, sold, destroyed or
otherwise disposed of by Lessor without first giving Notice thereof to
Lessee, without any payment to Lessee and without any obligation to account
therefor. Lessee will, at its expense, restore the Leased Property to the
condition required by Section 9.1.3, including repair of all damage to the
Property caused by the removal of Lessee's Personal Property, whether
effected by Lessee or Lessor. Notwithstanding the foregoing, upon the
expiration or earlier termination of the Term, Lessee shall sell and Lessor,
or its designee, shall purchase all Inventory on hand at the Leased Property
at the time of such expiration or termination for a sale price equal to the
fair market value of such Inventory, as evidenced by invoices, receipts, or
other reasonable documentation. Lessee may make such financing arrangements,
title retention agreements, leases or other agreements with respect to the
Lessee's Personal Property as it sees fit provided that Lessee first advises
Lessor of any such arrangement and such arrangement expressly provides that
in the event of Lessee's default thereunder, Lessor (or its designee) may
assume Lessee's obligations and rights under such arrangement.
6.3 LESSOR'S REPRESENTATIONS. Lessor represents and warrants that (a)
Lessor will, subject to the closing of the Contract of Purchase and Sale,
have good, clear and marketable title to the Leased Property, (b) Lessor has
full authority to grant to the Lessee the leasehold interest described in
this Lease, (c) the Leased Property is free from any material defects and (d)
the Leased Property is zoned, and all governmental approvals have been
obtained, for the current uses of the Leased Property as a hotel. In
addition, Lessor agrees to deliver to Lessee a current title report on the
Leased Property verifying the accuracy of the representations contained in
this Section 6.3.
6.4 BALANCE SHEET ON COMMENCEMENT AND TERMINATION OF LEASE. Upon the
Commencement Date, the Lessor shall deliver possession of the Leased Property
along with Twenty-Five Thousand ($25,000) cash (such cash amount to be
designated for "start-up expenses", including utility deposits, operating
expenses and linens), and inventory at levels no less than those set forth on
EXHIBIT J attached hereto and made a part hereof. Upon the termination of the
Lease, the Lessee shall assign to the Lessor all assets and liabilities
(including but not limited to all liabilities pursuant to service contracts
and leases) and Lessor shall execute instruments, reasonably requested by
Lessee, evidencing such assumption of liabilities by the Lessor.
6.5 LESSEE'S REPRESENTATIONS. Lessee represents and warrants that (a)
Lessee is a validly existing limited liability company organized under the laws
of the State of Delaware and is qualified to do business in all states in which
it is required to so qualify due to the nature of its business activities and
(b) Lessee has the requisite power and authority to enter into this Lease.
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6.6 LESSOR'S LIEN. Lessor is granted a lien and security interest on
all Lessee's Personal Property now or hereinafter placed in or upon the
Leased Property, and such lien and security interest shall remain attached to
such Lessee's Personal Property until payment in full of all Rent and
satisfaction of all of Lessee's obligations hereunder; provided, however,
Lessor shall subordinate its lien and security interest to that of any
non-Affiliate of Lessee which finances such Lessee's Personal Property or any
non-affiliate conditional seller of such Lessee's Personal Property, the
terms and conditions of such subordination to be satisfactory to Lessor in
the exercise of reasonable discretion. Lessee shall, upon the request of
Lessor, execute such financing statements or other documents or instruments
reasonably requested by Lessor to perfect the lien and security interest
herein granted.
SECTION 7.
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. In addition, to the
extent permitted by law, Lessor hereby grants to Lessee the right to proceed
against any Predecessor in title for breaches of warranties or
representations or for latent defects in the Leased Property. Lessor shall
fully cooperate with Lessee in the prosecution of any such claim, in Lessor's
or Lessee's name. Without limiting the Lessor's representations and
warranties contained in this Lease, the Lessor reiterates its disclaimer of
warranty contained in Section 1.1.6 hereof.
7.2 USE OF THE LEASED PROPERTY.
7.2.1 Lessee covenants that it will proceed with all due
diligence and will exercise its diligent efforts to maintain all approvals
needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law.
7.2.2 Lessee shall use or cause to be used the Leased Property
only as a hotel facility, and for such other uses as may be necessary or
incidental to such use or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any
portion thereof for any other use without the prior written consent of Lessor
which consent may be granted, denied or conditioned in Lessor's sole
discretion. No use shall be made or permitted to be made and no act shall be
done or permitted to be done of, or on, the Leased Property, which will cause
the cancellation or increase the premium of any insurance policy covering the
Leased Property or any part thereof (unless another adequate policy
satisfactory to Lessor is available and Lessee pays any premium increase),
nor shall Lessee sell or permit to be kept, used or sold in or about the
Leased Property any article which may be prohibited by law or fire
underwriter's regulations. Lessee shall, at its sole cost, comply with all
of the requirements pertaining to the Leased Property of any insurance board,
association, organization or company necessary for the maintenance of
insurance, as herein provided, covering the Leased Property and Lessee's
Personal Property.
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7.2.3 Subject to the provisions of Sections 14, 15, 21 and 22,
Lessee covenants and agrees that during the Term it will (1) operate
continuously the Leased Property as a hotel facility, (2) keep in full force
and effect and comply with all the provisions of Franchise Agreements, if any
(3) not terminate or amend Franchise Agreements, if any, without the prior
written consent of Lessor which shall not be unreasonably withheld or
delayed, and (4) maintain appropriate certifications and licenses for such
use.
7.2.4 Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Lessee cause or
permit any nuisance thereon.
7.2.5 Lessee shall neither suffer nor permit the Leased Property
or any portion thereof, to be used in such a manner as (1) might reasonably
tend to impair Lessor's title thereto or to any portion thereof, or (2) may
reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or of implied dedication of the Leased
Property or any portion thereof, except as necessary in the ordinary and
prudent operation of the Facility on the Leased Property.
7.2.6 Except as may be agreed upon in writing in advance by the
parties, neither the Lessor nor any of its Affiliates shall own, or have any
interest in, any hotel or motel property that is within a five mile radius of
the Leased Property. In addition, neither the Lessor nor any of its
Affiliates shall operate or manage any hotel or motel property that is within
a five mile radius of any hotel or motel property in which Lessee or an
Affiliate of Lessee has an interest on the date Lessor would otherwise
commence owning, possessing an interest in, operating or managing such
property. Other than hotels or motels owned, managed, operated or in which
Lessee has an interest as of the Commencement Date, the Lessee agrees that it
shall not manage, operate or own any interest in any hotel or motel property
that is within a five (5) mile radius of the Leased Property.
7.3 LESSOR TO GRANT EASEMENTS Lessor will, from time to time, so long
as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of
Lessor, which approval shall not be unreasonably withheld or delayed), (a)
grant easements and other rights in the nature of easements with respect to
the Leased Property to third parties, (b) release existing easements or other
rights in the nature of easements which are for the benefit of the Leased
Property, dedicate or transfer unimproved portions of the Leased Property for
road, highway or other public purposes, (d) execute petitions to have the
Leased Property annexed to any municipal corporation or utility district, (e)
execute amendments to any covenants and restrictions affecting the Leased
Property, and (f) execute and deliver to any person any instrument
appropriate to confirm or effect such grants, releases, dedications,
transfers, petitions and amendments (to the extent of its interest in the
Leased Property), but only upon delivery to Lessor of an Officer's
Certificate stating that such grant, release, dedication, transfer, petition
or amendment is not detrimental to the proper conduct of the business of
Lessee on the Leased Property and does not materially reduce the value of the
Leased Property.
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SECTION 8.
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS, ETC. Subject to
8.3.2 below and Section 12 relating to permitted contests, Lessee, at its
expense, will promptly (a) materially comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property, and (b) procure,
maintain and comply with all appropriate licenses and other authorizations
required for any use of the Leased Property and Lessee's Personal Property
then being made, and for the proper erection, installation, operation and
maintenance of the Leased Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Subject to Section 8.3.2 below, Lessee
covenants and agrees that the Leased Property and Lessee's Personal Property
shall not be used for any unlawful purpose, and that Lessee shall not permit
or suffer to exist any unlawful use of the Leased Property by others. Lessee
shall acquire and maintain all appropriate licenses, certifications, permits
and other authorizations and approvals required to operate the Leased
Property in its customary manner for the Primary Intended Use, and any other
lawful use conducted on the Leased Property as may be permitted from time to
time hereunder. Lessee further covenants and agrees that Lessee's use of the
Leased Property and maintenance, alteration, and operation of the same, and
all parts thereof, shall at all times conform to all Legal Requirements,
unless the same are finally determined by a court of competent jurisdiction
to be unlawful (and Lessee shall cause all such sub-tenants, invitees or
others so to comply with all Legal Requirements). Lessee may, however, upon
prior Notice to Lessor, contest the legality or applicability of any such
Legal Requirement or any licensure or certification decision if Lessee
maintains such action in good faith, with due diligence, without prejudice to
Lessor's rights hereunder, and at Lessee's sole expense. If by the terms of
any such Legal Requirement compliance therewith pending the prosecution of
any such Proceeding may legally be delayed without the incurrence of any
lien, charge or liability of any kind against the Facility or Lessee's
leasehold interest therein and without subjecting Lessee or Lessor to any
liability, civil or criminal, for failure so to comply therewith, Lessee may
delay compliance therewith until the final determination of such Proceeding.
If any lien, charge or civil or criminal liability would be incurred by
reason of any such delay, Lessee, on the prior written consent of Lessor,
which consent shall not be unreasonably withheld, may nonetheless contest as
aforesaid and delay as aforesaid provided that such delay would not subject
Lessor to criminal liability and Lessee both (a) furnishes to Lessor security
reasonably satisfactory to Lessor against any loss or injury by reason of
such contest or delay, and (b) prosecutes the contest with due diligence and
in good faith.
8.3 ENVIRONMENTAL COVENANTS. Lessor and Lessee (in addition to, and not
in diminution of, Lessee's covenants and undertakings in Sections 8.1 and 8.2
hereof) covenant and agree as follows:
8.3.1 At all times hereafter until such time as all liabilities,
duties or obligations of Lessee to the Lessor under the Lease have been
satisfied in full, Lessee shall fully comply with all Environmental Laws
applicable to the Leased Property and the operations thereon. Lessee agrees to
give Lessor prompt written notice of (1) all Environmental Liabilities; (2) all
pending, threatened
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or anticipated Proceedings, and all notices, demands, requests or
investigations, relating to any Environmental Liability or relating to the
issuance, revocation or change in any Environmental Authorization required
for operation of the Leased Property; (3) all Releases at, on, in, under or
in any way affecting the Leased Property, or any Release known by Lessee at,
on, in or under any property adjacent to the Leased Property; and (4) all
facts, events or conditions that could reasonably lead to the occurrence of
any of the above-referenced matters.
8.3.2 Lessor hereby agrees to defend, indemnify and hold
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities other than Environmental Liabilities which were
caused by the grossly negligent acts or grossly negligent failures to act of
Lessee. As a condition precedent to the effectiveness of this Lease, the
Lessor shall deliver to the Lessee Phase I environmental studies regarding
the Leased Property performed by an engineering firm acceptable to Lessee and
stating that the Leased Property is in compliance with all applicable
Environmental Laws to the satisfaction of Lessee.
8.3.3 Lessee hereby agrees to defend, indemnify and hold
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities caused by the acts or grossly negligent failures to
act of Lessee.
8.3.4 If any Proceeding is brought against any Indemnified Party
in respect of an Environmental Liability with respect to which such
Indemnified Party may claim indemnification under either Section 8.3.2 or
8.3.3, the Indemnifying Party, upon request, shall at its sole expense resist
and defend such Proceeding, or cause the same to be resisted and defended by
counsel designated by the Indemnified Party and approved by the Indemnifying
Party, which approval shall not be unreasonably withheld; provided, however,
that such approval shall not be required in the case of defense by counsel
designated by any insurance company undertaking such defense pursuant to any
applicable policy of insurance. Each Indemnified Party shall have the right
to employ separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel will be at the
sole expense of such Indemnified Party unless such counsel has been approved
by the Indemnifying Party, which approval shall not be unreasonably withheld.
The Indemnifying Party shall not be liable for any settlement of any such
Proceeding made without its consent, which shall not be unreasonably
withheld, but if settled with the consent of the Indemnifying Party, or if
settled without its consent if its consent shall be unreasonably withheld, or
if there be a final, nonappealable judgment for an adversary party in any
such Proceeding, the Indemnifying Party shall indemnify and hold harmless the
Indemnified Parties from and against any liabilities incurred by such
Indemnified Parties by reason of such settlement or judgment.
8.3.5 At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental
Liability, upon reasonable prior written notice to Lessee stating such
Indemnified Party's basis for such belief, an Indemnified Party shall be
given immediate access to the Leased Property (including, but not limited to,
the right to enter upon, investigate, drill wells, take soil borings,
excavate, monitor, test, cap and use available land for the testing of
remedial technologies), Lessee's employees, and to all relevant documents and
records
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regarding the matter as to which a responsibility, liability or obligation is
asserted or which is the subject of any Proceeding; provided that such access
may be conditioned or restricted as may be reasonably necessary to ensure
compliance with law and the safety of personnel and facilities or to protect
confidential or privileged information. All Indemnified Parties requesting
such immediate access and cooperation shall endeavor to coordinate such
efforts to result in as minimal interruption of the operation of the Leased
Property as practicable.
8.3.6 The indemnification rights and obligations provided for in
this Section 8 shall be in addition to any indemnification rights and
obligations provided for elsewhere in this Lease.
8.3.7 The indemnification rights and obligations provided for in
this Section 8 shall survive the termination of this Agreement.
For purposes of this Section 8.3, all amounts for which any Indemnified
Party seeks indemnification shall be computed net of (a) any actual income
tax benefit resulting therefrom to such Indemnified Party, (b) any insurance
proceeds received (net of tax effects) with respect thereto, and any amounts
recovered (net of tax effects) from any third parties based on claims the
Indemnified Party has against such third parties which reduce the damages
that would otherwise be sustained; provided that in all cases, the timing of
the receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in determining the
amount of reduction of damages. Each Indemnified Party agrees to use its
reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may
be, any claims or rights it may have against any third party which would
materially reduce the amount of damages otherwise incurred by such
Indemnified Party.
Notwithstanding anything to the contrary contained in this Agreement, if
Lessor shall become entitled to the possession of the Leased Property by
virtue of the termination of the Lease or repossession of the Leased
Property, then Lessor may assign its indemnification rights under Section 8.3
of this Agreement (but not any other rights hereunder) to any Person to whom
the Lessor subsequently transfers the Leased Property, subject to the
following conditions and limitations, each of which shall be deemed to be
incorporated into the terms of such assignment, whether or not specifically
referred to therein:
(1) The indemnification rights referred to in this Section may be
assigned only if a known Environmental Liability then exists or if a Proceeding
is then pending or, to the knowledge of Lessee or Lessor, then threatened with
respect to the Leased Property;
(2) Such indemnification rights shall be limited to Environmental
Liabilities relating to or specifically affecting the Leased Property; and
(3) Any assignment of such indemnification rights shall be limited to
the immediate transferee of Lessor, and shall not extend to any such
transferee's successors or assigns.
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SECTION 9.
9.1 MAINTENANCE AND REPAIR.
9.1.1 Lessee will keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto that are under Lessee's
control, including windows and plate glass, parking lots, mechanical,
electrical and plumbing systems and equipment (including conduit and
ductware), and non-load bearing interior walls, in good order and repair,
except for ordinary wear and tear, and, except as otherwise provided in
Section 9.1.2, Section 14, Section 15 or Section 40, with reasonable
promptness, make all necessary and appropriate repairs, replacements, and
improvements thereto of every kind and nature, whether interior or exterior,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the commencement of the Term of this Lease
(concealed or otherwise), or required by any governmental agency having
jurisdiction over the Leased Property, except as to the structural elements
of the Leased Improvements. Lessee, however, shall be permitted to prosecute
claims against Lessor's Predecessor(s) in title for breach of any
representation or warranty or for any latent defects in the Leased Property
to be maintained by Lessee unless Lessor is already diligently pursuing such
a claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to
take any action, the taking or omission of which might materially impair the
value or the usefulness of the Leased Property or any part thereof for its
Primary Intended Use.
9.1.2 In addition, Lessor shall be required to bear the cost of
maintaining any underground utilities and the structural elements of the
Leased Improvements, including the roof of the Facility unless caused by the
negligent acts or willful misconduct of Lessee.
9.1.3 Nothing contained in this Lease and no action or inaction
by Lessor shall be construed as (1) constituting the request of Lessor,
expressed or implied, to any contractor, subcontractor, laborer, materialman
or vendor to or for the performance of any labor or services or the
furnishing of any materials or other property for the construction,
alteration, addition, repair or demolition of or to the Leased Property or
any part thereof, or (2) giving Lessee any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as would permit
the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for any right, title,
interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof.
9.1.4 Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property to Lessor in the
substantially same condition in which the Leased Property was originally
received from Lessor, except as repaired, rebuilt, restored, altered or added
to as permitted or required by the provisions of this Lease and except for
ordinary wear and tear (subject to the obligation of Lessee under Section
9.1.1 hereof to maintain the Leased Property in good order and repair, as
would a prudent owner, during the entire Term of the Lease), or damage
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by casualty or Condemnation (subject to the obligations of Lessee to restore
or repair as set forth in the Lease.)
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Leased
Improvements, at any time, materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or impair the rights of
others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor or at the behest of any
person affected by any such encroachment, violation or impairment, provided
that Lessee was not responsible for such encroachment violations or
impairments then Lessor shall, at its expense, subject to its right to
contest the existence of any encroachment, violation or impairment and in
such case, in the event of an adverse final determination, either (a) obtain
valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation, or impairment,
whether the same shall affect Lessor or Lessee, or (b) make such changes in
the Leased Improvements, and take such other actions as Lessee in the good
faith exercise of its judgment deems reasonably practicable to remove such
encroachment, and to end such violation or impairment, including, if
necessary, the alteration, of any of the Leased Improvements, and in any
event take all such actions as may be necessary in order to be able to
continue the operation of the Leased Improvements for the Primary Intended
Use substantially in the manner and to the extent the Leased Improvements
were operated prior to the assertion of such violation, impairment or
encroachment. Any such alteration shall be made in conformity with the
applicable requirements of Section 10. Lessee's obligations under this
Section 9.2 shall be in addition to and shall in no way discharge or diminish
any obligation of any insurer under any policy of title or other insurance
held by Lessor. Should Lessee be responsible for said encroachment violation
or impairment then the requirements of (a) and (b) as specified above shall
apply to Lessee, and not Lessor.
SECTION 10.
10.1 ALTERATIONS. Using funds in the Capital Expenditure Reserve Account
or such other funds provided by Lessor pursuant to Section 40 hereof, Lessee
shall have the right to make additions, modifications or improvements to the
Leased Property from time to time as Lessee, in its discretion, may deem to
be desirable for its permitted uses and purposes, provided that such action
will not significantly alter the character or purposes or significantly
detract from the value or operating efficiency thereof and will not
significantly impair the revenue-producing capability of the Leased Property
or adversely affect the ability of the Lessee to comply with the provisions
of this Lease. Lessee agrees not to make any material alterations to the
Leased Property without the prior written consent of the Lessor, which
consent shall not be unreasonably withheld or delayed.
10.2 SALVAGE. All materials which are scrapped or removed in connection
with the making of repairs required by Section 9 or 10 shall be or become the
property of Lessor.
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10.3 JOINT USE AGREEMENTS. If Lessee constructs additional improvements
that are connected to the Leased Property or share maintenance facilities, HVAC,
electrical, plumbing or other systems, utilities, parking or other amenities,
the parties shall enter into a mutually agreeable cross-easement or joint use
agreement to make available necessary services and facilities in connection with
such additional improvements, to protect each of their respective interests in
the properties affected, and to provide for separate ownership, use, and/or
financing of such improvements.
SECTION 11.
11.1 LIENS. Subject to the provision of Section 12 relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, restrictions, liens and other
encumbrances which are consented to in writing by Lessor or any easements
granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for
those taxes upon Lessor which Lessee is not required to pay hereunder, (e)
subleases permitted by Section 24 hereof, (f) liens for Impositions or for sums
resulting from noncompliance with Legal Requirements so long as (1) the same are
not yet payable or are payable without the addition of any fine or penalty, or
(2) such liens are in the process of being contested as permitted by Section 12,
(g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums
either disputed or not yet due provided that (1) the payment of such sums shall
not be postponed under any related contract for more than 60 days after the
completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor, or (2) any such liens are
in the process of being contested as permitted by Section 12 hereof, (h) any
liens which are the responsibility of Lessor pursuant to the provisions of
Section 35 of this Lease and (I) any liens created or allowed, directly or
indirectly, by the actions or inactions of Lessor.
SECTION 12.
12.1 PERMITTED CONTESTS. Lessee shall have the right to contest the amount
or validity of any Imposition to be paid by Lessee or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim ("Claims") not otherwise permitted by Section 11, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee's covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Section provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of the Leased Property, or any
part thereof, or cause Lessor or Lessee to be in default under any mortgage,
deed of trust or security deed encumbering the Leased Property or any interest
therein. Lessor agrees to join in any such proceedings if the same be required
to legally prosecute such contest of the validity of such Claims;
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provided, however, that Lessor shall not thereby be subjected to any
liability for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and hold
harmless Lessor from any such costs or expenses. Lessee shall be entitled to
any refund of any Claims and such charges and penalties or interest thereon
which have been paid by Lessee or paid by Lessor and for which Lessor has
been fully reimbursed. In the event that Lessee fails to pay any Claims when
due or to provide the security therefor as provided in this paragraph and to
diligently prosecute any contest of the same, Lessor may, upon ten days
advance Notice to Lessee, pay such charges together with any interest and
penalties and the same shall be repayable by Lessee to Lessor as Additional
Charges at the next Payment Date provided for in this Lease. Provided,
however, that should Lessor reasonably determine that the giving of such
Notice would risk loss to the Leased Property or cause damage to Lessor, then
Lessor shall give such Notice as is practical under the circumstances.
Lessor reserves the right to contest any of the Claims at its expense not
pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the
contest of any claims.
SECTION 13.
13.1 INSURANCE COVERAGE. Lessee shall provide and maintain insurance
sufficient to furnish to Lessor and Lessee reasonable and adequate protection in
the management and operation of the Leased Property. Such insurance shall
provide coverage for fire and extended coverage, worker's compensation, general
liability and business interruption (for such length of time as would be
required with the exercise of due diligence and dispatch to rebuild, repair or
replace such part of the Leased Property as has been destroyed or damaged), all
as more particularly set forth on the attached EXHIBIT F. All insurance shall
be in the name of Lessor and Lessee as the insureds and shall contain riders and
endorsements adequately protecting the interests of Lessee and Lessor as they
may appear including, without limitation, provisions for at least twenty (20)
days' notice to Lessee and Lessor of cancellation or of any material change
therein. Prior to the Commencement Date and the commencement of each Fiscal
Year thereafter, Lessee shall furnish Lessor with certificates evidencing the
insurance coverages required pursuant to EXHIBIT F and with evidence of the
payment of premiums therefor.
13.2 WAIVER OF SUBROGATION - LESSOR ASSUMES RISK OF ADEQUACY. Lessee shall
have all policies of insurance provide that the insurance company will have no
right of subrogation against either party hereto, their agents or employees.
Other than insurance coverages required to be provided by Lessee pursuant to
this Lease, Lessor assumes all risks in connection with the adequacy of any
insurance or self-insurance program, and subject to the provisions of SECTION 23
hereof, waives any claim against Lessee for any liability, costs or expenses
arising out of any uninsured claim, in part or in full, of any nature
whatsoever.
SECTION 14.
14.1 INSURANCE PROCEEDS. Subject to the provisions of Section 14.6, all
proceeds payable by reason of any loss or damage to the Leased Property, or any
portion thereof, and insured under
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any policy of insurance required by Section 13 of this Lease shall be paid to
Lessor and held in trust by Lessor in an interest-bearing account, shall be
made available, if applicable, for reconstruction or repair, as the case may
be, of any damage to or destruction of the Leased Property, or any portion
thereof, and, if applicable, shall be paid out by Lessor from time to time
for the reasonable costs of such reconstruction or repair upon satisfaction
of the reasonable terms and conditions specified by Lessor. Any excess
proceeds of insurance remaining after the completion of the restoration or
reconstruction of the Leased Property shall be paid to Lessee. If neither
Lessor nor Lessee is required or elects to repair and restore, and the Lease
is terminated without purchase by Lessee as described in Sections 14.2, 14.3,
14.5 and 14.7 hereof, all such insurance proceeds shall be retained by
Lessor. If this Lease terminates in accordance with this Section 14.1,
Lessor shall have no obligation to pay the Lease Cancellation Fee so long as
the Lessee receives payment of the full amount of outstanding Negative Base
Rent out of the insurance proceeds. All salvage resulting from any risk
covered by insurance shall belong to Lessor.
