<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 1997 Commission file number 1-14280
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Host Funding, Inc.
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(Exact name of Registrant as specified in its charter)
Maryland 52-1907962
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6116 N. Central Expressway, Suite 1313, Dallas, TX 75206
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 750-0760
-------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No____
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
The number of outstanding shares of the Registrant's Class A Common Stock was
1,395,583 and Class B Common Stock 140,000 as of June 30, 1997.
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TABLE OF CONTENTS
Item Number Page
- ----------- ----
PART I
1. Financial Statements 4
Notes to Financial Statements 9
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II
1. Legal Proceedings 22
2. Changes in Securities 22
3. Defaults Upon Senior Securities 22
4. Submission of Matters to a Vote of Security Holders 22
5. Other Information 23
6. Exhibits and Reports on Form 8-K 23
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
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June 30, December 31,
1997 1996
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<S> <C> <C>
ASSETS
LAND, PROPERTY AND EQUIPMENT - AT COST:
Building and improvements $ 16,038,726 $ 12,644,239
Furnishings and equipment 2,521,050 1,952,233
Less accumulated depreciation (769,016) (391,009)
------------ ------------
17,790,760 14,205,463
Land 6,129,847 4,808,047
------------ ------------
Land, property and equipment - net 23,920,607 19,013,510
CASH AND CASH EQUIVALENTS 281,587 218,693
RESTRICTED CASH 529,511 128,952
RENT RECEIVABLE - CROSSROADS 12,973 223,160
DUE FROM RELATED PARTIES 102,930 30,390
LONG-TERM ADVANCES TO CROSSROADS 255,840 225,000
LOAN COMMITMENT FEES - Net 1,056,690 502,338
FRANCHISE FEES - Net 75,725 58,250
PREPAID AND OTHER ASSETS 110,807 35,282
------------ ------------
TOTAL $ 26,346,670 $ 20,435,575
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
LONG-TERM DEBT $ 21,691,557 $ 15,500,000
SHORT TERM DEBT 25,000
LONG-TERM LEASE DEPOSIT 300,000 --
ACCOUNTS PAYABLE 95,221 38,354
ACCRUED INTEREST 169,048 114,886
ACCRUED PROPERTY TAXES 140,011 78,940
------------ ------------
Total liabilities 22,420,837 15,732,180
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A Common stock, $.01 par value; authorized 50,000,000 shares; issued and
outstanding 1,395,583 shares and 1,234,049 shares at June 30, 1997 and 13,955 12,340
December 31, 1996
Class B Common stock, $.01 par value; authorized 4,000,000 shares; issued and
outstanding 140,000 shares at June 30, 1997 and December 31, 1996 1,400 1,400
Class C Common stock, $.01 par value; authorized 4,000,000 shares; issued and
outstanding 0 shares and 140,000 shares at June 30, 1997 and December 31, 1996 -- 1,400
Additional Paid in Capital 7,703,079 7,501,494
Accumulated Deficit (1,753,134) (744,772)
Less: Related party note receivable (1,805,675) (1,805,675)
Less: Unearned directors' compensation (233,792) (262,792)
------------ ------------
Total shareholders' equity 3,925,833 4,703,395
------------ ------------
TOTAL $ 26,346,670 $ 20,435,575
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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HOST FUNDING, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Lease revenue - related party $ -- $ $ -- $200,512
Lease revenue - Crossroads 989,208 281,472 1,738,365 281,472
Interest income - related parties 60,528 60,282 118,840 105,177
Interest income 15,576 17,195
F,F, & E reserve income - related party 77,941 77,941
-------------------------- -------------------------
Total revenue 1,065,312 419,695 1,874,400 665,102
-------------------------- -------------------------
EXPENSES:
Interest expense 586,673 58,195 1,105,821 160,826
Depreciation and amortization 204,131 61,269 381,531 97,206
Administrative expenses - related party -- 44,000 -- 224,000
Administrative expenses - other 244,337 73,155 518,157 73,155
Advisory fees - related party 0 6,083 2,500 6,083
Property taxes 72,397 23,438 133,982 40,016
Amortization of unearned directors' compensation 13,500 10,208 27,000 10,208
-------------------------- -------------------------
Total expenses 1,121,038 276,348 2,168,991 611,494
-------------------------- -------------------------
NET INCOME (LOSS) BEFORE VALUATION RESERVE (55,726) 143,347 (294,591) 53,608
Estimated loss related to property sale (50,000) -- (50,000)
NET INCOME (LOSS) $ (105,726) 143,347 $ (344,591) $ 53,608
========================== =========================
NET INCOME (LOSS) PER SHARE $ (0.07) $ 0.11 $ (0.23) $ 0.05
========================== =========================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,522,042 1,289,571 1,518,067 988,129
========================== =========================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
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Retained
Class A Class B Class C Additional Earnings
Common Common Common Paid in (Accumulated
Stock Stock Stock Capital Deficit)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 $12,340 $ 1,400 $ 1,400 $7,501,494 (744,772)
COMMON STOCK ISSUED FOR ACQUIRED
PROPERTIES ACQUISITION FEE 160 -- -- 151,840 --
COMMON STOCK ISSUED AS DEPOSITS AND HELD
IN ESCROW SUBJECT TO THE RELATED
PURCHASE CONTRACTS (AS AMENDED) 55 49,745
PRINCIPAL REDUCTION: NOTES RECEIVABLE:
DIRECTORS
AMORTIZATION OF UNEARNED DIRECTORS
COMPENSATION -- -- -- -- --
CONVERSION OF CLASS C COMMON STOCK
TO CLASS A COMMON STOCK 1,400 -- (1,400) -- --
DISTRIBUTIONS -- -- -- -- (663,771)
NET LOSS -- -- -- -- (344,591)
------- ------- -------- ---------- ----------
BALANCE, June 30, 1997 $13,955 $ 1,400 $ 0 $7,703,079 (1,753,134)
======= ======= ======== ========== ==========
<CAPTION>
- ------------------------------------------------------------------------------------------
Related Unearned Total
Party Note Directors' Shareholders'
Receivable Compensation Equity(Deficit)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, January 1, 1997 $(1,805,675) $(262,792) $ 4,703,395
COMMON STOCK ISSUED FOR ACQUIRED
PROPERTIES ACQUISITION FEE -- -- 152,000
COMMON STOCK ISSUED AS DEPOSITS AND HELD
IN ESCROW SUBJECT TO THE RELATED
PURCHASE CONTRACTS (AS AMENDED) 49,800
PRINCIPAL REDUCTION: NOTES RECEIVABLE:
DIRECTORS 2,000 2,000
AMORTIZATION OF UNEARNED DIRECTORS
COMPENSATION -- 27,000 27,000
CONVERSION OF CLASS C COMMON STOCK
TO CLASS A COMMON STOCK -- -- 0
DISTRIBUTIONS -- -- (663,771)
NET LOSS -- -- (344,591)
----------- --------- -----------
BALANCE, June 30, 1997 $(1,805,675) $(233,792) $ 3,925,833
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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-6-
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (344,591) $ 53,608
Adjustments to reconcile net income to net cash:
provided by operating activities
Depreciation and amortization 381,532 97,206
Amortization of loan fees 225,075 --
Amortization of unearned directors' compensation 27,000 10,208
Estimated loss related to property sale 50,000
Changes in operating assets and liabilities:
Rent receivable - Crossroads 210,187 (136,673)
Rent, interest and other receivable - related (72,540) 978
party
Prepaid and other assets (25,725) --
Short term debt 25,000
Accounts payable and accrued expenses 172,100 30,678
----------- -----------
Net cash (used in) provided by operating 648,038 56,005
activities
----------- -----------
INVESTING ACTIVITIES:
Acquisition of land, property and equipment (5,183,104) (289,510)
Restricted cash (400,559) --
Long-term advances to Crossroads (30,840) (150,000)
Other assets (24,870)
Franchise fees (21,000) --
----------- -----------
Net cash used in investing activities (5,635,503) (464,380)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from common stock issued in Stock Offering -- 4,500,000
Stock issuance costs -- (387,539)
Proceeds from note receivable from directors 2,000
Borrowings on long-term debt 6,225,000 --
Payments on long-term debt (33,443) (3,234,405)
Payment of loan fees (779,427)
Long-term lease deposit 300,000 --
Distributions (663,771) --
----------- -----------
Net cash provided by (used in) financing activities 5,050,359 878,056
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 62,894 469,681
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 218,693 500
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 281,587 $ 470,181
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 649,983 $ 195,925
=========== ===========
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
============================
</TABLE>
(Continued)
-7-
<PAGE>
HOST FUNDING, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
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1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Continued)
Non-cash investing activities:
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
============================
Reclass of deferred income taxes and stock issuance
cos 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
Additional paid in capital $ 151,840 $ --
Class A Common Stock 160
Land, property and equipment (152,000) --
----------------------------
Net non-cash investing activity $ 0 $ 0
============================
Conversion of Class C common stock
to Class A common stock
Class A common stock $ 1,400 $ --
Class C common stock (1,400) --
----------------------------
Net non-cash investing activity $ 0 $ 0
============================
Common Stock issued as Deposits and held in escrow
pursuant to the related purchase contracts
Additional paid in capital $ 49,745 $ --
Class A Common Stock 55
Prepaid and other assets (49,800) --
----------------------------
Net non-cash investing activity $ 0 $ 0
============================
</TABLE>
(Concluded)
The accompanying notes are an integral part of
the consolidated financial statements.
-8-
<PAGE>
Host Funding, Inc. Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation.
The accompanying unaudited consolidated financial statements of Host
Funding, Inc., a Maryland corporation (the "Registrant" or the
"Company"), include the accounts of the Company and its consolidated
subsidiaries. These unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions for Form 10-Q. Accordingly, these statements do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management of the Registrant, all adjustments
necessary for a fair presentation have been included. The financial
statements presented herein have been prepared in accordance with
the accounting policies described in the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 and should be read
in accordance therewith. The results of operations for the six-month
period ended June 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
2. Net Income (Loss) Per Share.
Net Income or Loss per share for the six months ended June 30, 1997
and June 30, 1996 are computed based on the weighted average number
of shares of common stock outstanding. The impact of common stock
equivalents to earnings per share is immaterial.
In February 1997, Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share ("EPS"). SFAS 128 requires basic EPS to be
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period
and diluted EPS to reflect the potential dilution that could occur
if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. SFAS
128 is effective for financial statements issued for periods ending
after December 15, 1997 and requires restatement of all prior period
EPS data presented. Earlier application is not permitted. The impact
of the implementation of SFAS 128 on the Company's consolidated
financial statements is expected to be immaterial.
3. Commitments and Contingencies.
REIT Status
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
9
<PAGE>
than 50% of the common stock, common stock equivalents, or other
forms of equity outstanding of the Company. The Company did not
satisfy this requirement as of June 30, 1997, and therefore, did not
elect to qualify as a REIT during the 1996 tax year and currently is
subject to the corporate tax provisions. However, the Company is in
a net operating loss position, and has a net deferred tax asset
under SFAS 109, Accounting for Income Taxes, that has been fully
reserved. The Company's decision not to elect REIT qualification
will not adversely affect the stockholders of the Company in that
the Company will have no taxable income for the 1996 tax year. The
Company plans to elect REIT status effective for the 1997 tax year.
Acquisition Agreements
The Company has entered into three separate Agreements of Sale and
Purchase to purchase three Country Hearth Inns located in Findlay,
Ohio, Auburn, Indiana and Indianapolis, Indiana (collectively, the
"Country Hearth Inns"). The Country Hearth Inns contain an aggregate
of approximately 240 rooms with an aggregate purchase price of
$8,700,000. The Company intends to close the purchase of the Country
Hearth Inns by forming three separate, special purpose limited
partnerships with Buckhead America Corporation, a publicly-traded
hotel company ("Buckhead"), of which the Company will be the
beneficial owner of approximately 83% of the limited partnership
interests and a 1% general partnership interest in each limited
partnership. Buckhead will beneficially hold approximately 16% of
the remaining limited partnership interests in each of the limited
partnerships and will contract with each limited partnership to
become lessee of the Country Hearth Inns. Buckhead will also manage
the hotel properties and hold the franchises for each property
outside of the limited partnerships.
The Company anticipates paying the purchase price for the Country
Hearth Inns through a combination of cash from the limited
partnerships in the amount of $3,613,800, assumption of the existing
debt by the purchasing limited partnership on the Findlay, Ohio and
Auburn, Indiana properties in the approximate amount of $3,486,200,
and the issuance to the sellers of the Country Hearth Inns of Class
A Common Stock of the Company having a fair market value of
$1,600,000. Any Class A Common Stock of the Company issued as
partial payment of the purchase price for the Country Hearth Inns
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 Class A Common Stock will also be entitled to
certain limited "piggy back" registration rights relating to the
filing by the Company of a registration statement with the
Securities and Exchange Commission to sell securities of the
Company. The Agreements of Sale and Purchase are contingent upon the
Company being able to assume the existing indebtedness on the
Findlay, Ohio and Auburn, Indiana properties and certain due
diligence and other customary closing conditions typical of hotel
properties. The Company anticipates closing all three Country Hearth
Inn purchases during the third quarter of 1997.
10
<PAGE>
The Company has also entered into an Agreement of Sale and Purchase
to purchase a Days Inn Hotel located in Bloomington, Illinois
consisting of approximately 100 rooms for a purchase price of
$3,900,000 (the "Bloomington Agreement"). The Company proposes to
pay the purchase price through a combination of cash in the amount
of $3,700,000 and the issuance to the seller of Class A Common Stock
of the Company having a fair market value of $200,000. Any Class A
Common Stock of the Company issued as partial payment of the
purchase price for the hotel 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 Class A Common
Stock will also be entitled to certain limited "piggy-back"
registration rights relating to the filing by the Company of a
registration statement with the Securities and Exchange Commission
to sell securities of the Company. The Bloomington Agreement is
contingent upon certain due diligence and other customary closing
conditions typical of hotel properties.
Letter of Intent
The Company has executed a letter of intent to form a partnership,
which will purchase four hotels comprising over 800 rooms valued at
approximately $50,000,000. The franchises represented by the hotels
include Holiday Inn, Courtyard by Marriott, and Hilton. This
acquisition is consistent with the Company's strategic plan of
acquiring prime full service properties in secondary markets. It is
anticipated that Host will initially own partnership units equating
a 24% interest in the partnership and will increase its interest as
other partnership units are converted into stock of the Company or
as additional properties are acquired.
Property Repairs
In late May, the Company became aware of certain structural
deficiencies which affect the Sleep Inn Hotel properties owned by
the Company in Tallahassee, Florida (the "Tallahassee Sleep Inn")
and to a lesser extent Destin, Florida (the "Destin Sleep Inn"). The
structural defects relating to the Tallahassee Sleep Inn
necessitated that the Company temporarily suspend the day to day
operations of the hotel in order to assess adequately the needed
repairs. These structural deficiencies were not noted or otherwise
disclosed in the engineering and architectural reports obtained and
relied upon by the Company prior to purchasing the properties. Upon
discovering the structural defects, the Company immediately
undertook steps to (i) determine the extent of insurance coverage on
the structural deficiencies, (ii) require Capital Circle Hotel
Company, the prior owner of the Tallahassee Sleep Inn ("Capital"),
to commence remedial construction activities to repair the
structural defects at Capital's sole cost and expense; and (iii)
negotiate a sale of the Tallahassee Sleep Inn back to Capital. As a
result of these steps and in lieu of extensive negotiations with the
insurance company or potential litigation with Capital, the Company
has negotiated an agreement in principal with Capital to sell the
Tallahassee Sleep Inn to Capital for
11
<PAGE>
its original acquisition costs and to require Capital to correct at
Capital's sole cost and expense any and all structural deficiencies
with respect to the Destin Sleep Inn.
In addition, Crossroads Hospitality Tenant Company, LLC
("Crossroads"), as lessee, and the Company, as lessor, of the hotel
properties are aggressively pursuing claims with the insurance
company concerning business interruption insurance maintained by
Crossroads on the Tallahassee Sleep Inn. While the Company does not
expect any significant loss from the sale of the Tallahassee Sleep
Inn, it has elected to establish a valuation reserve of $50,000 to
cover its $10,000 insurance deductible on any business interruption
insurance and various closing costs in connection with the sale of
the Tallahassee Sleep Inn. The Company anticipates closing the sale
of the Tallahassee Sleep Inn to Capital during the third quarter of
1997. The Company anticipates completion of renovations to the
Destin Sleep Inn during the fourth quarter of 1997.
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 agreements, the Company
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. Pursuant to the lease
agreements for each of the hotel properties owned by the Company,
the responsibility for payment of the fees has been assigned to
Crossroads Hospitality Tenant Company, LLC, as lessee of the hotel
properties.
Termination of Acquisition Agreement
On February 3, 1997, the Registrant and HMR Capital, LLC, a Delaware
limited liability company formerly known as Host Acquisition Group,
LLC ("the Acquisition Company"), entered into a Restated and Amended
Acquisition Agreement (the "Acquisition Agreement") which redefined
the role of the Acquisition Company in the coordination and
supervision of the Company's acquisition of hotel properties and
allowed cancellation with thirty (30) days written notice from
either party. On August 5, 1997, the Company delivered notice to the
Acquisition Company canceling the Acquisition Agreement effective
thirty (30) days after the date of receipt of the termination letter
by the Acquisition Company (the "Termination Date"). Any properties
submitted to the Company by the Acquisition Company prior to the
Termination Date will be subject to the terms and conditions of the
Acquisition Agreement, if the Company acquires such properties
within one year from the Termination Date.
12
<PAGE>
Warrants
The Company has issued and outstanding two series of warrants
designated "Series A Warrants" and "Series B Warrants". 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 the Company. 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. There are additional provisions in the Series B
Warrants that allow pari passu treatment upon recapitalization of
Host Funding and certain restrictions prohibiting exercise of the
warrants within the first twenty-four months of issuance if the
Company gives notice of the public offering of the securities of the
Company in which the net proceeds to the Company are not less than
$50 million.
4. Subsequent Events.
As described in Note 3 above, the Company has entered into an
Agreement of Sale and Purchase to purchase a 100-room motel in
Bloomington, Illinois with a purchase price of $3,900,000.
5. Pro Forma Information.
The following unaudited pro forma information has been prepared
assuming that the acquisition of the Flagstaff Super 8 occurred on
January 1, 1996. 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, under most
circumstances, not permitted. As a result of the limitations imposed
with regard to the types of permitted pro forma adjustments, the
Company believes that this unaudited pro forma information is not
indicative of future results of operations or the results of
historical operations had the acquisition of all hotels owned on
June 30, 1997 been consummated as of January 1, 1996.
13
<PAGE>
(Unaudited) (Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
------------ -----------
Revenues $1,937,255 $1,976,444
Net Loss $ (223,925) $ (184,736)
Net Loss Per Share $ (.15) $ (.12)
Weighted Average Number of
Common Shares Outstanding 1,535,583 1,535,583
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Recent Developments
The Annual Meeting of the Stockholders of the Company was held on May 21,
1997 in Dallas, Texas. At the annual meeting, the stockholders elected Michael
S. McNulty, Guy E. Hatfield, Don W. Cockroft, William M. Birdsall and Charles R.
Dunn to serve as directors of the Company, each of whom had served as directors
of the Company during the immediately preceding year. The Stockholders also
approved the Host Funding, Inc. 1997 Incentive Plan (the "1997 Plan") pursuant
to which certain individuals, including officers and directors of the Company,
may be granted awards for incentive stock options, non-statutory stock options,
stock awards, performance shares and incentive awards. Awards granted under the
1997 Plan may include incentive stock options, which are qualified under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), non-statutory
stock options, which are not qualified under Section 422 of the Code, restricted
stock issued in connection with stock awards or performance shares, or cash
incentives. Restricted stock is common stock of the Company that may not be
disposed of or encumbered in any way until the periods of restriction on the
stock have elapsed pursuant to the terms of the particular award.
