Exhibit 10.3
LOAN AGREEMENT
between
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
and
NOMURA ASSET CAPITAL CORPORATION
Dated as of March 22, 1996
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS............................................................... 1
Section 1.1 Definitions........................................... 1
ARTICLE II
PROVISIONS CONCERNING THE ACCOUNTS
AND PLEDGED PROPERTY...................................................... 16
Section 2.1 Cash Management Procedures............................ 16
Section 2.2 Right to Contest...................................... 16
Section 2.3 Defeasance............................................ 17
Section 2.4 Sale of all the Properties............................ 21
Section 2.5 Change of Control..................................... 21
Section 2.7 Bossier Reserve Account............................... 23
ARTICLE III
PAYMENTS.................................................................. 24
Section 3.1 Payments on the Note.................................. 24
Section 3.2 Interest.............................................. 24
Section 3.3 Payments without Deduction, etc....................... 24
ARTICLE IV
DEFAULT; REMEDIES; ENFORCEMENT............................................ 25
Section 4.1A Events of Default..................................... 25
Section 4.1B Event of Default Cure................................. 27
Section 4.2 Remedies.............................................. 28
Section 4.3 Remedies Cumulative; Delay or Omission
Not a Waiver.......................................... 28
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS................................. 29
Section 5.1 Representations and Warranties of the
Borrower............................................... 29
Section 5.2 Affirmative Covenants.................................. 36
Section 5.3 Negative Covenants..................................... 41
i
Section 5.4 Further Assurances..................................... 44
Section 5.5 Representations, Warranties and
Covenants of NACC...................................... 45
Section 5.6 Other.................................................. 45
ARTICLE VI
SECURITIZATION............................................................. 48
Section 6.1 Securitization......................................... 48
ARTICLE VII
PAYMENT OF FEES AND EXPENSES; INDEMNIFICATION.............................. 50
Section 7.1 Fees and Expenses...................................... 50
Section 7.2 Indemnification........................................ 51
ARTICLE VIII
IMMUNITY................................................................... 53
Section 8.1 Partners, Employees and Agents of the
Borrower Immune from Liability......................... 53
ARTICLE IX
MISCELLANEOUS PROVISIONS................................................... 53
Section 9.1 Notices................................................ 53
Section 9.2 Benefit of Agreement................................... 54
Section 9.3 Governing Law.......................................... 54
Section 9.4 Counterparts........................................... 55
Section 9.5 Index, Descriptive Headings............................ 55
Section 9.6 Amendment or Waiver; Integration....................... 55
Section 9.7 Survival of Representations and
Warranties; Reliance................................... 55
Section 9.8 Returned Payments...................................... 55
Section 9.9 Jurisdiction and Service; Waiver of Jury
Trial.................................................. 56
Section 9.10 Enforceability......................................... 56
Section 9.11 Conflicting Terms...................................... 56
Section 9.12 Relationship of Parties................................ 57
Exhibit A - ADA Compliance Work and Deferred Maintenance Work
Exhibit B - Cash Management Procedures
ii
Exhibit C - Environmental Remediation Work
Exhibit D - Permitted Investments
Exhibit E - Properties and Addresses
Exhibit F - Release Price
Exhibit G - Organizational Structure of the Borrower
Exhibit H - Operating Budget
Exhibit I - Capital Budget
Exhibit J - Financial Statements
Exhibit K - Environmental Procedures
Schedule 1 - Disclosure Report
iii
LOAN AGREEMENT, dated as of March 22, 1996, between Marriott Residence Inn
II Limited Partnership, a Delaware limited partnership (the "Borrower"), and
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Nomura Asset Capital Corporation ("NACC") (together with its assigns and
successors, the "Lender").