14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE.
Except as provided in Section 14.6, if during the Term the Leased
Property is totally or partially destroyed by a risk covered by the insurance
described in Section 13 and the Facility thereby is rendered Unsuitable for its
Primary Intended Use, Lessee shall, at Lessee's option, either (a) restore the
Facility to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of the Lease,
(b) offer to acquire the Leased Property from Lessor for a purchase price equal
to the Rejectable Offer Price of the Leased Property determined without regard
to such damage or destruction, or give Lessor written notice of a termination of
the Lease. If Lessee restores the Facility, the insurance proceeds shall be
paid out by Lessor from time to time for the reasonable costs of such
restoration and any excess proceeds remaining after such restoration shall be
paid to Lessee. If Lessee acquires the Leased Property, Lessee shall receive
the insurance proceeds. If Lessor does not accept Lessee's offer so to purchase
the Leased Property within 90 days, Lessee shall withdraw its offer to purchase
the Leased Property and, if so withdrawn, Lessee may terminate the Lease with
respect to the Leased Property without further liability hereunder and Lessor
shall be entitled to retain all insurance proceeds. Likewise, if Lessee gives
Lessor written notice of a termination, as set forth in clause above, then
Lessee may terminate the Lease with respect to the Leased Property without
further liability hereunder and Lessor shall be entitled to retain all insurance
proceeds. If this Lease terminates pursuant to this Section 14.2, the Lessee
shall pay all Rent due through the date of such termination.
14.3 Except as provided in Section 14.6, if during the Term the Leased
Property is partially destroyed by a risk covered by the insurance described in
Section 13, but the Facility is not thereby rendered Unsuitable for its Primary
Intended Use, Lessee shall, using such insurance proceeds, restore the Facility
to substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease. Such
damage or destruction shall not terminate this Lease; provided, however, that if
Lessee cannot within a reasonable time obtain all necessary government
approvals, including building permits, licenses and conditional use permits,
after diligent efforts to do so, to perform all required repair and restoration
work and to
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operate the Facility for its Primary Intended Use in substantially the same
manner as that existing immediately prior to such damage or destruction and
otherwise in accordance with the terms of the Lease, Lessee may (a) give
lessor written Notice of termination of the Lease or (b) offer to purchase
the Leased Property for a purchase price equal to the Rejectable Offer Price
of the Leased Property determined without regard to such damage or
destruction. If Lessee makes such offer and Lessor does not accept the same
within ninety (90) days, Lessee shall withdraw such offer to purchase the
Leased Property and, if so withdrawn, Lessee may terminate the Lease with
respect to the Leased Property without further liability hereunder and Lessor
shall be entitled to retain all insurance proceeds. If Lessee restores the
Facility, the insurance proceeds shall be paid out by Lessor from time to
time for the reasonable costs of such restoration, and any excess proceeds
remaining after such restoration shall be paid to Lessee. If this Lease
terminates pursuant to this Section 14.3, the Lessee shall pay all Rent due
through the date of such termination.
14.4 If Lessor accepts Lessee's offer to purchase the Leased Property under
this Section, this Lease shall terminate as to the Leased Property upon payment
of the purchase price, and Lessor shall remit to Lessee all insurance proceeds
pertaining to the Leased Property being held in trust by Lessor.
14.5 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT COVERED BY
INSURANCE
Except as provided in Section 14.6, if during the Term the Facility is
totally or materially destroyed by a risk not covered by the insurance described
in Section 13, whether or not such damage or destruction renders the Facility
Unsuitable for its Primary Intended Use, Lessee at its option shall either (a)
using the funds in the Capital Expenditure Reserve Account or funds provided by
Lessor pursuant to Section 40 hereof without any obligation on the part of
Lessor to provide funds in excess of those in the Capital Expenditure Reserve
Account, restore the Facility to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Lease, or (b) offer to purchase the Leased Property for
a purchase price equal to the Rejectable Offer Price of the Leased Property
without regard to such damage or destruction; provided, however, the term and
conditions contained in Section 43 hereof shall supersede this Section 14.5(b)
if applicable, or give Lessor written notice of a termination of the Lease. If
such damage or destruction is not material, Lessee shall restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease using the
Capital Expenditure Reserve Account or funds provided by Lessor pursuant to
Section 40 hereof without any obligation on the part of Lessor to provide funds
in excess of those in the Capital Expenditure Reserve Account. If Lessor does
not accept Lessee's offer so to purchase the Leased Property within 90 days,
Lessee may withdraw its offer to purchase the Leased Property and, if so
withdrawn, Lessee may terminate the Lease with respect to the Leased Property
without further liability hereunder. Likewise, if Lessee gives Lessor written
notice of a termination, as set forth in clause above, then Lessee may terminate
the Lease with respect to the Leased Property without further liability
hereunder and Lessor shall be entitled to retain all insurance proceeds. If
this Lease terminates pursuant to this Section 14.5, the Lessee shall pay all
Rent due through the date of such termination.
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14.6 LESSEE'S PROPERTY. All insurance proceeds payable by reason of any
loss of or damage to any of Lessee's Personal Property shall be paid to Lessee;
provided, however, no such payments shall diminish or reduce the insurance
payments otherwise payable to or for the benefit of Lessor hereunder.
14.7 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section
14.2, 14.3 or 14.5 appearing to the contrary, if damage to or destruction of
the Facility rendering the Facility Unsuitable for its Primary Intended Use
occurs during the last 24 months of the Term, then Lessee shall have the right
to terminate this Lease by giving written notice to Lessor within 30 days after
the date of damage or destruction, whereupon all accrued Rent shall be paid
immediately, and this Lease shall automatically terminate five days after the
date of such notice. In such event, Lessor shall be entitled to retain all
insurance proceeds paid pursuant to such damage excluding business interruption
insurance.
SECTION 15.
15.1 DEFINITIONS.
15.1.1 "Condemnation" means a Taking resulting from (1) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.
15.1.2 "Date of Taking" means the date the Condemnor has the right
to possession of the property being condemned.
15.1.3 "Award" means all compensation, sums or anything of value
awarded, paid or received on a total, partial or temporary Condemnation.
15.1.4 "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Section 15.
15.3 TOTAL TAKING. If title to the fee of the whole of the Leased Property
is condemned by any Condemnor, subject to the provisions of Section 15.7, this
Lease shall cease and terminate as of the Date of Taking by the Condemner. If
title to the fee of less than the whole of the Leased Property is so taken or
condemned, which nevertheless renders the Leased Property Unsuitable or
Uneconomic for its Primary Intended Use, Lessee and Lessor shall each have the
option, by Notice to the other, at any time prior to the Date of Taking, to
terminate this Lease as of the Date of Taking. If this Lease terminates in
accordance with this Section 15.3, Lessor shall have no obligation to pay
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the Lease Cancellation Fee so long as the Lessee receives payment of the full
amount of outstanding Negative Base Rent out of the Award. Upon such date, if
such Notice has been given, this Lease shall thereupon cease and terminate.
All Base Rent, Percentage Rent and Additional Charges paid or payable by
Lessee hereunder shall be apportioned as of the Date of Taking, and Lessee
shall promptly pay Lessor such amounts. In the event of any such
termination, the provisions of Section 15.7 shall apply.
15.4 ALLOCATION OF AWARD. The total Award made with respect to the Leased
Property or for loss of rent, or for Lessor's loss of business beyond the Term,
shall be solely the property of and payable to Lessor. Any Award made for loss
of business during the remaining Term, if any, for the taking of Lessee's
Personal Property, or for removal and relocation expenses of Lessee in any such
proceedings shall be the sole property of and payable to Lessee. In any
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, neither party
shall initiate, prosecute or acquiesce in any proceedings that may result in a
diminution of any Award payable to the other party.
15.5 PARTIAL TAKING. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is still suitable for its Primary
Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but elects not to terminate this Lease as provided in Section
15.3, Lessee at its cost shall with all reasonable dispatch restore the untaken
portion of any Leased Improvements so that such Leased Improvements constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existing immediately prior to the Condemnation. Lessor shall contribute to the
cost of restoration that part of its Award specifically allocated to such
restoration, if any, together with severance and other damages awarded for the
taken Leased Improvements; provided, however, that the amount of such
contribution shall not exceed such Award.
15.6 TEMPORARY TAKING. If the whole or any part of the Leased Property or
of Lessee's interest under this Lease is condemned by any Condemner for its
temporary use or occupancy and is rendered Unsuitable for its Primary Intended
Use , and Lessee shall either (a) using the Capital Expenditure Reserve
Account or funds provided by Lessor pursuant to Section 40 hereof without any
obligation on the part of Lessor to provide funds in excess of those in the
Capital Expenditure Reserve Account, restore the Facility to substantially the
same condition it was in immediately before such Taking and such Taking shall
not terminate this Lease, or (b) offer to purchase the Leased Property for a
purchase price equal to the Rejectable Offer Price of the Leased Property
without regard to such Taking, or give Lessor written notice of termination of
the Lease. If such Taking does not render the Leased Property Unsuitable for
its Primary Intended Use, Lessee shall restore the Facility to substantially the
same condition as existed immediately preceding the Taking and otherwise in
accordance with the terms of this Lease using the Capital Expenditure Reserve
Account or funds provided by Lessor pursuant to Section 40 hereof. If
restoration is required hereunder, Lessor shall contribute to the cost of such
restoration that portion of its entire Award that is specifically allocated to
such restoration in the judgment or order of the court, if any, and Lessee
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shall fund the balance of such costs (out of the Capital Expenditure Reserve
Account or other funds provided by Lessor pursuant to Section 40 hereof)
without any obligation on the part of Lessor to provide funds in excess of
those in the Capital Expenditure Reserve Account.
15.7 LESSEE'S OFFER. In the event of the termination of this Lease as
provided in Section 15.3, Lessee may offer to acquire the Leased Property from
Lessor for a purchase price equal to the Rejectable Offer Price of the Leased
Property without regard to such Taking and, if accepted, Lessee shall receive
the entire Award. If Lessor does not accept Lessee's offer to purchase the
Leased Property within ninety (90) days, Lessee shall withdraw its offer to
purchase the Leased Property and, if so withdrawn, Lessee may terminate the
Lease with respect to the Leased Property without further liability hereunder,
except for payment of Rent as provided in the penultimate sentence of Section
15.3 or for matters which by their express terms survive termination of this
Lease and Lessor shall be entitled to retain the Award except as provided in
Section 15.4 of this Lease.
SECTION 16.
16.1 EVENTS OF DEFAULT. If any one or more of the following events
(individually, an "Event of Default") occurs:
16.1.1 if Lessee fails to make payment of the Base Rent when the
same becomes due and payable for a period of ten days after receipt by the
Lessee of Notice from the Lessor thereof;
16.1.2 if Lessee fails to make payment of quarterly Percentage
Rent when the same becomes due and payable and such condition continues for a
period of thirty (30) days after the end of the applicable quarter;
16.1.3 except as set forth in Sections 16.1.1 or 16.1.2, if either
party fails to observe or perform any term, covenant or condition of this Lease
and such failure is not cured by such party within a period of 30 days after
receipt by such party of Notice thereof from the other party, unless such
failure cannot with due diligence be cured within a period of 30 days, in which
case it shall not be deemed an Event of Default if such party proceeds promptly
and with due diligence to cure the failure and diligently completes the curing
thereof provided, however, in no event shall such cure period extend beyond 90
days after such Notice; or
16.1.4 if either party shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state bankruptcy
law or any similar federal or state law, or shall be adjudicated a bankrupt or
shall make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of either party as a bankrupt or its
reorganization pursuant to any federal or state bankruptcy law or any similar
federal or state law shall be filed in any court and such party shall be
adjudicated a bankrupt and such adjudication shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if a
receiver of such party or of the whole or substantially all of the assets of
such party shall be appointed in any proceeding brought
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by either party or if any such receiver, trustee or liquidator shall be
appointed in any proceeding brought against such party and shall not be
vacated or set aside or stayed within 60 days after such appointment; or
16.1.5 if either party is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner, permits
the sale or divestiture of substantially all of its assets; or
16.1.6 if the estate or interest of either party in the Leased
Property or any part thereof is voluntarily or involuntarily transferred,
assigned, conveyed, levied upon or attached in any proceeding (unless such party
is contesting such lien or attachment in good faith in accordance with Section
12 hereof); or
16.1.7 if, except as a result of damage, destruction or a partial,
total or temporary Condemnation, Lessee voluntarily ceases operations on the
Leased Property for a period in excess of 30 days; or
16.1.8 if, an event of default has been declared by the franchisor
under any Franchise Agreement with respect to the Facility on the Leased
Premises as a result of any action or failure to act by Lessee or any Person
with whom Lessee contracts for management services at the Facility and such
event of default does not arise as a result of a default by Lessor under this
Lease.
then, and in any such event, the other party may exercise one or more
remedies available to it herein or at law or in equity, including but not
limited to its right to terminate this Lease by giving the other party not less
than ten days' Notice of such termination.
If litigation is commenced with respect to any alleged default under
this Lease, the prevailing party in such litigation shall receive, in addition
to its damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
16.2 SURRENDER. If an Event of Default by the Lessee occurs and is
continuing, whether or not this Lease has been terminated pursuant to Section
16.1, Lessee shall, if requested by Lessor so to do, immediately surrender to
Lessor the Leased Property including, without limitation, any and all books,
records, files, licenses, permits and keys relating thereto, and quit the same
and Lessor may enter upon and repossess the Leased Property by reasonable force,
summary proceedings, ejectment or otherwise, and may remove Lessee and all other
persons and any and all personal property from the Leased Property, subject to
rights of any hotel guests and to any requirement of law.
16.3 DAMAGES. Lessee shall forthwith pay to Lessor, as and for liquidated
and agreed current damages for Lessee's default or early termination of the
Lease, the Termination Fee defined in the Master Agreement, any and all accrued
and unpaid Rent through the date of termination of
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this Lease and such other sums due to Lessor pursuant to Lease as a result of
such termination expressly required by this Lease unless otherwise superseded
by the Master Agreement.
SECTION 17. INTENTIONALLY DELETED.
SECTION 18.
LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time periods
provided in Section 16.1, Lessor, without waiving or releasing any obligation of
Lessee, and without waiving or releasing any obligation or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and
take all such action as, in Lessor's opinion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All sums so
paid by Lessor and all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses, in each case to the extent permitted by
law) so incurred, together with a late charge thereon (to the extent permitted
by law) at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessor, shall be paid by Lessee to Lessor on demand. The
obligations of Lessee and rights of Lessor contained in this Article shall
survive the expiration or earlier termination of this Lease.
SECTION 19.
PROVISIONS RELATING TO PURCHASE OF THE LEASED PROPERTY. If Lessee
purchases the Leased Property from Lessor pursuant to the terms and conditions
of this Lease, Lessor and Lessee shall have first entered into a purchase and
sale agreement mutually agreed upon by Lessor and Lessee.
SECTION 20.
20.1 PERSONAL PROPERTY LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, the average of the adjusted tax bases of the items of
personal property that are leased to the Lessee under this Lease at the
beginning and at the end of any Fiscal Year shall not exceed 15% of the average
of the aggregate adjusted tax bases of the Leased Property at the beginning and
at the end of such Fiscal Year. This Section 20.1 is intended to ensure that
the Rent qualifies as "rents from real property", within the meaning of Section
856(d) of the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent
20.2 SUBLEASE RENT LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be
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paid by the sublessee thereunder would be based, in whole or in part, on
either (a) the income or profits derived by the business activities of the
sublessee, or (b) any other formula (if as a result of such a sublease based
on (a) and/or (b) above, any portion of the Rent would fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Code,
or any similar or successor provision thereto).
20.3 SUBLEASE TENANT LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublease the Leased Property to any
Person in which Lessor, owns, directly or indirectly, a 10% or more interest,
within the meaning of Section 856(d)(2)(B) of the Code, or any similar or
successor provisions thereto.
20.4 LESSEE OWNERSHIP LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, neither Lessee nor an Affiliate of the Lessee shall
acquire, directly or indirectly, a 10% or more interest in Lessor, within the
meaning of Section 856(d)(2)(B) of the Code, or any similar or successor
provision thereto.
20.5 LESSEE OFFICER AND EMPLOYEE LIMITATION. Anything contained in this
Lease to the contrary notwithstanding, none of the officers or employees of the
Lessee (or any Person who furnishes or renders services to the tenants of the
Leased Property, or manages or operates the Leased Property) shall be officers
or employees of Lessor, (or any Person who serves as an advisor of Lessor). In
addition, if a Person serves as both (a) a director of the Lessee (or any Person
who furnishes or renders services to the tenants of the Leased Property, or
manages or operates the Leased Property), and (b) a director and officer (or
employee) of Lessor, (or any Person who serves as an advisor of Lessor) that
Person shall not receive any compensation for serving as a director of the
Lessee (or any Person who furnishes or renders services to the tenants of the
Leased Property, or manages or operates the Leased Property).
20.6 PAYMENTS TO AFFILIATES. Notwithstanding anything contained in this
Lease to the contrary, the Lessee shall make no payments to Affiliates as Gross
Operating Expenses unless set forth in the Annual Budget or otherwise agreed to
by Lessor.
SECTION 21.
21.1 HOLDING OVER. If Lessee for any reason remains in possession of the
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month two times the aggregate of (a) one-twelfth of the aggregate
Base Rent and Percentage Rent payable with respect to the last Fiscal Year of
the Term, (b) all Additional Charges accruing during the applicable month, and
all other sums, if any, payable by Lessee under this Lease with respect to the
Leased Property. During such period, Lessee shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to
tenancies at sufferance, to continue its occupancy and use of the Leased
Property. Nothing contained
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herein shall constitute the consent, express or implied, of Lessor to the
holding over of Lessee after the expiration or earlier termination of this
Lease.
SECTION 22.
22.1. RISK OF LOSS. During the Term, except as otherwise specified
herein, the risk of loss or of decrease in the enjoyment and beneficial use of
the Leased Property in consequence of the damage or destruction thereof by fire,
the elements, casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than those caused by
Lessee and those claiming from, through or under Lessee) is assumed by Lessor,
and, in the absence of gross negligence, willful misconduct or breach of this
Lease by Lessee, Lessee shall in no event be answerable or accountable therefor;
provided, however, nothing contained in this Section 22.1 shall entitle the
Lessee to any abatement of Rent unless expressly provided for in this Lease.
SECTION 23.
23.1 LESSOR INDEMNIFICATION. Notwithstanding the existence of any
insurance, and without regard to the policy limits of any such insurance or
self-insurance, but subject to Section 8, Lessor will protect, indemnify, hold
harmless and defend Lessee from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses), imposed upon or
incurred by or asserted against Lessee Indemnified Parties by reason of: (a)
any Impositions that are the obligations of Lessor pursuant to the applicable
provisions of this Lease, (b) any failure on the part of Lessor to perform or
comply with any of the terms of this Lease, any liability, action, claim,
damage, cost or expense arising prior to the Commencement Date of this Lease,
and (d) the gross negligence, willful misconduct or fraud by Lessor in
connection with this Lease.
23.2 LESSEE INDEMNIFICATION. Lessee shall, indemnify, hold harmless and
defend Lessor Indemnified Parties from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Lessor Indemnified Parties as a result of (a)
the gross negligence, willful misconduct or fraud by Lessee arising in
connection with this Lease, (b) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, any Impositions that are the
obligations of Lessee pursuant to the applicable provisions of this Lease, and
(d) any liability, action, claim, damage, cost or expense arising after to the
Commencement Date of this Lease.
23.3 NON-INDEMNIFIABLE CLAIMS. To the extent that neither Section 23.1 nor
Section 23.2 applies to any liability, action, claim, damage, cost or expense
arising out of the operation of the Leased Property, such liability, action,
claim, damage, cost or expense shall be paid as a Gross Operating Expense
deducted from Gross Revenues for purposes of calculating the Break-Even
Threshold.
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23.4 INDEMNIFICATION PROCEDURE. Any amounts that become payable by an
Indemnifying Party under this Section shall be paid within ten days after
liability therefor on the part of the Indemnifying Party is determined by
litigation or otherwise, and if not timely paid, shall bear a late charge (to
the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. An Indemnifying Party, at its expense,
shall contest, resist and defend any such claim, action or proceeding asserted
or instituted against the Indemnified Party. The Indemnified Party, at its
expense, shall be entitled to participate in any such claim, action, or
proceeding, and the Indemnifying Party may not compromise or otherwise dispose
of the same without the consent of the Indemnified Party, which may not be
unreasonably withheld.
23.5 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Lessee's or Lessor's
liability for a breach of the provisions of this Section shall survive any
termination of this Lease.
SECTION 24.
24.1 SUBLETTING AND ASSIGNMENT BY LESSEE. Except as expressly set forth
herein, Lessee may not assign this Lease or sublet all or any part of the Leased
Property without the prior written consent of Lessor (and such consent can be
withheld on a reasonable or unreasonable basis). Notwithstanding the above, and
subject to the provisions of Section 20 and Section 24.2 so long as a Default
does not exist on the part of the Lessee and subject to any other express
conditions or limitations set forth herein, Lessee may, in its sole discretion
(a) assign this Lease or sublet all or any part of the Leased Property to an
Affiliate of Lessee or any person or entity with, or into whom, Lessee merges or
consolidates, or (b) sublet any retail or restaurant portion of the Leased
Improvements in the normal course of the Primary Intended Use; provided that any
subletting to any party other than an Affiliate of Lessee shall not individually
as to any one such subletting, or in the aggregate, materially diminish the
actual or potential Percentage Rent payable under this Lease. In the case of a
subletting, the sublessee shall comply with the provisions of Section 24.2, and
in the case of an assignment, the assignee shall assume in writing and agree to
keep and perform all of the terms of this Lease on the part of Lessee to be kept
and performed and shall be, and become, jointly and severally liable with Lessee
for the performance thereof. Notwithstanding the above, Lessee may assign the
Lease to an Affiliate without the consent of Lessor; provided that any such
assignee assumes in writing and agrees to keep and perform all of the terms of
the Lease on the part of Lessee to be kept and performed and shall be and become
jointly and severally liable with Lessee for the performance thereof. In case
of either an assignment or subletting made during the Term, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder. An original counterpart of each
such sublease and assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
Lessor, shall be delivered promptly to Lessor. Additionally, so long as an
Event of Default does not exist on the part of the Lessee, the Lessee shall have
the right to assign this Lease to an unaffiliated third party transferee if such
transferee has a net worth in excess of one million dollars ($1,000,000);
provided, however, that (i) the Lessee must give Lessor forty five (45) days
written notice of such assignment; (ii) such unaffiliated third party transferee
shall assume all the
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Lessee's obligations and rights under this Lease;(iii) the Lessee and/or the
unaffiliated third party transferee must pay any and all outstanding Rent
owed to Lessor; and (iv) such unaffiliated third party transferee must
acknowledge in writing that any and all references to Negative Base Rent
shall be deemed deleted herefrom.
24.2 ATTORNMENT. Lessee shall insert in each sublease permitted under
Section 24.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) if this Lease terminates before the expiration of such
sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
24.3 SUBLETTING AND ASSIGNMENT BY LESSOR. Other than in accordance with
Section 1.2(B), Lessor shall not assign this Lease to any other person or entity
without the prior written approval of Lessee.
SECTION 25.
OFFICER'S CERTIFICATES; FINANCIAL STATEMENTS: LESSOR'S ESTOPPEL
CERTIFICATES AND COVENANTS.
(a) At any time and from time to time upon not less than 20 days
Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default exists
thereunder by Lessor or Lessee, and such other information as may be reasonably
requested by Lessor. Any such certificate furnished pursuant to this Section
may be relied upon by Lessor, any lender and any prospective purchaser of the
Leased Property.