On June 19, 1997, the Company executed a promissory note in favor of
Blacor, Inc. ("Blacor") in the original principal amount of $70,000, as amended
by that certain First Modification to Promissory Note (as modified, the "Blacor
Note"). The Blacor Note bears interest at the rate of 12% per annum. Principal
and all accrued interest is due and payable on demand, but if no demand is made,
on December 31, 1997. Proceeds from the Blacor Note were used by the Company for
general operating purposes. Blacor is an affiliate of Michael S. McNulty,
President of the Company, based upon Mr. McNulty serving as President of Blacor.
The outstanding balance as of August 8, 1997 was $25,000.
The Company declared a cash dividend of $0.24 per share to stockholders of
record on June 6, 1997, which was payable June 23, 1997. The Company also
changed its dividend policy so that any dividends declared will be paid in
March, June, September and December of each year.
14
<PAGE>
The Company, as a requirement under the Internal Revenue Code (the "Code")
to elect REIT status, must have no more than five (5) shareholders, was own no
more than 50% of the common stock, common stock equivalents, or other forms of
equity outstanding of the Company. The Company did not meet this requirement as
of June 30, 1997, and therefore, did not elect to qualify as a REIT during the
1996 tax year. The Company's decision not to elect REIT qualification will not
adversely affect the stockholders of the Company in that the Company will have
no taxable income for the 1996 tax year. The Company plans to elect REIT status
during the 1997 tax year.
The Company has entered into three separate Agreements of Sale and
Purchase to purchase three Country Hearth Inns located in Findlay, Ohio, Auburn,
Indiana and Indianapolis, Indiana (collectively, the "Country Hearth Inns"). The
Country Hearth Inns contain an aggregate of approximately 240 rooms with an
aggregate purchase price of $8,700,000. The Company intends to close the
purchase of the Country Hearth Inns by forming three separate, special purpose
limited partnerships with Buckhead America Corporation, a publicly-traded hotel
company ("Buckhead"), of which the Company will be the beneficial owner of
approximately 83% of the limited partnership interests and a 1% general
partnership interest in each limited partnership. Buckhead will beneficially
hold approximately 16% of the remaining limited partnership interests in each of
the limited partnerships and will contract with each limited partnership to
become lessee of the Country Hearth Inns. Buckhead will also manage the hotel
properties and hold the franchises for each property outside of the limited
partnerships.
The Company anticipates paying the purchase price for the Country Hearth
Inns through a combination of cash from the limited partnerships in the amount
of $3,613,800, assumption of the existing debt by the purchasing limited
partnership on the Findlay, Ohio and Auburn, Indiana properties in the
approximate amount of $3,486,200, and the issuance to the sellers of the Country
Hearth Inns of Class A Common Stock of the Company having a fair market value of
$1,600,000. Any Class A Common Stock of the Company issued as partial payment of
the purchase price for the Country Hearth Inns 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 Class A Common Stock will also be
entitled to certain limited "piggy back" registration rights relating to the
filing by the Company of a registration statement with the Securities and
Exchange Commission to sell securities of the Company. The Agreements of Sale
and Purchase are contingent upon the Company being able to assume the existing
indebtedness on the Findlay, Ohio and Auburn, Indiana properties and certain due
diligence and other customary closing conditions typical of hotel properties.
The Company anticipates closing all three Country Hearth Inn purchases during
the third quarter of 1997.
The Company has also entered into an Agreement of Sale and Purchase to
purchase a Days Inn Hotel located in Bloomington, Illinois consisting of
approximately 100 rooms for a purchase price of $3,900,000, (the "Bloomington
Agreement"). The Company proposes to pay the purchase price through a
combination of cash in the amount of $3,700,000 and the issuance to the Seller
of Class A Common Stock of the Company to the seller having a fair market value
of $200,000. Any Class A Common Stock of the Company issued as partial payment
of the purchase price for the hotel 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 Class A Common Stock will also be entitled to
certain limited "piggy-back" registration rights relating to the filing by the
Company of a
15
<PAGE>
registration statement with the Securities and Exchange Commission to sell
securities of the Company. The Bloomington Agreement is contingent upon certain
due diligence and other customary closing conditions typical of hotel
properties.
On February 3, 1997, the Registrant and HMR Capital, LLC, a Delaware
limited liability company formerly known as Host Acquisition Group, LLC ("the
Acquisition Company"), entered into a Restated and Amended Acquisition Agreement
(the "Acquisition Agreement") which redefined the role of the Acquisition
Company in the coordination and supervision of the Company's acquisition of
hotel properties and allowed cancellation with thirty (30) days written notice
from either party. On August 5, 1997, the Company delivered notice to the
Acquisition Company canceling the Acquisition Agreement effective thirty (30)
days after the date of receipt of the termination letter by the Acquisition
Company (the "Termination Date"). Any properties submitted to the Company by the
Acquisition Company prior to the Termination Date will be subject to the terms
and conditions of the Acquisition Agreement, if the Company acquires such
properties within one year from the Termination Date.
In late May, the Company became aware of certain structural deficiencies
which affect the Sleep Inn Hotel properties owned by the Company in Tallahassee,
Florida (the "Tallahassee Sleep Inn") and to a lesser extent Destin, Florida
(the "Destin Sleep Inn"). The structural defects relating to the Tallahassee
Sleep Inn necessitated that the Company temporarily suspend the day to day
operations of the hotel in order to assess adequately the needed repairs. These
structural deficiencies were not noted or otherwise disclosed in the engineering
and architectural reports obtained and relied upon by the Company prior to
purchasing the properties. Upon discovering the structural defects, the Company
immediately undertook steps to (i) determine the extent of insurance coverage on
the structural deficiencies, (ii) require Capital Circle Hotel Company, the
prior owner of the Tallahassee Sleep Inn ("Capital"), to commence remedial
construction activities to repair the structural defects at Capital's sole cost
and expense; and (iii) negotiate a sale of the Tallahassee Sleep Inn back to
Capital. As a result of these steps and in lieu of extensive negotiations with
the insurance company or potential litigation with Capital, the Company has
negotiated an agreement in principal with Capital to sell the Tallahassee Sleep
Inn to Capital for its original acquisition costs and to require Capital to
correct at Capital's sole cost and expense any and all structural deficiencies
with respect to the Destin Sleep Inn.
In addition, Crossroads Hospitality Tenant Company, LLC ("Crossroads"), as
lessee, and the Company, as lessor, of the hotel properties are aggressively
pursuing claims with the insurance company concerning business interruption
insurance maintained by Crossroads on the Tallahassee Sleep Inn. While the
Company does not expect any significant loss from the sale of the Tallahassee
Sleep Inn, it has elected to establish a valuation reserve of $50,000 to cover
its $10,000 insurance deductible on any business interruption insurance and
various closing costs in connection with the sale of the Tallahassee Sleep Inn.
The Company anticipates closing the sale of the Tallahassee Sleep Inn to Capital
during the third quarter of 1997. The Company anticipates completion of
renovations to the Destin Sleep Inn during the fourth quarter of 1997.
16
<PAGE>
Results of Operations
Six Months Ended June 30, 1997 and June 30, 1996:
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". 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 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 a transaction
resulting in the acquisition of three Sleep Inn Hotels located in Destin,
Sarasota, and Tallahassee, Florida from Capital Circle Hotel Company and one
Sleep Inn Hotel located in Ocean Springs, Mississippi from Ocean Springs Hotel
Company (collectively, the "Acquired Properties"). The Initial Hotels, the
Acquisition Hotel and the Acquired Properties are collectively herein referred
to as the "1996 Properties". In addition, the Company acquired a Super 8 hotel
in Flagstaff, Arizona (the "Flagstaff Super 8") on March 14, 1997. Therefore,
because of the foregoing acquisitions, comparisons of results of operations to
the corresponding period of the previous year are not meaningful. However,
pursuant to the percentage leases described below, the Company anticipates
significant increases in rental revenues in 1997 over 1996.
Occupancy and average room rates of 64.2% and $48.41 for the 1996
Properties for the six months ended June 30, 1997 and 95.7% and $54.27 for the
Flagstaff Super 8 from the period from March 14 to June 30 resulted in total
sales of approximately $4,480,000 which generated lease revenues of
approximately $1,739,000.
Interest income from a note received from All American Group, Ltd., a
Delaware limited partnership ("AAG"), and a principal shareholder of the Company
(the "Related Party Note"), which is included in Interest income - related
parties, totaled $108,000 for the six months ended June 30, 1997, which interest
rate is 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 $10,500 for the period ending June 30, 1997.
Interest expense incurred for the period January 1 to June 30, 1997 was a
result of interest expense and loan fee amortization expense on notes payable
relating to the Initial Credit Facility. Additionally, on March 14, 1997
Registrant refinanced the Initial Credit Facility at a reduced amount of
$13,000,000 and provided an additional facility to Host Ventures in the amount
of $8,725,000 (See Liquidity and Capital Resources). Interest expense for the
six months totaled $1,104,000, including $225,075 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), the Acquired
Properties and the Flagstaff Super 8 over their estimated useful lives, totaled
$378,007 for the six months ended June 30, 1997. Franchise fee amortization,
which is
17
<PAGE>
included in depreciation and amortization, is calculated based upon the original
cost amortized over the life of the franchise agreement, which totaled $3,525
for the six months ended June 30, 1997.
Administrative expenses - other totaled approximately $518,000 for the six
months ended June 30, 1997 including the 1996 audit fees of approximately
$24,000, legal fees totaling $65,000 and accounting fees totaling $48,000, which
amounts are greater than will be expected in future quarters due to start-up
costs, stock transfer fees totaling approximately $47,000, travel expenses
totaling approximately $68,000, statutory filing & printing costs of
approximately $32,000, payroll related expenses totaling approximately $147,000,
Director fees of $12,000, and other administrative expenditures of approximately
$76,000, approximately $30,000 of which are non-recurring administrative
expenses on an annualized basis.
Advisory fees - related party totaling $2,500 were due under an Advisory
Agreement which Host Funding Advisors, Inc., a Delaware corporation ( the
"Advisor") entered into upon the close of the Stock Offering. This agreement was
terminated effective January 31, 1997.
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, the Acquired
Properties and the Flagstaff Super 8. 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 $133,982 for the six months ended June 30, 1997.
Amortization of unearned directors' compensation has been calculated based
upon the terms of the independent director's notes.
Net income or loss per share and weighted average shares outstanding have
been calculated based upon the daily average of the number of shares outstanding
for the applicable reporting periods.
Liquidity and Capital Resources
Effective March 14, 1997, each of CrossHost, Inc. ("CrossHost") and Host
Ventures, Inc. ("Host Ventures"), wholly owned subsidiaries of the Company,
entered into a credit facility with Credit Suisse First Boston Mortgage Capital,
LLC ("First Boston"). The credit facility from First Boston to CrossHost is in
the amount of $13,000,000 (the "CrossHost Loan Facility") and the credit
facility to Host Ventures is in the amount of $8,725,000 (the "Host Ventures
Loan Facility"). Proceeds from the combined credit facilities were used to repay
the Initial Credit Facility, finance the acquisition of the Flagstaff Super 8
and pay related closing costs and expenses in the amount of $757,000.
Approximately $343,000 of the combined loan proceeds were retained by the
Company for working capital.
18
<PAGE>
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.
The Host Ventures Loan Facility is payable interest only, monthly, at the
LIBOR Rate plus 350 basis points (LIBOR Rate was 5.691 as of May 29, 1997), with
a maturity date of April 1, 1999, at which time all unpaid interest plus
principal are due.
On June 19, 1997, the Company executed a promissory note in favor of
Blacor, Inc. ("Blacor") in the original principal amount of $70,000, as amended
by that certain First Modification to Promissory Note (the as modified, the
"Blacor Note"). The Blacor Note bears interest at the rate of 12% per annum.
Principal and all accrued interest on the Blacor Note is due and payable on
demand, but if no demand is made, on December 31, 1997. Blacor is an affiliate
of Michael S. McNulty, President of the Company, based upon Mr. McNulty serving
as President of Blacor. The outstanding balance as of August 8, 1997 was
$25,000.
Each hotel within the Company's hotel portfolio is separately leased by a
wholly owned subsidiary of the Company to Crossroads Hospitality Tenant Company,
LLC ("Crossroads") under a percentage lease. Crossroads 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. For purposes of the following discussion,
references to the Company mean the wholly owned subsidiary of the Company which
is the lessor under the applicable lease.
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. During the first four years of each lease,
Crossroads will be entitled to accumulate a credit of 50% of base rent paid in
excess of hotel cash flow, if any, 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 June 30, 1997. The Acquired Property
Leases generally require Crossroads to pay all operating expenses of the
properties, including maintenance and insurance, while the Company is
responsible for property taxes. In addition, the lessor 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. Further, should the Company
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 the Company by the third party. In
addition, should Crossroads choose not to exercise their right of first refusal
to acquire the properties and should the Company to terminate the lease, upon
the Company's, Crossroads' and the buyer's
19
<PAGE>
consent, Crossroads may be entitled to some portion of the sale proceeds based
on a formula as provided in the Acquired Property Leases.
The annual base rentals under the leases for the Initial Properties (the
"Initial Properties Leases"), 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 Initial
Property Leases based upon increases in average room rates, as defined in the
Initial Property Leases, while percentage rentals due remained unchanged.
Concurrent with the change in base rent due for each Initial 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. The
Company is now required, under the Initial 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 the Company and Crossroads.
The term of the lease agreement between Crossroads and the Company 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. The Company is required to set aside in a replacement reserve
account an amount equal to 5% of gross room revenue. Pursuant to the Flagstaff
Lease Agreement, Crossroads paid the Company $300,000 (the "Security Deposit"),
to be held by the Company as security for the performance by Crossroads of
Crossroads' covenants and obligations under the lease. Provided no uncured Event
of Default exists, the Company shall return (a) $120,000 of the security deposit
to Crossroads upon the third (3rd) anniversary of the lease and (b) $60,000 of
the security deposit upon the fifth (5th) anniversary of the lease. Further,
pursuant to the lease, the Company funded $25,000 to Crossroads in funds
designated for "start up expenses". 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 stockholders, is its share of the
Company's cash flow from the percentage leases relating to the hotel properties
owned by the Company (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 publicly traded, 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 stockholders, is dependent on the ability of Crossroads to
generate sufficient cash flow from the Hotels.
Other than debt service on the CrossHost Loan Facility, the Host Ventures
Loan Facility, and the Blacor Note, the capital expenditures required under the
Percentage Leases or any loan facility, property taxes on the Company's hotels,
obligations under the Employment Agreements, other administrative expenses and
the Internal Revenue Service tax requirements (the "Code") to make distributions
to stockholders to maintain the Company's REIT status, the Company is not aware
of any
20
<PAGE>
demands, commitments, events or uncertainties that will result or are likely to
result in a change in the Company's liquidity.
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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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.
21
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On May 19, 1997, the Company issued 16,000 shares of the Class A Common
Stock of the Company in payment of earned acquisition fees relating to the
acquisition by the Company of a Super 8 Hotel located in Flagstaff, Arizona (the
"Flagstaff Super 8"). The shares were issued in payment of the acquisition fees
pursuant to the terms of that certain Restated and Amended Post-Formation
Acquisition Agreement dated as of February 3, 1997 (the "Acquisition Agreement")
between the Company and HMR Capital, LLC (f/k/a Host Acquisition Group, LLC)
("HMR Capital"). Of the 16,000 shares issued to HMR Capital, 5,262 shares were
issued to each of Blacor, Inc. ("Blacor") and Donegal Partners, Ltd.,
("Donegal") in partial redemption of the membership units held by each entity in
HMR Capital and pursuant to the terms of that certain Redemption Agreement among
the parties dated effective as of April 8, 1997. Each of Blacor and Donegal are
affiliates of Michael S. McNulty, President of the Company, based upon Mr.
McNulty serving as President of Blacor and General Partner of Donegal. The
shares of Class A Common Stock received by HMR Capital in payment of the
acquisition fee are 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) represented approximately
3.1% of the gross purchase price of the Flagstaff Super 8.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of the Stockholders of the Company was held on
May 21, 1997 in Dallas, Texas.
(b) Proxies for the election of directors of the Company were solicited
pursuant to a Proxy Statement prepared in accordance with Regulation
14 of the Securities and Exchange Act of 1934, there was no
solicitation in opposition to the management's nominees listed in
the Proxy Statement, and all nominees were elected by the
stockholders.
(c) Two matters were submitted to a vote of the stockholders at the
Annual Meeting held on May 21, 1997, as follows:
22
<PAGE>
Election of Directors
The stockholders elected five directors, each of whom was a nominee of
management, with the following votes: Michael S. McNulty: For: 1,147,677;
Against: 1,517; Abstain: -0-; Guy E. Hatfield: For: 1,143,856; Against:
5,338; Abstain: -0-; Don W. Cockroft: For: 1,147,677; Against: 1,517;
Abstain: -0-; William M. Birdsall: For: 1,147,677; Against: 1,517;
Abstain: -0-; and Charles R. Dunn: For: 1,147,677; Against: 1,517;
Abstain: -0-. There were -0- non-broker votes.
Approval of Incentive Plan
The stockholders approved the Host Funding, Inc. 1997 Incentive Plan (the
"1997 Plan") pursuant to which certain individuals, including officers and
directors of the Company, may be granted awards for incentive stock
options, stock awards, performance shares and incentive awards, with the
following vote: For: 998,897; Against: 27,999; Abstain: 6,671. There were
115,627 non-broker votes.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
3.1 Amended and Restated Charter of the Company
(incorporated by reference to Exhibit 3.1 to Company's
Amendment 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).
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 (incorporated by reference to Exhibit 4.2 to
Company's Annual Report on Form 10-K filed on March 31,
1997).
23
<PAGE>
4.3 Form of Series B Warrant dated effective as of February
3, 1997 (incorporated by reference to Exhibit 4.3 to
Company's Annual Report on Form 10-K filed on March 31,
1997).
10.1 Agreement of Sale and Purchase between Indianapolis West
Equity Partners and Host Funding, Inc. dated May 1, 1997
(Country Hearth Inn, Marion County, Indiana)
(incorporated by reference to Exhibit 10.22 to Company's
Quarterly Report on Form 10-Q filed on May 14, 1997).
10.2 Amendment to Agreement of Sale and Purchase between
Indianapolis West Equity Partners and Host Funding, Inc.
dated effective as of June 19, 1997 (Country Hearth Inn,
Marion County, Indiana).
10.3 Agreement of Sale and Purchase between Auburn Equity
Partners and Host Funding, Inc. dated May 1, 1997
(Country Hearth Inn, Auburn, Indiana) (incorporated by
reference to Exhibit 10.23 to Company's Quarterly Report
on Form 10-Q filed on May 14, 1997).
10.4 Amendment to Agreement of Sale and Purchase between
Auburn Equity Partners and Host Funding, Inc. dated
effective as of June 19, 1997 (Country Hearth Inn,
Auburn, Indiana).