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W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower wishes to obtain a loan from the Lender in the
principal amount of One hundred Forty Million Dollars ($140,000,000) to, among
other things, (i) satisfy all existing debt secured by the Properties (as
hereinafter defined) and an existing line of credit and, (ii) to the extent of
any remaining proceeds, (a) provide initial funding for reserves for deferred
maintenance, environmental remediation, compliance with the Americans With
Disabilities Act of 1990, replacement of furniture, fixtures and equipment and
capital improvements, (b) pay the costs of completing the transactions
contemplated hereby, (c) provide working capital to the Borrower and (d) for
such other purposes as the Borrower shall deem necessary or desirable, and the
Lender is willing to make such loan to the Borrower on the terms and conditions
hereinafter set forth; and
WHEREAS, such loan is to be evidenced by the Note (as hereinafter defined)
and secured by, inter alia, the Mortgages (as hereinafter defined),
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NOW, THEREFORE, in consideration of the above-mentioned premises and the
agreements, representations and warranties hereafter set forth, the Borrower and
the Lender agree as follows:
ARTICLE I
DEFINITIONS
Section I.1 Definitions. For all purposes of this Agreement, except as
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otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Section have the meanings assigned to them
in this Section, and include the plural as well as the singular;
(b) the words "herein," "hereof," "hereto" and "hereunder" and other words
of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision;
(c) all references to any agreement or instrument shall be to that
agreement or instrument as in effect from time to time, including any
amendments, consolidations, replacements, restatements, modifications and
supplements thereto; and
(d) all terms defined in this Section with reference to the Cash
Management Procedures shall continue in effect after the termination of such
Cash Management Procedures in accordance with the terms thereof.
"Accounting Period" means, initially, each accounting period of four
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consecutive weeks having the same beginning and ending dates as the Manager's
corresponding four week accounting periods, except that the last Accounting
Period in a Fiscal Year may be longer than four consecutive weeks when and to
the extent necessary to conform the accounting system to the calendar, or if the
accounting year on the basis of which the Properties are operated is changed to
a calendar year or a conve ntional 365-day fiscal year, "Accounting Period"
shall mean each calendar month in such fiscal year.
"Accounting Quarter" means, initially, three (or, in the case of the last
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Accounting Quarter in any Fiscal Year, four) consecutive Accounting Periods,
ending on the last day of the third, sixth, ninth and last Accounting Period in
each Fiscal Year, or, if the accounting year on the basis of which the
Properties are operated is changed to a calendar year or a conventional 365-day
fiscal year, "Accounting Quarter" shall mean each of the fiscal quarters in such
fiscal year (i.e., there shall be four consecutive Accounting Quarters of three
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months each).
"Action" means any action, suit, claim, arbitration, governmental
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investigation or other proceeding.
"ADA Compliance Work" means the repairs, improvements and replacements to
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the Properties to comply with the Americans with Disabilities Act of 1990, as
amended from time to time, in the amounts more particularly described on Exhibit
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A annexed hereto.
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"Additional Capital Expenditures" has the meaning set forth in Section 8.3
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of the Cash Management Procedures.
"Affiliate" means, with respect to any Person, any individual, corporation,
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partnership, limited liability company, trust or other
entity of whatever nature which controls, is controlled by or is under common
control with, such Person, including, without limitation, (a) any officer or
director of any of the foregoing and (b) any partner, member or shareholder that
controls any of the foregoing, and "control" shall mean ownership of more than
twenty-five percent (25%) of all of the voting stock of a corporation or more
than twenty-five percent (25%) of all of the legal and beneficial interests in
any other entity or the possession of the power, directly or indirectly, to
direct or cause the direction of the management and policy of a corporation or
other entity, whether through the ownership of voting securities, common
directors or officers, the contractual right to manage the business affairs of
such entity, or otherwise.
"Agreement" means this Loan Agreement.
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"Annual Plan" has the meaning set forth in Section 5.2(d)(vii).
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"Bankruptcy Custodian" has the meaning set forth in Section 4.1A(g)(A)(2).
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"Base Rate" has the meaning set forth in the Note.
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"Best Knowledge" means with respect to any provision, knowledge of
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information obtained by the Borrower or any officer or director of the General
Partner.
"Borrower" means Marriott Residence Inn II Limited Partnership.
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"Borrower Debt Service Reserve Account" has the meaning set forth in
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Section 5.1 of the Cash Management Procedures.