(b) Lessee will furnish the following to Lessor:
(1) with reasonable promptness, such information respecting the
financial condition and affairs of Lessee including audited financial statements
prepared by Coopers & Lybrand, L.L.C. or such other certified independent
accounting firm as may be approved by Lessor, as Lessor may reasonably request
from time to time, provided, however that in the absence of special and/or
nonrecurring circumstances Lessee shall only be required to furnish audited
financial information to Lessor no more than once per Fiscal Year; and
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(2) the most recent Financials of Lessee within 25 days after
each quarter of any Fiscal Year (or, in the case of the final quarter in
any Fiscal Year, the most recent audited Financials of Lessee within 60
days); and
(3) on or about the 15th day of each month, a true, complete and
correct cash flow statement with respect to the Leased Property in the form
attached hereto as EXHIBIT K and incorporated herein by reference,
reflecting (a) a detailed accounting of Gross Revenues, Gross Room Revenues
(and other cash receipts of any kind whatsoever) and all Operating Expenses
(as defined in Section 48 hereof), and other cash payments and
disbursements (of any kind whatsoever), and (b) year-to-date summaries of
same, together with an Officer's Certificate stating that such cash flow
statement is true, complete and correct; and
(4) on or about the 15th day of each month, an Officer's
Certificate stating that all Operating Expenses (as defined in Section 48
hereof) with respect to the Leased Property which have accrued as of the
last day of the month preceding the delivery of the cash flow statement
referred to in (3) above have been fully paid or otherwise reserved or
provided for by Lessee; and
(5) within seventy-five (75) days after the end of each Fiscal
Year, with a report setting forth (a) the Net Operating Income (as defined
in Section 48 hereof) for such Fiscal Year, (b) the average occupancy rate
of the Leased Property during such Fiscal Year, and (c) the capital
repairs, replacements and improvements performed at the Leased Property
during such Fiscal Year and the cost of same; and
(6) on an annual basis, copies of all reports submitted to
governmental authorities and agencies (including, but not limited to,
reports relating to sales, use and occupancy taxes) and any franchisor.
At any time and from time to time upon not less than 20 days notice by
Lessee, Lessor will furnish to Lessee or to any person designated by Lessee an
estoppel certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which Rent has been paid, whether
to the knowledge of Lessor there is any existing default or Event of Default on
Lessee's part hereunder, and such other information as may be reasonably
requested by Lessee.
Notwithstanding the foregoing, the costs of such audit shall be paid for as
a Gross Operating Expense and deducted from Gross Revenues except as otherwise
stated herein.
SECTION 26.
LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its authorized
representatives as frequently as reasonably requested by Lessor to inspect the
Leased Property and Lessee's accounts
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and records pertaining thereto and make copies thereof, during usual
business hours upon reasonable advance notice, subject only to any business
confidentiality requirements reasonably requested by Lessee.
SECTION 27.
NO WAIVER. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial
payment of Rent during the continuance of any such breach, shall constitute a
waiver of any such breach or of any such term. To the extent permitted by
law, no waiver of any breach shall affect or alter this Lease, which shall
continue in full force and effect with respect to any other then existing or
subsequent breach.
SECTION 28.
REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right,
power and remedy and the exercise or beginning of the exercise by Lessor or
Lessee of any one or more of such rights, powers and remedies shall not
preclude the simultaneous or subsequent exercise by Lessor or Lessee of any
or all of such other rights, powers and remedies.
SECTION 29.
ACCEPTANCE OF SURRENDER. No surrender to Lessor of the Leased Property
or any part thereof, or of any interest therein, shall be valid or effective
unless agreed to and accepted in writing by Lessor and no act by Lessor or
any representative or agent of Lessor, other than such a written acceptance
by Lessor, shall constitute an acceptance of any such surrender.
SECTION 30.
NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly: (a) this Lease or
the leasehold estate created hereby or any interest in this Lease or such
leasehold estate, and (b) the fee estate in the Leased Property.
SECTION 31.
CONVEYANCE BY LESSOR. If Lessor or any successor owner of the Leased
Property conveys the Leased Property in accordance with the terms hereof
other than as security for a debt, and the grantee or transferee of the
Leased Property expressly assumes all obligations of Lessor hereunder arising
or accruing from and after the date of such conveyance or transfer, Lessor or
such successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of
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Lessor under this Lease arising or accruing from and after the date of such
conveyance or other transfer as to the Leased Property and all such future
liabilities and obligations shall thereupon be binding upon the new owner;
provided, however, that in the event of such a conveyance by Lessor, Lessee
may offset against the Base Rent otherwise due hereunder an amount equal to
the annual increases in property taxes incurred by Lessee solely by reason of
said conveyance from Lessor to successor owner.
SECTION 32.
QUIET ENJOYMENT. So long as Lessee pays all Rent as the same becomes due
and complies with all of the terms of this Lease and performs its obligations
hereunder, in each case within the applicable grace periods, if any, Lessee
shall peaceably and quietly have, hold and enjoy the Leased Property for the
Term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all liens and encumbrances
subject to which the Leased Property was conveyed to Lessor or hereafter
consented to by Lessee or provided for herein. Notwithstanding the
foregoing, Lessee shall have the right by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor
of the covenant of quiet enjoyment contained in this Section.
SECTION 33.
NOTICES. All notices, demands, requests, consents, approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by registered or certified mail, return receipt
requested and postage prepaid), addressed to Lessor at its principal office,
as indicated in the signature page hereof, Attention: President, and
addressed to Lessee as indicated in the signature page hereof, or to such
other address or addresses as either party may hereafter designate.
Personally delivered Notice shall be effective upon receipt, and Notice given
by mail shall be complete at the time of deposit in the U.S. Mail system, but
any prescribed period of Notice and any right or duty to do any act or make
any response within any prescribed period or on a date certain after the
service of such Notice given by mail shall be extended five days.
SECTION 34.
APPRAISERS. If it becomes necessary to determine the Fair Market Value
or Fair Market Rental of the Leased Property for any purpose of this Lease,
the party required or permitted to give Notice of such required determination
shall include in the Notice the name of a person selected to act as appraiser
on its behalf. Within 10 days after Notice, Lessor (or Lessee, as the case
may be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a
second person as appraiser on its behalf. The appraisers thus appointed, each
of whom must be a member of the American Institute of Real Estate Appraisers
(or any successor organization thereto) with at least five years experience
in the State appraising property similar to the Leased Property, shall,
within 45 days after the date of the Notice appointing the first appraiser,
proceed to appraise the Leased Property to determine the Fair Market Value or
Fair Market Rental thereof as of the relevant date (giving effect to the
impact,
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if any, of inflation from the date of their decision to the relevant date);
provided, however, that if only one appraiser shall have been so appointed,
then the determination of such appraiser shall be final and binding upon the
parties. To the extent consistent with sound appraisal practice as then
existing at the time of any such appraisal, such appraisal shall be made on a
basis consistent with the basis on which the Leased Property was appraised
for purposes of determining its Fair Market Value at the time the Leased
Property was acquired by Lessor. If two appraisers are appointed and if the
difference between the amounts so determined does not exceed 5%, then the
Fair Market Value or Fair Market Rental shall be an amount equal to 50% of
the sum of the amounts so determined. If the difference between the amounts
so determined exceeds 5%, then such two appraisers shall have 20 days to
appoint a third appraiser. If no such appraiser shall have been appointed
within such 20 days or within 90 days of the original request for a
determination of Fair Market Value or Fair Market Rental, whichever is
earlier, either Lessor or Lessee may apply to any court having jurisdiction
to have such appointment made by such court. Any appraiser appointed by the
original appraisers or by such court shall be instructed to determine the
Fair Market Value or Fair Market Rental within 45 days after appointment of
such appraiser. Thereafter, the three (3) appraisals shall be reviewed and
the determination of the appraiser which differs most in the terms of dollar
amount from the determinations of the other two appraisers shall be excluded,
and 50% of the sum of the remaining two determinations shall be final and
binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rental
of the Leased Property, as the case may be. This provision for determining
by appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be
final and binding upon the parties except as otherwise provided by applicable
law. Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal. In the event that the Lessor and the Lessee
agree upon a single appraiser, the Lessee and the Lessor shall each pay
one-half of the fees and expenses of such appraiser.
SECTION 35.
35.1 LESSOR MAY GRANT LIENS. Without the consent of Lessee, Lessor may,
subject to the terms and conditions set forth below in these Sections 16,
16.1 and 35.1, from time to time, directly or indirectly, create or otherwise
cause to exist any lien, encumbrance or title retention agreement
("Encumbrance") upon the Leased Property, or any portion thereof or interest
therein, whether to secure any borrowing or other means of financing or
refinancing. Any such Encumbrance shall (a) contain the right to prepay
(whether or not subject to a prepayment penalty); (b) provide that it is
subject to the rights of Lessee under this Lease; contain the Agreement by
the holder of the Encumbrance that it will (1) give Lessee the same notice,
if any, given to of Lessor of any default or acceleration of any obligation
underlying any such Encumbrance or any sale in foreclosure under such
Encumbrance, (2) permit Lessee to cure any such default on Lessor's behalf
within any applicable cure period, and Lessee shall be reimbursed by Lessor
for any and all costs incurred in effecting such cure, including without
limitation out-of-pocket costs incurred to effect any such cure (including
reasonable attorneys' fees) and (3) permit Lessee to appear by its
representative and to bid at any sale in foreclosure made with respect to any
such Encumbrance. Upon the request of Lessor,
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Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased Property (including its rights with respect to the Base Management
Fee), on the condition that the proposed mortgagee executes a non-disturbance
and attornment agreement recognizing this Lease, and agreeing, for itself and
its successors and assigns, to comply with the provisions of this Section 35.
35.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of Sections 16,
16.1 and 35.3, if Lessor breaches any covenant to be performed by it under
this Lease, Lessee, after Notice to and demand upon Lessor, without waiving
or releasing any obligation hereunder, and in addition to all other remedies
available to Lessee, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at
the expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon at the Overdue Rate from the date on which
such sums or expenses are paid or incurred by Lessee, shall be paid by Lessor
to Lessee on demand or, following entry of a final, nonappealable judgment
against Lessor for such sums, may be offset by Lessee against the Base Rent
payments next accruing or coming due. The rights of Lessee hereunder to cure
and to secure payment from Lessor in accordance with this Section 35.2 shall
survive the termination of this Lease with respect to the Leased Property.
35.3 BREACH BY LESSOR. If an Event of Default exists on the part
of Lessor, Lessee, without waiving or releasing any obligations hereunder,
and in addition to all other remedies available to Lessee at law or in
equity, may purchase the Leased Property from Lessor for a purchase price
equal to the then Fair Market Value. If Lessee elects to purchase the
Property it shall deliver a Notice thereof to Lessor specifying a settlement
date to occur not less than 90 days subsequent to the date of such Notice on
which it shall purchase the Leased Property, and the same shall be thereupon
conveyed in accordance with the provisions of Section 19.
SECTION 36.
36.1 MISCELLANEOUS. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application
thereof is invalid or unenforceable, the remainder of this Lease and any
other application of such term or provisions shall not be affected thereby.
If any late charges or any interest rate provided for in any provision of
this Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate. Neither this Lease nor any provision hereof may be
changed, waived, discharged or terminated except by a written instrument in
recordable form signed by Lessor and Lessee. All the terms and provisions of
this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. The headings in this
Lease are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Lease shall be governed by and construed in
accordance with the laws of the State, but not including its conflicts of
laws rules.
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36.2 TRANSFER OF LICENSES. Upon the expiration or earlier termination of
the Term, Lessee shall use diligent and good faith efforts (i) to transfer to
Lessor or Lessor's nominee all licenses, equipment leases, operating permits
and other governmental authorizations and all service contracts, including
contracts with governmental or quasi-governmental entities, that may be
necessary for the operation of the Facilities (collectively, "Licenses"), or
(ii) if such transfer is prohibited by law or Lessor otherwise elects, to
cooperate with Lessor or Lessor's nominee in connection with the processing
by Lessor or Lessor's nominee of any applications for, all Licenses;
provided, in either case, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Lessor or Lessor's
nominee. In addition, Lessee agrees to use diligent and good faith efforts
to, if applicable, assist Lessor in obtaining any consents necessary for the
assignment of the Franchise Agreement. Lessor and Lessee agree to execute
whatever instruments are necessary to effect the assumption by the Lessor or
Lessor's nominee of all such licenses, equipment leases, operating permits
and service contracts.
36.3 WAIVER OF PRESENTMENT, ETC.. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein, and except as expressly
provided in Section 16 herein.
SECTION 37.
MEMORANDUM OF LEASE. Lessor and Lessee shall promptly upon the request
of either enter into a short form memorandum of this Lease, in form suitable
for recording under the laws of the State. Lessee shall pay all costs and
expenses of recording such memorandum of this Lease.
SECTION 38.
LESSOR'S OBLIGATION TO PURCHASE ASSETS OF LESSEE. Effective on not less
than 90 days prior Notice given at any time within 180 days before the
expiration of the Term, but not later than 90 days prior to such expiration,
or upon such shorter Notice period as shall be appropriate if this Lease is
terminated prior to its expiration date, Lessor shall purchase and/or assume
all (but not less than all) of the assets and liabilities of Lessee, tangible
and intangible, relating to the Leased Property (other than this Lease), at
the expiration or termination of this Lease for an amount (payable in cash on
the expiration date of this Lease) equal to the fair market value thereof as
appraised in conformity with Section 34, except that the appraisers need not
be members of the American Institute of Real Estate Appraisers, but rather
shall be appraisers having at least ten years experience in valuing similar
assets. Notwithstanding any such purchase, Lessor shall obtain no rights to
any trade name or logo owned, licensed or used by the Lessee in connection
with the Leased Property or the Franchise Agreement unless a separate
agreement as to such use is executed by the applicable parties.
SECTION 39.
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COMPLIANCE WITH FRANCHISE AGREEMENT. On or before the Commencement Date,
the Lessor shall deliver to the Lessee any existing Franchise Agreement
applicable to the Leased Property along with an estoppel certificate from the
franchisor certifying, among other things, that no default exists under the
Franchise Agreement, the current physical condition of the Leased Property
satisfies the current quality standards of the franchisor and that all
franchise fees and other payments or obligations of the current franchisee
under the Franchise Agreement are current. It is the intent of the parties
hereto that Lessee shall comply in every respect with the provisions of the
Franchise Agreement so as to avoid any default thereunder during the term of
this Agreement. Lessor and Lessee agree to cooperate fully with each other in
the event it becomes necessary to obtain a Franchise Agreement extension or
modification or a new franchise for the property.
SECTION 40.
CAPITAL EXPENDITURES AND RESERVES
(A) Subject to the last sentence of this subparagraph (A), not later
than October 31 of each Fiscal Year, Lessee shall submit to Lessor for
Lessor's approval pursuant to the provisions of Section 3.3 hereof, a Capital
Expenditure Budget for the next Fiscal Year as part of Lessee's submission to
Lessor of the Annual Budget. The purpose for the Capital Expenditure Budget
shall be to keep the Leased Property competitive with any hotel or hotels
similar in nature and type to the Leased Property in the area and to keep the
Leased Property in compliance with the applicable provisions of the Franchise
Agreement. The Capital Expenditure Budget shall include without limitation,
the expenditures required, necessary and/or anticipated for the repair,
replacement or refurbishment of carpet, soft goods, FF&E and structural and
mechanical items, alterations to the Leased Property (but only in accordance
with Section 10.1 hereof), reconstruction in the event of damages or
destruction of the Leased Property (but only in accordance with Section 14
hereof), restoration pursuant to a Taking (but only in accordance with
Section 15 of this Lease), other required or desirable capital improvements
to the Leased Property or any of the components, other required or desired
working capital, and such other items characterized as capital expenditures
under the Uniform System (excluding, however, items required to be maintained
at Lessor's cost pursuant to Section 9.1.2 of this Lease). Lessor shall
maintain a separate interest bearing account referred to as the Capital
Expenditure Reserve Account from which all costs and expenses reflected in an
approved Capital Expenditure Budget should be paid; provided, however, Lessee
shall be an authorized signatory on such account. Lessor shall, on or before
the Commencement Date, fund into the Capital Expenditure Reserve Account (or
if required by its mortgagee, into a similar account designated by such
mortgagee) an amount equal to at least one hundred percent (100%) of the
deferred maintenance costs relating to the Leased Property and required by
Super 8 Motels, Inc., the engineering report prepared by Aaron & Wright,
and/or Lessor's mortgagee. Lessee will contract for and cause the
completion of any such deferred maintenance work within either six (6) months
or one (1) year after the date hereof, as designated on a case by case basis
by Lessor. Lessor shall also, within five (5) days of its receipt of the
monthly profit and loss statement described in Section 25 (b)(3) hereof, fund
into the Capital Expenditure Reserve Account (or if required by its
mortgagee, into a similar account designated by such mortgagee), an amount
equal to five percent (5%) of the
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Gross Room Revenues for the preceding month (pro-rated for any partial
calendar month). Lessee understands and agrees that after the approval by
Lessor of any annual Capital Expenditure Budget, no monies can be expended
from the Capital Expenditure Reserve Account for the applicable year which
were not reflected in that year's annual Capital Expenditure Budget (or if
such expenditures were reflected on the applicable budget, but were
underestimated) without the prior written consent of Lessor, which will not
be unreasonably withheld or delayed; provided, that in the event of an
emergency necessitating expenditures for the protection of life or health or
the protection of the Leased Property (a) Lessee shall immediately pay or
incur the costs and expenses in its reasonable judgment necessary to insure
such protection and irrespective of whether such sums are reflected on the
applicable Capital Expenditure Budget, and (b) Lessor shall fund additional
monies into the Capital Expenditure Revenue Account with regard to same if
monies in said account are insufficient to pay the costs and expenses
associated with such emergency. In addition to those statements required by
Section 25 hereof, Lessee agrees during the Term hereof to provide to Lessor
monthly reports and invoices as to the expenditures made from the Capital
Expenditure Reserve Account for the operations of the Leased Property for the
immediately preceding month. Lessor and Lessee hereby agree that the Lessee
shall submit to Lessor for Lessor's approval pursuant to the provisions of
Section 3.3 hereof, the Capital Expenditure Budget for the Fiscal Year 1997
on or before the Commencement Date.
(B) Lessor represents and warrants, to the best of its knowledge, that
the Leased Property is in full compliance with the Americans With
Disabilities Act and all rules and regulations promulgated thereunder or in
connection therewith (the "ADA Act") and has received no notice from any
governmental authority, or complaint for allegation from any third party
asserting that the Leased Property is not in full compliance with the ADA Act.
SECTION 41.
FORCE MAJEURE. Notwithstanding anything contained herein to the
contrary, both the Lessor and the Lessee shall be excused from performance of
all terms and conditions under this Lease (including the Lessee's obligation
to pay Base Rent) in the event of any act of God, acts of war, acts of
terrorism, civil disturbance, labor strikes, governmental action (including
condemnation proceedings), or other causes beyond the reasonable control of
Lessor or Lessee which have a significant adverse effect upon the financial
performance of the Leased Property. Lessee agrees to make good faith efforts
to provide to Lessor as much advance Notice of such events as practical if
Lessee has actual knowledge that such an event likely will occur. If such a
force majeure event occurs, the Lessor and Lessee shall negotiate in good
faith to agree upon a new rental structure to reflect the potential adverse
effect upon the financial performance of the Leased Property. If the Lessor
and the Lessee cannot agree upon a new rental structure within thirty (30)
days after the occurrence of a force majeure event, the Lessee shall have the
option to terminate the Lease without the payment of any termination fee;
provided, however, the Lessee shall be obligated to pay all Rent due through
the date of termination. Notwithstanding anything contained herein to the
contrary, the termination by the Lessee of the Lease pursuant to a force
majeure event described in this Section
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41 shall not be deemed to be a termination without cause by the Lessee
pursuant to the terms of the Master Agreement.
SECTION 42 INTENTIONALLY OMITTED.
SECTION 43
ARBITRATION. Except as otherwise set forth in Section 42 hereof, in
the event a dispute should arise concerning the interpretation or application
of any of the provisions of this Agreement, the parties agree the dispute
shall be submitted to arbitration of the American Arbitration Association,
except as modified by this SECTION 43. The Arbitration Tribunal shall be
formed of three (3) Arbitrators each of which shall have at least five (5)
years' experience in hotel operation, management or ownership, one (1) to be
appointed by each party and the third (3rd) to be appointed by the American
Arbitration Association. The arbitration shall take place in Pittsburgh,
Pennsylvania, and shall be conducted in the English language. The
arbitration award shall be final and binding upon the parties hereto and
subject to no appeal, and shall deal with the question of costs of
arbitration and all matters related thereto. Judgment upon the award rendered
may be entered into any court having jurisdiction, or applications may be
made to such court for an order of enforcement.
SECTION 44
RIGHT OF FIRST REFUSAL. If Lessor shall have received a bona fide offer
to purchase the Leased Property, and Lessor desires to sell the Leased
Property pursuant to the terms of such offer, Lessor shall give Notice
thereof to Lessee, stating the name and full identity of the prospective
purchaser, including the names and addresses of the owners of the capital
stock, partnership interests or other proprietary interests of such
prospective purchaser, if such information is reasonably available to Lessor,
the price, and all other terms and conditions of such proposed sale, together
with all other information with respect thereto which is requested by Lessee
and reasonably available to Lessor. Within thirty (30) days after receipt by
Lessee of such Notice from Lessor, Lessee shall elect by written notice to
Lessor one of the following alternatives:
(A) To purchase the Leased Property or to purchase the stock at the
same price and upon the same terms and conditions as those set forth in the
Notice from Lessor to Lessee. In such event, Lessor and Lessee shall
promptly enter into an agreement for sale at the price and on terms
consistent with such Notice from Lessor to Lessee.
(B) To consent to such sale and to the assignment of this Lease to such
purchaser, if such sale is in fact consummated; provided, however, that
concurrently with the consummation of such sale, the purchaser shall in
writing under an assumption agreement in form and substance reasonably
satisfactory to Lessee assume and agree to perform and comply in accordance
with the terms of this Lease. An executed copy of said assumption agreement
shall be promptly delivered by Lessor to Lessee. Lessor shall give to Lessee
not less than thirty (30) days Notice of the date on which such sale is to
be consummated in order to give Lessee an opportunity to be present.
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(C) To refuse consent to such offer to purchase; provided, however, such
consent shall not be unreasonably withheld if such prospective purchaser is,
in Lessee's judgment, financially capable and sufficiently reputable to
enable such prospective purchaser to perform the terms and conditions of this
Lease. If Lessee shall withhold its consent to any such purchase and Lessor
shall nonetheless consummate such transaction, Lessee shall be entitled to
immediately terminate the Lease and all obligations of Lessee shall
immediately cease.
SECTION 45
As conditions precedent to the effectiveness of this Lease, Lessor shall
have closed the transaction contemplated in the Contract of Purchase and Sale.
SECTION 46
Unless otherwise expressly stated herein, any reference to a required
consent or approval by either the Lessor or the Lessee shall be deemed to
refer to an approval or consent which shall not be unreasonably withheld or
delayed.
SECTION 47
Lessee shall on or before the Commencement Date, deposit with Lessor the
sum of $300,000.00 (as from time to time reduced, as set forth hereinbelow,
the "Security Deposit") to be held by Lessor as security for the performance
by Lessee of Lessee's covenants and obligations under this Lease. Upon the
occurrence of an Event of Default by Lessee, Lessor may, from time to time
without prejudice to any other remedy provided herein, use the proceeds of
such Security Deposit to the extent necessary to cure such Event of Default,
and Lessee shall pay to Lessor on demand the amount so applied or used in
order to restore the Security Deposit to its then required amount. Unless an
Event of Default on the part of Lessee then exists, any remaining balance of
the Security Deposit shall be returned to Lessee upon expiration or earlier
termination of this Lease. Notwithstanding anything contained herein to the
contrary, unless at such time there then exists an Event of Default on the
part of Lessee, Lessor shall (a) upon the third (3rd) anniversary date of the
Term, reduce the Security Deposit to $180,000.00 and, incident thereto,
return $120,000.00 of the Security Deposit to Lessee, and (b) upon the fifth
(5th) anniversary date of the Term, reduce the Security Deposit to
$120,000.00 and, incident thereto, refund $60,000.00 of the Security Deposit
to Lessee. Lessor acknowledges and agrees that if Lessor fails to perform
its covenants set forth in the immediately preceding sentence of this Section
47, Lessee may offset an amount equal to the applicable sums to be so
returned and refunded to Lessee from any receivables at such time or times
owed to Lessor or an Affiliate of Lessor pursuant to Section 6.4 hereof or
Section 6.4 of any of the other operating leases between Lessee and Lessor
(or an Affiliate of Lessor) whereby Lessee leases and operates various hotel
properties owned by Lessor or an Affiliate of Lessor (but not from the Rent
or other charges next becoming due hereunder or under any such other
operating leases). Notwithstanding anything contained in this Lease to the
contrary, Lessee shall, upon provision to Lessor of at least ninety (90) days
Notice, have the right to terminate this Lease without cause at any
48
<PAGE>
time after the first (1st) anniversary of the Commencement Date; provided,
however, in the event of such a termination without cause, Lessee
acknowledges and agrees that the Security Deposit shall be forfeited to
Lessor and that Lessee shall additionally be obligated to pay Lessor all Rent
and other sums due to Lessor with respect to this Lease through the date of
such termination. Notwithstanding anything contained in this Lease to the
contrary, Lessee shall, upon provision to Lessor of at least one hundred
eighty (180) days Notice, also have the one-time right to terminate this
Lease without cause effective as of the fifth (5th) anniversary of the
Commencement Date; provided, however, in the event of such termination
without cause, (i) Lessor acknowledges and agrees that the Security Deposit
shall be returned to Lessee, and (ii) Lessee acknowledges and agrees that
Lessee shall be obligated to pay Lessor all Rent and other sums due to Lessor
with respect to this Lease through the date of such termination.