10.5 Second Amendment to Agreement of Sale and Purchase
between Auburn Equity Partners and Host Funding, Inc.
dated effective as of July 28, 1997 (Country Hearth Inn,
Auburn, Indiana).
10.6 Agreement of Sale and Purchase between Findlay Equity
Partners and Host Funding, Inc. dated May 1, 1997
(Country Hearth Inn, Findlay, Ohio) (incorporated by
reference to Exhibit 10.24 to Company's Form 10-Q filed
on May 14, 1997).
10.7 Amendment to Agreement of Sale and Purchase Agreement
between Findlay Equity Partners and Host Funding, Inc.
dated effective as of June 19, 1997 (Country Hearth Inn,
Findlay, Ohio).
10.8 Second Amendment to Agreement of Sale and Purchase
between Findlay Equity Partners and Host Funding, Inc.
dated effective as of July 28, 1997 (Country Hearth Inn,
Findlay, Ohio).
10.9 Agreement of Sale and Purchase between LVM Corporation
and Host Funding, Inc. dated July 21, 1997 (Days Inn -
Bloomington, Illinois).
10.10 Letter dated August 5, 1997 terminating Restated and
Amended Post-Formation Acquisition Agreement.
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<PAGE>
10.11 Promissory Note dated June 19, 1997 and First
Modification of Promissory Note dated effective as of
August 10, 1997 from Host Funding, Inc. as Maker, and
Blacor, Inc. as Lender, in the principal amount of
$70,000.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K for the reporting
period covered by this Form 10-Q. The Registrant did, however, file an Amended
Annual Report on Form 10-K/A on May 30, 1997 which included the financial
statements relating to the acquisition by the Company of a Super 8 Hotel located
in Flagstaff, Arizona as required by Rule 3-14 of Regulation S-X and the pro
forma condensed financial statements of the Registrant as required by Article 11
of Regulation S-X.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized and in the capacity as the Registrant's
Chief Financial and Accounting Officer.
Dated: August 14, 1997 HOST FUNDING, INC.
/s/ Michael S. McNulty
------------------------------------------
By: Michael S. McNulty
Its: President and Chief Executive Officer
/s/ Bona K. Allen
------------------------------------------
By: Bona K. Allen
Its: Chief Financial and Accounting Officer
26
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1 Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to Company's Amendment to Form S-11
effective April 17, 1996).
2.2 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).
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
(incorporated by reference to Exhibit 4.2 to Company's Annual
Report on Form 10-K filed on March 31, 1997).
4.3 Form of Series B Warrant dated effective as of February 3, 1997
(incorporated by reference to Exhibit 4.3 to Company's Annual
Report on Form 10-K filed on March 31, 1997).
10.1 Agreement of Sale and Purchase between Indianapolis West Equity
Partners and Host Funding, Inc. dated May 1, 1997 (Country
Hearth Inn, Marion County, Indiana) (incorporated by reference to
Exhibit 10.22 to Company's Quarterly Report on Form 10-Q filed
on May 14, 1997).
10.2 Amendment to Agreement of Sale and Purchase between
Indianapolis West Equity Partners and Host Funding, Inc. dated
effective as of June 19, 1997 (Country Hearth Inn, Marion County,
Indiana).
10.3 Agreement of Sale and Purchase between Auburn Equity Partners
and Host Funding, Inc. dated May 1, 1997 (Country Hearth Inn,
Auburn, Indiana) (incorporated by reference to Exhibit 10.23 to
Company's Quarterly Report on Form 10-Q filed on May 14, 1997).
10.4 Amendment to Agreement of Sale and Purchase between Auburn
Equity Partners and Host Funding, Inc. dated effective as of June
19, 1997 (Country Hearth Inn, Auburn, Indiana).
<PAGE>
10.5 Second Amendment to Agreement of Sale and Purchase between
Auburn Equity Partners and Host Funding, Inc. dated effective as
of July 28, 1997 (Country Hearth Inn, Auburn, Indiana).
10.6 Agreement of Sale and Purchase between Findlay Equity Partners
and Host Funding, Inc. dated May 1, 1997 (Country Hearth Inn,
Findlay, Ohio) (incorporated by reference to Exhibit 10.24 to
Company's Form 10-Q filed on May 14, 1997).
10.7 Amendment to Agreement of Sale and Purchase Agreement
between Findlay Equity Partners and Host Funding, Inc. dated
effective as of June 19, 1997 (Country Hearth Inn, Findlay, Ohio).
10.8 Second Amendment to Agreement of Sale and Purchase between
Findlay Equity Partners and Host Funding, Inc. dated effective as
of July 28, 1997 (Country Hearth Inn, Findlay, Ohio).
10.9 Agreement of Sale and Purchase between LVM Corporation and
Host Funding, Inc. dated July 21, 1997 (Days Inn -- Bloomington,
Illinois).
10.10 Letter dated August 5, 1997 terminating Restated and Amended
Post-Formation Acquisition Agreement.
10.11 Promissory Note dated June 19, 1997 and First Modification of
Promissory Note dated effective as of August 10, 1997 from Host
Funding, Inc. as Maker, and Blacor, Inc. as Lender, in the principal
amount of $70,000.
27 Financial Data Schedule.
<PAGE>
AMENDMENT TO AGREEMENT
OF SALE AND PURCHASE
THIS AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (this "Amendment") is
between INDIANAPOLIS WEST EQUITY PARTNERS, an Ohio general partnership
("Seller"), and HOST FUNDING, INC., a Maryland corporation or its permitted
assignee ("Purchaser"), and is dated effective as of June 19, 1997.
R E C I T A L S
A. Seller and Purchaser previously entered into that certain Agreement of
Sale and Purchase (the "Agreement") dated effective as of May 5, 1997, and
relating to the sale by Seller to Purchaser of real property located in Marion
County, Indiana, and more particularly described in Exhibit "A" attached hereto
and incorporated herein by reference for all purposes (the "Property").
B. Seller and Purchaser desire to amend the Agreement in certain respects
as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser hereby agree
as follows:
1. Section 3.1(b) of the Agreement is hereby amended by the deletion of
the last sentence thereof in its entirety and, in substitution therefor, the
following sentence added:
Notwithstanding the foregoing, Purchaser agrees that Seller may
distribute the Host Funding Stock to Seller's partners and to Seller's
Broker (and Seller's Broker may distribute same to its participating
brokers) without requirement of legal opinion; provided, however, that (i)
each recipient thereof shall have executed and delivered to Seller and
Purchaser an Investment Letter Agreement with respect thereto and (ii)
Purchaser shall determine within its sole discretion that such transfer
will not disqualify Purchaser as a Real Estate Investment Trust under the
Internal Revenue Code of 1986, as amended.
2. The Agreement is hereby amended by the deletion therefrom of Section
3.2(a) in its entirety and, in substitution therefor, the following Section
3.2(a) added:
Within three (3) business days following the mutual execution of this
Agreement by Seller and Purchaser, Purchaser shall initially deposit with
the Title Company the sum of EIGHT THOUSAND TWO HUNDRED TWENTY-FIVE AND
NO/100 DOLLARS ($8,225.00) (the "Initial Deposit"), which Initial Deposit
shall be increased to THIRTY-TWO THOUSAND NINE HUNDRED AND NO/100 DOLLARS
($32,900.00) in total value (the "Final Deposit", and, together with the
<PAGE>
Initial Deposit, the "Deposit") on or before June 25, 1997, said Final
Deposit to be made by Purchaser depositing with the Title Company the
number of shares of the Class A Common Stock of Host Funding, Inc. having
an aggregate value equal to TWENTY-FOUR THOUSAND SIX HUNDRED SEVENTY-FIVE
AND NO/100 ($24,675.00).
3. Section 3.2(b) of the Agreement is hereby amended by the deletion of
the last sentence thereof in its entirety and, in substitution therefor, the
following section added:
At the Closing, the cash portion of the Deposit shall be paid and applied
against the Cash Portion of the Purchase Price, and the stock portion of
the Deposit shall be applied and used as a part of the Host Funding Stock.
4. The Agreement is hereby amended by the deletion therefrom of Section
6.1, except the last two (2) sentences thereof; and, provided, the Deposit will
be considered non-refundable, subject however, to the conditions and/or
provisions set forth in Paragraphs 8, 9 and 10 of this Amendment, the conditions
and/or provisions set forth in Sections 5.3(a), 5.3(b), 5.3(d), 9.1(e), 9.1(f),
9.1(g), 9.1(h), Article 14 and Article 17 of the Agreement, and so long as
Seller is not in default of its obligations or in breach of its representations
and warranties under the Agreement.
5. Section 7.4 of the Agreement is hereby amended to provide that only a
portion of the Host Funding Stock equal to the number of shares of Host Funding
Stock having an aggregate value equal to ONE HUNDRED SIXTY THOUSAND NINE HUNDRED
AND NO/100 ($160,900.00) (as determined by the Host Funding Stock Fair Market
Value) shall be held back in trust for Purchaser by Seller for a period of one
(1) year after the Closing.
6. Section 11.1 of the Agreement is hereby amended to provide that the
transaction contemplated by the Agreement will be closed on or before August 28,
1997.
7. The Agreement is hereby amended by the deletion therefrom of Section
12.1(n) in its entirety and, in substitution therefor, the following Section
12.1(n) added:
(n) An Investment Letter from each recipient of Host Funding Stock on the
Closing Date, including, without limitation, an Investment Letter from
Seller's Broker (or any of its applicable participating brokers).
8. The Agreement is hereby amended by the deletion therefrom of Section
19.1(l) in its entirety and, in substitution therefor, the following Section
19.1(l) added:
(l) Further Conditions to Closing. The obligations of Seller and
Purchaser to close the Agreement are conditioned upon the
simultaneous closings of the Auburn CHI Contract and the Findlay
Contract on or before July 28, 1987, and neither party shall be
obligated to close the purchase of the Property pursuant to this
Agreement if the
2
<PAGE>
closings of the Auburn CHI Contract and the Findlay CHI Contract do
not simultaneously occur on or before July 28, 1997.
9. The Agreement is hereby amended by the addition thereto of Section
19.3 as follows:
Notwithstanding anything contained in this Amendment or the
Agreement to the contrary, Purchaser's obligation to close hereunder
shall be subject to Purchaser obtaining financing to close the
transaction contemplated hereby on or before July 28, 1997, such
financing to be acceptable to Purchaser in its sole discretion, and
in the event such financing is not obtained on or before July 28,
1997, Purchaser may terminate the Agreement, and in such event, the
Deposit shall be returned to Purchaser by the Title Company, and the
parties hereto shall thereafter have no further obligations one to
the other hereunder, except as to Purchaser's obligations to return
due diligence materials pursuant to Section 5.4 hereof, and except
as to Purchaser's indemnification liabilities set forth in Section
6.1 and 19.1(d) hereof.
10. The Agreement is hereby amended by the addition thereto of Section
19.4 as follows:
Notwithstanding anything contained in this Amendment or the
Agreement to the contrary, if Seller has not, on or before July 28,
1997, received the approval of the transaction contemplated by this
Agreement from at least fifty-one percent (51%) of the partners of
Seller (or such larger percentage, if so required) entitled to vote
to approve the transaction contemplated hereby, either Seller or
Purchaser may terminate the Agreement, and, in such event, the
Deposit shall be returned to Purchaser by the Title Company, and the
parties hereto shall thereafter have no further obligations one to
the other hereunder, except as to Purchaser's obligations to return
to Seller due diligence materials pursuant to Section 5.4 hereof,
and except as to Purchaser's indemnification liabilities set forth
in Section 6.1 and 19.1(d) hereof.
3
<PAGE>
11. Except as expressly amended herein, the Agreement remains unchanged,
and the valid and binding obligation of Seller and Purchaser. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned thereto
in the Agreement. This Amendment shall be effective upon execution by facsimile
transmission by both parties.
SELLER:
INDIANAPOLIS WEST EQUITY PARTNERS,
an Ohio general partnership
By: Investment Resources Capital Corp., an Ohio
corporation, Managing Partner
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
PURCHASER:
HOST FUNDING, INC., a Maryland corporation
By:
--------------------------------------------
Michael S. McNulty, President
4
<PAGE>
AMENDMENT TO AGREEMENT
OF SALE AND PURCHASE
This AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (this "Amendment") is
between AUBURN EQUITY PARTNERS, an Ohio general partnership ("Seller"), and HOST
FUNDING, INC., a Maryland corporation or its permitted assignee ("Purchaser"),
and is dated effective as of June 19, 1997.
RECITALS
A. Seller and Purchaser previously entered into that certain Agreement of
Sale and Purchase (the "Agreement") dated effective as of May 5, 1997, and
relating to the sale by Seller to Purchaser of real property located in Auburn,
DeKalb County, Indiana, and more particularly described in Exhibit "A" attached
hereto and incorporated herein by reference for all purposes (the "Property").
B. Seller and Purchaser desire to amend the Agreement in certain respects
as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser hereby agree
as follows:
1. Section 1.1 of the Agreement is hereby amended by the deletion
therefrom of the definition of "Indianapolis CHI Contract" in its entirety.
2. Section 3.1(b) of the Agreement is hereby amended by the deletion
therefrom of the definition of Nomura [("Nomura")] in its entirety, and
substitution therefor, the following definition added:
(Nomura Asset Capital Corporation, or the current record holder of the
Nomura Loan, as applicable, is hereafter referred to as "Nomura")
3. Section 3.1(c) of the Agreement is hereby amended by the deletion of
the last sentence thereof in its entirety and, in substitution therefor, the
following sentence added:
Notwithstanding the foregoing, Purchaser agrees that Seller may
distribute the Host Funding Stock to Seller's partners and to Seller's
Broker (and Seller's Broker may distribute same to its participating
brokers) without requirement of legal opinion; provided, however, that (i)
each recipient thereof shall have executed and delivered to Seller and
Purchaser an Investment Letter Agreement with respect thereto and (ii)
Purchaser shall determine within its sole discretion that such transfer
will not disqualify Purchaser as a Real Estate Investment Trust under the
Internal Revenue Code of 1986, as amended.
<PAGE>
4. The Agreement is hereby amended by the deletion therefrom of Section
3.3(a) in its entirety and, in substitution therefor, the following Section
3.3(a) added:
Within three (3) business days following the mutual execution of
this Agreement by Seller and Purchaser, Purchaser shall initially deposit
with the Title Company the sum of EIGHT THOUSAND THREE HUNDRED
SEVENTY-FIVE AND NO/100 DOLLARS ($8,375.00) (the "Initial Deposit"), which
Initial Deposit shall be increased to THIRTY-THREE THOUSAND FIVE HUNDRED
AND NO/100 DOLLARS ($33,500.00) in total value (the "Final Deposit", and,
together with the Initial Deposit, the "Deposit") on or before June 25,
1997, said Final Deposit to be made by Purchaser depositing with the Title
Company the number of shares of the Class A Common Stock of Host Funding,
Inc. having an aggregate value equal to TWENTY-FIVE THOUSAND ONE HUNDRED
TWENTY-FIVE AND NO/10O ($25,125.00).
5. Section 3.3(b) of the Agreement is hereby amended by the deletion of
the last sentence thereof in its entirety and, in substitution therefor, the
following section added:
At the Closing, the cash portion of the Deposit shall be paid and
applied against the Cash Portion of the Purchase Price, and the stock
portion of the Deposit shall be applied and used as a part of the Host
Funding Stock.
6. This Agreement is hereby amended by the deletion therefrom of Section
6.1, except for the last two (2) sentences thereof and, provided, the Deposit
will be considered non-refundable, subject, however, to approval by Nomura of
the assumption of the Nomura Loan by Purchaser, the approval by Purchaser of the
form of the Nomura Assumption Documents, the approval by Seller of the form of
such documents as are required by Nomura to be executed by Seller incident to
the assumption by Purchaser of the Nomura Loan, and the approval of the form of
the Nomura Estoppel by Seller and Purchaser, all no later than July 20, 1997, as
well as the conditions set forth in Paragraphs 10 and 11 of this Amendment, the
conditions and/or provisions set forth in Sections 5.3(a), 53(b), 5.3(d),
9.1(e), 9.1(f), 9.1(g), 9.1(h), Article 14 and Article 17 of the Agreement, and
so long as Seller is not in default of its obligations or in breach of the
representations and warranties under the Agreement.
7. Section 7.4 of the Agreement is hereby amended to provide that only a
portion of the Host Funding Stock equal to the number of shares of Host Funding
Stock having an aggregate value equal to ONE HUNDRED SIXTY-FIVE THOUSAND EIGHT
HUNDRED AND NO/l00 ($165,800.00) (as determined by the Host Funding Stock Fair
Market Value) shall be held back in trust for Purchaser by Seller for a period
of one (1) year after the Closing.
8. Section 11.1 of the Agreement is hereby amended to provide that the
transaction contemplated by the Agreement will be closed no later than July 28,
1997.
9. The Agreement is hereby amended by the deletion therefrom of Section
12.1(n) in its entirety and, in substitution therefor, the following Section
12.1(n) added:
2
<PAGE>
(n) An Investment Letter from each recipient of Host Funding Stock on the
Closing Date, including, without limitation, an Investment Letter from
Seller's Broker (or any of its applicable participating brokers)
10. The Agreement is hereby amended by the deletion therefrom of Section
19.1(l) in its entirety and, in substitution therefor, the following Section
19.1(l) added:
(l) Further Conditions to Closing. The obligations of Seller and
Purchaser to close this Agreement are conditioned upon the simultaneous
closing of the Agreement and the Findlay CHI Contract, and neither party
shall be obligated to close the purchase of the Property pursuant to the
Agreement if the closing does not simultaneously occur with the closing of
the Findlay CHI Contract.
11. The Agreement is hereby amended by the addition thereto of Section
19.3 as follows:
Notwithstanding anything contained in this Amendment or in the
Agreement to the contrary, and unless otherwise extended by mutual
agreement of the parties in writing, in the event that on or before July
20, 1997, Nomura has not approved the assumption by Purchaser of the
Nomura Loan, Purchaser has not approved the form of the Nomura Assumption
Documents, Seller has not approved the form of such documents as are
required by Nomura to be executed by Seller incident to the assumption by
Purchaser of the Nomura Loan, and/or Seller and Purchaser have not
approved the form of the Nomura Estoppel, either Seller or Purchaser may
terminate this Agreement and, in such event, the Deposit shall be returned
to Purchaser by the Title Company, and the parties hereto shall thereafter
have no further obligations one to the other hereunder, except as to
Purchaser's obligations to return to Seller due diligence materials
pursuant to Section 5.4 hereof and except as to Purchaser's
indemnification liabilities set forth in Sections 6.1 and 19.1(d) hereof.
3
<PAGE>
12. Except as expressly amended herein, the Agreement remains unchanged,
and the valid and binding obligation of Seller and Purchaser. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned thereto
in the Agreement. This Amendment shall be effective upon execution by facsimile
transmission by both parties.
SELLER:
FINDLAY EQUITY PARTNERS, an Ohio general
partnership
By: Investment Resources, Inc., an Ohio
corporation, Managing Partner
By: ----------------------------------
Name: --------------------------------
Title: -------------------------------
PURCHASER:
HOST FUNDING, INC., a Maryland corporation
By:
---------------------------------------
Michael S. McNulty, President
4
<PAGE>
SECOND AMENDMENT TO AGREEMENT
OF SALE AND PURCHASE
THIS SECOND AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (this "Second
Amendment") is between AUBURN EQUITY PARTNERS, an Ohio general partnership
("Seller"), and HOST FUNDING, INC., a Maryland corporation or its permitted
assignee ("Purchaser"), and is dated effective as of July 28, 1997.