"Bossier Reserve Account" has the meaning set forth in Section 2.7(a).
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"Business Day" means a day on which banks and foreign exchange markets are
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open for business in New York, New York.
"Capital Budget" has the meaning set forth in Section 5.2(d)(vii).
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"Capital Expenditure and FF&E Reserve Account" means the account
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established pursuant to Section 8.1 of the Cash Management Procedures.
"Capital and FF&E Expenditures" means the expenditures of amounts for the
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purpose of the Repairs and Equipment Reserve, as such term in defined in the
Management Agreement.
"Cash Collateral Account" means the account established and held by the
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Servicer pursuant to Section 4.1 of the Cash Management Procedures.
"Cash Management Procedures" means the provisions of Exhibit B.
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"Change of Control" means any transfer of (i) an equity interest in the
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General Partner, (ii) the General Partner's interest in the Borrower or (iii)
any interest of a limited partner in the Borrower such that as a result of such
transfer and any other transfers of limited partnership interests prior to the
date of determination, MII or Host Marriott, directly or indirectly, holds more
than 5% of the limited partnership interests in the Borrower.
"Citgo Refinery Site" has the meaning set forth in Section 2.7(d).
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"Closing Date" means the date of execution and delivery of this Agreement.
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"Condemnation Proceeds" has the meaning set forth in the applicable
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Mortgage.
"DCR" means Duff & ▇▇▇▇▇▇ Credit Rating Co.
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"Debt" means the obligations of the Borrower under the Transaction
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Documents, together with all interest thereon, and all other sums, including,
without limitation, fees, expenses, commissions, premiums and indemnities, which
may or shall become due under any of the Transaction Documents, including the
costs and expenses of enforcing any provision of the Transaction Documents that
may be reimbursable thereunder.
"Debt Service Coverage Ratio" means, as of any given date, the ratio of (i)
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Net Operating Income for the 13 full Accounting Periods for which financial
statements are required to be furnished to the Lender pursuant to Section
5.2(d)(ii) immediately preceding the date of calculation for the Property or
Properties regarding which the calculation is being made (or 12 Accounting
Periods in the case of a calendar year or 365 day Fiscal Year) to (ii) Debt
Service Expense in respect of the 13 full Accounting Periods next
succeeding such date (or 12 Accounting periods in the case of a calendar year or
365 day Fiscal Year).
"Debt Service Expense" means, in respect of any fiscal period, the
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aggregate amount of scheduled interest and principal payable on (i) the Note,
(ii) Subordinate Debt and (iii) Indebtedness covered by Purchase Money Security
Interests for such period. For the purpose of the calculation prior to the
Optional Prepayment Date of Debt Service Expense for any period subsequent to
the Optional Prepayment Date, such aggregate amount shall be computed based on
the Monthly Debt Service Payment.
"Debt Service Payment Date" means the 11th day of each calendar month or
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the next Business Day immediately thereafter.
"Debt Service Reserve Account" has the meaning set forth in Section 5.1 of
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the Cash Management Procedures.
"Defeasance Collateral" has the meaning set forth in Section 2.3(a)(iv)(A).
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"Defeasance Debt Service Coverage Ratio" has the meaning set forth in
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Section 2.3(f).
"Defeasance Deposit" has the meaning set forth in Section 2.3(f).
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"Defeasance Security Agreement" has the meaning set forth in Section
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2.3(a)(iv)(A).
"Deferred Maintenance Work" means the repairs, improvements and
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replacements to the Properties in the amounts more particularly described on
Exhibit A hereto.
"Disclosure Report" means the schedule annexed hereto as Schedule 1.