[SPACE INTENTIONALLY LEFT BLANK]
49
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
LESSOR
HOST VENTURES, INC.,
a Maryland corporation
6116 N. Central Expwy., Suite 1313
Dallas, Texas 75206
Phone (214) 750-0670
By: /s/ Michael S. McNulty
--------------------------------
Print Name: Michael S. McNulty
Title: President
LESSEE
CROSSROADS HOSPITALITY
TENANT COMPANY, L. L. C.,
a Delaware limited liability company
Foster Plaza 10, 680 Andersen Drive
Pittsburgh PA 15220-8126
Phone (412) 937-0600
By: /s/ Kevin P. Kilkeary
--------------------------------
Print Name: Kevin P. Kilkeary
Title:
50
<PAGE>
ASSIGNMENT AND ASSUMPTION
OF LEASE AGREEMENT
(SLEEP INN - SARASOTA, FLORIDA)
STATE OF FLORIDA )
)
COUNTY OF SARASOTA )
THIS ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT (Sleep Inn,
Sarasota, Florida) (this "Assignment") is executed and delivered as of this
____ day of March, 1997, by CrossHost, Inc., a Maryland corporation
("Assignor"), to Host Ventures, Inc. a Maryland corporation ("Assignee"),
whose mailing address is 6116 N. Central Expwy., Suite 1313, Dallas, Texas
75206.
THIS ASSIGNMENT IS EXECUTED AND DELIVERED BY ASSIGNOR AND ASSIGNEE on
the basis of the following facts, intentions and understandings:
Assignor is the "Lessor" pursuant to that certain Lease Agreement
(Sleep Inn, Sarasota, Florida) (as same has thereafter been amended, as set
forth herein below, the "Lease"), dated September 6, 1996, by and between
Assignor, as "Lessor", and Crossroads Hospital Tenant Company, L.L.C., a
Delaware limited liability company ("Crossroads"), as "Lessee", and covering
the "Leased Property" more particularly described therein and known as the
Sleep Inn Hotel, Sarasota, Florida (the "Property"). The Lease has been
amended pursuant to that certain First Amendment to Lease Agreement (the
"First Lease Amendment"), dated effective March __, 1997, and by and between
Assignor and Crossroads.
Assignor desires to assign all of its right, title and interest as
"Lessor" in, to and under the Lease to Assignee on the following terms and
conditions.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is herein
acknowledged and confessed, Assignor and Assignee hereby agree as follows:
1. ASSIGNMENT AND CONVEYANCE. Assignor hereby assigns and transfers to
Assignee all of Assignor's right, title and interest as "Lessor" in, to and
under the Lease.
2. ASSUMPTION. Assignee hereby accepts such assignment and assumes all
obligations of the "Lessor" under the Lease arising from and after the date
hereof.
3. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants
that (a) the Lease is in full force and effect, (b) the Lease, as amended by
the First Lease Amendment, is the entire agreement between Assignor and
Crossroads pertaining to the Property, (c) except for the First Lease
<PAGE>
Amendment, there are no amendments, modifications, supplements, arrangements,
side letters or understandings, oral or written of any sort, modifying,
amending, altering, supplementing or changing the terms of the Lease, and (d)
all obligations of Assignor, as "Lessor," and Crossroads, as "Lessee," under
the Lease have been performed, and no event has occurred and no condition
exists that, with the giving of notice or lapse of time or both, would
constitute a default by either of said parties under the Lease.
4. INDEMNITY. Assignor shall indemnify, defend by counsel acceptable to
Assignee, and hold harmless Assignee for, from and against any and all
claims, loss, cost, liability and expense (including, without limitation,
reasonable attorneys' fees and costs) arising out of or in connection with
the Lease from events which occurred before the date hereof. Assignee shall
indemnify, defend by counsel acceptable to Assignor, and hold harmless
Assignor for, from and against any and all claims, loss, cost, liability and
expense (including, without limitation, reasonable attorneys' fees and costs)
arising out of or in connection with the Lease from events which occur on or
after the date hereof.
5. SUCCESSORS AND ASSIGNS. All of the terms, covenants and conditions
set forth herein shall be binding upon and inure to the benefit of Assignor
and Assignee and their successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the
day and year first above written.
"ASSIGNOR"
CROSSHOST, INC., a Maryland corporation
By: /s/ Michael S. McNulty
-------------------------------------------
Michael S. McNulty, President
"ASSIGNEE"
HOST VENTURES, INC. a Maryland corporation
By: /s/ Michael S. McNulty
-------------------------------------------
Michael S. McNulty, President
APPROVED AND CONSENTED TO
this 31st day of March, 1997
CROSSROADS HOSPITALITY TENANT COMPANY, L.L.C.,
2
<PAGE>
a Delaware limited liability company
By: /s/ Kevin P. Kilkeary
-------------------------------------
Kevin P. Kilkeary, President
3
<PAGE>
STATE OF ____________ )
)
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ____ day of
March, 1997, by Michael S. McNulty, President of CrossHost, Inc., a Maryland
corporation, on behalf of the corporation.
--------------------------------------
Notary Public
My commission expires:
- ------------------------------------
STATE OF ____________ )
)
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ____ day of
March, 1997, by Michael S. McNulty, President of Host Ventures, Inc., a
Maryland corporation, on behalf of the corporation.
---------------------------------------
Notary Public
My commission expires:
_________________________
4
<PAGE>
PARTIAL ASSIGNMENT AND
ASSUMPTION OF MASTER AGREEMENT
(SLEEP INN MOTELS - Sarasota, Florida and Ocean Springs, Mississippi)
THIS PARTIAL ASSIGNMENT AND ASSUMPTION OF MASTER AGREEMENT (this
"Assignment") is executed and delivered as of this 14th day of March, 1997 by
CrossHost, Inc., a Maryland corporation ("Assignor"), to Host Ventures, Inc. a
Maryland corporation ("Assignee"), whose mailing address is 6116 N. Central
Expwy., Suite 1313, Dallas, Texas 75206.
THIS ASSIGNMENT IS EXECUTED AND DELIVERED BY ASSIGNOR AND ASSIGNEE on
the basis of the following facts, intentions and understandings:
Assignor is a party to that certain Master Agreement (the "Master
Agreement") dated as of September 6, 1996, by and between Assignor, as "Lessor",
Crossroads Hospitality Tenant Company, L.L.C., a Delaware limited liability
company ("Lessee"), as "Lessee", and Crossroads Hospitality Company, L.L.C., a
Delaware limited liability company ("Crossroads"), as "Crossroads," and relating
to the "Leases" (sometimes collectively herein, the "Leases") more particularly
described therein and covering the "Hotels" (sometimes collectively herein, the
"Hotels") known as the Sleep Inn Motels located in Destin, Florida, Tallahassee,
Florida, Sarasota, Florida (sometimes individually herein, the "Sarasota Hotel"
or the "Sarasota Lease"), and Ocean Springs, Mississippi (sometimes individually
herein the "Ocean Springs Hotel" or the "Ocean Springs Lease"), respectively.
Assignor has this day conveyed and/or assigned the Sarasota Hotel, the
Sarasota Lease, the Ocean Springs Hotel and the Ocean Springs Lease to Assignee.
Incident to such conveyance and/or assignment, Assignor desires to assign all of
its right, title and interest in, to and under the Master Agreement, as such
right, title and interest relates to the Sarasota Hotel, the Sarasota Lease, the
Ocean Springs Hotel and the Ocean Springs Lease, to Assignee, on the following
terms and conditions.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is herein
acknowledged and confessed, Assignor and Assignee hereby agree as follows:
1. ASSIGNMENT AND CONVEYANCE. Assignor hereby assigns and transfers to
Assignee all of Assignor's right, title and interest in, to and under the Master
Agreement, as such right, title and interest relates to the Sarasota Hotel, the
Sarasota Lease, the Ocean Springs Hotel and the Ocean Springs Lease.
<PAGE>
2. ASSUMPTION. Assignee hereby accepts such assignment and assumes all
obligations of Assignor under the Master Agreement arising from and after the
date hereof and relating to the Sarasota Hotel, the Sarasota Lease, the Ocean
Springs Hotel and the Ocean Springs Lease.
3. PRORATION OF CERTAIN MASTER AGREEMENT PROVISIONS. Crossroads has,
through certain provisions in the Master Agreement, including without
limitation, Sections 2 and 5 hereof, agreed to be liable for various obligations
to be performed by Tenant under the Leases and/or for the occurrence of an event
of default by Tenant under the Leases. Such obligations are secured by the
pledge of stock or guaranty in lieu thereof (the "Security"), as set forth in
Sections 3 and 4 of the Master Agreement. The Security is not, in all
instances, susceptible to allocation to each of the Hotels and Leases, including
specifically, the Sarasota Hotel, the Sarasota Lease, the Ocean Springs Hotel
and the Ocean Springs Lease. Therefore, Assignor and Assignee agree that should
it become necessary to enforce its rights or remedies with respect to the
Security with regard to any of the Hotels or the Leases, said parties will
finally and equitably agree upon such portion or portions of the Security as is
necessary and applicable considering the circumstances surrounding the necessity
to enforce any rights or remedies with respect to the Security.
4. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants that
(a) the Master Agreement is in full force and effect, (b) except for the Leases
(any amendments thereto), the Master Agreement is the entire agreement between
Assignor and Crossroads pertaining to, without limitation, the Sarasota Hotel,
the Sarasota Lease, the Ocean Springs Hotel and the Ocean Springs Lease, (c)
there are no amendments, modifications, supplements, arrangements, side letters
or understandings, oral or written of any sort, modifying, amending, altering,
supplementing or changing the terms of the Master Agreement, and (d) all
obligations of Assignor, Tenant, and Crossroads under the Master Agreement have
been performed, and no event has occurred and no condition exists that, with the
giving of notice or lapse of time or both, would constitute a default by any of
said parties under the Master Agreement.
5. INDEMNITY. Assignor shall indemnify, defend by counsel acceptable to
Assignee, and hold harmless Assignee for, from and against any and all claims,
loss, cost, liability and expense (including, without limitation, reasonable
attorneys' fees and costs) arising out of or in connection with the Master
Agreement as it relates to the Sarasota Hotel, the Sarasota Lease, the Ocean
Springs Hotel and the Ocean Springs Lease, from events which occurred before the
date hereof. Assignee shall indemnify, defend by counsel acceptable to
Assignor, and hold harmless Assignor for, from and against any and all claims,
loss, cost, liability and expense (including, without limitation, reasonable
attorneys' fees and costs) arising out of or in connection with the Master
Agreement as it relates to the Sarasota Hotel, the Sarasota Lease, the Ocean
Springs Hotel and the Ocean Springs Lease, from events which occur on or after
the date hereof.
6. SUCCESSORS AND ASSIGNS. All of the terms, covenants and conditions set
forth herein shall be binding upon and inure to the benefit of Assignor and
Assignee and their successors and assigns.
2
<PAGE>
7. By their execution hereof, Lessee and Crossroads (a) approve and
consent to this Assignment and the terms and provisions hereof, and (b) agree
that notices which may or are required to be given under the Master Agreement
shall be given to Assignor or Assignee, as applicable, at 6116 N. Central
Expwy., Suite 1313, Dallas, Texas 75206, Attention: Michael McNulty, President.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the
day and year first above written.
"ASSIGNOR"
CROSSHOST, INC., a Maryland corporation
By: /s/ Michael S. McNulty
---------------------------------------
Michael S. McNulty, President
"ASSIGNEE"
HOST VENTURES, INC. a Maryland corporation
By: /s/ Michael S. McNulty
--------------------------------------
Michael S. McNulty, President
APPROVED AND CONSENTED TO
this 31st of March, 1997
CROSSROADS HOSPITALITY TENANT COMPANY, L.L.C.,
a Delaware limited liability company
By: /s/ Kevin P. Kilkeary
-----------------------------------
Kevin P. Kilkeary, President
CROSSROADS HOSPITAL COMPANY, L.L.C.,
a Delaware limited liability company
By: /s/ Kevin P. Kilkeary
-----------------------------------
Kevin P. Kilkeary, President
3
<PAGE>
ATTACHMENT 2
RESTATED AND AMENDED
POST-FORMATION ACQUISITION AGREEMENT
THIS AGREEMENT is entered into this 3rd day of February, 1997, by and
between Host Funding, Inc., a Maryland corporation (the "REIT") and HMR CAPITAL,
LLC, a Delaware limited liability company (the "Acquisition Manager") with
reference to the following facts.
A. WHEREAS, REIT wishes to continue an acquisition program which will
lead to the acquisition of hotel and motel properties which will be economically
rewarding to REIT;
B. WHEREAS, the REIT currently does not have the resources and personnel
to undertake an acquisition program;
C. WHEREAS, The REIT has the authority to delegate certain acquisition
responsibilities to third party service providers; and
D. WHEREAS, Acquisition Manager is willing and qualified to serve as the
manager of REIT's acquisition program;
NOW, THEREFORE, by execution of this Agreement, the REIT appoints`
Acquisition Manager as its manager of acquisition services and Acquisition
Manager hereby accepts the appointment as Manager of acquisition services and
acknowledges that it will perform said services on behalf of REIT. Accordingly,
REIT and Acquisition Manager agree as follows:
<PAGE>
1. ENGAGEMENT. REIT hereby engages Acquisition Manager to provide
continuing real estate investment search and acquisition services on behalf of
REIT pursuant to the terms and conditions set forth in this Agreement.
In the performance of its duties under this Agreement, Acquisition
Manager shall have full, complete, and exclusive discretion to search for
,and assist REIT in negotiating and preparing acquisition documentation for
hotel and motel acquisitions. However, REIT shall make the actual ultimate
sole investment decision as to any such property and after Acquisition
Manager shall have presented such property to the REIT, the REIT has no
obligation to acquire such property.
2. OBJECTIVES. In order to satisfy the principal investment objective of
REIT pursuant to this Agreement, Acquisition Manager shall identify and acquire
hotel and motel properties which will perform on an above-average level in REIT
and as provided in Section 8.
3. COVENANTS.
(a) Acquisition Manager is, and throughout the term of this
Agreement shall remain, qualified to provide acquisition services to REIT; and
(b) To the extent of the responsibility allocated to Acquisition
Manager under this Agreement, Acquisition Manager shall not, without the written
consent of REIT (i) deal or act as an agent or broker for, or represent or act
on behalf of, any party whose interests are adverse to the interests of REIT in
any transaction, and (ii) shall not receive any consideration for Acquisition
Manager's own account from any party dealing with REIT in connection with a
transaction involving REIT.
2
<PAGE>
4. PAYMENT OF FEES AND REIMBURSEMENT OF EXPENSES.
(a) FEES: REIT shall pay to Acquisition Manager an acquisition fee
of up to six percent (6%), but no less than two percent (2%) of the gross
purchase price of any hotel and motel properties acquired by REIT during the
term of this Agreement; provided, that REIT may in its sole discretion require
that the seller of any such hotel and motel properties pay all or any portion of
an acquisition fee due to Acquisition Manager under this Agreement. ("Properties
acquired by REIT" shall mean properties acquired directly by the REIT, as well
as properties acquired by affiliated UPREITS, affiliated DownREITS, affiliated
REOCs, qualified REIT subsidiaries, and any and all other affiliated entities,
provided that the REIT and/or its affiliates exercise effective control over
such affiliated entity.) Such fees will be computed and billed monthly
immediately after a closed acquisition and REIT agrees to remit payment
promptly. The fee for services contemplated hereunder shall be paid by REIT in
REIT common shares or cash (at the election of REIT). REIT common shares issued
to Acquisition Manager as payment for services hereunder shall be valued at the
last traded price on the date immediately preceding the date of issuance. In
the event this Agreement is terminated for any reason, all fees from any
acquisition of property by the REIT, where there has been a presentation of the
property in accordance with the terms of this Agreement by the Acquisition
Manager to the REIT prior to said termination, shall be deemed earned as of said
termination and payable in accordance with this Section 5(a), provided that if
the REIT does not close the acquisition of such property within one year after
the termination of this Agreement, no fees shall be due to Acquisition Manager.
Attached to this Agreement as Exhibit A is a list of the properties that as of
January 31, 1997 have been presented to the REIT by Acquisition Manager.
3
<PAGE>
(b) EXPENSES: In addition to the fees described in 5(a) above, REIT
shall pay for pre-approved expenses to unrelated third parties reasonably and
necessarily incurred in the performance of the acquisition services provided
under this Agreement. Such expenses include, but are not limited to, the
following: (i) fees and expenses paid to independent contractors, engineers, and
consultants engaged by Acquisition Manager in connection with an acquisition of
a hotel or motel property; (ii) costs of obtaining independent appraisals of
such properties; (iii) costs and expenses connected with title to properties;
(iv) all other expenses and costs connected with an acquisition, except that
legal fees incurred in the documentation of any acquisition transaction shall be
billed directly to REIT and paid directly by REIT to the provider of such legal
services and except that any costs and/or fees incurred by REIT or Acquisition
Manager for other real estate brokers or commission-type fees shall not be
reimbursed by REIT but shall either be paid directly by Acquisition Manager from
its fee described in Section 5(a) or if paid by REIT said fees shall be credited
against Acquisition Manager's fee under Section 5(a).
(c) STATEMENTS: A statement showing the amount of pre-approved fees
and reimbursable expenses payable will be submitted to REIT by Acquisition
Manager promptly after the close of each calendar month.
5. REPORTS. Acquisition Manager will provide to REIT monthly reports
which will include a list of all hotel and motel properties identified and
targeted as potential acquisitions and the acquisition status of each such
potential targeted property.
4
<PAGE>
6. ACCOUNTING. During the term of this Agreement, Acquisition
Manager will maintain complete and accurate books, accounts, and records
including all charges made for its services and expenses incurred on behalf
of REIT. REIT, or its duly authorized agent, may have access at all
reasonable times to such books, accounts and records for the purpose of
inspecting and auditing them.
7. REPRESENTATION. Acquisition Manager represents that, with respect
to acquisitions of hotel and motel properties, under this Agreement:
(a) Acquisition Manager shall not have an interest in any such
property nor participate in the proceeds of the sale of such property except
as provided for and disclosed under this Agreement; and
(b) Acquisition Manager shall identify and present to REIT hotel
and motel properties for acquisition and assist the REIT in negotiating for
the acquisition of such hotel and motel properties. The hotel and motel
properties identified and presented to REIT should be of a market level and
geographic location that would be compatible with REIT's existing hotel
portfolio.
8. LIABILITY AND RELEASES.
(a) LIABILITY: REIT, its officers and directors shall have the
exclusive authority to make the final investment decisions with respect to any
property disclosed to REIT by Acquisition Manager pursuant to this Agreement.
Acquisition Manager shall not be liable for any act or omission of REIT in
connection with such determination. In that connection, REIT agrees to give
good faith
5
<PAGE>
consideration to any and all presentations of properties which have
been made or will be made to REIT and which fall within the acquisition
standards set forth in Section 8(b), below.
Acquisition Manager's responsibilities under this Agreement are
limited to the duties and responsibilities allocated to Acquisition Manager
under this Agreement and the duties and responsibilities, if any, imposed by
applicable Federal and state law.
(b) MUTUAL RELEASES:
(i) Except as otherwise set forth in subsection (iii) below,
Acquisition Advisor for itself and for its managers, officers, members,
employees, agents, representatives, and affiliated companies, hereby releases
and forever discharges the REIT, and each of its directors, officers, employees,
agents, representatives, and affiliated companies (collectively, the "REIT
Related Persons") from any and all liabilities, claims, causes of action, costs
(including costs of suit and reasonable attorney's fees and expenses), demands,
damages, losses or obligations of whatever nature, character, type or
description, whether known or unknown, asserted or unasserted, which the
Acquisition Advisor has or asserts, or may hereafter have or assert against any
of the REIT Related Persons, by reason of any act or omission arising out of or
from the performance or non-performance by the REIT prior to the date of the
Agreement of that certain Post-Formation Acquisition Agreement dated April 22,
1996 between the parties hereto, as amended by that certain First Amendment to
Post-Formation Agreement dated June 12, 1996 (as amended, the "Original
Acquisition Agreement").
(ii) Except as otherwise set forth in subsection (iii) below,
the REIT for itself and for its directors, officers, employees, agents,
representatives, and affiliated companies hereby releases and forever discharges
the Acquisition Manager, and each of its managers, members,
6
<PAGE>
employees, agents, representatives, and affiliated companies (collectively,
the "Acquisition Related Persons") from any and all liabilities, claims,
causes of action, costs (including costs of suit and reasonable attorney's
fees and expenses), demands, damages, losses or obligations of whatever
nature, character, type or description, whether known or unknown, asserted or
unasserted, which the REIT has or asserts, or may hereafter have or assert
against any of the Acquisition Related Persons, by reason of any act or
omission arising out of or from the performance or non-performance by the
Acquisition Related Persons prior to the date of this Agreement of the
Original Acquisition Agreement.
(iii) Nothing contained in this Section 8(b) shall be deemed to
release any claims or causes of action that either party may have against the
other for the performance or non-performance of the terms of this Agreement
from and after the date hereof.
(c) COSTS AND ATTORNEYS' FEES: In the event of a breach of any
provision or default under this Agreement, the prevailing party in any
lawsuit thereon shall be entitled to reasonable attorneys' fees in addition
to any award of damages for such breach or default.
9. COMPENSATION LIMITED. The only compensation which Acquisition Manager
shall receive in connection with any acquisition for REIT shall be the fees
specified in Section 5 of this Agreement. Acquisition Manager agrees that it
will not accept, or knowingly permit any officers or employees, or any member of
their immediate families (i.e., spouses or children), of itself or of any
affiliates or subsidiaries, to accept any compensation, bonuses, commissions,
rebates, discounts, gifts, or any other thing of value from any other person or
party in connection with any acquisition for REIT. Notwithstanding the
foregoing, Hotel Mortgage Resources, Inc. shall be entitled to earn
7
<PAGE>
fees for providing loan brokerage services with respect to an
acquisition by REIT of a property presented to REIT by Acquisition
Manager, provided that such fees to be earned from the loan brokerage
services are fully disclosed to and approved by REIT and if applicable,
conform to the provisions of Exhibit B attached hereto. In that
connection, the expiration of this Agreement or the termination of this
Agreement for any reason shall not terminate, alter, or amend the
existing understanding between HMR and REIT with respect to the Sleep
Inns / CS First Boston transaction. A summary of this understanding is
set forth in Exhibit B, attached hereto.
If there should be any violations of this provision, REIT shall have the
right to immediately terminate this Agreement, and further, to recover from
Acquisition Manager, or other parties involved, any compensation which may
have been wrongfully realized.
10. COUNTERPARTS. This Agreement may be signed or executed in separate
counterparts and the signing or execution of each counterpart shall have the
same effect as the signing or execution of a single original document.
11. ASSIGNMENT. No assignment of this Agreement may be made by
Acquisition Manager without the written consent of REIT, which consent may be
withheld without cause.
12. MODIFICATIONS. All modifications of this Agreement shall be in
writing, signed by REIT and Acquisition Manager.
13. BENEFIT. This Agreement and all of the terms and conditions
contained in this
8
<PAGE>
Agreement shall be binding upon and inure to the benefit of the parties and
their respective heirs, executors, administrators, successors and assigns.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings and negotiations,
whether oral or written, and there are no other general or specific
warranties, representations or other agreements except as herein specifically
set forth.
15. TERM OF AGREEMENT. The term of this Agreement shall begin on the
date first above specified and shall terminate on the earlier of the (i)
fifth annual anniversary date of this Agreement, or (ii) when the net fees
earned by Acquisition Manager shall equal or exceed $9 million.
Notwithstanding the foregoing, either the Acquisition Manager or the REIT may
cancel this Agreement by giving the other party thirty (30) days written
notice of such cancellation.