RECITALS
A. Seller and Purchaser previously entered into that certain Agreement of
Sale and Purchase dated effective as of May 5, 1997, as amended by that certain
Amendment to Agreement of Sale and Purchase (the "First Amendment") dated
effective as of June 19, 1997 (sometimes collectively, as amended by the First
Amendment, the "Agreement"), and relating to the sale by Seller to Purchaser of
real property located in Auburn, DeKalb County, Indiana, and more particularly
described in Exhibit "A" attached hereto and incorporated herein by reference
for all purposes (the "Property").
B. Seller and Purchaser desire to further amend the Agreement in certain
respects as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser hereby agree
as follows:
1. The Agreement is hereby amended by the deletion therefrom of the
amendments to same contained in Paragraph 6 of the First Amendment, and, in
substitution therefor, the following restatements and/or modifications thereto
added:
This Agreement is hereby amended by the deletion therefrom of
Section 6.1, except for the last two (2) sentences thereof and,
provided, the Deposit will be considered non-refundable, subject,
however, to approval by Nomura of the assumption of the Nomura Loan
by Purchaser, the approval by Purchaser of the form of the Nomura
Assumption Documents, the approval by Seller of the form of such
documents as are required by Nomura to be executed by Seller
incident to the assumption by Purchaser of the Nomura Loan, and the
approval of the form of the Nomura Estoppel by Seller and Purchaser,
all no later than September 30, 1997, as well as the conditions set
forth in Paragraph 10 of the First Amendment and Paragraph 11 of the
First Amendment (as herein amended)) the conditions and/or
provisions set forth in Sections 5.3(a), 5.3(b), 5.3(d), 9.1(e),
9.1(f), 9.1(g), 9.1(h), Article 14 and Article 17 of the Agreement,
and so long as Seller is not in default of its obligations or in
breach of the representations and warranties under the Agreement.
2. Section 11.1 of the Agreement (and Paragraph 8 of the First Amendment)
is hereby amended to provide that the transaction contemplated by the Agreement
will be closed no later than
<PAGE>
five (5) days after the approval by Nomura (including all committees and rating
agency approvals) of the assumption of the Nomura Loan by Purchaser, the
approval by Purchaser of the form of the Nomura Assumption Documents, the
approval by Seller of the form of such documents as are required by Nomura to be
executed by Seller incident to the assumption by Purchaser of the Nomura Loan
and the approval of the form of the Nomura Estoppel by Seller and Purchaser.
3. The Agreement is hereby amended by the deletion in its entirety of
Section 19.3 (added pursuant to Paragraph 11 of the First Amendment) and, in
substitution therefor, the following Section 19.3 added;
Notwithstanding anything contained in this Second Amendment, the
First Amendment or in the Agreement to the contrary, and unless otherwise
extended by mutual agreement of the parties in writing, in the event that
on or before September 30, 1997, Nomura has not approved the assumption by
Purchaser of the Nomura Loan, Purchaser has not approved the form of the
Nomura Assumption Documents, Seller has not approved the form of such
documents as are required by Nomura to be executed by Seller incident to
the assumption by Purchaser of the Nomura Loan, and/or Seller and
Purchaser have not approved the form of the Nomura Estoppel, either Seller
or Purchaser may terminate this Agreement, and, in such event, the Deposit
shall be returned to Purchaser by the Title Company, and the parties
hereto shall thereafter have no further obligations one to the other
hereunder, except as to Purchaser's obligations to return to Seller due
diligence materials pursuant to Section 5.4 hereof, and except as to
Purchaser's indemnification liabilities set forth in Sections 6.1 and
19.1(d) hereof.
4. Except as expressly amended herein, the Agreement (and, as applicable,
the First Amendment) remains unchanged, and the valid and binding obligation of
Seller and Purchaser.
2
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Agreement. This Amendment shall be effective upon
execution by facsimile transmission by both parties.
SELLER:
AUBURN EQUITY PARTNERS, an Ohio general
partnership
By: Investment Resources, Inc., an Ohio
corporation, Managing Partner
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
PURCHASER:
HOST FUNDING, INC., a Maryland corporation
By:
---------------------------------------
Michael S. McNulty, President
3
<PAGE>
AMENDMENT TO AGREEMENT
OF SALE AND PURCHASE
THIS AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (this "Amendment") is
between FINDLAY EQUITY PARTNERS, an Ohio general partnership ("Seller"), and
HOST FUNDING, INC., a Maryland corporation or its permitted assignee
("Purchaser"), and is dated effective as of June 19, 1997.
R E C I T A L S
A. Seller and Purchaser previously entered into that certain Agreement of
Sale and Purchase (the "Agreement") dated effective as of May 5, 1997, and
relating to the sale by Seller to Purchaser of real property located in Liberty
Township, Hancock County, Indiana, and more particularly described in Exhibit
"A" attached hereto and incorporated herein by reference for all purposes (the
"Property").
B. Seller and Purchaser desire to amend the Agreement in certain respects
as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser hereby agree
as follows:
1. Section 1.1 of the Agreement is hereby amended by the deletion
therefrom of the definition of "Indianapolis CHI Contract" in its entirety.
2. Section 3.1(b) of the Agreement is hereby amended by the deletion
therefrom of the definition of Nomura [("Nomura")] in its entirety, and
substitution therefor, the following definition added:
(Nomura Asset Capital Corporation, or the current record holder of the
Nomura Loan, as applicable, is hereafter referred to as "Nomura")
3. Section 3.1(c) of the Agreement is hereby amended by the deletion of
the last sentence thereof in its entirety and, in substitution therefor, the
following sentence added:
Notwithstanding the foregoing, Purchaser agrees that Seller may
distribute the Host Funding Stock to Seller's partners and to Seller's
Broker (and Seller's Broker may distribute same to its participating
brokers) without requirement of legal opinion; provided, however, that (i)
each recipient thereof shall have executed and delivered to Seller and
Purchaser an Investment Letter Agreement with respect thereto and (ii)
Purchaser shall determine within its sole discretion that such transfer
will not disqualify Purchaser as a Real Estate Investment Trust under the
Internal Revenue Code of 1986, as amended.
<PAGE>
4. The Agreement is hereby amended by the deletion therefrom of Section
3.3(a) in its entirety and, in substitution therefor, the following Section
3.3(a) added:
Within three (3) business days following the mutual execution of
this Agreement by Seller and Purchaser, Purchaser shall initially deposit
with the Title Company the sum of EIGHT THOUSAND FOUR HUNDRED AND NO/100
DOLLARS ($8,400.00) (the "Initial Deposit"), which Initial Deposit shall
be increased to TWENTY-FIVE THOUSAND THREE HUNDRED FORTY-TWO AND NO/100
DOLLARS ($25,342.00) in total value (the "Final Deposit", and, together
with the Initial Deposit, the "Deposit") said Final Deposit having been
made by Purchaser wiring $16,942.00 in cash directly to Seller on June 17,
1997 (to be used to pay the assumption fee to Nomura).
5. This Agreement is hereby amended by the deletion therefrom of Section
6.1, except for the last two (2) sentences thereof; and, provided, the Deposit
will be considered non-refundable, subject, however, to approval by Nomura of
the assumption of the Nomura Loan by Purchaser, the approval by Purchaser of the
form of the Nomura Assumption Documents, the approval by Seller of the form of
such documents as are required by Nomura to be executed by Seller incident to
the assumption by Purchaser of the Nomura Loan, and the approval of the form of
the Nomura Estoppel by Seller and Purchaser, all no later than July 20, 1997, as
well as the conditions set forth in Paragraphs 8 and 9 of this Amendment, the
conditions and/or provisions set forth in Sections 5.3(a), 5.3(b), 5.3(d),
9.1(e), 9.1(f), 9.1(g), 9.1(h), Article 14 and Article 17 of the Agreement, and
so long as Seller is not in default of its obligations or in breach of the
representations and warranties under the Agreement.
6. Section 11.1 of the Agreement is hereby amended to provide that the
transaction contemplated by the Agreement will be closed no later than July 28,
1997.
7. The Agreement is hereby amended by the deletion therefrom of Section
12.1(n) in its entirety and, in substitution therefor, the following Section
12.1(n) added:
(n) An Investment Letter from each recipient of Host Funding Stock on the
Closing Date, including, without limitation, an Investment Letter from
Seller's Broker (or any of its applicable participating brokers).
8. The Agreement is hereby amended by the deletion therefrom of Section
19.1(l) in its entirety and, in substitution therefor, the following Section
19.1(l) added:
(l) Further Conditions to Closing. The obligations of Seller and
Purchaser to close this Agreement are conditioned upon the simultaneous
closing of the Agreement and the Findlay CHI Contract, and neither party
shall be obligated to close the purchase of the Property pursuant to the
Agreement if the closing does not simultaneously occur with the closing of
the Findlay CHI Contract.
2
<PAGE>
9. The Agreement is hereby amended by the addition thereto of Section 19.3
as follows:
Notwithstanding anything contained in this Amendment or in the
Agreement to the contrary, and unless otherwise extended by mutual
agreement of the parties in writing, in the event that on or before July
20, 1997, Nomura has not approved the assumption by Purchaser of the
Nomura Loan, Purchaser has not approved the form of the Nomura Assumption
Documents, Seller has not approved the form of such documents as are
required by Nomura to be executed by Seller incident to the assumption by
Purchaser of the Nomura Loan, and/or Seller and Purchaser have not
approved the form of the Nomura Estoppel, either Seller or Purchaser may
terminate this Agreement, and, in such event, the Deposit shall be
returned to Purchaser by the Title Company, and the parties hereto shall
thereafter have no further obligations one to the other hereunder, except
as to Purchaser's obligations to return to Seller due diligence materials
pursuant to Section 5.4 hereof, and except as to Purchaser's
indemnification liabilities set forth in Sections 6.1 and 19.1(d) hereof.
10. Except as expressly amended herein, the Agreement remains unchanged,
and the valid and binding obligation of Seller and Purchaser. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned thereto
in the Agreement. This Amendment shall be effective upon execution by facsimile
transmission by both parties.
SELLER:
FINDLAY EQUITY PARTNERS, an Ohio general
partnership
By: Investment Resources, Inc., an Ohio
corporation, Managing Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
PURCHASER:
HOST FUNDING, INC., a Maryland corporation
By:
-------------------------------------
Michael S. McNulty, President
3
<PAGE>
SECOND AMENDMENT TO AGREEMENT
OF SALE AND PURCHASE
THIS SECOND AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (this "Second
Amendment") is between FINDLAY EQUITY PARTNERS, an Ohio general partnership
("Seller"), and HOST FUNDING, INC., a Maryland corporation or its permitted
assignee ("Purchaser"), and is dated effective as of July 28, 1997.
R E C I T A L S
A. Seller and Purchaser previously entered into that certain Agreement of
Sale and Purchase dated effective as of May 5, 1997, as amended by that certain
Amendment to Agreement of Sale and Purchase (the "First Amendment") dated
effective as of June 19, 1997 (sometimes collectively, as amended by the First
Amendment, the "Agreement"), and relating to the sale by Seller to Purchaser of
real property located in Liberty Township, Hancock County, Ohio, and more
particularly described in Exhibit "A" attached hereto and incorporated herein by
reference for all purposes (the "Property").
B. Seller and Purchaser desire to further amend the Agreement in certain
respects as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser hereby agree
as follows:
1. The Agreement is hereby amended by the deletion therefrom of the
amendments to same contained in Paragraph 5 of the First Amendment, and, in
substitution therefor, the following restatements and/or modifications thereto
added:
This Agreement is hereby amended by the deletion therefrom of Section 6.1,
except for the last two (2) sentences thereof, and, provided, the Deposit
will be considered non-refundable, subject, however, to approval by Nomura
of the assumption of the Nomura Loan by Purchaser, the approval by
Purchaser of the form of the Nomura Assumption Documents, the approval by
Seller of the form of such documents as are required by Nomura to be
executed by Seller incident to the assumption by Purchaser of the Nomura
Loan, and the approval of the form of the Nomura Estoppel by Seller and
Purchaser, all no later than September 30, 1997, as well as the conditions
set forth in Paragraph 8 of the First Amendment and Paragraph 9 of the
First Amendment (as herein amended), the conditions and/or provisions set
forth in Sections 5.3(a), 5.3(b), 5.3(d), 9.1(e), 9.1(f), 9.1(g), 9.1(h),
Article 14 and Article 17 of the Agreement, and so long as Seller is not
in default of its obligations or in breach of the representations and
warranties under the Agreement.
2. Section 11.1 of the Agreement (and Paragraph 6 of the First Amendment)
is hereby amended to provide that the transaction contemplated by the Agreement
will be closed no later than
<PAGE>
five (5) days after the approval by Nomura (including all committees and rating
agency approvals) of the assumption of the Nomura Loan by Purchaser, the
approval by Purchaser of the form of the Nomura Assumption Documents, the
approval by Seller of the form of such documents as are required by Nomura to be
executed by Seller incident to the assumption by Purchaser of the Nomura Loan
and the approval of the form of the Nomura Estoppel by Seller and Purchaser.
3. The Agreement is hereby amended by the deletion in its entirety of
Section 19.3 (added pursuant to Paragraph 9 of the First Amendment) and, in
substitution therefor, the following Section 19.3 added:
Notwithstanding anything contained in this Second Amendment, the
First Amendment or in the Agreement to the contrary, and unless otherwise
extended by mutual agreement of the parties in writing, in the event that
on or before September 30, 1997, Nomura has not approved the assumption by
Purchaser of the Nomura Loan, Purchaser has not approved the form of the
Nomura Assumption Documents, Seller has not approved the form of such
documents as are required by Nomura to be executed by Seller incident to
the assumption by Purchaser of the Nomura Loan, and/or Seller and
Purchaser have not approved the form of the Nomura Estoppel, either Seller
or Purchaser may terminate this Agreement, and, in such event, the Deposit
shall be returned to Purchaser by the Title Company, and the parties
hereto shall thereafter have no further obligations one to the other
hereunder, except as to Purchaser's obligations to return to Seller due
diligence materials pursuant to Section 5.4 hereof, and except as to
Purchaser's indemnification liabilities set forth in Sections 6.1 and
19.1(d) hereof.
4. Except as expressly amended herein, the Agreement (and, as applicable,
the First Amendment) remains unchanged, and the valid and binding obligation of
Seller and Purchaser.
2
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Agreement. This Amendment shall be effective upon
execution by facsimile transmission by both parties.
SELLER:
FINDLAY EQUITY PARTNERS, an Ohio general
partnership
By: Investment Resources, Inc., an Ohio
corporation, Managing Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PURCHASER:
HOST FUNDING, INC., a Maryland corporation
By:
----------------------------------------
Michael S. McNulty, President
3
<PAGE>
AGREEMENT OF SALE AND PURCHASE
Between
LVM CORPORATION
And
HOST FUNDING, INC.
Dated: July ____, 1997
DAYS INN - BLOOMINGTON, ILLINOIS
<PAGE>
AGREEMENT OF SALE AND PURCHASE
THIS AGREEMENT OF SALE AND PURCHASE ("Agreement") is made as of this ___
day of July, 1997, by and between LVM CORPORATION, an Illinois corporation
("Seller") and HOST FUNDING, INC., a Maryland corporation or its permitted
assignee as provided herein (sometimes herein, "Purchaser").
R E C I T A L S
A. Seller is the fee owner of the real property approximately ________
acres in size and legally described in EXHIBIT A attached hereto and
incorporated herein by reference for all purposes, portions of which real
property has been improved with (i) ______ (__) hotel building(s) containing one
hundred one (101) guest rooms; (ii) parking areas; and (iii) certain other
improvements, and which is commonly known as the Days Inn located in
Bloomington, Illinois (sometimes collectively, the "Hotel"), and portions of
which real property has been ground leased to IHOP (sometimes, the "Ground Lease
Property").
B. Seller desires to sell, and Purchaser desires to purchase, the Hotel
and Ground Lease Property 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:
Affiliate: Any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, or 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 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
<PAGE>
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.
Agreement: This Agreement of Purchase and Sale, including the
exhibits attached hereto, which is incorporated herein by this reference for all
purposes.
Agreement Not to Compete: As defined in Section 17.1.
Assignment of Bookings, Hotel Contracts and Permits: As defined in
Section 12.1(c).
Assignment of Ground Lease: As defined in Section 12.1(d).
Bill of Sale: As defined in Section 12.1(b).
Bookings: Contracts for the use or occupancy of guest rooms of the
Hotel.
Cash Portion of the Purchase Price: As defined in Section 3.1(a).
Closing: As defined in Section 11.1.
Closing Date: As defined in Section 11.1.
Closing Inventory: The Closing Inventory required under the
provisions of Section 13.2.
Closing Report: The Closing Report required under the provisions of
Section 13.2.
Closing Statements: The Closing Statements to be executed by Seller
and Purchaser incident to the Closing of the transaction contemplated hereby.
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 Hotel, at normal operating levels customarily
maintained for the efficient economic operation of the Hotel as a "Days Inn"
hotel property, excluding, however, (i) the Supplies, and (ii) property owned by
guests or other persons furnishing services to the Hotel.
Continuing Obligations: All commitments, promotions and other
obligations to provide free or discounted guest rooms at the Hotel which have
not been satisfied in full as of the Closing Date and which are not included in
the Hotel Contracts.
Cure Notice: As defined in Section 4.3.
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<PAGE>
Cut-off Time: 11:59 P.M. local time on the day immediately preceding
the Closing Date.
Days Inn Indemnification Agreement: As defined in Section 9.1(k).
Deposit: As defined in Section 3.2(a).
Due Diligence Period: As defined in Section 6.1.
Effective Date: The date upon which at least three (3) fully
executed counterparts of this Agreement, together with the Initial Deposit, are
delivered to the Title Company, as acknowledged by the Title Company in writing
in the space hereinafter provided in this Agreement.
Employee Costs: As defined in Section 15.1.
Employee Indemnification Agreement: As defined in Section 15.1.
Escrow: The escrow to be created for the purpose of facilitating the
Closing.
Escrow Instructions: The escrow instructions to be executed and
delivered by the parties hereto (or their respective attorneys) and the Title
Company for closing the transaction contemplated hereby.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Existing Franchise Agreement: The current franchise or license
agreement allowing the operation of the Hotel as a "Days Inn".
Existing Franchise Agreement Costs: The recurring costs and fees
paid to the franchisor or licensor on a monthly basis by Seller pursuant to the
Existing Franchise Agreement, including, without limitation, royalty fees,
system assessment fees, marketing fees, reservation fees and the like, excluding
however non-monthly and/or extraordinary fees and expenses so paid to franchisor
or licensor by Seller.
Final Deposit: As defined in Section 3.2(a).