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"Eligible Account" means either (i) an account maintained with a federal or
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state chartered depository institution or trust company, the long-term unsecured
debt obligations of which (or, in the case of a depository institution or trust
company that is the principal subsidiary of a holding company, the long-term
unsecured debt obligations of such holding company) are rated by each Rating
Agency in one of its two highest rating categories (or such other ratings as
will not result in the rating of any of the Securities being reduced below their
respective ratings on the date determination is to be made and as to which the
Rating Agencies may
otherwise agree) at the time of the deposit therein, or the short-term unsecured
debt obligations of such depository institution or trust company (or holding
company), as the case may be, are rated by each Rating Agency not lower than A-
1+ by S&P and D1+ by DCR, or (ii) a segregated trust account maintained with the
trust department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity provided that such account is subject
to fiduciary funds on deposit regulations (or internal guidelines) substantially
similar to 12 C.F.R. 9.10(b), or (iii) after the Securitization, an account in
any other inured depository institution reasonably acceptable to the Servicer
and the Trustee, so long as prior to the establishment of an account in any such
other depository institution each of the Rating Agencies shall have delivered a
Rating Comfort Letter with respect thereto.
"Emergency Expenditures" means expenditures arising in the event of an
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emergency arising out of a fire or other casualty at an Inn, or other events,
circumstances or conditions which give rise to safety or life threatening
situations, to the extent such expenditures are necessary to protect the safety
or welfare of guests and employees or to protect against further property damage
to the Inn.
"Entities" has the meaning set forth in Section 6.1(b).
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"Environmental Indemnity Agreement" means the environmental indemnity
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agreement, dated the Closing Date, from the Borrower to NACC.
"Environmental Laws" has the meaning set forth in the Environmental
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Indemnity Agreement.
"Environmental Remediation Work" means the actions taken with respect to
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the Properties set forth on Exhibit C.
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"Equipment Leases" means, with respect to each Property, the leases of
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furniture, fixtures and equipment used in connection with the Properties.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended from time to time, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means all members of a controlled group of corporations
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and all trades and businesses (whether or not incorporated) under common control
and all other entities which,
together with the Borrower, are treated as a single employer under any or all of
Sections 414(b), (c), (m) or (o) of the IRC.
"Event of Default" has the meaning set forth in Section 4.1A.
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"Excess Cash Flow" means, for the period of determination, the difference
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between (i) Net Operating Income and (ii) the sum of (A) the Monthly Debt
Service Payment and (B) other Debt then due and payable to the Lender and (C)
the Partnership's Administrative Expenses (as such term is defined in the
Management Agreement).
"Excluded Amounts" has the meaning set forth in Section 4.3(E) of the Cash
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Management Procedures.
"Expense Deposit" has the meaning set forth in Section 7.1(c).
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"Fiscal Year" means January 1 of each year through and including December
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31 of such year except that, for purposes of calculating the Debt Service
Coverage Ratio or any other calculation requiring reference to Gross Revenues,
Net Operating Income or other amounts calculated with reference to the
Accounting Periods, "Fiscal Year" shall mean the fiscal year of the Manager, as
defined in the Management Agreement.
"GAAP" means generally accepted accounting principles in the United States
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of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which the Borrower's
independent certified public accountants concur), both as to classification of
items and amounts.
"General Partner" means Marriott RIBM Two Corporation, a Delaware
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corporation.
"Governmental Authority" means any court, agency, authority, board
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(including, without limitation, environmental protection, planning and zoning)
bureau, commission, department, office or instrumentality of any nature
whatsoever of any governmental or quasi-governmental unit of the United States
or the state, county or city where each Property is located or any political
subdivision of any of the foregoing, whether now or hereafter in existence, or
any officer or official thereof, having jurisdiction over the Borrower or the
General Partner or any of the Properties or any portion thereof.
"Grant" means to issue, grant, sell, remise, convey, assign, and/or
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transfer.