16. NOTICES. All notices given pursuant to this Agreement shall be in
writing. All notices shall be deemed to have been properly given or served
(i) on the date of delivery if delivered personally or by courier, (ii) three
days following the date of deposit if mailed by registered or certified mail
within the United States, postage prepaid, (iii) the next business day
following deposit with an overnight air courier service which guarantees next
day delivery, or (iv) when sent by facsimile or telex. Notices shall be sent
to the parties to this Agreement at the addresses set forth herein (or to
such person or persons at such address or addresses as a party may specify by
notice pursuant to this Section 17):
9
<PAGE>
To the Board and to the Company:
Host Funding, Inc.
c/o Michael S. McNulty
14800 Quorum Drive, Suite 510
Dallas, TX 75240
To the Acquisition Manager:
Ian Gardner-Smith
HMR Capital, LLC
1025 Prospect Ave., Suite 350
La Jolla, CA 92037
17. SEVERABILITY. In the event any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provision of this
Agreement.
18. GOVERNING LAW. This Agreement and all rights under it, including
enforcement by litigation, shall be governed by and construed in accordance with
the laws of the State of Delaware.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"REIT" HOST FUNDING, INC.,
/s/ Guy E. Hatfield
------------------------------------------
By: Guy E. Hatfield, Chairman
"ACQUISITION MANAGER" HMR CAPITAL, LLC
/s/ Ian Gardner-Smith
------------------------------------------
By: Ian Gardner-Smith, Manager
11
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
(Super 8 Poplar Bluff, Missouri)
This Second Amendment to Lease Agreement (this "Second Amendment") is
entered into by and between CrossHost, Inc., a Maryland corporation ("Lessor"),
and Crossroads Hospitality Tenant Company, L.L.C., a Delaware limited liability
company ("Lessee"), and is dated effective as of March 14th, 1997 (the
"Effective Date").
RECITALS
A. Lessor, or its predecessor-in-interest, and Lessee have previously
entered into that certain Lease Agreement (Super 8 Poplar Bluff, Missouri) (the
"Lease Agreement") dated March 29, 1996, by and between Lessor, as Lessor, and
Lessee, as Lessee, and covering the "Leased Property" known as the Super 8
Motel, Poplar Bluff, Missouri.
B. The Lease Agreement has heretofore been amended pursuant to that
certain First Amendment to Lease Agreement (the "First Amendment"), dated
effective October 1, 1996.
C. Lessor and Lessee now desire to again modify and amend the Lease
Agreement in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, the Lease Agreement is amended by the
deletion therefrom of Sections 3.1(A) and (B) in their entirety, and in place of
and substitution therefor, new Sections 3.1(A) and (B) added, as follows:
(A) BASE RENT: Beginning with March 31, 1997, in consecutive monthly
installments, on or before the last day of each calendar month of the Term
("Base Rent") an amount corresponding to the amounts set forth on EXHIBIT D
attached hereto and made a part hereof, provided, however, that the first
and last monthly payments of Base Rent shall be pro-rated as to any partial
month (subject to adjustment as provided in Sections 5.2, 14.5, 15.3, 15.5,
and 15.6). If required by any mortgagee of Lessor and at the request of
Lessor, Base Rent payments shall in a timely fashion be wired or mailed to
an account designated by any such mortgagee for such Base Rent payments.
(B) PERCENTAGE RENT: For each Fiscal Year during the Term commencing
with the Fiscal Year beginning January 1, 1996, Tenant shall pay percentage
rent ("Percentage Rent") on a quarterly basis within twenty (20) days
after the end of each calendar quarter and in an amount calculated in
accordance with the formula set forth on EXHIBIT E attached hereto and made
a part hereof. If required by any mortgagee of Lessor and at the request of
Lessor, Percentage Rent payments shall in a timely fashion be wired or
mailed to an account designated by any such mortgagee for such Percentage
Rent payments.
<PAGE>
2. As of the Effective Date, the Lease Agreement is hereby amended by the
deletion therefrom of the introductory paragraph of Section 3.3 in its entirety,
and, in place of and in substitution thereof, a new introductory paragraph added
as follows:
3.3 ANNUAL BUDGET. The Lessee shall submit the Annual Budget for
1996 (or the remainder thereof) to the Lessor for Lessor's approval within
thirty (30) days of its receipt of such Annual Budget. For all Fiscal
Years thereafter, not later than October 31 of each Fiscal Year, Lessee
shall submit the Annual Budget for the next fiscal year to Lessor for
Lessor's approval. The Annual Budget for 1996 and all Fiscal Years
thereafter shall by month and quarter contain the following:
3. As of the Effective Date, the Lease Agreement is hereby amended by the
deletion therefrom of Section 25(b) in its entirety, and, in place of and in
substitution therefor, a new Section 25 (b) added, as follows:
(b) Lessee will furnish the following to Lessor:
(1) with reasonable promptness, such information respecting the
financial condition and affairs of Lessee including audited financial statements
prepared by Coopers & Lybrand, L.L.C. or such other certified independent
accounting firm as may be approved by Lessor, as Lessor may reasonably request
from time to time, provided, however that in the absence of special and/or
nonrecurring circumstances Lessee shall only be required to furnish audited
financial information to Lessor no more than once per Fiscal Year; and
(2) the most recent Financials of Lessee within 25 days after
each quarter of any Fiscal Year (or, in the case of the final quarter in
any Fiscal Year, the most recent audited Financials of Lessee within 60
days); and
(3) on or about the 15th day of each month, a true, complete and
correct cash flow statement with respect to the Leased Property in the form
attached hereto as EXHIBIT K and incorporated herein by reference (and
attached hereto as Rider 1), reflecting (a) a detailed accounting of Gross
Revenues, Gross Room Revenues (and other cash receipts of any kind
whatsoever) and all Operating Expenses (as defined in Section 48 hereof),
and other cash payments and disbursements (of any kind whatsoever), and (b)
year-to-date summaries of same, together with an Officer's Certificate
stating that such cash flow statement is true, complete and correct; and
(4) on or about the 15th day of each month, an Officer's
Certificate stating that all Operating Expenses (as defined in Section 48
hereof) with respect to the Leased Property which have accrued as of the
last day of the month preceding the delivery of the cash flow statement
referred to in (3) above have been fully paid or otherwise reserved or
provided for by Lessee; and
2
<PAGE>
(5) within seventy-five (75) days after the end of each Fiscal
Year, with a report setting forth (a) the Net Operating Income (as defined
in Section 48 hereof) for such Fiscal Year, (b) the average occupancy rate
of the Leased Property during such Fiscal Year, and (c) the capital
repairs, replacements and improvements performed at the Leased Property
during such Fiscal Year and the cost of same; and
(6) on an annual basis, copies of all reports submitted to
governmental authorities and agencies (including, but not limited to,
reports relating to sales, use and occupancy taxes) and any franchisor.
4. As of the Effective Date, the Lease Agreement is hereby amended by the
deletion therefrom of SECTION 40(B) in its entirety, and, in the place of and in
substitution therefor, a new SECTION 40(B) added, as follows:
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of
Section 3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year
as part of Lessee's submission to Lessor of the Annual Budget. The purpose
for the Capital Expenditure Budget shall be to keep the Leased Property
competitive with any hotel or hotels similar in nature and type to the
Leased Property in the area of the Competitive Set and to keep the Leased
Property in compliance with the applicable provisions of the Franchise
Agreement. The Capital Expenditure Budget shall include without
limitation, the expenditures required, necessary and/or anticipated for the
repair, replacement or refurbishment of carpet, soft goods, FF&E and
structural and mechanical items, alterations to the Leased Property (but
only in accordance with Section 10.1 hereof), reconstruction in the event
of damages or destruction of the Leased Property (but only in accordance
with Section 14 hereof), restoration pursuant to a Taking (but only in
accordance with Section 15 of this Lease), other required or desirable
capital improvements to the Leased Property or any of the components, other
required or desirable capital improvements to the Leased Property or any of
the components, other required or desired working capital, and such other
items characterized as capital expenditures under the Uniform System
(excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve
Account from which all costs and expenses reflected in an approved Capital
Expenditure Budget should be paid; provided, however, Lessee shall be an
authorized signatory on such account. Effective April 1, 1997, Lessor
shall, within five (5) days of its receipt of the monthly profit and loss
statement described in Section 25(b)(3) hereof, fund into the Capital
Expenditure Reserve Account (or if required by its mortgagee, all or
portions thereof into a similar account designated by such mortgagee), an
amount equal to six percent (6%) of the Gross Room Revenues for the
preceding month (pro-rated for any partial calendar month). Lessee
understands and agrees that after the approval by Lessor of any annual
Capital Expenditure Reserve Budget, no monies can be expended from the
Capital Expenditure Reserve Account for the applicable year which were not
reflected in that year's annual Capital Expenditure Budget (or if such
3
<PAGE>
expenditures were reflected on the applicable budget, but were
underestimated) without the prior written consent of Lessor, which will not
be unreasonably withheld or delayed; provided, that in the event of an
emergency necessitating expenditures for the protection of life or health
or the protection of the Leased Property (a) Lessee shall immediately pay
or incur the costs and expenses in its reasonable judgment necessary to
insure such protection and irrespective of whether such sums are reflected
on the applicable Capital Expenditure Budget, and (b) Lessor shall fund
additional monies into the Capital expenditure Revenue Account with regard
to same if monies in said account are insufficient to pay the costs and
expenses associated with such emergency. In addition to those statements
required by Section 25 hereof, Lessee agrees during the Term hereof to
provide to Lessor monthly reports and invoices as to the expenditures made
from the Capital Expenditure Reserve Account for the operations of the
Leased Property for the immediately preceding month.
5. PARAGRAPH INTENTIONALLY OMITTED.
[SPACE INTENTIONALLY LEFT BLANK]
4
<PAGE>
6. Except as amended hereby or the First Amendment, the Lease Agreement
remains unchanged, in full force and effect, and the binding obligation of
Lessor and Lessee. Capitalized terms used herein and not otherwise defined
shall have the meanings asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
CROSSHOST INC., a Maryland corporation
By: /s/ Michael S. McNulty
----------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ Kevin P. Kilkeary
----------------------------------
Kevin P. Kilkeary, President
5
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
(Sleep Inn, Sarasota, Florida)
This First Amendment to Lease Agreement (this "First Amendment") is entered
into by and between Host Ventures, Inc., a Maryland corporation ("Lessor"), and
Crossroads Hospitality Tenant Company, L.L.C., a Delaware limited liability
company ("Lessee"), and is dated effective as of March 14th, 1997 (the
"Effective Date").
RECITALS
A. Lessor, or its predecessor-in-interest, and Lessee have previously
entered into that certain Lease Agreement (Sleep Inn, Sarasota, Florida) (the
"Lease Agreement") dated September 6, 1996, by and between Lessor, as Lessor,
and Lessee, as Lessee, and covering the "Leased Property" known as the Sleep Inn
Motel, Sarasota, Florida.
B. Lessor and Lessee now desire to modify and amend the Lease Agreement
in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, the Lease Agreement is amended by the
deletion therefrom of Sections 3.1(A) and (B) in their entirety, and in place of
and substitution therefor, new Sections 3.1(A) and (B) added, as follows:
(A) BASE RENT: Beginning with March 31, 1997, in consecutive monthly
installments, on or before the last day of each calendar month of the Term
("Base Rent") an amount corresponding to the amounts set forth on EXHIBIT D
attached hereto and made a part hereof, provided, however, that the first
and last monthly payments of Base Rent shall be pro-rated as to any partial
month (subject to adjustment as provided in Sections 5.2, 14.5, 15.3, 15.5,
and 15.6). If required by any mortgagee of Lessor and at the request of
Lessor, Base Rent payments shall in a timely fashion be wired or mailed to
an account designated by any such mortgagee for such Base Rent payments.
(B) PERCENTAGE RENT: For each Fiscal Year during the Term commencing
with the Fiscal Year beginning January 1, 1997, Tenant shall pay percentage
rent ("Percentage Rent") on a quarterly basis within twenty (20) days
after the end of each calendar quarter and in an amount calculated in
accordance with the formula set forth on EXHIBIT E attached hereto and made
a part hereof. If required by any mortgagee of Lessor and at the request of
Lessor, Percentage Rent payments shall in a timely fashion be wired or
mailed to an account designated by any such mortgagee for such Percentage
Rent payments.
<PAGE>
2. As of the Effective Date, the Lease Agreement is hereby amended by the
deletion therefrom of the introductory paragraph of Section 3.3 in its entirety,
and, in place of and in substitution thereof, a new introductory paragraph added
as follows:
3.3 ANNUAL BUDGET. The Lessee shall, on or before sixty (60) days
after the Commencement Date, submit the Annual Budget for 1996 (or the
remainder thereof) to the Lessor for Lessor's approval within thirty (30)
days of its receipt of such Annual Budget. For all Fiscal Years
thereafter, not later than October 31 of each Fiscal Year, Lessee shall
submit the Annual Budget for the next fiscal year to Lessor for Lessor's
approval. The Annual Budget for 1996 and all Fiscal Years thereafter shall
by month and quarter contain the following:
3. As of the Effective Date, the Lease Agreement is hereby amended by the
deletion therefrom of Section 25(b) in its entirety, and, in place of and in
substitution therefor, a new Section 25 (b) added, as follows:
(b) Lessee will furnish the following to Lessor:
(1) with reasonable promptness, such information respecting
the financial condition and affairs of Lessee including audited
financial statements prepared by Coopers & Lybrand, L.L.C. or such other
certified independent accounting firm as may be approved by Lessor, as
Lessor may reasonably request from time to time, provided, however that
in the absence of special and/or nonrecurring circumstances Lessee shall
only be required to furnish audited financial information to Lessor no
more than once per Fiscal Year; and
(2) the most recent Financials of Lessee within 25 days after
each quarter of any Fiscal Year (or, in the case of the final quarter in
any Fiscal Year, the most recent audited Financials of Lessee within 60
days); and
(3) on or about the 15th day of each month, a true, complete and
correct cash flow statement with respect to the Leased Property in the form
attached hereto as EXHIBIT K and incorporated herein by reference (and
attached hereto as Rider 1), reflecting (a) a detailed accounting of Gross
Revenues, Gross Room Revenues (and other cash receipts of any kind
whatsoever) and all Operating Expenses (as defined in Section 48 hereof),
and other cash payments and disbursements (of any kind whatsoever), and (b)
year-to-date summaries of same, together with an Officer's Certificate
stating that such cash flow statement is true, complete and correct; and
(4) on or about the 15th day of each month, an Officer's
Certificate stating that all Operating Expenses (as defined in Section 48
hereof) with respect to the Leased Property which have accrued as of the
last day of the month preceding the delivery of the cash flow statement
referred to in (3) above have been fully paid or otherwise reserved or
provided for by Lessee; and
2
<PAGE>
(5) within seventy-five (75) days after the end of each Fiscal
Year, with a report setting forth (a) the Net Operating Income (as defined
in Section 48 hereof) for such Fiscal Year, (b) the average occupancy rate
of the Leased Property during such Fiscal Year, and (c) the capital
repairs, replacements and improvements performed at the Leased Property
during such Fiscal Year and the cost of same; and
(6) on an annual basis, copies of all reports submitted to
governmental authorities and agencies (including, but not limited to,
reports relating to sales, use and occupancy taxes) and any franchisor.
4. As of the Effective Date, the Lease Agreement is hereby amended by the
deletion therefrom of SECTION 40(B) in its entirety, and, in the place of and in
substitution therefor, a new SECTION 40(B) added, as follows:
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of
Section 3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year
as part of Lessee's submission to Lessor of the Annual Budget. The purpose
for the Capital Expenditure Budget shall be to keep the Leased Property
competitive with any hotel or hotels similar in nature and type to the
Leased Property in the area of the Competitive Set and to keep the Leased
Property in compliance with the applicable provisions of the Franchise
Agreement. The Capital Expenditure Budget shall include without
limitation, the expenditures required, necessary and/or anticipated for the
repair, replacement or refurbishment of carpet, soft goods, FF&E and
structural and mechanical items, alterations to the Leased Property (but
only in accordance with Section 10.1 hereof), reconstruction in the event
of damages or destruction of the Leased Property (but only in accordance
with Section 14 hereof), restoration pursuant to a Taking (but only in
accordance with Section 15 of this Lease), other required or desirable
capital improvements to the Leased Property or any of the components, other
required or desirable capital improvements to the Leased Property or any of
the components, other required or desired working capital, and such other
items characterized as capital expenditures under the Uniform System
(excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve
Account from which all costs and expenses reflected in an approved Capital
Expenditure Budget should be paid; provided, however, Lessee shall be an
authorized signatory on such account. For the first four (4) years of the
Term hereof, Lessor shall, within five (5) days of its receipt of the
monthly profit and loss statement described in Section 25(b)(3) hereof,
fund into the Capital Expenditure Reserve Account (or if required by its
mortgagee, all or portions thereof into a similar account designated by
such mortgagee), an amount equal to four percent (4%) of the Gross Room
Revenues for the preceding month (pro-rated for any partial calendar
month); provided this amount will be increased to six percent (6%) for
years five (5) and thereafter during the Term hereof. Lessee understands
and agrees that after the approval by Lessor of
3
<PAGE>
any annual Capital Expenditure Reserve Budget, no monies can be expended
from the Capital Expenditure Reserve Account for the applicable year
which were not reflected in that year's annual Capital Expenditure
Budget (or if such expenditures were reflected on the applicable budget,
but were underestimated) without the prior written consent of Lessor,
which will not be unreasonably withheld or delayed; provided, that in
the event of an emergency necessitating expenditures for the protection
of life or health or the protection of the Leased Property (a) Lessee
shall immediately pay or incur the costs and expenses in its reasonable
judgment necessary to insure such protection and irrespective of whether
such sums are reflected on the applicable Capital Expenditure Budget,
and (b) Lessor shall fund additional monies into the Capital expenditure
Revenue Account with regard to same if monies in said account are
insufficient to pay the costs and expenses associated with such
emergency. In addition to those statements required by Section 25
hereof, Lessee agrees during the Term hereof to provide to Lessor
monthly reports and invoices as to the expenditures made from the
Capital Expenditure Reserve Account for the operations of the Leased
Property for the immediately preceding month.
5. PARAGRAPH INTENTIONALLY OMITTED.
[SPACE INTENTIONALLY LEFT BLANK]
4
<PAGE>
6. Except as amended hereby, the Lease Agreement remains unchanged, in
full force and effect, and the binding obligation of Lessor and Lessee.
Capitalized terms used herein and not otherwise defined shall have the meanings
asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
HOST VENTURES, INC., a Maryland corporation
By: /s/ Michael S. McNulty
--------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ Kevin P. Kilkeary
--------------------------------
Kevin P. Kilkeary, President
5
<PAGE>
ATTACHMENT 1
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (the "Termination Agreement") is made and
entered into as of this 3rd day of February, 1997, by and between Host
Funding, Inc., a Maryland corporation (the "REIT"), HMR Capital, LLC, a
Delaware limited liability company (the "Company") and Host Funding Advisors,
Inc., a Delaware corporation (the "Advisor") with reference to the following
facts:
A. On April 17, 1996, the parties hereto entered into an advisory
agreement, as amended by the First Amendment thereto dated June 12, 1996 (the
"Advisory Agreement") whereby the Advisor agreed to provide information,
advice, assistance and facilities to the Company and to undertake certain
duties and responsibilities as set forth in the Advisory Agreement. In
consideration for such services, the Company agreed to pay the Advisor fees
as set forth in the Advisory Agreement.
B. The parties now wish to terminate the Advisory Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. TERMINATION
Pursuant to this Termination Agreement, effective as of the close of
business on January 31, 1997, the parties do hereby agree to terminate the
Advisory Agreement and all duties, obligations, and rights each party has or
may have thereunder. As full and final consideration for this Termination
Agreement REIT agrees to pay Advisor on or before February 15, 1997 a lump
sum payment of $30,000. Advisor shall also be entitled to reimbursement from
REIT for all reasonable reimbursable expenses incurred by Advisor through
January 31, 1997. In addition, Advisor shall
<PAGE>
be deemed to have earned the 1997 first quarter base fee in the amount of
$7,500 which has previously been paid to Advisor by REIT.
2. MUTUAL RELEASE
A. ADVISOR RELEASE
In consideration of the execution and delivery of this Termination
Agreement by the REIT, each of the Company and Advisor, for itself, and for
its directors, managers, officers, employees, agents, representatives,
attorneys, subsidiaries, parent and affiliated companies, insurers,
principals, partners, joint venturers, members, successors, and assigns,
hereby releases and forever discharges the REIT, and each of its principals,
partners, joint venturers, directors, officers, employees, agents,
representatives, attorneys, subsidiaries, parent and affiliated companies,
insurers, successors, and assigns (collectively "REIT Related Persons") from
any and all liabilities, claims, causes of action, costs (including costs of
suit and attorney's fees and expenses), demands, damages, losses, debts,
accounts, liens, duties, or obligations of whatever nature, character, type
or description, whether known or unknown, suspected or unsuspected, asserted
or unasserted, which the Company or the Advisor has or asserts, or may
hereafter have or assert against any of the REIT Related Persons, by reason
of any act or omission arising out of or from the performance or
non-performance of the Advisory Agreement.
B. REIT RELEASE
In consideration of the execution and delivery of this Termination
Agreement by the Company and the Advisor, the REIT, for itself, and for each
of its directors, officers, employees, agents, representatives, attorneys,
subsidiaries, parent and affiliated companies, insurers, principals,
partners, joint venturers, successors, and assigns, hereby releases and
forever discharges the Company and the Advisor, and each of its respective
directors, managers, officers, employees, subsidiaries, parent and
affiliated companies principals, partners, joint venturers, members, agents,
representatives, attorneys, insurers, successors, and assigns (collectively
"Advisor Related Persons") from any and all liabilities, claims, causes of
action, costs (including costs of suit and attorney's fees and expenses),
demands, damages, losses, debts, accounts, liens, duties, or obligations of
whatever nature, character, type or description, whether known or unknown,
suspected or unsuspected,
2
<PAGE>
asserted or unasserted, which the REIT has or asserts, or may hereafter have
or assert against any of the Advisor Related Persons, by reason of any act or
omission arising out of or from the performance or non-performance of the
Advisory Agreement.
C. CALIFORNIA CODE
In exchanging the general releases set forth above, each of the parties
hereto waives and relinquishes all rights and benefits afforded under the
provisions of section 1542 of the California Civil Code, which provides as
follows:
"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."
3. ACKNOWLEDGMENT
The parties hereto acknowledge that they may hereafter discover facts
different from, or in addition to, those which they now know or believe to be
true with respect to any or all of the liabilities, claims, causes of action,
costs, demands, damages, losses, debts, accounts, liens, duties, or
obligations released in Paragraph 2. However, each of the parties hereto
agrees that the general releases set forth above shall be and remain
effective in all respects, notwithstanding discovery of such different or
additional facts.
4. EXECUTION IN COUNTERPARTS
This Termination Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original as against any party whose
signature appears thereupon, and all of which shall together constitute one
and the same instrument. This Termination Agreement shall become binding
when one or more counterparts hereof, individually or taken together, shall
bear the signatures of all of the parties reflected hereon as the signatories.
This Termination Agreement has been executed and delivered in the State
of California and is to be governed and construed according to the laws of
that state.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Termination Agreement to
be executed as of the day and year first above written.
HOST FUNDING, INC.
/s/ Guy E. Hatfield
-------------------------------------
By: Guy E. Hatfield, Chairman
HOST FUNDING ADVISORS, INC.
/s/ Ian Gardner-Smith
-------------------------------------
By: Ian Gardner-Smith, President
4
<PAGE>
INDEMNITY AND GUARANTY AGREEMENT
THIS INDEMNITY AND GUARANTY AGREEMENT (this "AGREEMENT"), made as of March,
1997 by HOST FUNDING, INC., a Maryland corporation, ("INDEMNITOR"), having an
address at 6116 N. Central Expressway, Suite 1313, Dallas, Texas 75206 in favor
of CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, a Delaware limited liability
company ("LENDER"), having an address at 11 Madison Avenue, New York, New York
10010.