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 the use,
operation and maintenance of the Hotel at normal operating levels customarily
maintained for the effective economic operation of the Hotel as a "Days Inn"
hotel property, including, without limitation, architectural, engineering and
other plans (including "as built" plans) and drawings, the account and business
records relating to the operation of the Hotel, telephone numbers for the Hotel,
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<PAGE>
service marks and trademarks relating to the Hotel, all software and data bases
(including the disks), ledgers, bank statements, keys and locks and safe
combinations, excluding, however: (i) the Consumables; (ii) the Supplies; (iii)
equipment and property leased pursuant to the Hotel Contracts; (iv) property
owned by guests or other persons furnishing services to the Hotel; (v) the
Improvements, (vi) property located at the Hotel and owned by Seller and/or its
Affiliates but not used or necessary for the normal operation of the Hotel, and
(vii) funds or cash equivalents in Hotel operating accounts or any cash, petty
cash or currency physically located at the Hotel on the Closing Date.
General Warranty Deed: As defined in Section 12.1(a).
Ground Lease: The Ground Lease, dated ________________, 19__, as
from time to time amended, by and between Seller, as ground lessor, and IHOP, as
ground lessee, and concerning the Ground Lease Property.
Ground Lease Revenues. All revenues and charges payable in
connection with the Ground Lease.
Hazardous Materials: As defined in Section 7.2.
Host Funding Franchise Agreement: As defined in Section 9.1(c).
Host Funding Stock: As defined in Section 3.1(b).
Host Funding Stock Fair Market Value: The average for the prices of
a share of the Host Funding Stock as reported on the American Stock Exchange for
the fifteen (15) trading days ending with the third business day preceding the
Closing Date.
Hotel: As defined in Recital A to this Agreement.
Hotel 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 Hotel and the ownership, operation, use and maintenance of 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, (ii) the Bookings, and (iii) any of
the foregoing which are not transferrable by Seller and/or Manager, or, which,
subject to the provisions of Section 5.2 hereof, are not assumed by Purchaser
(or Operator at the direction of Purchaser).
Hotel Revenues. All revenues or sales or income of any kind payable
to Seller and resulting from the ownership or operation of the Property and the
Hotel, as and when collected, including, without limitation to, revenue and
charges payable in connection with the rental of rooms and suites; food and
beverage sales; laundry (including coin operated equipment) and telephone
4
<PAGE>
revenues; vending machine revenues; and rental and other payments from licensees
and concessionaires occupying space or rendering services at the Hotel (after
deduction of all rebates and the reasonable expenses actually paid or incurred
in connection with the adjustments or collection thereof).
IHOP: International House of Pancakes.
IHOP Estoppel: As defined in Section 9.1(i).
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 the Ground Lease Property, or any part thereof or any
interest therein, and all sales, occupancy, room, license, permit and other
taxes, and all costs and expenses related thereto, incurred in connection with
the operation of the Hotel.
Improvements: The buildings, structures (surface and sub-surface),
improvements and other constructions and all component parts of those buildings,
structures, improvements and other constructions, including such fixtures as
shall constitute real property, located on the Real Property and constituting
the Hotel.
Initial Deposit: As defined in Section 3.2(a).
Investment Letter Agreement: The form of agreement attached hereto
as Exhibit C and incorporated herein by reference for all purposes.
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 Property, the Ground Lease Property or
the Hotel (and the operation thereof).
Litigation Costs: As defined in Section 19.1(h).
Notices: As defined in Section 18.1.
Objections: As defined in Section 4.3.
Operator: As defined in Section 9.1(d).
Operating Lease: As defined in Section 9.1(d).
Permits: All licenses, permits, certificates of occupancy,
authorizations and approvals issued to Seller or Manager and used in or relating
to the ownership, occupancy or operation of the
5
<PAGE>
Property, the Ground Lease Property or the Hotel, excluding, however, (i) any of
the foregoing which are not transferable by Seller or Manager, and (ii) the
Existing Franchise Agreement.
Permitted Exceptions: As defined in Section 4.3.
Piggy-Back Registration: As defined in Section 19.2(a).
Property: The following items, collectively, as they relate to the
Hotel: (i) the Real Property; (ii) the Improvements, (iii) the Fixtures and
Tangible Personal Property; (iv) the Supplies; (v) the Consumables; (vi) subject
to any contrary provisions hereof, all transferable right, title and interest of
Seller or Manager in, to and under the Hotel Contracts and the Bookings; and
(vii) all transferable right, title and interest of Seller or Manager in, to and
under the Permits.
Purchase Price: As defined in Section 3.1.
Purchaser's Advisors: As defined in Section 16.1(d).
Purchaser Expenses: As described in Section 16.1(b).
Purchaser's Damages: As defined in Section 7.4.
Real Property: Title to the real property legally described on
Exhibit A attached hereto and upon which the Hotel and the Improvements are
located.
Receivables: The accounts receivable of the Hotel operation
(including, without limitation, credit card receivables) incurred in the
ordinary course of business in accordance with the Hotel's credit policies in
existence as of the Cut-off Time.
Securities Act: The Securities Act of 1933, as amended.
Seller Expenses: As described in Section 16.1(a).
Supplies: All linen, uniforms, materials or supplies whether in use
or held in reserve storage for future use, in connection with the operation of
the Hotel, at normal operating levels customarily maintained for the efficient
economic operation of the Hotel as a "Days Inn" hotel property, excluding,
however, (i) the Consumables, and (ii) property owned by guests or other persons
furnishing services to the Hotel.
Survey: As defined in Section 4.1.
Title Commitment: The commitment for title insurance issued in
accordance with Section 4.2.
6
<PAGE>
Title and Survey Report: As defined in Section 4.3.
Title and Survey Review Period: As defined in Section 4.3.
Title Company: Republic Title of Texas, Inc., as agent for First
American Title Insurance Company.
Title Documents: As defined in Section 4.2.
Title Policy: As defined in Section 12.1(d).
Violation: Any condition with respect to the Property which
constitutes a material 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 an
exhibit refers to the exhibit attached hereto. The words "hereby", "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.
Captions used herein are for convenience only and shall not be used to construe
the meaning of any part of this Agreement. Whenever under the terms of this
Agreement the time for performance of a covenant or condition falls upon a
Saturday, Sunday 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 and the Ground
Lease 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 and the Ground Lease Property shall be THREE MILLION NINE HUNDRED
THOUSAND AND NO/100 DOLLARS ($3,900,000.00). The Purchase Price shall be payable
at Closing as follows:
(a) Subject to adjustment pursuant to various applicable provisions
of this Agreement requiring adjustment of same, the sum of THREE MILLION
SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($3,700,000.00) in cash or other
immediately available funds (the "Cash Portion of the Purchase Price");
and
7
<PAGE>
(b) Subject to the provisions of Section 7.4 hereof, Purchaser's
delivery or issuance to Seller of the number of shares of the Class A
Common Stock of Host Funding, Inc. (the "Host Funding Stock") having an
aggregate value equal to TWO HUNDRED THOUSAND AND NO/100 DOLLARS
($200,000.00) determined by the Host Funding Stock Fair Market Value. The
Host Funding Stock will be deemed a "restricted security" under the
Securities Act in that such stock will be delivered or issued to Seller in
a transaction not involving a public offering. Seller understands that the
Host Funding Stock may not be resold without compliance with the
registration requirements of the Securities Act or in other certain
limited circumstances. In this connection, Seller understands the resale
limitations imposed by the Securities Act and is familiar with SEC Rules
144 and 145, as presently in effect, and the conditions which must be met
in order for Rules 144 and 145 to be available for resale of "restricted
securities". Each certificate representing Host Funding Stock will contain
the appropriate legend relating to restrictions on sale and transfer under
the Securities Act and the Exchange Act. Notwithstanding the foregoing,
Purchaser agrees that Seller may distribute the Host Funding Stock to
Seller's partners without requirement of legal opinion; provided, however,
that (i) each recipient thereof shall have executed and delivered to
Seller and Purchaser an Investment Letter Agreement with respect thereto
and (ii) Purchaser shall determine within its sole discretion that such
transfer will not disqualify Purchaser as a Real Estate Investment Trust
under the Internal Revenue Code of 1986, as amended.
3.2 Deposit.
(a) Within three (3) business days following the mutual execution of
this Agreement by Seller and Purchaser, Purchaser shall initially deposit
with the Title Company the sum of TEN THOUSAND AND NO/100 DOLLARS
($10,000.00) (the "Initial Deposit"), which Initial Deposit shall be
increased to ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) (the
"Final Deposit", and, together with the Initial Deposit, the "Deposit")
upon the expiration of the Due Diligence Period if Purchaser does not
elect to terminate this Agreement on or before 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 further 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 Purchaser shall
determine, and all interest and other earnings thereon shall become a part
of the Deposit. The funds representing the Final Deposit shall also 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 the Closing, the Deposit shall be paid and
applied against the Cash Portion of the Purchase Price.
3.3 Allocation of Purchase Price: The Purchase Price shall be apportioned
and allocated among the Property as follows:
8
<PAGE>
Real Property, the Ground
Lease Property and Improvements $3,660,000.00
Consumables, Fixtures and Tangible
Personal Property, Supplies and all
other items of Property other than
the Real Property, the Ground Lease
Property and the Improvements $ 240,000.00
The parties hereto make this allocation pursuant to the applicable sections of
the Internal Revenue Code of 1986, as amended, with the knowledge that it will
be used by both parties for income tax purposes. Each party shall use such
allocation in all reports and returns filed with all taxing authorities and
shall promptly notify the other party of any challenge or inquiry made of such
allocation by any taxing authority and, in that event, shall keep the other
party informed with respect to all developments relating to any such challenge
or inquiry.
ARTICLE 4
SURVEY, TITLE COMMITMENT AND TITLE DOCUMENTS
4.1 Survey. Purchaser shall, at the sole cost and expense of Purchaser and
within fifteen (15) days after the Effective Date, have prepared and delivered
to Purchaser a current ALTA survey (the "Survey") of the Real Property, the
Ground Lease Property and the Improvements, prepared by a surveyor reasonably
acceptable to Purchaser and the Title Company, in accordance with ALTA/ACSM
standards for ALTA surveys and otherwise meeting the requirements of and
containing a certification reasonably acceptable to the Title Company and
Purchaser. The Survey shall also be in a form sufficient to permit the Title
Company to delete and/or issue endorsements for survey- related exceptions.
4.2 Title Commitment and Title Documents. Seller shall, at Seller's cost
and expense and within fifteen (15) days after the Effective Date, have prepared
and delivered to Purchaser a current commitment (the "Title Commitment") for the
issuance of the Title Policy to Purchaser through the Title Company, together
with legible copies of all documents (the "Title Documents") constituting
exceptions to Seller's title as reflected in the Title Commitment.
4.3 Survey and Title Review Period. Purchaser shall have a period of ten
(10) days (the "Title and Survey Review Period") from its receipt of the last of
the Title Commitment, the Title Documents and the Survey (collectively, the
"Title and Survey Report") to object in writing to Seller as to any matters
therein to which Purchaser objects (the "Objections"). If Purchaser fails to so
object prior to the expiration of the Title and Survey Review Period, Purchaser
shall be deemed to have approved and accepted the Title and Survey Report, and
all matters set forth therein shall be deemed to be Permitted Exceptions (herein
so called). If Purchaser notifies Seller in writing of any Objections prior to
the expiration of the Title and Survey Review Period, Seller shall then have a
period of ten (10) days to cure the Objections, or to notify Purchaser in
writing of any Objections Seller cannot,
9
<PAGE>
or elects not to, cure (the "Cure Notice"). Seller shall have no obligation to
cure any of the Objections; provided, however, Seller shall be obligated to cure
any Objections to any liens or other encumbrances granted by Seller after the
Effective Date. Upon Purchaser's receipt of the Cure Notice, Purchaser shall
have a period of five (5) days to either (i) terminate this Agreement, and be
entitled to the return of the Deposit with neither party hereto being thereafter
obligated to the other, except as to Purchaser's obligation to return to Seller
due diligence materials pursuant to Section 5.3 hereof, and except as to
Purchaser's indemnification liability set forth in Section 6.1 hereof, or (ii)
waive the Objections and proceed to the Closing with all uncured Objections
constituting Permitted Exceptions.
ARTICLE 5
DUE DILIGENCE MATERIALS; APPROVAL OF HOTEL
CONTRACTS; CERTAIN SELLER AND PURCHASER CONTINGENCIES
5.1 Due Diligence Deliveries. Within fifteen (15) days after the Effective
Date, Seller shall make available to Purchaser and its authorized
representatives, for review at the offices of Seller, or, at Purchaser's option,
deliver to Purchaser and its authorized representatives, at Purchaser's expense,
true, complete and legible copies of all information, books, records, contracts,
documents, and agreements as may reasonably be requested by Purchaser relating
to the Property and to the extent Seller is in possession or control of such
items, including, without limitation:
(a) the most recent environmental, engineering and appraisal reports
with respect to the Property and the Ground Lease Property;
(b) the Hotel Contracts;
(c) the Permits;
(d) all real property and personal property tax statements with
respect to the Property for the years 1994, 1995 and 1996;
(e) utility invoices relating to the Property from January 1, 1994
to the present;
(f) the casualty, extended coverage, and general liability insurance
policies relating to the Property and the Ground Lease Property, together
with a certification from Seller that no claims have been made thereunder,
except as otherwise disclosed to Purchaser by Seller;
(g) any financial statements prepared by or for Seller or Manager
regarding the Property, including monthly income and expense statements
for the Property 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, 1996 and 1997;
10
<PAGE>
(h) a list of the amount and nature of the capital expenditures
incurred with respect to the Property during the twenty-four (24) months
preceding the Effective Date;
(i) the Ground Lease and all amendments thereto; and
(j) any financial statements prepared by or for Seller regarding the
Ground Lease Property, including monthly income and expense statements for
the Ground Lease Property from January 1, 1994 to the present, in the form
customarily used by Seller (and accompanying data).
5.2 Approval of Hotel Contracts. With respect to the Hotel Contracts,
Purchaser agrees to notify Seller in writing within thirty (30) days after the
Effective Date as to which of the Hotel Contracts (as are otherwise
transferrable) will be assigned to and assumed by Purchaser (and/or which of
such Hotel Contracts, at the direction of Purchaser, will be assigned to and
assumed by Operator), and which of the Hotel Contracts Purchaser requests that
Seller terminate on or before the Closing Date. In the event Seller is not
provided with such written notice, Purchaser shall be deemed to have elected to
terminate all such contracts. Within five (5) days after receipt of Purchaser's
notice, Seller shall advise Purchaser as to whether any Hotel Contracts
Purchaser has requested Seller to terminate cannot be terminated or can be
terminated only with payment of a fee or penalty, and:
(a) with respect to those Hotel Contracts which cannot be terminated,
Purchaser shall advise Seller within five (5) days of receipt of
Seller's notice, that Purchaser has either agreed to assume such
Hotel Contracts or has elected to terminate this Agreement and, in
the event of termination, the Initial Deposit shall be immediately
returned to Purchaser, and the parties hereto shall thereafter have
not have any further obligations one to the other hereunder, except
as to Purchaser's obligations to return to Seller due diligence
materials pursuant to Section 5.3 hereof, and except as to
Purchaser's indemnification liabilities set forth in Section 6.1
hereof;
(b) with respect to those Hotel Contracts which can be terminated, but
only with payment of a fee or penalty, Purchaser shall advise
Seller, within five (5) days of receipt of Seller's notice, that
Purchaser has either agreed to assume such Hotel Contracts, or to
pay the termination fee or penalty, or has elected to terminate this
Agreement, and, in the event of termination, the Initial Deposit
shall be immediately return to Purchaser, and the parties hereto
shall thereafter have not have any further obligations one to the
other hereunder, except as to Purchaser's obligations to return to
Seller due diligence materials pursuant to Section 5.3 hereof, and
except as to Purchaser's indemnification liabilities set forth in
Section 6.1 hereof.
On or before the Closing Date, Seller shall terminate all Hotel Contracts
related to the Hotel Contracts which Purchaser has elected to assume in the
manner provided herein, and shall at the Closing deliver evidence of such
termination pursuant to documentation reasonably acceptable to Purchaser. Seller
shall defend, indemnify and hold Purchaser harmless from any claims or damages
11
<PAGE>
arising from any terminated Hotel Contracts (unless pursuant to the terms of any
such Hotel Contract in question said Hotel Contract may not be terminated or
unless and to the extent Purchaser is obligated to pay a termination fee or
penalty in connection with the termination of such Hotel Contract as set forth
above).
5.3 Confidentiality. Notwithstanding anything to the contrary contained in
this Agreement, all information provided by Seller to Purchaser for Purchaser's
evaluation of the Property, including, but not limited to, all of the items
delivered or made available by Seller to Purchaser and its authorized
representatives pursuant to Section 5.1 above, is confidential, and Purchaser
agrees except as provided in Section 5.1 above and herein, not to reproduce,
disseminate, discuss, or in any way distribute or disclose to any third party
any information concerning the Property delivered by Seller to Purchaser and its
authorized representatives. Purchaser agrees to immediately return to Seller all
items previously delivered or made available to Purchaser and its authorized
representatives by Seller pursuant to Section 5.1 above upon the termination of
this Agreement for whatever reason. Notwithstanding the foregoing, Purchaser may
distribute or disclose such information to any potential lender of Purchaser,
and to Purchaser's agents, attorneys, representatives and independent
contractors engaged by Purchaser in connection with the tests, studies,
evaluations and inspections undertaken pursuant to Section 6.1 of this
Agreement. Seller agrees not to disclose the name of Purchaser to any third
party until after the expiration of the Due Diligence Period, except to Seller's
agents, attorneys, lenders, partners and other parties as necessary to
accomplish the transaction contemplated hereby.
ARTICLE 6
DUE DILIGENCE PERIOD
6.1 Investigations. Notwithstanding anything to the contrary contained
herein, and in consideration of $100 paid by Purchaser to Seller as independent
consideration for this Agreement, Purchaser shall have forty-five (45) days from
and after the Effective Date (if and as extended pursuant to the provisions
hereof, the "Due Diligence Period") within which to conduct any and all
engineering, environmental and economic feasibility studies of the Property and
the Ground Lease Property and the competitive market, which Purchaser may, in
its sole discretion, deem necessary to determine whether or not the Property and
the Ground Lease Property is suitable for Purchaser's intended use thereof.