"Gross Revenues" means, with regard to the Properties, for any period, all
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revenues and receipts of every kind derived from or otherwise relating to the
Properties and all departments and parts thereof during such period, including,
but not limited to: income (from both cash and credit transactions) from rental
of rooms, stores, offices, exhibit or sales space of every kind; license, lease
and concession fees and rentals (not including gross receipts of licensees,
lessees and concessionaires); income from vending machines; health club
membership fees; food and beverage sales; wholesale and retail sales of
merchandise, service charges, and proceeds, if any, from business interruption
or other loss of income insurance; excluding, however, (i) gratuities to
employees of the Inns, (ii) federal, state or municipal use, sales or use taxes
or similar Impositions collected directly from patrons or guests or included as
part of the sales price of any goods or services; (but only to the extent such
gratuities and taxes are not included in Management Expenses), (iii) net
Condemnation Proceeds, (iv) receipts of Tenants (as defined in the Mortgages),
if any, not an Affiliate of the Borrower (except to the extent paid to the
Borrower as rent, percentage rents or otherwise), (v) sums and credits received
in settlement of claims for loss or damage to property, (vi) income from the
sale of furnishings, fixtures or equipment, and (vii) Insurance Proceeds, (viii)
charges or payments collected from patrons or guests for telephone, telegraph or
other communication systems that are remitted to the provider thereof, (ix)
proceeds from the sale or refinancing of the Properties and any (x) refunds,
rebates, discounts and credits of a similar nature, given, paid or returned in
the course of obtaining Gross Revenues or components thereof.
"Host Marriott" means Host Marriott Corporation, a Delaware corporation.
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"Impositions" has the meaning set forth in the applicable Mortgage.
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"Indebtedness" means for any Person (a) obligations for borrowed money
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(including, without limitation, in the case of the Borrower, the Debt), (b)
obligations under letters of credit, (c) obligations relating to Purchase Money
Security Interests, (d) obligations, whether or not assumed, secured by Liens or
payable out of the proceeds or production from property now owned by such
Person, (e) obligations for trade credit or acceptances incurred in the ordinary
course of business which are 60 days past due, and (f) obligations of another
Person of the type set forth in clauses (a) through (e) above which such Person
has guaranteed or in respect of
which such Person is liable, contingently or otherwise, including, without
limitation, by way of agreement to purchase property or services, to provide
funds to or otherwise invest in such other Person, or otherwise to assure a
creditor of such other Person against loss.
"Indemnified Parties" shall have the meaning set forth in Section 7.2(a).
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"Independent Director" means a person who is not, and has not within the
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past five years been, (i) an officer, director, employee, partner, member, or
stockholder or beneficial-interest holder of the General Partner, the Borrower,
the Managing Member or the Subsidiary; (ii) an officer, director, employee,
partner, member, beneficial-interest holder or more than 5% stockholder of any
Affiliate (as defined below) of the General Partner, the Borrower the Managing
Member or the Subsidiary; (iii) affiliated with a customer or supplier of either
the Borrower or the Subsidiary or its Affiliates (other than a hotel guest or a
customer or supplier that does not derive more than 10% of its purchases or
revenues from its activities with the Borrower); or (iv) a spouse, parent,
sibling, or child of any person described in (i), (ii), or (iii); provided,
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however, that a person shall not be deemed to be a director of an Affiliate
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solely by reason of such person being a director of a single-purpose entity. For
the purpose of this definition alone, "Affiliate" means any person or entity
other than the General Partner and the Managing Member (i) which owns
beneficially, directly or indirectly, more than 10 percent of the outstanding
shares of the Common Stock of the General Partner or which is otherwise in
control of the General Partner or the Managing Member, (ii) of which more than
10% of the outstanding voting securities are owned beneficially, directly or
indirectly, by any person or entity described in clause (i) above, or (iii)
which is controlled by any person or entity described in clause (i) above;
provided that the term "control" and "controlled by" shall have the meanings
assigned to them in Rule 405 under the Securities Act of 1933.
"Individual Material Adverse Effect" means a material adverse effect on the
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condition (financial or otherwise), business, prospects, assets, liabilities,
management, financial position or results of operations of any Property.
"Initial Debt Service Coverage Ratio" means 1.5:1.
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"Inns" means the Residence Inn by Marriott hotels and the hotel operations
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located at the Properties.
"Insolvency Law" has the meaning set forth in Section 4.1A(g)(A)(1).
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"Insurance Proceeds" has the meaning set forth in the applicable Mortgage.
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"Insurance Requirements" means all terms of any insurance policy required
----------------------
by the applicable Mortgage covering or applicable to a particular Property or
any part thereof and all requirements of the insurance carrier, all as more
fully described in such Mortgage.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
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time, and the rules and regulations promulgated thereunder, or any successor
statute(s).