W I T N E S S E T H:
WHEREAS, Crosshost, Inc., a Maryland corporation ("BORROWER"), has obtained
a loan (the "LOAN") in the original principal amount of THIRTEEN MILLION AND
NO/100 DOLLARS ($13,000,000.00) (the "LOAN AMOUNT") from Lender; and
WHEREAS, the Loan is evidenced by a promissory note (the "NOTE") dated of
even date herewith, executed by Borrower and payable to the order of Lender, in
the Loan Amount, and is secured by, inter alia, those certain Mortgages,
Security Agreement, Assignment of Rents and Fixture Filing or Deed of Trusts,
Security Agreement, Assignment of Rents and Fixture Filing, as applicable, dated
of even date herewith (the "MORTGAGE") from Borrower, as mortgagor, to Lender,
as mortgagee, encumbering certain real property more particularly described on
EXHIBIT A attached hereto and incorporated herein by this reference, together
with the buildings, structures and other improvements now or hereafter (the
"MORTGAGED PROPERTY") and by other documents and instruments (the Note, the
Mortgage and such other documents and instruments, as the same may from time to
time be amended, consolidated, renewed or replaced, being collectively referred
to herein as the "LOAN DOCUMENTS"); and
WHEREAS, as a condition to making the Loan to Borrower, Lender has required
that Indemnitor indemnify Lender from and against and guarantee payment to
Lender of those items for which Borrower is personally liable and for which
Lender has recourse against Borrower under the terms of the Loan Documents;
<PAGE>
WHEREAS, Indemnitor directly and indirectly owns all of the beneficial
interest in Borrower; and
WHEREAS, The extension of the Loan to Borrower is of substantial benefit to
Indemnitor and, therefore, Indemnitor desires to indemnify Lender from and
against and guarantee payment to Lender of those items for which Borrower is
personally liable and for which Lender has recourse against Borrower under the
terms of the Note and the Mortgage.
NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in
consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby Indemnitor hereby covenants and agrees for
the benefit of Lender, as follows:
1. INDEMNITY AND GUARANTY. (a) Indemnitor hereby assumes liability for,
hereby guarantees payment to Lender of, hereby agrees to pay, protect, defend
and save Lender harmless from and against, and hereby indemnifies Lender from
and against any and all liabilities, obligations, losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' fees), causes of
action, suits, claims, demands and judgments of any nature or description
whatsoever (collectively, "COSTS") for which Borrower is liable pursuant to
SECTION 18.32 of the Mortgage, a copy of which Indemnitor acknowledges
receiving.
(b) In the event Borrower files, consents to or acquiesces in the filing
of any proceeding, action or petition or filing under the Bankruptcy Code, or
any similar state or federal law now or hereinafter in effect relating to
bankruptcy, reorganization or insolvency, or the arrangement or adjustment of
debts or if Borrower shall institute any proceeding for its dissolution or
liquidation or shall make an assignment for the benefit of creditors, then
Indemnitor shall be personally liable for all sums due and owing under the Loan,
including without limitation, all principal and interest due under the Note.
(c) With respect to the amounts set forth in subsection (a) and (b) of this
Paragraph 1, this is a guaranty of payment and performance and not of
collection. The liability of Indemnitor under this Agreement shall be direct
and immediate and not conditional or contingent upon the pursuit of any remedies
against Borrower or any other Person, nor against the collateral
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<PAGE>
for the Loan. Indemnitor waives any right to require that an action be
brought against Borrower or any other Person or to require that resort
be made to any collateral for the Loan or to any balance of any
Sub-Account or any account or credit on the books of Lender in favor of
Borrower or any other Person. During the continuance of any Event of
Default, any Lender shall have the right to enforce its rights, powers
and remedies (including, without limitation, foreclosure of all or any
portion of the Mortgaged Property) thereunder or hereunder, in any
order, and all rights, powers and remedies available to Lender in such
event shall be non-exclusive and cumulative of all other rights, powers
and remedies provided thereunder or hereunder or by law or in equity.
If the indebtedness and obligations guaranteed hereby are partially paid
or discharged by reason of the exercise of any of the remedies available
to Lender, this Agreement shall nevertheless remain in full force and
effect, and Indemnitor shall remain liable for all remaining
indebtedness and obligations guaranteed hereby, even though any rights
which Indemnitor may have against Borrower may be destroyed or
diminished by the exercise of any such remedy.
2. INDEMNIFICATION PROCEDURES.
(a) If any action shall be brought against Lender based upon any of
the matters for which Lender is indemnified hereunder, Lender shall notify
Indemnitor in writing thereof and Indemnitor shall promptly assume the defense
thereof, including, without limitation, the employment of counsel reasonably
acceptable to Lender and the negotiation of any settlement; PROVIDED, HOWEVER,
that any failure of Lender to notify Indemnitor of such matter shall not impair
or reduce the obligations of Indemnitor hereunder. Lender shall have the right,
at the sole cost and expense of Indemnitor (which costs and expense shall be
included in Costs), to employ separate counsel in any such action and to
participate in the defense thereof. In the event Indemnitor shall fail to
discharge or undertake to defend Lender against any claim, loss or liability for
which Lender is indemnified hereunder, Lender may defend or settle such claim,
loss or liability. The liability of Indemnitor to Lender hereunder shall be
conclusively established by such settlement, provided such settlement is
negotiated and made in good faith, the amount of such liability to include both
the settlement consideration and reasonable costs and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, actually
incurred by Lender in effecting such
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<PAGE>
settlement. In such event, such settlement consideration, reasonable
costs and expenses shall be included in Costs and Indemnitor shall pay
the same as hereinafter provided. Lender's good faith in any such
settlement shall be conclusively established if the settlement is made
on the advice of independent legal counsel for Lender.
(b) Indemnitor shall not, without the prior written consent of
Lender: (i) settle or compromise any action, suit, proceeding or claim or
consent to the entry of any judgment that does not include as an unconditional
term thereof the delivery by the claimant or plaintiff to Lender of a full and
complete written release of Lender (in form, scope and substance satisfactory to
Lender in its sole discretion) from all liability in respect of such action,
suit, proceeding or claim and a dismissal with prejudice of such action, suit,
proceeding or claim; or (ii) settle or compromise any action, suit, proceeding
or claim in any manner that may materially and adversely affect Lender or
obligate Lender to pay any sum or perform any obligation as determined by Lender
in its sole discretion.
(c) All Costs shall be reimbursable to Lender when and as incurred
and, in the event of any litigation, claim or other proceeding, without any
requirement of waiting for the ultimate outcome of such litigation, claim or
other proceeding, and Indemnitor shall pay to Lender any and all Costs within
ten (10) days after written notice from Lender itemizing the amounts thereof
incurred to the date of such notice. In addition to any other remedy available
for the failure of Indemnitor to periodically pay such Costs, such Costs, if not
paid within said ten-day period, shall bear interest at the Default Rate from
the date of notice through the date such sum is paid in full.
3. REINSTATEMENT OF OBLIGATIONS. If at any time all or any part of any
payment made by Indemnitor or received by Lender from Indemnitor under or with
respect to this Agreement is or must be rescinded or returned for any reason
whatsoever (including, but not limited to, the insolvency, bankruptcy or
reorganization of Indemnitor or Borrower or Ground Lessor), then the obligations
of Indemnitor hereunder shall, to the extent of the payment rescinded or
returned, be deemed to have continued in existence, notwithstanding such
previous payment made by Indemnitor, or receipt of payment by Lender, and the
obligations of Indemnitor hereunder shall continue to be effective or be
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<PAGE>
reinstated, as the case may be, as to such payment, all as though such previous
payment by Indemnitor had never been made.
4. WAIVERS BY INDEMNITOR. To the extent permitted by law, Indemnitor
hereby waives and agrees not to assert or take advantage of:
(a) any right to require Lender to proceed against Borrower or any
other Person or to proceed against or exhaust any security held by Lender at any
time or to pursue any other remedy in Lender's power or under any other
agreement before proceeding against Indemnitor hereunder;
(b) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or the failure of Lender to
file or enforce a claim against the estate (in administration, bankruptcy or any
other proceeding) of any other Person;
(c) demand, presentment for payment, notice of nonpayment, protest,
notice of protest and all other notices of any kind, or the lack of any thereof,
including, without limiting the generality of the foregoing, notice of the
existence, creation or incurring of any new or additional indebtedness or
obligation or of any action or non-action on the part of Borrower, Lender, any
endorser or creditor of Borrower or of Indemnitor or on the part of any other
Person whomsoever under this or any other instrument in connection with any
obligation or evidence of indebtedness held by Lender;
(d) any defense based upon an election of remedies by Lender;
(e) any right or claim or right to cause a marshalling of the assets
of Indemnitor;
(f) any principle or provision of law, statutory or otherwise, which
is or might be in conflict with the terms and provisions of this Agreement;
(g) any duty on the part of Lender to disclose to Indemnitor any
facts Lender may now or hereafter know about Borrower or the Mortgaged Property,
regardless of whether Lender has reason to believe that any such facts
materially increase the risk beyond that which Indemnitor intends to assume or
has reason
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<PAGE>
to believe that such facts are unknown to Indemnitor or has a reasonable
opportunity to communicate such facts to Indemnitor, it being understood
and agreed that Indemnitor is fully responsible for being and keeping
informed of the financial condition of Borrower, of the condition of the
Mortgaged Property and of any and all circumstances bearing on the risk
that liability may be incurred by Indemnitor hereunder;
(h) any lack of notice of disposition or of manner of disposition of
any collateral for the Loan;
(i) any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more of the Loan Documents;
(j) any lack of commercial reasonableness in dealing with the
collateral for the Loan;
(k) any deficiencies in the collateral for the Loan or any deficiency
in the ability of Lender to collect or to obtain performance from any Persons
now or hereafter liable for the payment and performance of any obligation hereby
guaranteed;
(l) an assertion or claim that the automatic stay provided by the
Bankruptcy Code (arising upon the voluntary or involuntary bankruptcy proceeding
of Borrower) or any other stay provided under any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, shall
operate or be interpreted to stay, interdict, condition, reduce or inhibit the
ability of Lender to enforce any of its rights, whether now or hereafter
required, which Lender may have against Indemnitor or the collateral for the
Loan;
(m) any modifications of the Loan Documents or any obligation of
Borrower relating to the Loan by operation of law or by action of any court,
whether pursuant to the Bankruptcy Code, or any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, or otherwise; and
(n) any action, occurrence, event or matter consented to by
Indemnitor under SECTION 5(h) hereof, under any other provision hereof, or
otherwise.
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<PAGE>
5. GENERAL PROVISIONS.
(a) FULLY RECOURSE. All of the terms and provisions of this
Agreement are recourse obligations of Indemnitor and not restricted by any
limitation on personal liability.
(b) UNSECURED OBLIGATIONS. Indemnitor hereby acknowledges that
Lender's appraisal of the Mortgaged Property is such that Lender is not
willing to accept the consequences of the inclusion of Indemnitor's indemnity
set forth herein among the obligations secured by the Mortgage and the other
Loan Documents and that Lender would not make the Loan but for the unsecured
personal liability undertaken by Indemnitor herein.
(c) SURVIVAL. This Agreement shall be deemed to be continuing in
nature and shall remain in full force and effect and shall survive the
exercise of any remedy by Lender under the Mortgage or any of the other Loan
Documents, including, without limitation, any foreclosure or delivery of a
deed in lieu thereof, even if, as a part of such remedy, the Loan is paid or
satisfied in full.
(d) NO SUBROGATION; NO RECOURSE AGAINST LENDER. Notwithstanding
the satisfaction by Indemnitor of any liability hereunder, Indemnitor shall
not have any right of subrogation, contribution, reimbursement or indemnity
whatsoever or any right of recourse to or with respect to the assets or
property of Borrower or to any collateral for the Loan. In connection with
the foregoing, Indemnitor expressly waives any and all rights of subrogation
to Lender against Borrower, and Indemnitor hereby waives any rights to
enforce any remedy which Lender may have against Borrower and any right to
participate in any collateral for the Loan. In addition to and without in
any way limiting the foregoing, Indemnitor hereby subordinates any and all
indebtedness of Borrower now or hereafter owed to Indemnitor to all
indebtedness of Borrower to Lender, and agrees with Lender that Indemnitor
shall not demand or accept any payment of principal or interest from
Borrower, shall not claim any offset or other reduction of Indemnitor's
obligations hereunder because of any such indebtedness and shall not take any
action to obtain any of the collateral from the Loan. Further, Indemnitor
shall not have any right of recourse against Lender by reason of any action
Lender may take or omit to take under the provisions of this Agreement or
under the provisions of any of the Loan Documents.
7
<PAGE>
(e) RESERVATION OF RIGHTS. Nothing contained in this Agreement
shall prevent or in any way diminish or interfere with any rights or
remedies, including, without limitation, the right to contribution, which
Lender may have against Borrower, Indemnitor or any other party under CERCLA,
as it may be amended from time to time, or any other applicable federal,
state or local laws, all such rights being hereby expressly reserved.
(f) FINANCIAL STATEMENTS. Indemnitor hereby agrees, as a material
inducement to Lender to make the Loan to Borrower, to keep and maintain on a
Fiscal Year basis, in accordance with GAAP or the Uniform System of Accounts
for Hotels, 8th Edition, International Association of Hospitality Accountants
(1986), as from time to time amended (or such other accounting basis
reasonably acceptable to Lender) consistently applied proper and accurate
books, records and accounts reflecting all of the financial affairs of
Indemnitor. Lender shall have the right from time to time at all times
during normal business hours upon reasonable notice to examine such books,
records and accounts at the office of Indemnitor or other Person maintaining
such books, records and accounts and to make such copies or extracts thereof
as Lender shall desire. After the occurrence of an Event of Default,
Indemnitor shall pay any costs and expenses incurred by Lender to examine
Indemnitor's accounting records, as Lender shall determine to be necessary or
appropriate in the protection of Lender's interest. Indemnitor hereby
warrants and represents unto Lender that any and all balance sheets, net
worth statements and other financial data which have heretofore been given or
may hereafter be given to Lender with respect to Indemnitor did or will at
the time of such delivery fairly and accurately present the financial
condition of Indemnitor.
(g) RIGHTS CUMULATIVE; PAYMENTS. Lender's rights under this
Agreement shall be in addition to all rights of Lender under the Note, the
Mortgage and the other Loan Documents. FURTHER, PAYMENTS MADE BY INDEMNITOR
UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S OBLIGATIONS
AND LIABILITIES UNDER THE NOTE, THE MORTGAGE AND THE OTHER LOAN DOCUMENTS.
(h) NO LIMITATION ON LIABILITY. Indemnitor hereby consents and
agrees that Lender may at any time and from time to time without further
consent from Indemnitor do any of the following events, and the liability of
Indemnitor under this Agreement shall be unconditional and absolute and shall
in no way be impaired or limited by any of the following events, whether
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<PAGE>
occurring with or without notice to Indemnitor or with or without
consideration: (i) any extensions of time for performance required by any of
the Loan Documents or extension or renewal of the Note; (ii) any sale,
assignment or foreclosure of the Note, the Mortgage or any of the other Loan
Documents or any sale or transfer of the Mortgaged Property; (iii) any change
in the composition of Borrower, including, without limitation, the withdrawal
or removal of Indemnitor from any current or future position of ownership,
management or control of Borrower; (iv) the accuracy or inaccuracy of the
representations and warranties made by Indemnitor herein or by Borrower in
any of the Loan Documents; (v) the release of Borrower or of any other Person
from performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of law,
Lender's voluntary act or otherwise; (vi) the release or substitution in
whole or in part of any security for the Loan; (vii) Lender's failure to
record the Mortgage or to file any financing statement (or Lender's improper
recording or filing thereof) or to otherwise perfect, protect, secure or
insure any lien or security interest given as security for the Loan; (viii)
the modification of the terms of any one or more of the Loan Documents; or
(ix) the taking or failure to take any action of any type whatsoever. No
such action which Lender shall take or fail to take in connection with the
Loan Documents or any collateral for the Loan, nor any course of dealing with
Borrower or any other Person, shall limit, impair or release Indemnitor's
obligations hereunder, affect this Agreement in any way or afford Indemnitor
any recourse against Lender. Nothing contained in this Section shall be
construed to require Lender to take or refrain from taking any action
referred to herein.
(i) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties respecting the matters herein set forth and supersedes
all prior agreements, whether written or oral, between the parties respecting
such matters.
(j) NO ORAL CHANGE. The terms of this Agreement constitute the
entire understanding and agreement of the parties hereto and supersede all
prior agreements, understandings and negotiations between Indemnitor and
Lender with respect to the Loan. This Agreement, and any provisions hereof,
may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act on the part of Indemnitor or Lender, but only
by an agreement in writing signed by the party
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against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
(k) RIGHT OF ENTRY. Lender and its agents shall have the right
upon reasonable notice to inspect Indemnitor's books and records and to make
abstracts and reproductions thereof.
(l) SEVERABLE PROVISIONS. If any term, covenant or condition of
this Agreement is held to be invalid, illegal or unenforceable in any
respect, this Agreement shall be construed without such provision.
(m) DUPLICATE ORIGINALS. This Agreement may be executed in any
number of duplicate originals and each such duplicate original shall be
deemed to constitute but one and the same instrument.
(n) WAIVER OF COUNTERCLAIM, ETC. INDEMNITOR HEREBY WAIVES THE
RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY
ACTION OR PROCEEDING BROUGHT AGAINST IT BY LENDER OR ITS AGENTS, AND WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO
AGAINST THE OTHER OR IN ANY COUNTERCLAIM INDEMNITOR MAY BE PERMITTED TO
ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY LENDER OR ITS AGENTS, AGAINST
INDEMNITOR, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT OR THE DEBT.
(o) HEADINGS; CONSTRUCTION OF DOCUMENTS; ETC. The headings and
captions of various paragraphs of this Agreement are for convenience of
reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof. Indemnitor acknowledges
that it was represented by competent counsel in connection with the
negotiation and drafting of this Agreement and the other Loan Documents and
that neither this Agreement nor the other Loan Documents shall be subject to
the principle of construing the meaning against the Person who drafted same.
(p) WAIVER OF NOTICE. Indemnitor shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters
for which this Agreement specifically and expressly provides for the giving
of notice by Lender to Indemnitor and except with respect to matters for
which
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Indemnitor is not, pursuant to applicable Legal Requirements, permitted to
waive the giving of notice.
(q) APPLICABLE LAW. THIS AGREEMENT WAS NEGOTIATED IN NEW YORK,
AND MADE BY INDEMNITOR AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND
THE PROCEEDS OF THE NOTE WERE DISBURSED FROM NEW YORK, WHICH STATE THE
PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE
UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING,
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA.
(r) WAIVER OF STATUTE OF LIMITATIONS. The pleadings of any
statute of limitations as a defense to any and all obligations evidenced by
this Agreement are hereby waived to the full extent permitted by Legal
Requirements.
(s) NOTICE. Any notice, demand, statement, request or consent
made hereunder shall be in writing and delivered personally or sent to the
party to whom the notice, demand or request is being made by Federal Express
or other nationally recognized overnight delivery service, as follows and
shall be deemed given when delivered personally or one (1) Business Day after
being deposited with Federal Express or such other nationally recognized
delivery service:
If to Lender: To Lender, at the address first written above,
with a copy to:
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Attn: David J. Weinberger, Esq.
If to Indemnitor: To Indemnitor, at the address set forth on the
signature page hereto,
or such other address as either Indemnitor or Lender shall hereafter specify
by written notice as provided herein; provided,
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<PAGE>
however, that notwithstanding any provision of this Article to the contrary,
such notice of change of address shall be deemed given only upon actual
receipt thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given as herein required shall be
deemed to be receipt of the notice, demand or request sent.
(t) NO WAIVER; TIME OF ESSENCE. The failure of any party hereto
to enforce any right or remedy hereunder, or to promptly enforce any such
right or remedy, shall not constitute a waiver thereof nor give rise to any
estoppel against such party nor excuse any of the parties hereto from their
respective obligations hereunder. Any waiver of such right or remedy must be
in writing and signed by the party to be bound. This Agreement is subject to
enforcement at law or in equity, including actions for damages or specific
performance. Time is of the essence hereof.
(u) ATTORNEYS' FEES. In the event it is necessary for Lender to
retain the services of an attorney or any other consultants in order to
enforce this Agreement, or any portion thereof, Indemnitor agrees to pay to
Lender any and all reasonable costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred by Lender as a result
thereof and such reasonable costs, fees and expenses shall be included in
Costs.
(v) SUCCESSIVE ACTIONS. A separate right of action hereunder
shall arise each time Lender acquires knowledge of any matter indemnified or
guaranteed by Indemnitor under this Agreement. Separate and successive
actions may be brought hereunder to enforce any of the provisions hereof at
any time and from time to time. No action hereunder shall preclude any
subsequent action, and Indemnitor hereby waives and covenants not to assert
any defense in the nature of splitting of causes of action or merger of
judgments.
(w) RELIANCE. Lender would not make the Loan to Borrower without
this Agreement. Accordingly, Indemnitor intentionally and unconditionally
enters into the covenants and agreements as set forth above and understands
that, in reliance upon and in consideration of such covenants and agreements,
the Loan shall be
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made and, as part and parcel thereof, specific monetary and other obligations
have been, are being and shall be entered into which would not be made or
entered into but for such reliance.
(x) SUBMISSION TO JURISDICTION. Any legal suit, action or
proceeding against Indemnitor or Lender arising out of or relating to this
Agreement shall be instituted in any federal or state court in New York, New
York, pursuant to Section 5-1402 of the New York General Obligations Law,
and Indemnitor waives any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding, and Indemnitor hereby
irrevocably submits to the jurisdiction of any such court in any suit, action
or proceeding. Indemnitor does hereby designate and appoint _______ ________,
having an address at ____________________________ __________, as its
authorized agent to accept and acknowledge on its behalf service of any and
all process which may be served in any such suit, action or proceeding in any
federal or state court in New York, New York, and agrees that service of
process upon said agent at said address and written notice of said service of
Indemnitor mailed or delivered to Indemnitor in the manner provided herein,
shall be deemed in every respect effective service of process upon
Indemnitor, in any such suit, action or proceeding in the State of New York.
Indemnitor (i) shall give prompt notice to the Lender of any changed address
of its authorized agent hereunder, (ii) may at any time and from time to time
designate a substitute authorized agent with an office in New York, New York
(which office shall be designated as the address for service of process), and
(iii) shall promptly designate such a substitute if its authorized agent
ceases to have an office in New York, New York or is dissolved without
leaving a successor.
(y) WAIVER BY INDEMNITOR. Indemnitor covenants and agrees that,
upon the commencement of a voluntary or involuntary bankruptcy proceeding by
or against Borrower, Indemnitor shall not seek or cause Borrower or any other
Person to seek a supplemental stay or other relief, whether injunctive or
otherwise, pursuant to 11 U.S.C. Section 105 or any other provision of the
Bankruptcy Code of 1978, as amended, or any other debtor relief law, (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, which may be or become applicable, to stay,
interdict, condition, reduce or inhibit the ability of Lender to enforce any
rights of Lender against Indemnitor or the collateral for the Loan by virtue
of this Agreement or otherwise.
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(z) LIABILITY. If Indemnitor consists of more than one Person,
the obligations and liabilities of each such Person hereunder shall be joint
and several.
(aa) SPECIFIC NOTICE. IT IS EXPRESSLY AGREED AND UNDERSTOOD THAT
THIS AGREEMENT INCLUDES INDEMNIFICATION PROVISIONS WHICH, IN CERTAIN
CIRCUMSTANCES, COULD INCLUDE AN INDEMNIFICATION BY INDEMNITOR OF LENDER FROM
CLAIMS OR LOSSES ARISING AS A RESULT OF LENDER'S OWN NEGLIGENCE.
(bb) DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the meanings set forth in the Mortgage.
* * * * * * * * * * *
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<PAGE>
IN WITNESS WHEREOF, Indemnitor has executed this Indemnity Agreement as
of the day and year first written above.
INDEMNITOR:
HOST FUNDING, INC.
a Maryland Corporation
By: /s/ Michael S. McNulty
-----------------------------
Name: Michael S. McNulty
Title: President
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
EXHIBIT A, Legal Description - Solo Page
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this 3rd
day of February, 1997, by and between Host Funding, Inc., a Maryland corporation
(the "REIT"), HMR Capital, LLC, a Delaware Limited Liability Company (the
"Company"), and Host Funding Advisors, a Delaware corporation (the "Advisor")
with reference to the following facts:
(A) The Company currently serves as the REIT's exclusive acquisition agent
pursuant to a Post Formation Acquisition Agreement, as amended by the First
Amendment thereto (the "Acquisition Agreement"). In addition, the Company owns
100% of stock of Advisor. Advisor currently serves as the REIT's external
investment adviser pursuant to an Investment Advisory Agreement, as amended by
the First Amendment thereto (the "Advisory Agreement");
(B) The Parties wish to terminate the Advisory Agreement and to amend the
Acquisition Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERMINATION OF ADVISORY AGREEMENT
Pursuant to the terms of a Termination Agreement (attached hereto as
Attachment 1) effective as of the close of business on January 31, 1997 the
Advisor and REIT do hereby agree to terminate the Advisory Agreement and all
duties, obligations, and rights each party has or may have thereunder.