Seller shall and shall cause Manager to exercise all reasonable efforts (without
any out-of-pocket expense to Seller or Manager) to cooperate fully with
Purchaser regarding any investigation Purchaser may wish to make of the
Property, the Ground Lease Property or the operations of the Hotel. Purchaser
agrees to exercise (and cause its authorized representatives to exercise) due
care and reasonable prudence in performing such investigations and shall perform
such investigations in a manner as shall not materially interfere with the
operation of the Hotel or with the operations of IHOP. If Purchaser notifies
Seller in writing on or before the expiration of the Due Diligence Period that
Purchaser does not desire to consummate the transaction contemplated by this
Agreement, for any reason whatsoever, this Agreement shall terminate, and the
Initial Deposit shall be immediately returned to Purchaser by the Title Company,
and the parties hereto shall thereafter have no further obligation one to the
other hereunder, except as to Purchaser's obligations to return to Seller due
diligence materials pursuant to Section 5.3 hereof, and except as to Purchaser's
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indemnification liabilities set forth in Section 6.1 hereof. If Purchaser fails
to so terminate this Agreement prior to the expiration of the Due Diligence
Period, Purchaser shall be deemed to have accepted the Property and shall
proceed to Closing pursuant to the terms and conditions hereof. Unless Purchaser
timely terminates this Agreement as provided in this Section 6.1, or pursuant to
Article 4 hereof, the Deposit shall, except as otherwise specifically set forth
in this Agreement, be non-refundable, and shall be applied as provided in this
Agreement, unless Seller is unable or unwilling to satisfy all conditions stated
in this Agreement to which Purchaser's obligations hereunder are subject, in
which case, the Deposit shall be refunded to Purchaser. Purchaser hereby
indemnifies, holds harmless, and agrees to defend Seller from and against any
loss, cost, or expense (including, without limitation, attorney fees) resulting
from any entry by Purchaser, or any employee, agent, principal of, or
independent contractor of, Purchaser, upon the Property in connection with any
tests or evaluations conducted by Purchaser during the Due Diligence Period, or
any lien asserted by any third party as a result thereof. This provision of the
immediately preceding sentence of this Section 6.1 shall survive the termination
of this Agreement or the Closing.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of Seller. In addition to any other
representations specifically made by Seller to Purchaser in this Agreement, as
of the Effective Date, Seller represents and warrants to Purchaser that:
(a) Seller is a corporation duly formed and validly existing under
the laws of the State of Illinois;
(b) This Agreement and all other documents executed and delivered,
or to be executed and delivered, by Seller 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
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, provided, that Purchaser acknowledges
that as of the Effective Date, Seller must still obtain various partner
and lender approvals to the transaction contemplated hereby and as herein
required;
(c) Seller has taken all action required to authorize its execution
of this Agreement and such other documents necessary for the consummation
of the transaction contemplated hereby;
(d) The authorization, execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions contemplated
hereby by Seller, will not, with or without the giving of notice or
passage of time or both, violate, conflict with or result in the breach of
any terms or provisions of or require any notice, filing registration or
further
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consent, approval or authorization under (i) the articles of incorporation
or by-laws of Seller, (ii) any statutes, laws, rules or regulations of any
governmental body applicable to Seller or the Property, including, without
limitation, the Legal Requirements (iii) any judgment, decree, writ,
injunction, order or award of any arbitrator, court or governmental
authority binding upon Seller or the Property, or (iv) any instrument or
agreement to which Seller or the Property, is or may be bound;
(e) Other than transient guests of the Hotel or other than is set
forth herein or disclosed by Seller to Purchaser, there are no leases,
tenancies, occupants or other persons in or entitled to possession of the
Hotel or any portion thereof;
(f) Seller will at Closing have good and marketable fee simple title
to the Real Property, the Ground Lease Property and Improvements, which
will be subject to the Permitted Exceptions;
(g) Seller owns the Fixtures and Tangible Personal Property, the
Consumables and the Supplies free and clear of all liens, claims, charges,
security interests and encumbrances, other than such of said items as are
leased from third parties or liens which will be removed or "insured
around" at the Closing;
(h) No condemnation or other eminent domain proceedings have been
instituted for which Seller has notice thereof or, to best of Seller's
knowledge, no such proceedings are threatened against the Property or the
Ground Lease Property;
(i) To the best of Seller's knowledge, the present operation of the
Property and the Ground Lease Property is in substantial compliance with
all Legal Requirements and Seller has not received written notice nor does
Seller have knowledge of any Violations affecting the Property or the
Ground Lease Property;
(j) To the best of Seller's knowledge, the present occupation of the
Property and the Ground Lease Property is in substantial compliance with
all the Permits and, with respect to the Property, Seller has no knowledge
of any license or permit which is necessary for the continued operation of
the Hotel other than the Permits and the Existing Franchise Agreement;
(k) Seller has not received written notice, nor does Seller have
knowledge of any pending or threatened zoning change or variance which
would interfere in any material respect with the use, occupation or
operation of the Property as a hotel;
(l) All guest rooms at the Hotel are and will be equipped with
fixtures, furniture, furnishings and equipment, including, without
limitation, the Fixture and Tangible Personal Property, at least at the
levels for same reflected in the Consumables, Supplies and Fixtures and
Tangible Personal Property Inventory;
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(m) To the best of Seller's knowledge, all items furnished to Seller
pursuant to Section 5.1 of this Agreement are in all material respects,
accurate, complete, and true as of the date furnished; provided, Seller
has no reason to believe such items are not in all material respects
accurate, complete and true as of the date furnished;
(n) Seller has received no written notice of any threatened, and
there currently is no pending, litigation which involves or affects the
Property, or the Ground Lease Property, except to the extent covered by
insurance maintained by Seller or on behalf of Seller;
(o) Other than as set forth herein or disclosed to Purchaser by
Seller, or except as otherwise approved by Purchaser pursuant to Section
5.2 hereof, there are and will be no material agreements at the Closing
which Purchaser will be required to assume with respect to the operation
of the Hotel or the Property (unless otherwise agreed to in writing by
Purchaser). The term "material agreements" for the purposes of this
subsection 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;
(p) Seller has granted no rights of first refusal or options to
purchase the Property or the Ground Lease Property;
(q) The Existing Franchise Agreement is in full force and effect and
Seller is not in default thereunder;
(r) To the best of Seller's knowledge, and other than as set forth
in the environmental report attached hereto as EXHIBIT D and incorporated
herein by reference for all purposes, or as found or contained in normal
and customary materials and supplies used in connection with the operation
of the Hotel, there has been no presence, use, generation, release,
discharge, storage, disposal, or transportation of any Hazardous Materials
on, under, in, about, to, or from the Property (or any portion thereof) or
the Ground Lease Property (or any portion thereof), and, from the date
hereof through the Closing Date, it shall not cause or knowingly permit
the presence, use, generation, release, discharge, storage, disposal, or
transportation of any Hazardous Materials on, under, in, about, to, or
from the Property (or any portion thereof) or the Ground Lease Property
(or any portion thereof), except for those matters set forth in the
above-described environmental report and except as found or contained in
normal and customary materials and supplies used in connection with the
operation of the Hotel;
(s) All Impositions have been paid in a timely fashion and are
current;
(t) Seller is not aware of any material defects, latent or
otherwise, relating to the Improvements or the construction or
construction materials and/or components with regard thereto;
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(u) The Improvements have been constructed in compliance with all
plans and specifications of record and/or approved by all applicable
governmental authorities; and
(v) The Ground Lease is in full force and effect and neither Seller
nor IHOP is in default of any of its obligations thereunder.
Notwithstanding anything contained in this Section 7.1 to the contrary, if
Seller hereafter determines that any of the foregoing representations or
warranties are incorrect or misleading in any material respect, Seller shall
immediately notify Purchaser of same and Purchaser shall within ten (10) days
after receipt of such notice either (i) terminate this Agreement, and be
entitled to a return of the Deposit with neither party hereto being thereafter
obligated one to the other hereunder, except as to Purchaser's obligations to
return to Seller due diligence materials pursuant to Section 5.3 hereof, and
except as to Purchaser's indemnification liabilities set forth in Section 6.1
hereof, or (ii) waive such matters and proceed to Closing. Additionally, for
purposes of this Section 7.1, the phrase "to the best of Seller's knowledge"
means the knowledge, after having made due investigation or inquiry, and of
Victor Patal.
7.2 Except as otherwise set forth herein, Purchaser agrees to acquire the
Property "as is" and with all faults. Except as otherwise set forth herein,
Seller makes no representations or warranties with respect to the physical
characteristics of the Property, or the environmental condition as it relates to
hazardous materials (as hereinafter defined) if on the Property.
7.3 Definition of Hazardous Materials. As used in this Agreement, the term
"Hazardous Materials" means any hazardous or toxic substances, material or
wastes, including, but not limited to, those substances, materials, and wastes
listed in the United States Department of Transportation Hazardous Materials
Table (49 C.F.R. ss.172.101) or by the Environmental Protection Agency's
hazardous substances (40 C.R.R. Part 302) and amendments thereto, or such
substances, materials, constituents, and wastes which are currently regulated
under any applicable local, state, or federal law including, without limitation:
(i) petroleum, gasoline or other petroleum derivatives, or additives to gasoline
or other petroleum derivative; (ii) asbestos or asbestos-containing materials;
(iii) polychlorinated biphenyls; (iv) designated as a "hazardous substance"
pursuant to section 307 of the Clean Water Act (33 U.S.C. ss.1317); (v) defined
as "hazardous waste" pursuant to section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. ss.6903); (vi) defined as a "hazardous substance"
pursuant to section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 2 U.S.C. ss.9601 et seq. (42 U.S.C. ss.9601);
or (vii) any substance the nature, use, manufacture, or effect of which render
it subject to federal, state, or local regulation, investigation, removal, or
remediation as potentially hazardous or toxic, injurious to human health or
welfare, or injurious to the environment.
7.4 Representations and Warranties of Purchaser. As of the Effective Date,
Purchaser represents and warrants to Seller that:
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(a) Purchaser is a corporation duly formed and validly existing
under the laws of the State of Maryland;
(b) 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;
(c) Purchaser has taken all action required to authorize its
execution of this Agreement and such other documents necessary for the
consummation of the transaction contemplated hereby; and
(d) The authorization, execution, delivery and performance of this
Agreement by Purchaser and the consummation of the transactions
contemplated hereby by Purchaser, will not, with or without the giving of
notice or passage of time or both, violate, conflict with or result in the
breach of any terms or provisions of or require any notice, filing
registration or further consent, approval or authorization under (i) the
certificate of incorporation or by-laws of Purchaser, (ii) any statutes,
laws, rules or regulations of any governmental body applicable to
Purchaser, (iii) any judgment, decree, writ, injunction, order or award of
any arbitrator, court or governmental authority binding upon Purchaser, or
(iv) any instrument or agreement to which Purchaser, is or may be bound;
(e) Purchaser has timely filed all forms, reports and documents with
the Securities and Exchange Commission ("SEC") required to be filed by
Purchaser (collectively, the "SEC Reports"), all of which complied, at the
time filed, in all material respects with all applicable requirements of
the Securities Act and the Exchange Act, as applicable, and the rules and
regulations promulgated thereunder. None of the SEC Reports, at the time
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(f) The consolidated balance sheets and the related consolidated
statements of operations, consolidated cash flow and consolidated
shareholders' equity (including the notes thereto) of Purchaser and its
subsidiaries contained or incorporated by reference in the SEC Reports
comply in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect
thereto, and present fairly the consolidated financial position of
Purchaser and its subsidiaries as of their respective dates, and the
consolidated results of their operations and their cash flows for the
periods presented therein, in conformity with GAAP applied on a consistent
basis, (i) except as otherwise noted therein, (ii) subject in the case of
unaudited financial statements to normal year-end audit
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adjustments, (iii) except that the unaudited financial statements do not
contain all of the footnote disclosures required by GAAP, and (iv) except
as otherwise permitted by Form-10Q, the Securities Act or the Exchange
Act; and
(g) The issuance of the shares of Host Funding Stock to Seller
hereunder is not subject to any preemptive rights, rights of first refusal
or other preferential rights that have not been waived, and such shares
when issued and delivered in accordance with the terms of this Agreement
will be validly issued, fully paid and non-assessable and will be free of
any liens or encumbrances whatsoever; provided, however, that such shares
shall be subject to restrictions upon transfer under applicable securities
laws. Except for (i) Guy E. Hatfield and (ii) the holders of the Series A
Warrants and Series B Warrants of Purchaser, no holder of the common stock
of Purchaser has registration rights with respect thereto.
Notwithstanding anything contained in this Section 7.4 to the contrary, if
Purchaser hereafter determines that any of the foregoing representations or
warranties are incorrect or misleading in any material respect, Purchaser shall
immediately notify Seller of same and Seller shall within ten (10) days after
receipt of such notice either (i) terminate this Agreement, in which event
Purchaser shall be entitled to a return of the Deposit with neither party hereto
being thereafter obligated one to the other hereunder, except as to Purchaser's
obligation to return to Seller due diligence materials pursuant to Section 5.3
hereof, and except as to Purchaser's indemnification liabilities set forth in
Section 6.1 hereof, or (ii) waive such matters and proceed to Closing.
7.5 Duration of Representations and Warranties. Except as otherwise
expressly provided herein, all representations and warranties of Seller
contained in this Agreement and in any document or instrument delivered by
Seller in connection herewith shall survive the Closing for a period of one (1)
year following the Closing. Any claim or claims by Purchaser which, if
successful, would result in Purchaser's Damages (as hereinafter defined) arising
from the inaccuracy of a representation or a breach of warranty of Seller, shall
be effective and valid only if Purchaser notifies Seller of such claim or claims
on or before the date which is one (1) year following the Closing and commences
an action, suit or proceeding against Seller with respect to such claim or
claims not later than sixty (60) days after the end of such one (1) year period.
Notwithstanding anything contained in this Section 7.5 to the contrary,
Purchaser's Damages shall be limited as follows: (i) Seller shall have no
liability for any Purchaser's Damages unless and until Purchaser's Damages shall
exceed the sum of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in the
aggregate, and (ii) Seller's liability with respect to Purchaser's Damages shall
in no event exceed the sum of TWO HUNDRED THOUSAND AND NO/100 DOLLARS
($200,000.00) in the aggregate, it being understood that Seller shall be
released from all liability for any Purchaser's Damages which exceed said
amount. In order to secure Purchaser from an occurrence of any claim or claims
giving rise to Purchaser's Damages, ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($100,000.00) of the Host Funding Stock shall be held back in trust for
Purchaser by Seller for a period of one (1) year following the Closing, and the
Host Funding Stock shall be appropriately legended to reflect the agreements set
forth in this Section 7.5; provided, that in the event no claim or claims giving
rise to Purchaser's Damages occur within said one (1) year period, Seller shall
thereafter hold such Host Funding Stock free of any such
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security obligations or responsibilities set forth in this Section 7.5.
"Purchaser's Damages," as used herein, shall mean all loss, liability, damage
and expense suffered or incurred by Purchaser following the Closing Date which
results from a misrepresentation or breach of warranty by Seller set forth in
this Agreement, or in any document or instrument delivered by Seller in
connection herewith, which is not waived in writing by Purchaser. For the
purposes of this Agreement, Purchaser's Damages shall be computed net of (i) any
insurance proceeds acknowledged by the insurer at the time of such computation
to be payable with respect thereto to Purchaser and (ii) any amounts recovered
by Purchaser from any third parties, which reduce the damages that would
otherwise be sustained; provided, however, that (x) in all cases the timing of
the receipt or realization of insurance proceeds or recoveries from third
parties shall be taken into account in determining the amount of reduction of
damages and (y) in the event Purchaser shall receive or realize insurance
proceeds or recoveries from third parties after such determination of damages
(which were not included in such determination), the amount thereof shall
promptly be remitted by Purchaser to Seller. All representations and warranties
contained in this Article 7, as modified by the provisions of the last
paragraphs of Sections 7.1 and 7.4 hereof, shall be deemed restated or updated
on and as of the Closing Date, but, except as set forth in this Section 7.5,
shall not survive the Closing.
ARTICLE 8
CONDITIONS TO SELLER'S OBLIGATIONS
8.1 Conditions. Seller's obligation to close hereunder shall, in addition
to any and all other applicable conditions set forth in this Agreement, 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 and covenants
required by this Agreement to be complied with by Purchaser as of the
Closing Date.
(b) Truth of Purchaser's Representations and Warranties. Subject to
the last paragraph of Section 7.3 hereof, the representations and
warranties of Purchaser contained in Section 7.3 shall have been true in
all material respects when made, and shall be true in all material
respects on the Closing Date.
(c) Closing Inventory. Seller shall have received a Closing
Inventory reasonably acceptable to Seller.
(d) Closing Report. Seller shall have received a Closing Report
reasonably acceptable to Seller.
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ARTICLE 9
CONDITIONS TO PURCHASER'S OBLIGATIONS
9.1 Conditions. Purchaser's obligations to close hereunder, in addition to
any and all other applicable conditions set forth in this Agreement, 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 and covenants required by
this Agreement to be complied with by Seller as of the Closing Date.
(b) Truth of Seller's Representations and Warranties. Subject to the
last paragraph of Section 7.1 hereof, the representations and warranties
of Seller contained in Section 7.1 shall have been true in all material
respects when made, and shall be true in all material respects on the
Closing Date.
(c) Host Funding Franchise Agreement. Purchaser and BAC Franchising,
Inc. shall, on or before the Closing Date, have executed, at no cost or
expense (including, without limitation, application fees, initial fees,
affiliation fees or relicensing fees) to Seller, a franchise or license
agreement (the "Host Funding Franchise Agreement") for the operation of
the Hotel as a Country Hearth Inn, in form and substance acceptable to
Purchaser in its sole discretion.
(d) Operating Lease. Buckhead America Corporation or an Affiliate
thereof ("Operator") and Purchaser shall, on or before the expiration of
the Due Diligence Period, have executed an Operating Lease (the "Operating
Lease"), in form and substance acceptable to Purchaser in its sole
discretion, reflecting therein the agreement of Operator to lease and
operate the Hotel on behalf of Purchaser.
(e) Closing Inventory. Purchaser shall have received a Closing
Inventory reasonably acceptable to Purchaser.
(f) Closing Report. Purchaser shall have received a Closing Report
reasonably acceptable to Purchaser.
(g) Employee Indemnification Agreement. Purchaser shall have
received the Employee Indemnification Agreement in form and content
reasonably acceptable to Purchaser.
(h) Investment Letter Agreement. Purchaser shall have received an
Investment Letter Agreement from each recipient of Host Funding Stock on
the Closing Date.
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(i) IHOP Estoppel. Purchaser shall have received an estoppel
certificate from IHOP in form and substance reasonably acceptable to
Purchaser.
(j) Audited Financial Statements. Purchaser shall have received
audited financial statements with regard to the operations of the Hotel
from any accounting firm reasonably acceptable to Seller and Purchaser,
and otherwise in form and substance acceptable to Purchaser in its sole
discretion (and Seller agrees to fully cooperate with regard to same).
(k) Existing Franchise Agreement. Prior to the expiration of the Due
Diligence Period, Purchaser shall have received written evidence that (i)
the Existing Franchise Agreement will be terminated at Closing, and (ii)
that Seller will incident thereto pay any and all fees or penalties, if
applicable, for early termination of the Existing Franchise Agreement.
Seller shall also at Closing receive an indemnification agreement (the
"Days Inn Indemnification Agreement") whereby Seller indemnifies Purchaser
from any damages, costs or expenses incurred by Purchaser incident to
Seller's failure to satisfy its obligations contained in this Section
9.1(k).
ARTICLE 10
CERTAIN COVENANTS AS TO ACTIONS
AND OPERATIONS PENDING CLOSING
10.1 Covenants. Seller hereby covenants to Purchaser and agrees as
follows:
(a) Prior to the Closing, Seller shall continue to maintain, operate
and manage (or shall cause Manager to maintain, operate and manage) the
Property, the Ground Lease Property (as applicable) and the Hotel in the
same manner that Seller and/or Manager have heretofore maintained and
operated the Property, the Ground Lease Property and the Hotel;
(b) Except as otherwise set forth herein, including, without
limitation, Section 13.4 hereof, Seller will use its best efforts to at
the Closing pay all expenses, accrued or otherwise, and of any type or
kind whatsoever, through the Closing Date with regard to the Property, the
Ground Lease Property and the Hotel;
(c) Prior to the Closing, Seller, or Manager on behalf of Seller,
shall (i) make all necessary repairs and replacements which are required
to maintain the Property and, if applicable, the Ground Lease Property, in
the same physical and operating condition (normal wear and tear excepted
and except for repairs or replacements resulting from fire, other
casualty, condemnation or a taking by eminent domain, as to which Article
14 shall apply), and (ii) maintain the Supplies, the Consumables and the
Fixtures and Tangible Personal Property in good condition and at least at
the levels for such items reflected in the Consumables, Supplies and
Fixtures and Tangible Personal Property Inventory.
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(d) Prior to the Closing, neither Seller nor Manager shall, without
the prior written consent of Purchaser, enter into any Bookings at the
Hotel which are not substantially in accordance with Seller's past booking
practices at the Hotel in a single transaction;
(e) Prior to the Closing, Seller shall (and shall cause Manager to)
use all reasonable efforts to cooperate and assist Purchaser in obtaining
assignments of and/or the issuance of any new permits, licenses or
approvals necessary for the consummation of the transaction contemplated
hereby and the continuation after the Closing of the normal operation of
the Hotel in a manner consistent with its present use;
(f) Prior to the Closing, Seller shall use all reasonable efforts
(at no cost or expense to Seller) to cooperate and assist Purchaser in
obtaining the Host Funding Franchise Agreement;
(g) Prior to or at Closing, Seller will cancel or terminate the
Management Agreement, and any other consulting or similar type agreements
with regard to the Property or the Hotel; and
(h) Seller will not, during the pendency of this Agreement, place
any new encumbrances on the Property or modify the Existing Franchise
Agreement or modify or enter into any other or new documents material to
the operation of the Property as a "Days Inn", without the prior written
consent of Purchaser.
ARTICLE 11
CLOSING MATTERS
11.1 Closing. The closing of the transaction contemplated hereby (the
"Closing") shall take place at the office of the Title Company or in
___________________________ at the offices of Seller on the date (the "Closing
Date") that is no more than thirty (30) days following the expiration of the Due
Diligence Period.
11.2 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, assumption
and/or delivery of the applicable components 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.
ARTICLE 12
CLOSING DELIVERIES; POSSESSION
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12.1 Seller's Deliveries. At the Closing, Seller shall deliver, or cause
to be delivered, to Purchaser the following:
(a) The recordable general warranty deed (the "General Warranty
Deed") from Seller to Purchaser conveying the Real Property, Ground Lease
Property and the Improvements, subject only to the Permitted Exceptions;
(b) A Bill of Sale (the "Bill of Sale") transferring to Purchaser
all of Seller's right, title and interest in and to the Fixtures and
Tangible Personal Property, the Consumables and the Supplies;
(c) An assignment (the "Assignment of Bookings, Hotel Contracts and
Permits") conveying and transferring to Purchaser, and Purchaser's
assumption of, all of Seller's right, title and interest in, to and under
any and all the Bookings, the Hotel Contracts and the Permits (to the
extent transferrable and to the extent Purchaser agrees, at its option, to
assume all or portions of the Hotel Contracts pursuant to Section 5.2
hereof); provided, at Purchaser's direction, all or portions of the
Bookings, the Permits and the Hotel Contracts will be assigned to
Operator, provided further, if any of the Bookings, the Hotel Contracts or
the Permits are in the name of the Manager, Seller shall cause Manager to
make such assignments;
(d) An assignment (the "Assignment of Ground Lease") conveying and
transferring to Purchaser, and Purchaser's assumption of, all of Seller's
right, title and interest in, to and under the Ground Lease (and related
security deposits).
(e) An ALTA Owner's Title Insurance Policy (the "Title Policy"),
issued in favor of Purchaser by the Title Company, in the amount equal to
that portion of the Purchase Price allocable to the Real Property and the
Improvements, insuring Purchaser's fee simple title to the Real Property
and the Improvements, subject only to the Permitted Exceptions and
otherwise in conformity with the Title Commitment;
(f) A certification in a form to be provided or approved by
Purchaser, signed by Seller under penalties of perjury, containing the
following: (i) Seller's U.S. Taxpayer Identification Number; (ii) the
business address of Seller; and (iii) a statement that Seller is not a
foreign person within the meaning of Sections 1445 and 7701 of the IRC;
(g) A counterpart of the Closing Statement, executed by Seller;
(h) A copy of a letter addressed to and accepted by Manager
terminating the Management Agreement and, as applicable, letters
terminating any other consulting or similar type agreements with regard to
the Property and the Hotel as of the Closing Date;
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(i) A list, certified by Manager, of all Continuing Obligations, the
Hotel Contracts and the Permits as of the Closing Date;
(j) A certificate executed by Seller (or Manager) and reflecting
therein that Seller has paid or caused to be paid, in a timely fashion,
all Impositions, and that same are current;
(k) The Agreement Not to Compete;
(l) All guest lists, ledgers, software and data bases, and other
documents, correspondence and memoranda and plans, engineering drawings
and specifications included (to the extent located at the Hotel, such
items shall not be physically delivered to Purchaser at the Closing unless
Purchaser otherwise requests same);
(m) An Investment Letter Agreement from each recipient of Host
Funding Stock on the Closing Date;
(n) The IHOP Estoppel;
(o) The Employee Indemnification Agreement.
(p) the Days Inn Indemnification Agreement; and
(q) Evidence of the termination of the Existing Franchise Agreement.
12.2 Purchaser's Deliveries. At the Closing, Purchaser shall deliver, or
cause to be delivered, to Seller the following:
(a) The Cash Portion of the Purchase Price;
(b) Subject to the provisions of Section 7.4 hereof, the Host
Funding Stock;
(c) An assumption of all obligations of Seller by Purchaser or
Operator (if so directed by Purchaser) arising from and after the Closing
Date under the items assigned to Purchaser or Operator (if so directed by
Purchaser) pursuant to Section 12.1(c) and 12.1(d) hereof; and
(d) A counterpart of the Closing Statements, executed by Purchaser.
12.3 Concurrent Transactions. All documents or other deliveries required
to be delivered by Purchaser or Seller at the Closing, and all transactions
required to be consummated concurrently with the 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
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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.
12.4 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 and the Ground Lease Property to Purchaser and otherwise to carry
out the purposes and intent of this Agreement.
12.5 Possession. Possession of the Property shall be delivered to
Purchaser at the Closing, subject to the Permitted Exceptions.
ARTICLE 13
ADJUSTMENTS AND PRORATIONS;
CLOSING INVENTORY; CLOSING REPORT
13.1 Adjustments and Prorations. In addition to the Purchase Price payable
pursuant to Article 3 of this Agreement and the increases, decreases and
adjustments to the Cash Portion of the Purchase Price provided for elsewhere in
this Agreement, Purchaser and Seller shall, on an accrual basis, also make the
adjustments thereto provided for in this Article 13, which (except as otherwise
expressly provided) are to be apportioned with respect to the Property and the
Ground Lease Property as of the Cut-off Time (such that the period preceding the
Closing Date shall be for the account of Seller and the period from and after
the Closing Date shall be for the account of Purchaser) and, to the extent
possible, settled at Closing:
(a) Hotel Revenues and Receivables. All Hotel Revenues and the
Receivables shall be prorated as of the Cut-off Time; provided, however,
that Hotel Revenues and the Receivables with respect to Hotel Revenues
arising from the letting of Hotel guest rooms for the night immediately
preceding the Closing Date shall be shared equally by Seller and
Purchaser. Purchaser shall not be obligated to pay Seller for any of the
Receivables. Following the Closing, Seller shall have the right to collect
the Receivables. Purchaser shall have no obligation to pursue collection
of the Receivables, but, if Purchaser should receive any payment on
account of any of the Receivables at any time following the Closing,
Purchaser shall promptly remit such payment to Seller. If Seller should
receive any payment on account of any Hotel Revenue relating to periods of
time after the Closing, Seller shall promptly remit such payment to
Purchaser. Purchaser will, subject to the provisions of Section 13.1(b)
below, honor, for its account, the terms and rates of all the Bookings
entered into by Seller or Manager prior to the Closing Date, but confirmed
for periods of time after the Closing Date. Any down payments on such
confirmed Bookings and other advance payments made with respect to
Bookings for dates on or after the Closing Date will be credited to
Purchaser at the Closing.
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(b) Ground Lease Revenues. All Ground Lease Revenues shall be
prorated as of the Cut-Off Time.
(c) Continuing Obligations. Purchaser shall receive a credit in an
amount equal to the projected cost to be incurred by Purchaser in
fulfilling the Continuing Obligations.
(d) Impositions. All Impositions shall be prorated 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
bills or statements; provided, that with respect to real property ad
valorem taxes, if such amount is not ascertainable on the Closing Date,
the parties will reasonably estimate the amount of same based on their
examination of available millage rates and exemptions as such items relate
to the portion of the Purchase Price allocable to the Real Property and
the Improvements; provided further, such amount shall after the Closing be
adjusted upon receipt of the actual bills or statements only in the event
Seller is due a credit adjustment with regard to same. Further, 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.
(e) Utility Contracts and Costs. All utility costs including,
without limitation, water, sewer charges and rents, telephone, steam,
electricity, gas, lighting and other utility services shall be prorated as
of the Cut-off Time on the basis of the most recently issued bills
therefor, with a subsequent adjustment of such utilities promptly after
the issuance of bills for the period which includes the Closing Date. At
the Closing (i) Seller shall (if transferrable) assign to Purchaser (or,
at Purchaser's option, to Operator) all deposits, if any, made by Seller
as security or otherwise under any public utility service contracts which
shall remain on deposit for the benefit of Purchaser (or, at Purchaser's
option, Operator) subsequent to the Closing and (ii) Seller shall receive
a credit in an amount equal to such deposits.
(f) Existing Franchise Agreement Costs. All Existing Franchise
Agreement Costs shall be prorated as of the Cut-off Time.
(g) Hotel Contracts. Any amounts prepaid or payable under any Hotel
Contracts shall be prorated as of the Cut-off Time, provided any Hotel
Contract Purchaser elects not to assume shall be terminated by Seller as
of the Closing Date and Seller will be responsible for the payment of any
sums due under such Hotel Contracts through such termination date and the
Closing Date.
(h) Expenses. All prepaid expenses, outstanding due bills and other
accounts payable relating to the operation of the Hotel (excluding those
relating to the Hotel Contracts) and expenses related to the Ground Lease,
as applicable, shall be prorated as of the Cut-off Time, it being
understood that all such expenses, bills and accounts payable relating to
purchases of goods and services delivered or provided prior to the Closing
Date
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shall be payable by Seller and all such expenses, bills and accounts
payable relating to purchases of goods and services delivered or provided
on or after the Closing Date shall be payable by Purchaser; provided such
expenses, bills and accounts payable have been incurred in accordance with
the requirements of Section 10.1(a) hereof.
13.2 Supplies; Consumables; Fixtures and Tangible Personal Property;
Closing Inventory; Closing Report. Manager, under the supervision of the
respective agents of Seller and Purchaser, shall, prior to the Closing and at
times so as to not unreasonably interfere with Hotel operations (i) conduct an
inventory of the Supplies, the Consumables, and the Fixtures and Tangible
Personal Property located at the Hotel as of the Cut-off Time (the "Closing
Inventory"), and (ii) conduct such other inventories, examinations and audits of
the Hotel and the Property, and the books and records of the Hotel and the
Property, as necessary to prepare a report reflecting the adjustments and
prorations to be made and calculated pursuant to this Article 13, including any
adjustments contemplated by this Section 13.2 (the "Closing Report"). In the
event the Closing Inventory shall reflect that the Supplies, the Consumables
and/or the Fixtures and Tangible Personal Property are at levels which are less
than the levels for any of such items as reflected on the Consumables, Supplies
and Fixtures and Tangible Personal Property Inventory, Purchaser shall be
entitled to a credit equal to the cost which would be incurred by Purchaser to
cause the Supplies, the Consumables, and/or the Fixtures and Tangible Personal
Property, as applicable, to be increased to levels for same as reflected
Consumables, Supplies and Fixtures and Tangible Personal Property Inventory
(determined based on the then cost of the item or items in question charged in
the ordinary course of business of the Hotel). In the event the Closing
Inventory shall reflect that the Supplies, the Consumables and/or the Fixtures
and Tangible Personal Property, as applicable, are at levels above those
reflected for any of such items in the Consumables, Supplies and Fixtures and
Tangible Personal Property Inventory, as applicable, Seller shall be entitled to
a credit equal to the cost of those items which are at levels above those
reflected in the Consumables, Supplies and Fixtures and Tangible Personal
Property Inventory (determined based on the then cost of the item or items in
question charged in the ordinary course of business of the Hotel). Except as
expressly provided in this Section 13.2 with respect to the Supplies, the
Consumables, or the Fixtures and Tangible Personal Property, the parties
acknowledge and agree that there will be no other adjustments or prorations made
with respect to the Supplies, the Consumables or the Fixtures and Tangible
Personal Property.
13.3 Management Agreement. There shall be no adjustment for management
fees and reimbursements (if any) due Manager under the Management Agreement
through the Closing Date; provided, that any such fees and reimbursements shall
be the sole responsibility of Seller, and Seller hereby indemnifies and holds
Purchaser safe and harmless from the payment of same.
13.4 Post-Closing Adjustments and Payment of Certain Expenses. Within the
thirty (30) day period following the Closing, Seller and Purchaser, or their
respective agents, shall reasonably determine if any of the adjustments or
prorations made pursuant to this Article 13 were in error, or, as applicable,
require further adjustment or proration. In the event any adjustments or
prorations made pursuant to this Article 13 are found to be erroneous, or, by
the terms hereof, require further adjustment or proration, such errors or
post-Closing adjustments or prorations shall be corrected or
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further adjusted and prorated as soon as practicable after the Closing, and if
at all possible, within thirty (30) days after the Closing. Further, and within
such thirty (30) day period following the Closing, Seller shall pay all
expenses, accrued or otherwise, and of any type or kind whatsoever, prior to the
Cut-off Time with regard to the Property and the Hotel and which were not
susceptible of payment at the Closing pursuant to the provisions of Section
10.1(b) hereof. The provisions of this Article 13 shall survive the Closing.
ARTICLE 14
CASUALTIES AND TAKINGS
14.1 Casualties. In the event that, subsequent to the Effective Date and
prior to the Closing, any portion of the Property shall be damaged or destroyed
by fire or other casualty in excess of FIFTY THOUSAND AND NO/100 DOLLARS
($50,000.00), 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 Title Company
to promptly return the Deposit to Purchaser, with neither party hereto being
thereafter obligated to the other, except as to Purchaser's obligation to return
to Seller due diligence materials pursuant to Section 5.4 hereof, and except for
Purchaser's indemnification liabilities set forth in Sections 6.1 and 19.1(d)
hereof, or (b) proceed to the Closing, in which event Seller shall, at
Purchaser's option, deliver to Purchaser at the Closing any insurance proceeds
received by Seller attributable to the Property from such casualty or allow
Purchaser at the 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 FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00), Purchaser shall
proceed to the Closing, 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.
14.2 Takings. In the event of the institution of any proceeding for the
taking or condemnation of a substantial portion of the Property prior to the
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 Title Company to promptly return the Deposit to Purchaser, with
neither party hereto being thereafter obligated to the other, except as to
Purchaser's obligation to return to Seller due diligence materials pursuant to
Section 5.4 hereof, and except for Purchaser's indemnification liabilities set
forth in Sections 6.1 and 19.1(d) hereof, or (b) proceed to the Closing, in
which event Seller shall assign and/or deliver to Purchaser at Closing any
claims with regard to same and any proceeds received by Seller attributable to
the Property from such condemnation or eminent domain proceeding. As used in
this Section 14.2, the taking of a "substantial portion" of the Property shall
mean (i) a taking in excess of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) of
the
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fair market value of the Property or (ii) a taking which materially affects the
value of the Property as used for the operation of the Hotel.
ARTICLE 15
EMPLOYEE MATTERS
15.1 Employees. Seller acknowledges and agrees that any employees and
personnel associated with the operation of the Property or the Hotel are, and
unless otherwise terminated, will remain the employees of Seller after the
Closing, and shall not be and shall not be deemed to be the employees or
personnel of Purchaser. Seller further acknowledges and agrees that from and
after the Closing, Purchaser shall not be liable or responsible for any costs,
expenses, salaries, employee benefit or incentive plans (including, without
limitation, "ERISA" plans), employment agreements, exit payments (including,
without limitation, final payroll or accrued vacation time) or the like payable,
accruing or otherwise due to any such employees or personnel of Seller
(collectively, the "Employee Costs"). Seller agrees to at the Closing deliver to
Seller and Purchaser an indemnification agreement (the "Employee Indemnification
Agreement") indemnifying Seller and Purchaser as to the Employee Costs, and
otherwise in form and substance reasonably acceptable to Purchaser.
ARTICLE 16
REMEDIES ON DEFAULT
16.1 Seller Default. If this Agreement is terminated by Purchaser pursuant
to any one or more Sections hereof which entitle Purchaser to terminate this
Agreement, Purchaser shall be entitled to the return of the Deposit (including
the interest earned thereon). If the sale contracted for herein is not
consummated due to a failure on the part of Seller in the performance of any of
its obligations hereunder ("Seller Default"), then Purchaser shall either (i)
terminate this Agreement and accept the return of the Deposit or (ii) sue for
specific performance, as its sole and exclusive remedies, Purchaser hereby
waiving the right to bring a suit for damages, and waives all other remedies at
law or in equity.
16.2 Purchaser Default. If the sale contracted for herein is not
consummated due to Purchaser's failure to perform any of its obligations
hereunder ("Purchaser Default") other than a Seller Default, then the Deposit
shall be paid to Seller by the Title Company as liquidated damages for such
Purchaser Default as Seller's sole and exclusive remedy; provided , that
notwithstanding anything contained herein to the contrary, the payment of the
Deposit to Seller shall not relieve Purchaser from (i) its indemnification
obligations pursuant to Sections 6.1 and 19.(d) hereof, or (ii) its obligation
to return to Seller due diligence materials as set forth in Section 5.4 hereof.
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.
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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, EXCEPT AS OTHERWISE SET FORTH
IN THE IMMEDIATELY PRECEDING PARAGRAPH OF THIS SECTION 16.2. 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, EXCEPT AS OTHERWISE SET FORTH IN THE IMMEDIATELY PRECEDING
PARAGRAPH OF THIS SECTION 16.2, SELLER AND PURCHASER ACKNOWLEDGE THAT THEY HAVE
READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION 16.2 AND BY THEIR INITIALS
IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
Seller's Initials:__________ Purchaser's Initials:__________
ARTICLE 17
AGREEMENT NOT TO COMPETE
17.1 Agreement. Seller and Purchaser shall at Closing enter into an
Agreement Not to Compete (the "Agreement Not to Compete") providing that Seller
may not manage, operate or own an interest in any hotel or motel property within
a five (5) mile radius of any portions of the Property for a period of five (5)
years after Closing. The Agreement Not to Compete will be in form and substance
mutually agreed to by Seller and Purchaser prior to the expiration of the Due
Diligence Period.