2. AMENDMENT OF ACQUISITION AGREEMENT
Effective as of the close of business on January 31, 1997 the Company and
REIT do hereby agree to amend the Acquisition Agreement as set forth in the
Restated and Amended Post-Formation Acquisition Agreement (attached hereto as
Attachment 2). As consideration for this amendment REIT agrees to issue to the
Company 225,000 Series A Warrants and 225,000 Series B Warrants in the form
attached hereto as Attachment 3 ("A" Warrants) and Attachment 4 ("B"
<PAGE>
Warrants), respectively. For all federal and state tax purposes and for all
accounting purposes the Company and REIT stipulate and agree that the A Warrants
issued to the Company shall have a cash equivalent value of $50,000 and the B
Warrants shall have a cash equivalent value of $20,000. For federal and state
tax purposes the REIT agrees to assign a value of $70,000 to the aggregate
consideration paid to the Company for the amendment of the Acquisition Agreement
and the Company for federal and state tax purposes agrees to report said $70,000
stipulated value assigned to the consideration received for the amendment of the
Acquisition Agreement as ordinary income on its 1997 federal and state tax
returns. Company and REIT further agree not to maintain or take any position in
the future inconsistent with the stipulated values and the stipulated tax
treatment, each as described above.
3. EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereupon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories.
This Agreement has been executed and delivered in the State of California
and is to be governed and construed according to the laws of that state.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
HOST FUNDING, INC.
/s/ Guy E. Hatfield
------------------------------------
By: Guy E. Hatfield, Chairman
HOST FUNDING ADVISORS, INC.
/s/ Ian Gardner-Smith
------------------------------------
By: Ian Gardner-Smith, President
HMR CAPITAL, LLC.
/s/ Ian Gardner-Smith
------------------------------------
By: Ian Gardner-Smith, Manager
3
<PAGE>
HOST FUNDING, INC.
EMPLOYMENT AGREEMENT WITH
BILL BIRDSALL
This Employment Agreement is made as of February 1, 1997 between Host
Funding, Inc., a Maryland corporation ("Employer"), and Bill Birdsall
("Employee").
RECITALS
A. Whereas, Employee has acquired outstanding and special skills and
abilities and an extensive background in and knowledge of Employer's business
and the industry in which it is engaged;
B. Whereas, Employer desires assurance of the association and services
of Employee in order to retain his experience, skills, abilities, background
and knowledge, and is therefore desirous of engaging his services on the
terms and conditions set forth below; and
C. Whereas, Employee desires to be in the employ of Employer and is
willing to do so on these terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the mutual
promises and conditions in this Employment Agreement ("Agreement"), it is
agreed as follows:
1. EMPLOYMENT. Employer shall employ Employee as Chairman.
2. DUTIES. Employee shall exercise his duties with full executive and
administrative responsibility for the areas assigned by Employer and
identified in Exhibit "A attached hereto and incorporated herein by
reference. Employee shall report to the Board.
3. FULL-TIME ATTENTION. During his employment, Employee shall devote
his full energies, interest, abilities and productive time to the performance
of this Agreement. Without Employer's prior written consent, Employee shall
not render to others services of any kind of nature for compensation or
engage in any other business activity that would interfere with the
performance of his duties under this Agreement.
4. EMPLOYMENT TERM. Employee agrees to be employed for a term of
three (3) years beginning February 1, 1997 and for renewal periods after
unless he resigns or is terminated pursuant to the provisions of this
Agreement. This Agreement shall renew for periods of one year upon each
anniversary date of February 1 ("Anniversary Date") unless terminated for
any reason by written notice from either party given to the other at least
one hundred and twenty (120) days
<PAGE>
prior to the next Anniversary Date or unless otherwise terminated pursuant to
the terms of this Agreement.
5. BASIC COMPENSATION. Employer shall pay to Employee a basic
compensation as outlined in Exhibit "B" payable in equal semi-monthly
installments. Employee will be eligible for Salary increases in accordance
with Employer's standard compensation policy for positions of similar
responsibility and as set forth in Exhibit "B" attached hereto and
incorporated herein by reference. In the event of termination of Employee
prior to completion of the term of employment specified herein, or any
renewal period, Employee shall be entitled to the Salary earned by him prior
to the effective date of termination, computed on a pro-rata basis up to and
including that termination date.
6. PERFORMANCE BONUS. Employee shall be entitled to participate in
the Performance Bonus so indicated on Exhibit "B". THE PERFORMANCE BONUS
WILL BE CALCULATED BASED ON THE FINANCIAL RESULTS ACHIEVED BY EMPLOYER DURING
ANY FISCAL YEAR AND WILL BE PAID TO EMPLOYEE ON OR BEFORE FIVE (5) DAYS AFTER
THE FILING OF EMPLOYER'S 10-K WITH RESPECT TO SUCH FISCAL YEAR. In addition,
Employee shall, subject to the discretion of the Compensation Committee of
the Board of Directors, participate in the Incentive Programs, Stock Option
Programs, etc. that may be established from time to time.
7. FRINGE BENEFITS. During the employment term, Employee is entitled
to receive the standard health and life insurance benefits provided from time
to time to its executive employees by Employer. Employee shall be entitled
to receive three (3) weeks of vacation per calendar year. If health
insurance is not provided, then Employee shall be paid an additional $200 per
month. Employee may carry over a maximum of one (1) week of accrued but
unused vacation time from one year to the next. Any vacation time in excess
of one (1) week not taken during the calendar year in which it accrued shall
be forfeited at the end of the calendar year, unless the period in which to
utilize the vacation is extended in writing by the Employer.
8. EXPENSES. During the employment term, Employer shall reimburse
Employee for reasonable out of pocket expenses incurred in connection with
Employer's business, including travel expenses and food and lodging while on
travel status. Reimbursement shall be subject to the prior approval of
Employer and to such other policies as Employer may establish from time to
time.
9. TERMINATION.
(a) Employer may terminate this Agreement upon thirty (30) days
notice to Employee if the affairs of Employer, are being wound up and
terminated. In the event Employer terminates this Agreement pursuant to this
paragraph 9(a), Employee shall be entitled to nine months Severance Pay.
(b) Employer may terminate this Agreement for cause at any time
without notice if Employee (i) commits and fraud, crime, or material act of
dishonesty, (ii) disclosed confidential information, (iii) is guilty of gross
carelessness or misconduct, (iv) commits a material
<PAGE>
violation of any of the provisions of this Agreement or any other agreement
between the Employee and Employer, (v) loses any license or violates the
terms of any license required to be held by him under the terms of this
Agreement, (vi) violates any laws in performing his assigned duties, (vii)
unjustifiably neglects or fails to perform his duties under this Agreement,
including failure to meet performance goals, or (viii) acts in any way that
has a direct, substantial, and adverse effect on Employer's reputation or
business.
(c) If Employee dies during the initial term or an annual renewal
term of this Agreement, this Agreement shall be terminated immediately upon
the death of Employee. Employee's estate shall receive any Compensation, as
provided in paragraphs 5 and 6, above, then accrued and due to Employee, and
a one-time payment of Ten Thousand Dollars ($10,000.00).
(d) If Employee is disabled and has been disabled for a period of
one hundred and eighty (180) days, or if Employee is unable to perform his
duties under this Agreement in his normal and regular manner due to mental or
physical illness for eighty percent (80%) or more of the normal working days
during the one hundred and eighty (180) days then ending, then this Agreement
shall be terminated, and Employer shall have no further obligation to
maintain Employee in its employ or to make payments to Employee of any kind
whatsoever. For the purposes of this paragraph, "disabled" or "disability"
means that Employee has been unable to perform his duties assigned to him by
the Employer as a result of physical or mental illness. If and to the extent
that Employee received payments in respect of disability insurance provided
by Employer during the period in which Employer is obligated to make payments
to Employee, Employer shall be relieved of the obligation to make such
payments to the extent of the amounts as received by Employee, but, except as
so qualified, Employer's obligations to make such payments to Employee shall
continue in full. This benefit for Employee is the exclusive benefit from
Employer during such 180 days by reason of such disability.
(e) In the event of termination, upon payment of the accrued
amounts of Compensation to Employee or to his estate, Employer and Employee
shall have no rights or responsibilities to the other, and in particular
Employee shall have no further right or claim to above, at time of
termination except as provided in paragraph 8(c), above, where prorated from
the start of the 180 days.
10. REASSIGNMENT OF DUTIES. If Employee gives notice of termination of
this Agreement or if this Agreement would otherwise terminate in accordance
with its provisions, Employer, in its sole discretion and subject to its
other obligations under this Agreement, may relieve Employee of his duties,
under this Agreement and may assign to Employee other reasonable duties and
responsibilities to be performed until the termination becomes effective.
11. ASSIGNMENT. In the event of a change of control of Employer,
merger in which Employer is not the surviving entity, or of a sale of all or
substantially all of Employer's assets, Employer, at its sole option (i) may
assign this Agreement and all rights and obligations under it to any business
entity that succeeds to all or substantially all of the Employer's business
through that merger or sale of assets, or (ii) on at least sixty (60) days'
prior written notice to Employee, may terminate this Agreement effective on
the date of the change of control, merger or sale of
<PAGE>
assets. IF ANY SUCCESSOR EMPLOYER ASSUMES THIS AGREEMENT, EITHER EXPRESSLY
OR BY OPERATION OF LAW, BUT SUBSEQUENTLY TERMINATES EMPLOYEE WITHOUT CAUSE
WITHIN TWENTY- FOUR (24) MONTHS AFTER THE DATE OF SUCH ASSUMPTION (THE
"ASSUMPTION DATE"), THEN EMPLOYEE WILL BE ENTITLED TO SEVERANCE COMPENSATION
IN AN AMOUNT EQUAL TO THE PRODUCT OF (a) THE BASE SALARY THEN IN EFFECT UNDER
THIS AGREEMENT, MULTIPLIED BY (b) THE DIFFERENCE BETWEEN TWENTY-FOUR (24)
MONTHS LESS THE NUMBER OF MONTHS AFTER THE ASSUMPTION DATE DURING WHICH
EMPLOYEE REMAINED EMPLOYED. As used herein, "change of control" means a
change in the beneficial ownership of 15% or more of the shares in Employer,
EXCEPT FOR ANY SUCH CHANGE RESULTING FROM THE PUBLIC OR PRIVATE PLACEMENT OF
ADDITIONAL SHARES OF STOCK IN EMPLOYER.
12. ADHERENCE TO EMPLOYER'S RULES. At all times, during the
performance of this Agreement, Employee shall strictly adhere to and obey all
of Employer's reasonable rules, regulations, policies and procedures of
general application and governing the conduct of Employee now in effect, or
as subsequently determined.
13. WORKER'S COMPENSATION. Employer shall maintain Worker's
Compensation Insurance as required under the laws of the State of Texas in
full force and effect to cover Employee during the entire term of employment
under this Agreement.
14. OWNERSHIP OF INTANGIBLES. All processes, inventions, patents,
copyrights, trademarks, and other intangible rights that may be conceived or
developed by Employee, either alone or with others, during the term of
Employee's employment, whether or not conceived or developed during
Employee's working hours, and with respect to which the equipment, supplies,
facilities, or trade secret information or Employer was used, or that relate
at the time of conception or reduction to practice of the invention to the
business of the Employer or to Employer's actual or demonstrably anticipated
research and development, or that result from any work performed by Employee
for Employer, shall be the sole property of Employer. Employee shall
disclose to Employer all inventions conceived during the term of employment
and for one year thereafter, whether or not the property of Employer under
the terms of the preceding sentence, provided that such disclosure shall be
received by Employer in confidence. Employee shall execute all documents,
including, but not limited to patent applications and assignments, required
by Employer to establish Employer's rights under this paragraph.
15. OWNERSHIP OF BOOKS, RECORDS AND PAPERS. All records of the
accounts of customers, any records and books relating in any manner
whatsoever to the customers of Employer, and any and all drawings or plans,
whether prepared by Employee or otherwise coming into Employee's possession,
shall be the exclusive property of Employer regardless of whoever actually
purchased the actual books or records.
(a) All such books and records shall be immediately returned to
Employer by Employee upon termination of employment.
(b) On the termination of employment or whenever requested by
Employer, Employee shall immediately delivery to Employer all property in his
possession or under his
<PAGE>
control belonging to Employer, in good condition, ordinary wear and tear and
damage by any cause beyond the reasonable control of Employee excepted.
16. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS
PROHIBITED. In the course of his employment, Employee may have access to and
become acquainted with confidential information and trade secrets, consisting
of formulas, devices, secret inventions, processes, and compilations of
information, records, and specifications, all of which are owned by Employer
and regularly used in the operations of the Employer's business. All files,
records, documents, drawings, specifications, equipment and similar items
relating to the business of the Employer, whether they are prepared by the
Employee, or come into Employer's possession, in any way, and whether or not
they contain or constitute trade secrets owned by Employer, are and shall
remain the exclusive property of Employer, and shall not be removed from the
premises of Employer under any circumstances whatsoever without the prior
written consent of Employer. Employee promises and agrees that he shall not
misuse, misappropriate or disclose any of the trade secrets, exclusive
property or confidential information described herein, directly or
indirectly, or use them time thereafter, except as required in the course of
his employment.
17. INJUNCTION AND EQUITABLE RELIEF. Employee acknowledges the
services to be performed by him under the terms of this contract are of a
special, unique, unusual, extraordinary and intellectual character which
gives them a particular value, the loss of which cannot be reasonably or
adequately compensated in damages in an action at law. Accordingly, Employee
expressly agrees that Employer, in addition to any other rights or remedies
which Employer may possess, shall be entitled to injunctive and other
equitable relief in order to prevent a breach of this contract by Employee.
18. ATTORNEY'S FEES AND COSTS. If any action at law or in equity is
necessary to enforce or to interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs, and
necessary disbursements in addition to any other relief to which he may be
entitled. This provision shall be applicable to the entire Agreement.
19. ENTIRE AGREEMENT. This Agreement, consisting of _______________
pages and _________ exhibits, contains the entire agreement between the
parties and supersedes all prior and concurrent oral and written agreements,
understandings, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by Employee or
Employer before the date of this Agreement. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party or by anyone acting on
behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement (including
the _____ exhibits) shall be valid or binding. Any modification of this
Agreement will be effective and binding only if it is in writing and signed
by the party to be charged.
20. GOVERNING LAW. The formation, construction and performance of this
Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
<PAGE>
21. NOTICE. Any notice to Employer required or permitted under this
Agreement shall be given in writing to Employer, either by personal service
or by registered or certified mail, postage prepaid, addressed to Employer,
Attention: MICHAEL S. MCNULTY, HOST FUNDING, INC., 6116 NORTH CENTRAL
EXPRESSWAY, SUITE 1313, DALLAS, TEXAS 75206. Notice to Employee shall be
given in a like manner and, if mailed, shall be addressed to Employee at his
home address then shown in Employer's files. Notices delivered in person
shall be deemed communicated as of actual receipt. Mailed notices shall be
deemed communicated five days after mailing.
22. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable, the remainder of this Agreement shall nevertheless remain
in full force and effect. If any provision is held invalid or unenforceable
with respect to a particular circumstance, it shall nevertheless remain in
full force and effect in all other circumstances.
23. NO PARTNERSHIP. The Parties specifically recognize and agree that
the relationship established hereby is that of employer-employee. Without
limitation to the foregoing, in no manner have the Parties intended to
establish nor do they establish any rights of Employee as a partner of, joint
venturer with, or other relationship to the Employer.
"EMPLOYER" "EMPLOYEE"
Host Funding, Inc., a Maryland corporation
By:_______________________________ ___________________________
Title:____________________________
Date:_____________________________
APPROVED BY:
___________________ _____________
Guy Hatfield Date
___________________ _____________
Don Cockroft Date
The Compensation Committee
<PAGE>
EXHIBIT "A"
CHAIRMAN AND CHIEF OPERATING OFFICER
DUTIES AND RESPONSIBILITIES
* The Chairman and Chief Operating Officer
* Duties
* To execute all corporate quarterly, special and annual filings with
the Securities and Exchange Commission;
* To review all lessee monthly and CFO reports and
discuss with CEO and CFO
* To approve possible acquisition submittals to the Board, inform Board
and to assist CEO negotiate same within preset parameters; review
lease parameters, effect of acquisitions on existing properties;
* To review financial packages as required by the Board of Directors
and Management;
* To review all loan requests and interview prospective investment
banker;
* To participate in Road Shows as needed;
* To serve on the executive committee.
<PAGE>
EXHIBIT "B"
HOST FUNDING, INC.
COMPENSATION PACKAGE
Position: Chairman
Base Salary: $108,000 to be adjusted as follows:
Assets Greater than $150,000,000 then Base Salary increased to
$150,000
Assets Greater than $250,000,000 then Base Salary increased to
$250,000
Term: Not greater than three years
Bonus: Up to 50% of salary with a minimum bonus in the first year of 15%
Bonus to be a weighted factor of the following:
Increase
FFO Increase 5% = 2 Points
FFO Increase 10% = 7 Points
Cash Available 5% = 5 Points
Cash Available 7% = 7 Points SUBJECT TO BOARD
Cash Available 10% = 10 Points AND UNDERWRITER
Dividend 5% = 2 Points APPROVAL OF THE
Dividend 10% = 5 Points FORMULA
Dividend )10% = 10 Points
Stock Price 5% = 10 Points
Stock Price )10% = 10 Points
Board Discretion = 20 Points
Maximum Points = 50 Points -- (Each point converts to one
percentage point used in
Bonus = Points Earned the Bonus Calculation)
<PAGE>
HOST FUNDING, INC.
EMPLOYMENT AGREEMENT WITH
MICHAEL S. MCNULTY
This Employment Agreement is made as of February 1, 1997 between Host
Funding, Inc., a Maryland corporation ("Employer"), and Michael S. McNulty
("Employee").
RECITALS
A. Whereas, Employee has acquired outstanding and special skills and
abilities and an extensive background in and knowledge of Employer's business
and the industry in which it is engaged;
B. Whereas, Employer desires assurance of the association and services
of Employee in order to retain his experience, skills, abilities, background
and knowledge, and is therefore desirous of engaging his services on the
terms and conditions set forth below; and
C. Whereas, Employee desires to be in the employ of Employer and is
willing to do so on these terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the mutual
promises and conditions in this Employment Agreement ("Agreement"), it is
agreed as follows:
1. EMPLOYMENT. Employer shall employ Employee as President.
2. DUTIES. Employee shall exercise his duties with full executive and
administrative responsibility for the areas assigned by Employer and
identified in Exhibit "A attached hereto and incorporated herein by
reference. Employee shall report to the Board and Chairman.
3. FULL-TIME ATTENTION. During his employment, Employee shall devote
his full energies, interest, abilities and productive time to the performance
of this Agreement. Without Employer's prior written consent, Employee shall
not render to others services of any kind of nature for compensation or
engage in any other business activity that would interfere with the
performance of his duties under this Agreement.
4. EMPLOYMENT TERM. Employee agrees to be employed for a term of
three (3) years beginning February 1, 1997 and for renewal periods after
unless he resigns or is terminated pursuant to the provisions of this
Agreement. This Agreement shall renew for periods of one year upon each
anniversary date of February 1 ("Anniversary Date") unless terminated for
any reason by written notice from either party given to the other at least
one hundred and twenty (120) days prior to the next Anniversary Date or
unless otherwise terminated pursuant to the terms of this Agreement.
<PAGE>
5. BASIC COMPENSATION. Employer shall pay to Employee a basic
compensation as outlined in Exhibit "B" payable in equal semi-monthly
installments. Employee will be eligible for Salary increases in accordance
with Employer's standard compensation policy for positions of similar
responsibility and as set forth in Exhibit "B" attached hereto and
incorporated herein by reference. In the event of termination of Employee
prior to completion of the term of employment specified herein, or any
renewal period, Employee shall be entitled to the Salary earned by him prior
to the effective date of termination, computed on a pro-rata basis up to and
including that termination date.
6. PERFORMANCE BONUS. Employee shall be entitled to participate in
the Performance Bonus so indicated on Exhibit "B". THE PERFORMANCE BONUS
WILL BE CALCULATED BASED ON THE FINANCIAL RESULTS ACHIEVED BY EMPLOYER DURING
ANY FISCAL YEAR AND WILL BE PAID TO EMPLOYEE ON OR BEFORE FIVE (5) DAYS AFTER
THE FILING OF EMPLOYER'S 10-K WITH RESPECT TO SUCH FISCAL YEAR. In addition,
Employee shall, subject to the discretion of the Compensation Committee of
the Board of Directors, participate in the Incentive Programs, Stock Option
Programs, etc. that may be established from time to time.
7. FRINGE BENEFITS. During the employment term, Employee is entitled
to receive the standard health and life insurance benefits provided from time
to time to its executive employees by Employer. Employee shall be entitled
to receive three (3) weeks of vacation per calendar year. If health
insurance is not provided, then Employee shall be paid an additional $200 per
month. Employee may carry over a maximum of one (1) week of accrued but
unused vacation time from one year to the next. Any vacation time in excess
of one (1) week not taken during the calendar year in which it accrued shall
be forfeited at the end of the calendar year, unless the period in which to
utilize the vacation is extended in writing by the Employer.
8. EXPENSES. During the employment term, Employer shall reimburse
Employee for reasonable out of pocket expenses incurred in connection with
Employer's business, including travel expenses and food and lodging while on
travel status. Reimbursement shall be subject to the prior approval of
Employer and to such other policies as Employer may establish from time to
time.
9. TERMINATION.
(a) Employer may terminate this Agreement upon thirty (30) days
notice to Employee if the affairs of Employer, are being wound up and
terminated. In the event Employer terminates this Agreement pursuant to this
paragraph 9(a), Employee shall be entitled to nine months Severance Pay.
(b) Employer may terminate this Agreement for cause at any time
without notice if Employee (i) commits and fraud, crime, or material act of
dishonesty, (ii) disclosed confidential information, (iii) is guilty of gross
carelessness or misconduct, (iv) commits a material violation of any of the
provisions of this Agreement or any other agreement between the Employee and
Employer, (v) loses any license or violates the terms of any license required
to be
<PAGE>
held by him under the terms of this Agreement, (vi) violates any laws in
performing his assigned duties, (vii) unjustifiably neglects or fails to
perform his duties under this Agreement, including failure to meet
performance goals, or (viii) acts in any way that has a direct, substantial,
and adverse effect on Employer's reputation or business.
(c) If Employee dies during the initial term or an annual renewal
term of this Agreement, this Agreement shall be terminated immediately upon
the death of Employee. Employee's estate shall receive any Compensation, as
provided in paragraphs 5 and 6, above, then accrued and due to Employee, and
a one-time payment of Ten Thousand Dollars ($10,000.00).
(d) If Employee is disabled and has been disabled for a period of
one hundred and eighty (180) days, or if Employee is unable to perform his
duties under this Agreement in his normal and regular manner due to mental or
physical illness for eighty percent (80%) or more of the normal working days
during the one hundred and eighty (180) days then ending, then this Agreement
shall be terminated, and Employer shall have no further obligation to
maintain Employee in its employ or to make payments to Employee of any kind
whatsoever. For the purposes of this paragraph, "disabled" or "disability"
means that Employee has been unable to perform his duties assigned to him by
the Employer as a result of physical or mental illness. If and to the extent
that Employee received payments in respect of disability insurance provided
by Employer during the period in which Employer is obligated to make payments
to Employee, Employer shall be relieved of the obligation to make such
payments to the extent of the amounts as received by Employee, but, except as
so qualified, Employer's obligations to make such payments to Employee shall
continue in full. This benefit for Employee is the exclusive benefit from
Employer during such 180 days by reason of such disability.
(e) In the event of termination, upon payment of the accrued
amounts of Compensation to Employee or to his estate, Employer and Employee
shall have no rights or responsibilities to the other, and in particular
Employee shall have no further right or claim to above, at time of
termination except as provided in paragraph 8(c), above, where prorated from
the start of the 180 days.
10. REASSIGNMENT OF DUTIES. If Employee gives notice of termination of
this Agreement or if this Agreement would otherwise terminate in accordance
with its provisions, Employer, in its sole discretion and subject to its
other obligations under this Agreement, may relieve Employee of his duties,
under this Agreement and may assign to Employee other reasonable duties and
responsibilities to be performed until the termination becomes effective.
11. ASSIGNMENT. In the event of a change of control of Employer,
merger in which Employer is not the surviving entity, or of a sale of all or
substantially all of Employer's assets, Employer, at its sole option (i) may
assign this Agreement and all rights and obligations under it to any business
entity that succeeds to all or substantially all of the Employer's business
through that merger or sale of assets, or (ii) on at least sixty (60) days'
prior written notice to Employee, may terminate this Agreement effective on
the date of the change of control, merger or sale of assets. IF ANY
SUCCESSOR EMPLOYER ASSUMES THIS AGREEMENT, EITHER EXPRESSLY OR BY OPERATION
OF LAW, BUT SUBSEQUENTLY TERMINATES EMPLOYEE WITHOUT CAUSE WITHIN TWENTY-
FOUR (24)
<PAGE>
MONTHS AFTER THE DATE OF SUCH ASSUMPTION (THE "ASSUMPTION DATE"), THEN
EMPLOYEE WILL BE ENTITLED TO SEVERANCE COMPENSATION IN AN AMOUNT EQUAL TO THE
PRODUCT OF (a) THE BASE SALARY THEN IN EFFECT UNDER THIS AGREEMENT,
MULTIPLIED BY (b) THE DIFFERENCE BETWEEN TWENTY-FOUR (24) MONTHS LESS THE
NUMBER OF MONTHS AFTER THE ASSUMPTION DATE DURING WHICH EMPLOYEE REMAINED
EMPLOYED. As used herein, "change of control" means a change in the
beneficial ownership of 15% or more of the shares in Employer, EXCEPT FOR ANY
SUCH CHANGE RESULTING FROM THE PUBLIC OR PRIVATE PLACEMENT OF ADDITIONAL
SHARES OF STOCK IN EMPLOYER.
12. ADHERENCE TO EMPLOYER'S RULES. At all times, during the
performance of this Agreement, Employee shall strictly adhere to and obey all
of Employer's reasonable rules, regulations, policies and procedures of
general application and governing the conduct of Employee now in effect, or
as subsequently determined.
13. WORKER'S COMPENSATION. Employer shall maintain Worker's
Compensation Insurance as required under the laws of the State of Texas in
full force and effect to cover Employee during the entire term of employment
under this Agreement.
14. OWNERSHIP OF INTANGIBLES. All processes, inventions, patents,
copyrights, trademarks, and other intangible rights that may be conceived or
developed by Employee, either alone or with others, during the term of
Employee's employment, whether or not conceived or developed during
Employee's working hours, and with respect to which the equipment, supplies,
facilities, or trade secret information or Employer was used, or that relate
at the time of conception or reduction to practice of the invention to the
business of the Employer or to Employer's actual or demonstrably anticipated
research and development, or that result from any work performed by Employee
for Employer, shall be the sole property of Employer. Employee shall
disclose to Employer all inventions conceived during the term of employment
and for one year thereafter, whether or not the property of Employer under
the terms of the preceding sentence, provided that such disclosure shall be
received by Employer in confidence. Employee shall execute all documents,
including, but not limited to patent applications and assignments, required
by Employer to establish Employer's rights under this paragraph.
15. OWNERSHIP OF BOOKS, RECORDS AND PAPERS. All records of the
accounts of customers, any records and books relating in any manner
whatsoever to the customers of Employer, and any and all drawings or plans,
whether prepared by Employee or otherwise coming into Employee's possession,
shall be the exclusive property of Employer regardless of whoever actually
purchased the actual books or records.
(a) All such books and records shall be immediately returned to
Employer by Employee upon termination of employment.
(b) On the termination of employment or whenever requested by
Employer, Employee shall immediately delivery to Employer all property in his
possession or under his control belonging to Employer, in good condition,
ordinary wear and tear and damage by any cause beyond the reasonable control
of Employee excepted.
<PAGE>
16. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS
PROHIBITED. In the course of his employment, Employee may have access to and
become acquainted with confidential information and trade secrets, consisting
of formulas, devices, secret inventions, processes, and compilations of
information, records, and specifications, all of which are owned by Employer
and regularly used in the operations of the Employer's business. All files,
records, documents, drawings, specifications, equipment and similar items
relating to the business of the Employer, whether they are prepared by the
Employee, or come into Employer's possession, in any way, and whether or not
they contain or constitute trade secrets owned by Employer, are and shall
remain the exclusive property of Employer, and shall not be removed from the
premises of Employer under any circumstances whatsoever without the prior
written consent of Employer. Employee promises and agrees that he shall not
misuse, misappropriate or disclose any of the trade secrets, exclusive
property or confidential information described herein, directly or
indirectly, or use them time thereafter, except as required in the course of
his employment.
17. INJUNCTION AND EQUITABLE RELIEF. Employee acknowledges the
services to be performed by him under the terms of this contract are of a
special, unique, unusual, extraordinary and intellectual character which
gives them a particular value, the loss of which cannot be reasonably or
adequately compensated in damages in an action at law. Accordingly, Employee
expressly agrees that Employer, in addition to any other rights or remedies
which Employer may possess, shall be entitled to injunctive and other
equitable relief in order to prevent a breach of this contract by Employee.
18. ATTORNEY'S FEES AND COSTS. If any action at law or in equity is
necessary to enforce or to interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs, and
necessary disbursements in addition to any other relief to which he may be
entitled. This provision shall be applicable to the entire Agreement.
19. ENTIRE AGREEMENT. This Agreement, consisting of _______________
pages and _________ exhibits, contains the entire agreement between the
parties and supersedes all prior and concurrent oral and written agreements,
understandings, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by Employee or
Employer before the date of this Agreement. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party or by anyone acting on
behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement (including
the _____ exhibits) shall be valid or binding. Any modification of this
Agreement will be effective and binding only if it is in writing and signed
by the party to be charged.
20. GOVERNING LAW. The formation, construction and performance of this
Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
21. NOTICE. Any notice to Employer required or permitted under this
Agreement shall be given in writing to Employer, either by personal service
or by registered or certified mail, postage prepaid, addressed to Employer,
Attention: MICHAEL S. MCNULTY, HOST FUNDING, INC., 6116 NORTH CENTRAL
EXPRESSWAY, SUITE 1313, DALLAS, TEXAS 75206. Notice to Employee shall
<PAGE>
be given in a like manner and, if mailed, shall be addressed to Employee at
his home address then shown in Employer's files. Notices delivered in person
shall be deemed communicated as of actual receipt. Mailed notices shall be
deemed communicated five days after mailing.
22. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable, the remainder of this Agreement shall nevertheless remain
in full force and effect. If any provision is held invalid or unenforceable
with respect to a particular circumstance, it shall nevertheless remain in
full force and effect in all other circumstances.
23. NO PARTNERSHIP. The Parties specifically recognize and agree that
the relationship established hereby is that of employer-employee. Without
limitation to the foregoing, in no manner have the Parties intended to
establish nor do they establish any rights of Employee as a partner of, joint
venturer with, or other relationship to the Employer.
"EMPLOYER" "EMPLOYEE"
Host Funding, Inc., a Maryland corporation
By:_______________________________ ___________________________
Title:____________________________
Date:_____________________________
APPROVED BY:
___________________ _____________
Guy Hatfield Date
___________________ _____________
Don Cockroft Date
The Compensation Committee
<PAGE>
EXHIBIT "A"
PRESIDENT AND CHIEF OPERATING OFFICER
DUTIES AND RESPONSIBILITIES
* The President and Chief Operating Officer
* Duties
* To file all corporate quarterly, special and annual filings with the
Securities and Exchange Commission;
* To receive, review and summarize all lessee monthly reports and
disseminate with the CEO, Chairman and Board;
* To review possible acquisitions, inform Board and negotiate same
within preset parameters; prepare lease parameters, effect of
acquisitions on existing properties;
* To review financial packages as required by the Board of Directors
and Management;
* To review all loan requests with Chairman, interview prospective
investment banker;
* To participate in Road Shows as needed;
* To serve on the executive committee.
<PAGE>
EXHIBIT "B"
HOST FUNDING, INC.
COMPENSATION PACKAGE
Position: President
Base Salary: $108,000 to be adjusted as follows:
Assets Greater than $150,000,000 then Base Salary increased to
$150,000
Assets Greater than $250,000,000 then Base Salary increased to
$250,000
Term: Not greater than three years
Bonus: Up to 50% of salary with a minimum bonus in the first year of 15%
Bonus to be a weighted factor of the following:
Increase
FFO Increase 5% = 2 Points
FFO Increase 10% = 7 Points
Cash Available 5% = 5 Points
Cash Available 7% = 7 Points SUBJECT TO BOARD
Cash Available 10% = 10 Points AND UNDERWRITER
Dividend 5% = 2 Points APPROVAL OF THE
Dividend 10% = 5 Points FORMULA
Dividend )10% = 10 Points
Stock Price 5% = 10 Points
Stock Price )10% = 10 Points
Board Discretion = 20 Points
Maximum Points = 50 Points -- (Each point converts to one
percentage point used in
Bonus = Points Earned the Bonus Calculation)
<PAGE>
HOST FUNDING, INC.
EMPLOYMENT AGREEMENT WITH
BONA K. ALLEN
This Employment Agreement is made as of January 1, 1997 between Host
Funding, Inc., a Maryland corporation ("Employer"), and Bona K. Allen
("Employee").
RECITALS
A. Whereas, Employee has acquired outstanding and special skills and
abilities and an extensive background in and knowledge of Employer's business
and the industry in which it is engaged;
B. Whereas, Employer desires assurance of the association and services
of Employee in order to retain his experience, skills, abilities, background
and knowledge, and is therefore desirous of engaging his services on the
terms and conditions set forth below; and
C. Whereas, Employee desires to be in the employ of Employer and is
willing to do so on these terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the mutual
promises and conditions in this Employment Agreement ("Agreement"), it is
agreed as follows:
1. EMPLOYMENT. Employer shall employ Employee as Chief Financial Officer.
2. DUTIES. Employee shall exercise his duties with full executive and
administrative responsibility for the areas assigned by Employer and
identified in Exhibit "A attached hereto and incorporated herein by
reference. Employee shall report to the Chief Financial Officer..
3. FULL-TIME ATTENTION. During his employment, Employee shall devote
his full energies, interest, abilities and productive time to the performance
of this Agreement. Without Employer's prior written consent, Employee shall
not render to others services of any kind of nature for compensation or
engage in any other business activity that would interfere with the
performance of his duties under this Agreement.
4. EMPLOYMENT TERM. Employee agrees to be employed for a term of
three (3) years beginning February 17, 1997 and for renewal periods after
unless he resigns or is terminated pursuant to the provisions of this
Agreement. This Agreement shall renew for periods of one year upon each
anniversary date of February 17 ("Anniversary Date") unless terminated for
<PAGE>
any reason by written notice from either party given to the other at least
one hundred and twenty (120) days prior to the next Anniversary Date or
unless otherwise terminated pursuant to the terms of this Agreement.
5. BASIC COMPENSATION. Employer shall pay to Employee a basic
compensation ("Salary") of Seventy-Five Thousand Dollars ($75,000) per year
payable in equal semi-monthly installments. Employee will be eligible for
Salary increases in accordance with Employer's standard compensation policy
for positions of similar responsibility and as set forth in Exhibit "B"
attached hereto and incorporated herein by reference. In the event of
termination of Employee prior to completion of the term of employment
specified herein, or any renewal period, Employee shall be entitled to the
Salary earned by him prior to the effective date of termination, computed on
a pro-rata basis up to and including that termination date.
6. PERFORMANCE BONUS. Employee shall be entitled to participate in
the Performance Bonus so indicated on Exhibit "B". The Performance Bonus
will be calculated based on the financial results achieved by Employer during
any fiscal year and will be paid to Employee on or before five (5) days after
the filing of Employer's 10-K with respect to such fiscal year. In addition,
Employee shall, subject to the discretion of the Compensation Committee of
the Board of Directors, participate in the Incentive Programs, Stock Option
Programs, etc. that may be established from time to time.
7. FRINGE BENEFITS. During the employment term, Employee is entitled
to receive the standard health and life insurance benefits provided from time
to time to its executive employees by Employer. Employee shall be entitled
to receive three (3) weeks of vacation per calendar year. If health
insurance is not provided, then Employee shall be paid an additional $200 per
month. Employee may carry over a maximum of one (1) week of accrued but
unused vacation time from one year to the next. Any vacation time in excess
of one (1) week not taken during the calendar year in which it accrued shall
be forfeited at the end of the calendar year, unless the period in which to
utilize the vacation is extended in writing by the Employer.
8. EXPENSES. During the employment term, Employer shall reimburse
Employee for reasonable out of pocket expenses incurred in connection with
Employer's business, including travel expenses and food and lodging while on
travel status. Reimbursement shall be subject to the prior approval of
Employer and to such other policies as Employer may establish from time to
time. In addition, Employer shall bear all reasonable and necessary expenses
in the relocation of Employee to Dallas, Texas and if terminated prior to the
third anniversary, Employer will bear all expenses necessary to relocate
Employee to Atlanta, Georgia. In addition, Employer will provide twelve
trips per year to Atlanta, Georgia for the first two years based on a 21 day
advance purchase on Delta or American.
2
<PAGE>
9. TERMINATION.
(a) Employer may terminate this Agreement upon thirty (30) days
notice to Employee if the affairs of Employer, are being wound up and
terminated. In the event Employer terminates this Agreement pursuant to this
paragraph 9(a), Employee shall be entitled to nine months Severance Pay.
(b) Employer may terminate this Agreement for cause at any time
without notice if Employee (i) commits and fraud, crime, or material act of
dishonesty, (ii) disclosed confidential information, (iii) is guilty of gross
carelessness or misconduct, (iv) commits a material violation of any of the
provisions of this Agreement or any other agreement between the Employee and
Employer, (v) loses any license or violates the terms of any license required
to be held by him under the terms of this Agreement, (vi) violates any laws
in performing his assigned duties, (vii) unjustifiably neglects or fails to
perform his duties under this Agreement, including failure to meet
performance goals, or (viii) acts in any way that has a direct, substantial,
and adverse effect on Employer's reputation or business.
(c) If Employee dies during the initial term or an annual renewal
term of this Agreement, this Agreement shall be terminated immediately upon
the death of Employee. Employee's estate shall receive any Compensation, as
provided in paragraphs 5 and 6, above, then accrued and due to Employee, and
a one-time payment of Ten Thousand Dollars ($10,000.00).
(d) If Employee is disabled and has been disabled for a period of
one hundred and eighty (180) days, or if Employee is unable to perform his
duties under this Agreement in his normal and regular manner due to mental or
physical illness for eighty percent (80%) or more of the normal working days
during the one hundred and eighty (180) days then ending, then this Agreement
shall be terminated, and Employer shall have no further obligation to
maintain Employee in its employ or to make payments to Employee of any kind
whatsoever. For the purposes of this paragraph, "disabled" or "disability"
means that Employee has been unable to perform his duties assigned to him by
the Employer as a result of physical or mental illness. If and to the extent
that Employee received payments in respect of disability insurance provided
by Employer during the period in which Employer is obligated to make payments
to Employee, Employer shall be relieved of the obligation to make such
payments to the extent of the amounts as received by Employee, but, except as
so qualified, Employer's obligations to make such payments to Employee shall
continue in full. This benefit for Employee is the exclusive benefit from
Employer during such 180 days by reason of such disability.
(e) In the event of termination, upon payment of the accrued
amounts of Compensation to Employee or to his estate, Employer and Employee
shall have no rights or responsibilities to the other, and in particular
Employee shall have no further right or claim to above, at time of
termination except as provided in paragraph 8(c), above, where prorated from
the start of the 180 days.
3
<PAGE>
10. REASSIGNMENT OF DUTIES. If Employee gives notice of termination of
this Agreement or if this Agreement would otherwise terminate in accordance
with its provisions, Employer, in its sole discretion and subject to its
other obligations under this Agreement, may relieve Employee of his duties,
under this Agreement and may assign to Employee other reasonable duties and
responsibilities to be performed until the termination becomes effective.
11. ASSIGNMENT. In the event of a change of control of Employer,
merger in which Employer is not the surviving entity, or of a sale of all or
substantially all of Employer's assets, Employer, at its sole option (i) may
assign this Agreement and all rights and obligations under it to any business
entity that succeeds to all or substantially all of the Employer's business
through that merger or sale of assets, or (ii) on at least sixty (60) days'
prior written notice to Employee, may terminate this Agreement effective on
the date of the change of control, merger or sale of assets. If any
successor Employer assumes this Agreement, either expressly or by operation
of law, but subsequently terminates Employee without cause within twenty-
four (24) months after the date of such assumption (the "Assumption Date"),
then Employee will be entitled to severance compensation in an amount equal
to the product of (a) the Base Salary then in effect under this Agreement,
multiplied by (b) the difference between twenty-four (24) months less the
number of months after the Assumption Date during which Employee remained
employed. As used herein, "change of control" means a change in the
beneficial ownership of 15% or more of the shares in Employer, except for any
such change resulting from the public or private placement of additional
shares of stock in Employer.
12. ADHERENCE TO EMPLOYER'S RULES. At all times, during the
performance of this Agreement, Employee shall strictly adhere to and obey all
of Employer's reasonable rules, regulations, policies and procedures of
general application and governing the conduct of Employee now in effect, or
as subsequently determined.
13. WORKER'S COMPENSATION. Employer shall maintain Worker's
Compensation Insurance as required under the laws of the State of Texas in
full force and effect to cover Employee during the entire term of employment
under this Agreement.
14. OWNERSHIP OF INTANGIBLES. All processes, inventions, patents,
copyrights, trademarks, and other intangible rights that may be conceived or
developed by Employee, either alone or with others, during the term of
Employee's employment, whether or not conceived or developed during
Employee's working hours, and with respect to which the equipment, supplies,
facilities, or trade secret information or Employer was used, or that relate
at the time of conception or reduction to practice of the invention to the
business of the Employer or to Employer's actual or demonstrably anticipated
research and development, or that result from any work performed by Employee
for Employer, shall be the sole property of Employer. Employee shall
disclose to Employer all inventions conceived during the term of employment
and for one year thereafter, whether or not the property of Employer under
the terms of the preceding sentence, provided that such disclosure shall be
received by Employer in confidence. Employee
4
<PAGE>
shall execute all documents, including, but not limited to patent
applications and assignments, required by Employer to establish Employer's
rights under this paragraph.
15. OWNERSHIP OF BOOKS, RECORDS AND PAPERS. All records of the
accounts of customers, any records and books relating in any manner
whatsoever to the customers of Employer, and any and all drawings or plans,
whether prepared by Employee or otherwise coming into Employee's possession,
shall be the exclusive property of Employer regardless of whoever actually
purchased the actual books or records.
(a) All such books and records shall be immediately returned to
Employer by Employee upon termination of employment.
(b) On the termination of employment or whenever requested by
Employer, Employee shall immediately delivery to Employer all property in his
possession or under his control belonging to Employer, in good condition,
ordinary wear and tear and damage by any cause beyond the reasonable control
of Employee excepted.
16. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS
PROHIBITED. In the course of his employment, Employee may have access to and
become acquainted with confidential information and trade secrets, consisting
of formulas, devices, secret inventions, processes, and compilations of
information, records, and specifications, all of which are owned by Employer
and regularly used in the operations of the Employer's business. All files,
records, documents, drawings, specifications, equipment and similar items
relating to the business of the Employer, whether they are prepared by the
Employee, or come into Employer's possession, in any way, and whether or not
they contain or constitute trade secrets owned by Employer, are and shall
remain the exclusive property of Employer, and shall not be removed from the
premises of Employer under any circumstances whatsoever without the prior
written consent of Employer. Employee promises and agrees that he shall not
misuse, misappropriate or disclose any of the trade secrets, exclusive
property or confidential information described herein, directly or
indirectly, or use them time thereafter, except as required in the course of
his employment.
17. INJUNCTION AND EQUITABLE RELIEF. Employee acknowledges the
services to be performed by him under the terms of this contract are of a
special, unique, unusual, extraordinary and intellectual character which
gives them a particular value, the loss of which cannot be reasonably or
adequately compensated in damages in an action at law. Accordingly, Employee
expressly agrees that Employer, in addition to any other rights or remedies
which Employer may possess, shall be entitled to injunctive and other
equitable relief in order to prevent a breach of this contract by Employee.
18. ATTORNEY'S FEES AND COSTS. If any action at law or in equity is
necessary to enforce or to interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs, and
necessary disbursements in addition to any other relief to which he may be
entitled. This provision shall be applicable to the entire Agreement.
5
<PAGE>
19. ENTIRE AGREEMENT. This Agreement, consisting of nine (9) pages and
two (2) exhibits, contains the entire agreement between the parties and
supersedes all prior and concurrent oral and written agreements,
understandings, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by Employee or
Employer before the date of this Agreement. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party or by anyone acting on
behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement (including
the _____ exhibits) shall be valid or binding. Any modification of this
Agreement will be effective and binding only if it is in writing and signed
by the party to be charged.
20. GOVERNING LAW. The formation, construction and performance of this
Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
21. NOTICE. Any notice to Employer required or permitted under this
Agreement shall be given in writing to Employer, either by personal service
or by registered or certified mail, postage prepaid, addressed to Employer,
Attention: Michael S. McNulty, Host Funding, Inc., 6116 North Central
Expressway, Suite 1313, Dallas, Texas 75206. Notice to Employee shall be
given in a like manner and, if mailed, shall be addressed to Employee at his
home address then shown in Employer's files. Notices delivered in person
shall be deemed communicated as of actual receipt. Mailed notices shall be
deemed communicated five days after mailing.
22. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable, the remainder of this Agreement shall nevertheless remain
in full force and effect. If any provision is held invalid or unenforceable
with respect to a particular circumstance, it shall nevertheless remain in
full force and effect in all other circumstances.
23. NO PARTNERSHIP. The Parties specifically recognize and agree that
the relationship established hereby is that of employer-employee. Without
limitation to the foregoing, in no manner have the Parties intended to
establish nor do they establish any rights of Employee as a partner of, joint
venturer with, or other relationship to the Employer.
"EMPLOYER" "EMPLOYEE"
Host Funding, Inc., a Maryland corporation
By:_______________________________ ___________________________
Title:____________________________
Date:_____________________________ Date:_____________________________
6
<PAGE>
EXHIBIT "A"
CHIEF OPERATING OFFICER
DUTIES AND RESPONSIBILITIES
* The Chief Financial Officer shall report to the Chief Executive Officer
* Duties
* To prepare or cause to be prepared and timely file all corporate
quarterly, special and annual filings with the Securities and Exchange
Commission;
* To prepare or cause to be prepared and timely file all federal,
state and local tax returns, franchise returns, return on ad valorem
assessment;
* To receive, review and summarize all lessee monthly reports and
disseminate to Board and CEO;
* To develop or cause to be developed model(s) to perform acquisitions
in order to prepare lease parameters, effect of acquisitions on
existing properties;
* To prepare financial packages as required by the Board of Directors
and Management;
* To assist in preparation of FORM S-2, loan requests, etc.;
* To participate in "road shows" as necessary;
* To maintain corporate general ledgers and assist auditors in
preparation of financial statement;
* To develop and implement an investor valuations program; and
* Meet with Lessee Chief Financial Officer to review annual operating
and corporate budgets.
<PAGE>
EXHIBIT "B"
HOST FUNDING, INC.
COMPENSATION PACKAGE
Position: Chief Financial Officer
Base Salary: $75,000 to be adjusted as follows:
Assets Greater than $150,000,000 then Base Salary increased to
$112,500
Assets Greater than $250,000,000 then Base Salary increased to
$150,000
Term: Not greater than three years
Bonus: Up to 50% of salary with a minimum bonus in the first year of 15%
Bonus to be a weighted factor of the following:
Increase
--------
FFO Increase 5% = 2 Points
FFO Increase 10% = 7 Points
Cash Available 5% = 5 Points
Cash Available 7% = 7 Points SUBJECT TO BOARD
Cash Available 10% = 10 Points AND UNDERWRITER
Dividend 5% = 2 Points APPROVAL OF THE
Dividend 10% = 5 Points FORMULA
Dividend )10% = 10 Points
Stock Price 5% = 10 Points
Stock Price )10% = 10 Points
Board Discretion = 20 Points
Maximum Points = 50 Points
Bonus = Base Salary x (points earned/maximum points)
Bonus = Bonus as discretion of Board but based on
quantative measurement
Vacation: 3 Weeks plus six legal holidays
Insurance: Employer shall either purchase policy or reimburse
Employee up to $200.00 per month
Severance: Without cause: 9 Months
Change of Control: 24 Months unless retained at comparable
level
Exhibit B - Page 2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
CrossHost, Inc. Maryland
Host Ventures, Inc. Maryland
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HOST
FUNDING INC. FINANCIAL STATEMENTS FOR THE PERIOD ENDING DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 448
<SECURITIES> 0
<RECEIVABLES> 223
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 671
<PP&E> 19,405
<DEPRECIATION> (391)
<TOTAL-ASSETS> 20,436
<CURRENT-LIABILITIES> 232
<BONDS> 0
0
0
<COMMON> 7,516
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,436
<SALES> 1,540
<TOTAL-REVENUES> 1,769
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 780
<INCOME-PRETAX> 0
<INCOME-TAX> (149)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