ARTICLE 18
NOTICES
18.1 Notices. All notices, demands, or other communications of any type
(herein collectively referred to as "Notices") given by Seller to Purchaser or
by Purchaser to Seller, whether required by this Agreement or in any way related
to the transaction contracted for herein, shall be void and of no effect unless
given in accordance with the provisions of this Section 18.1. All Notices shall
be in writing and delivered to the person to whom the notice is directed, either
(a) by telephonic facsimile communication, (b) by Federal Express or other
guaranteed overnight delivery service, or (c) by United States Mail, as a
registered or certified item, return receipt requested. Any of the Notices may
be delivered by the parties hereto or by their respective attorneys. Any notice
delivered by telephonic facsimile communication or Federal Express or other
guaranteed overnight delivery service shall be deemed effective one (1) day
after being transmitted to the applicable telephone facsimile numbers set forth
below, if such Notices are sent by telephonic facsimile communication, or when
delivered to the addresses set forth below if sent by Federal Express or other
guaranteed overnight delivery service. Notices delivered by registered or
certified mail shall be deemed effective
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three (3) days after being deposited in a post office or other depository under
the care or custody of the United States Postal Service, enclosed in a wrapper
with proper postage affixed, with return receipt requested addressed to the
party to be so notified as follows:
If intended for Seller, to: LVM Corporation
------------------------------
------------------------------
------------------------------
Attn:
-------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
Attn:
-------------------------
If intended for Purchaser to: Host Funding, Inc.
6116 North Central Expressway, Suite 1313
Dallas, Texas 75206
Attn: Michael McNulty, President
With a copy to: James M. Duncan, Esq.
James M. Duncan, P.C.
703 McKinney Avenue, Suite 432
Dallas, Texas 75202
ARTICLE 19
ADDITIONAL COVENANTS; PIGGY-BACK
REGISTRATION RIGHTS
19.1 Additional Covenants. In addition, the parties agree as follows:
(a) Seller Expenses. Seller shall be responsible for the payment of
(i) the title insurance premium with regard to the Title Policy (to be
calculated upon that portion of the Purchase Price allocable to the Real
Property, the Ground Lease Property and the Improvements), (ii)
documentary and/or transfer taxes, and mortgage and/or deed of trust
related taxes and charges, provided that any transfer taxes shall be
calculated on that portion of the Purchase Price allocated to the Real
Estate, the Ground Lease Property and the Improvements, unless otherwise
required by any applicable Legal Requirement, (iii) fifty percent (50%) of
all escrow fees, and (iv) the registration expenses of the holders of the
Host Funding Stock as set forth in Section 19.2(d) hereof. Additionally,
the fees and expenses of Seller's designated representatives, accountants
and attorneys shall be borne by Seller.
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(b) Purchaser Expenses. Purchaser shall be responsible for the
payment of (i) the cost of the Survey, (ii) the cost of any environmental
studies undertaken by Purchaser, (iii) all costs and expenses related to
Purchaser's due diligence inspections and investigations pursuant hereto,
(vi) all costs, expenses and fees relating to the obtaining by Purchaser
of the Host Funding Franchise Agreement, (v) the cost of the audited
financial statements prepared pursuant to Section 9.1 (j) hereof, and (vi)
fifty percent (50%) of all escrow fees. Additionally, the fees and
expenses of Purchaser's designated representatives, accountants and
attorneys shall be borne by Purchaser.
(c) Miscellaneous Expenses. All costs and expenses not otherwise
required to be paid by Seller or Purchaser pursuant to the terms hereof
shall be borne by Seller and Purchaser in the manner in which such costs
and expenses are customarily allocated between the parties at the closing
of a real estate hotel or motel property in the Bloomington, Illinois
area.
(d) 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 Purchaser's Advisors.
Purchaser hereby represents and warrants to Seller that Purchaser has not
dealt with any broker or finder with respect to the transaction
contemplated hereby, other than HMR Capital, LLC ("Purchaser's Advisors").
Purchaser agrees to pay any and all brokerage commissions to which
Purchaser's Broker shall be entitled in connection with this transaction
and agrees to indemnify Seller for any claim for brokerage commission or
finder's fee in connection with this transaction asserted by Purchaser's
Advisors. 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 as set forth in this Section 19.1(d)), 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.
(e) Books and Records. The transfer of the Property contemplated
hereby includes all books and records of Seller pertaining to the business
of the Property, the Ground Lease Property and the Hotel, and same should
be delivered to Purchaser at Closing; provided, Purchaser agrees to
maintain and preserve all books and records, files and correspondence
pertaining to the business of the Property, the Ground Lease Property and
the Hotel, 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 upon at least five (5) days prior
written notice. Additionally, Seller agrees to cooperate and assist
Purchaser incident to any audit of the books and records required of
Purchaser for periods of time prior to the Closing, including, without
limitation, becoming the "engaging party" (at no cost or expense to
Seller) if necessary to facilitate any such audits.
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(f) 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.
(g) Assignment. Except for an assignment of this Agreement by
Purchaser to an Affiliate of Purchaser, 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.
(h) 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.
(i) 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,
including, without limitation, that certain letter of intent, dated June
13, 1997, 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 Illinois.
(j) 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.
(k) Importance of Time. Time is of the essence of this Agreement.
(l) Rule 144. Purchaser covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Securities and Exchange
Commission (the "Commission") thereunder, and it will take such other
action as any holder of Host Funding Stock may reasonably request, all to
the extent required from time to time to enable such holder to sell Host
Funding Stock without
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<PAGE>
registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as may be
amended from time to time, or (ii) any similar rule or regulation
hereunder adopted by the Commission.
(m) Time for Acceptance. This Agreement is being presented to Seller
and constitutes an offer by Purchaser to purchase the Property from Seller
upon the terms and conditions stated herein, which offer must be accepted
by Seller's execution of at least three (3) counterparts hereof and
returning all three originals to Purchaser on or before July __, 1997. If
Purchaser fails to deliver the three (3) counterpart originals of this
Agreement to Seller, by the above date, this Agreement shall be of no
force or effect and neither party shall have any obligation one to the
other.
19.2 Piggy-Back Registration Rights
(a) If Purchaser proposes to file a registration statement under the
Securities Act with respect to an offering by Purchaser for its own
account or for the account of any other person of any class of equity
security, including any security convertible into or exchangeable for any
equity security (other than a registration statement on Form S-8 (or any
successor form) or filed in connection with an exchange offer or an
offering of securities solely to Purchaser's existing stockholders), then
Purchaser shall in each case give written notice of such proposed filing
to the holders of the Host Funding Stock at least twenty (20) days before
the anticipated filing date, and such notice shall offer such holders the
opportunity to register such number of shares of Host Funding Stock as
each such holder may request (a "PiggyBack Registration"). Purchaser shall
use reasonable diligence to cause the managing underwriter or underwriters
of a proposed underwritten offering to permit the holders of Host Funding
Stock requested to be included in the registration for such offering to
include such securities in such offering on the same terms and conditions
as any similar securities of Purchaser included therein. Notwithstanding
the foregoing, if the managing underwriter or underwriters of such
offering delivers a written opinion to the holders of Host Funding Stock
that the total amount of securities which they or Purchaser and any other
persons intend to include in such offering is sufficiently large to
materially and adversely affect the success of such offering, then the
amount of Host Funding Stock to be offered for the accounts of holders of
Host Funding Stock shall be reduced, in the sole opinion of the managing
underwriter, to a total amount of securities to be included in such
offering to the amount recommended by such managing underwriter; provided,
that the reduction imposed upon holders of Host Funding Stock will not be
greater, on a fractional basis, than the reduction imposed upon other
persons whose piggy-back registration rights are pari passu with those
granted hereby with respect to the amount of securities requested for
inclusion in such registration.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Purchaser shall not be required to include Host Funding Stock
in any registration statement if the proposed registration is (i) a
registration of a stock option or other employee incentive
34
<PAGE>
compensation plan or of securities issued or issuable pursuant to any such
plan, (ii) a registration of securities issued or issuable pursuant to a
stockholder reinvestment plan or other similar plan, (iii) a registration
of securities issued in exchange for any securities or any assets of, or
in connection with a merger or consolidation with, an unaffiliated
company, or (iv) a registration of securities pursuant to a "rights" or
other similar plan designed to protect Purchaser's stockholders from a
coercive or other attempt to take control of Purchaser.
(c) Purchaser may withdraw any registration statement and abandon
any proposed offering initiated by Purchaser without the consent of any
holder of Host Funding Stock, notwithstanding the request of any such
holder to participate therein in accordance with this Section 19.2, if
Purchaser determines, in good faith in its sole discretion, that such
action is in the best interests of Purchaser and its stockholders (for
this purpose, the interest of the holders of Host Funding Stock shall not
be considered).
(d) With respect to any Piggy-Back Registration requested by the
holders with respect to Host Funding Stock, Purchaser shall bear all
registration expenses except for the following registration expenses (and
the following registration expenses shall be borne pro rata by the holders
of Host Funding Stock registered thereby): (i) Commission and securities
exchange registration and filing fees, (ii) fees and expenses of
compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of
such shares), (iii) rating agency fees, (iv) printing expenses, (v)
messenger and delivery expenses, (vi) fees and expenses incurred in
connection with the listing of such shares to be registered on each
securities exchange in which similar securities issued by Purchaser are
then listed, (vii) underwriting fees, discounts and commissions, and
(viii) any out-of-pocket expenses of the holders of such shares including
any travel costs and counsel fees; provided, however, that the foregoing
registration expenses to be paid by such holders shall be deemed to
include, on an item-by-item basis (an "item" being any of the numbered
expenses above), only that certain portion of the total registration
expenses of such PiggyBack Registration relating to such item that is
determined by multiplying (x) the total registration expenses of such
Piggy-Back Registration relating to such item by (y) a fraction the
numerator of which is the total proceeds realized by the holders of the
Host Funding Stock as a result of the offering relating to such Piggy-Back
Registration and the denominator of which is the total proceeds realized
by all selling stockholders (including such holders of Host Funding Stock)
and Purchaser in such offering.
(e) In connection with any registration statement in which a holder
of Host Funding Stock is participating, each such holder will furnish to
Purchaser in writing such information with respect to the name and address
of such holder and the amount of Host Funding Stock held by such holder
and such other information as Purchaser shall reasonably request for use
in connection with any such registration statement or prospectus, and
agrees to indemnify, to the extent permitted by law, Purchaser, its
directors and officers, and each person who controls Purchaser (within the
meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material
fact or any omission of a material fact
35
<PAGE>
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, to the extent, but only to the extent,
that such untrue statement or omission is based upon any information with
respect to such holder so furnished in writing by such holder specifically
for inclusion in any prospectus or registration statement.
(f) No holder of Host Funding Stock may participate in any
Piggy-Back Registration unless such holder (a) agrees to sell the Host
Funding Stock on the terms of and on the basis provided in any
underwriting arrangements approved by the persons entitled to approve such
arrangements (which shall be Purchaser in the case of an offering of
securities by Purchaser), and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements.
(g) The provisions of this Section 19.2 shall apply, to the full
extent set forth herein, with respect to the Host Funding Stock, to any
and all shares of equity capital of Purchaser or any successor or assign
of Purchaser (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Host Funding Stock, in each case as the amounts of
such securities outstanding are approximately adjusted for any equity
dividends, splits, reverse splits, combinations, recapitalizations, and
the like occurring after the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or cause this
Agreement to be executed, all as of the day and year first above written.
SELLER:
LVM CORPORATION, an Illinois corporation
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
PURCHASER:
HOST FUNDING, INC., a Maryland corporation
By:
---------------------------------------
Michael McNulty, President
36
<PAGE>
This Agreement and the Initial Deposit have been received by the Title
Company this _____ day of ______________, 1997, which shall be the Effective
Date.
REPUBLIC TITLE OF TEXAS, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Address: 300 Crescent Court, Suite 100
Dallas, Texas 75201
Attn.: William A. Kramer
37
<PAGE>
August 5, 1997
Mr. Ian Gardner-Smith
Hotel Capital Corporation of America
1025 Prospect Avenue, Suite 350
La Jolla, California 92037
Re: Restated and Amended Post-Formation Acquisition Agreement dated February
8, 1997 by and between Host Funding, Inc. ("Host Funding") and Hotel
Capital Corporation of America ("Acquisition Manager") (the "Acquisition
Agreement").
Dear Ian:
Pursuant to Section 15 of the Acquisition Agreement, Host Funding hereby
terminates the Acquisition Agreement effective thirty (30) days from the date of
your receipt of this letter. Attached to this termination letter as Exhibit "A"
is a list of the properties that have been presented to Host Funding by
Acquisition Manager as of the date of this letter. By your signature below,
please confirm that (i) the attached property list constitutes the full,
complete and final list of properties which Acquisition Manager has submitted to
Host Funding; and (ii) any properties submitted after the date of this letter
which are not included on the attached property list will not be subject to the
terms and conditions of the Acquisition Agreement.
Sincerely yours,
Michael S. McNulty
MSM:lah
ACKNOWLEDGED AND AGREED:
HOTEL CAPITAL CORPORATION OF AMERICA
By:
-------------------------------
Ian Gardner-Smith, Manager
Date:
-----------------------------
cc: John G. Rebensdorf, Esq.
James M. Duncan, Esq.
<PAGE>
Peter G. Aylward, Esq.
<PAGE>
PROPERTIES SUBJECT TO AGREEMENT
Country Hearth - Findlay
Country Hearth - Auburn
Country Hearth - Indianapolis
Days Inn - Bloomington
Hotel Spokane
Comfort Inns - North Carolina
In addition, within three business days, HCCA may provide a list of
properties that includes hotel, room TTM Revenue, NOI, Seller's name and address
and asking price.
Michael
<PAGE>
PROMISSORY NOTE
$70,000.00 June 19, 1997
1. FOR VALUE RECEIVED, Host Funding, Inc., a Maryland Corporation,
("Maker"), promises to pay to the order of Blacor, Inc., a Texas Corporation
("Lender"), at 25 Highland Park Village, Box 100-530, Dallas, Texas 75206 (or
such other place for payment designated by Lender), amounts advanced under the
note, not to exceed SEVENTY THOUSAND DOLLARS ($70,000.00), with interest from
the date of advances on the principal balance from time to time remaining unpaid
at the rates hereinafter set forth. All unpaid amounts hereof after default, and
upon maturity, whether upon the due date, by acceleration or otherwise, shall
bear interest from the date of default or maturity until paid at the lessor of
(i) the highest rate permitted by applicable law from time-to-time in effect so
long a the debt evidenced hereby is outstanding, or (ii) 18% per annum.
2. This Promissory Note (this "Note") shall bear interest and be repaid as
follows:
(a) This Note shall bear interest at a rate per annum equal to the
lesser of (i) the highest rate permitted by applicable law from time to time in
effect so long as the debt evidenced hereby is outstanding, or (ii) 12%.
(b) The principal of this Note and all accrued interest thereon
shall be due and payable on demand, but in the event no earlier demand is made,
on August 10, 1997.
3. In the event that default is made in the payment of any amounts payable
hereunder, and such default remains uncured for a period of five (5) days or
more after Lender has given written notice of such default to Maker, the entire
unpaid amount of this Note, together with accrued but unpaid interest thereon,
shall become due and payable, without further notice, and without further
presentment or demand for payment.
4. If Lender declares the entire amount of this Note at once due and
payable, as provided in Paragraph 3 above, and this Note is placed in the hands
of an attorney for collection, or suit is brought on same, or the same is
collected through probate, bankruptcy or other judicial proceedings, then Maker
shall pay to Lender all reasonable costs and expenses of collection, including
reasonable attorneys' fees, incurred by Lender in connection therewith.
5. Except as otherwise provided herein, Maker, and all endorses, if any,
expressly waive demand for payment, presentation for payment, notice of
intention to accelerate maturity, notice of acceleration, protest and notice of
protest as to this Note.
6. This Note may be prepaid, upon at least one (1) days advance written
notice, in part from time-to-time, or in full, without penalty, premium, or fee
of any kind.
<PAGE>
7. It is the intention of the Lender and Maker to conform strictly with
applicable usury laws now in force. No provision of this Note or in any other
document evidencing, securing or pertaining to the indebtedness evidenced hereby
shall require the payment, or permit the collection of, interest in excess of
the maximum amount permitted by applicable state or federal law. If at any time
the interest received or contracted for exceeds the maximum lawful rate, the
Lender shall refund the amount of the excess, or shall credit the amount of the
excess against amounts owing hereunder and such excess shall not be considered
the payment of interest. Determination of the rate of interest shall be made by
amortizing, prorating, allocating and spreading in equal parts during the full
term of this Note all interest at any time contracted for, charged or received
from Maker in connection herewith.
8. Any notice under this Note shall be in writing and shall be effective
when actually delivered or, if mailed, shall be deemed effective three (3) days
after being deposited in the United States mail, first class, certified mail,
postage prepaid, directed to the addresses show immediately below. Any party may
change its address for notices under this Note by giving formal written notice
to the other parties, specifying that the purpose of the notice is to change the
party's address. For notice purposes, addresses are as follows:
Lender Maker
Blacor, Inc. Host Funding, Inc.
25 Highland Park Village 6116 N. Central Expressway
Box 100-530 Suite 1313
Dallas, Texas 75206 Dallas, Texas 75206
Executed this _____ day of June 1997.
By: Host Funding, Inc.
Through Its:
Managing Member
By:
-----------------------
Bona K. Allen
Chief Financial Officer
2
<PAGE>
FIRST MODIFICATION OF PROMISSORY NOTE
THIS MODIFICATION OF PROMISSORY NOTE (this "Modification") is entered into
effective as of August 10, 1997 (the "Effective Date"), by and among Blacor,
Inc., a Texas corporation ("Lender"), and Host Funding, Inc., a Maryland
corporation ("Borrower").
R E C I T A L S:
WHEREAS, Borrower executed and delivered to Lender a certain Promissory
Note (the "Note"), dated June 19, 1997, in the original principal sum of
SEVENTY THOUSAND and NO/100 DOLLARS ($70,000); and
WHEREAS, Lender and Borrower desire to modify certain provisions of the
Note;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged and confessed, Lender and
Borrower agree as follows:
SECTION 1. MATURITY DATE. As of the Effective Date, the principal of the
Note and all accrued interest thereon shall be due and payable on demand, but
in the event no earlier demand is made, on December 31, 1997, or on prepayment
of the Hatfield Note, if earlier.
SECTION 2. GOVERNING LAW. The terms and conditions hereof shall be
governed by and construed in accordance with the laws of the State of Texas
and of the United States of America applicable to the transactions herein
evidenced.
SECTION 3. VALIDITY OF PREVIOUS DOCUMENTS. Each and every of the terms
and conditions of the Note are and shall remain fully effective and valid, as
presently written and as modified hereby. To the extent there is any conflict
between the terms and provisions of this Modification and the Note, the terms
and provisions of this Modification shall control.
SECTION 4. WAIVER. Borrower, by its execution of this Modification, does
herein and hereby release, relinquish, and waive any and all defenses to the
enforceability of the Note to which Borrower may have otherwise been entitled
as of the date hereof. Borrower does hereby covenant and agree that the
benefit received and to be received by Borrower as a result of this
Modification shall and does constitute sufficient and valuable consideration
for the waiver contained in the immediately preceding sentence.
SECTION 5. MODIFICATION. This Modification shall constitute an amendment
and modification of the Note.
<PAGE>
EXECUTED by Lender and Borrower as of the Effective Date.
BORROWER:
HOST FUNDING, INC.
By:
-------------------------------
Bona K. Allen, Vice President
LENDER:
BLACOR, INC.
By:
-------------------------------
Michael S. McNulty, President
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 811
<SECURITIES> 0
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 927
<PP&E> 24,689
<DEPRECIATION> (769)
<TOTAL-ASSETS> 26,346
<CURRENT-LIABILITIES> 429
<BONDS> 0
0
0
<COMMON> 7,717
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,346
<SALES> 0
<TOTAL-REVENUES> 1,874
<CGS> 0
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<NET-INCOME> (345)
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