"Leases" means the respective written or unwritten agreements pursuant to
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which lessees, tenants or other third parties are occupying any portion of the
Properties excluding, however, the letting of rooms and other facilities to
hotel guests in the ordinary course of business.
"Legal Requirements" has the meaning set forth in the applicable Mortgage.
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"Lien" means any security interest, mortgage, pledge, lien, restriction on
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transferability, claim, charge, encumbrance, title retention agreement or
analogous instrument, in, of or on the Properties or any of them.
"Lender" means Nomura Asset Capital Corporation.
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"Loan" means the loan evidenced by the Note.
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"Local Account" has the meaning set forth in Section 3 of the Cash
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Management Procedures.
"Lockbox Account" has the meaning set forth in Section 7.1.2 of the Cash
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Management Procedures.
"Lockbox Event" has the meaning set forth in Section 7 of the Cash
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Management Procedures.
"Lockbox Period" has the meaning set forth in Section 7 of the Cash
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Management Procedures.
"Management Agreement" means the Amended and Restated Management Agreement,
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executed as of the Closing Date, by the Borrower and the Manager, and as further
amended by that certain Modification, Subordination and Non-Disturbance
Agreement, Estoppel and Consent, dated as of the date hereof, among the Manager,
the Borrower and the Lender, and any other management agreement entered into by
the Borrower as required or permitted herein.
"Management Expenses" has the meaning set forth in Schedule I to the Cash
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Management Procedures.
"Manager" means Residence Inn by Marriott, Inc., a Delaware corporation,
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or any entity that is an Affiliate of MII and any property manager appointed as
permitted herein.
"Manager's Account" has the meaning set forth in Section 1.2(i) of the Cash
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Management Procedures.
"Managing Member" means Bossier RIBM Two, Inc., the managing member of the
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Subsidiary.
"Master Account" has the meaning set forth in Section 1.2(i) of the Cash
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Management Procedures.
"Material Adverse Effect" means a material adverse effect on (a) the
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Borrower's ability to enter into or fulfill its material obligations under the
Transaction Documents or to effect the transactions contemplated thereby or (b)
a material adverse effect on the condition (financial or otherwise), business,
prospects, assets, liabilities, management, financial position or results of
operations of the Borrower or the Properties.
"MII" means Marriott International, Inc., a Delaware corporation.
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"MII Cash Management Conditions" means the following conditions: (i) the
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Properties are managed by the Manager under the Management Agreement and (ii)
the Manager is a wholly owned, direct or indirect, subsidiary of MII.
"MII Debt" has the meaning set forth in Section 6 of the Cash Management
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Procedures.
"Monthly Debt Service Payment" has the meaning set forth in Section
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4.3(A)(i) of the Cash Management Procedures, as modified by Section 12.5 of the
Cash Management Procedures.
"Mortgage" means, with regard to each Property, the mortgage, deed of
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trust or other security instrument creating a first mortgage lien on such
Property, dated as of the Closing Date, from the Borrower to or for the benefit
of the Lender.
"NACC" means Nomura Asset Capital Corporation.
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"NACC Account" has the meaning set forth in that certain Letter Agreement,
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dated as of the Closing Date, between the Borrower, the Servicer and NACC.
"NACC Debt Service Reserve Account" has the meaning set forth in Section
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5.2 of the Cash Management Procedures.
"Net Operating Income" means, in respect of any fiscal period, Gross
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Revenues less the sum of, without duplication, (A) Management Expenses and (B)
any Impositions or insurance premiums paid or reserved for payment with respect
to the Properties.
"Non-Recourse" means, with respect to the Debt, that the Debt is limited in
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recourse solely to the Pledged Property and is not guaranteed directly or
indirectly by any Partner or the Manager and no Partner or the Manager or any
shareholder, member, director, officer, employee or agent of any Partner or the
Manager, either directly or indirectly, shall be personally liable in any
respect (except to the extent of their respective interests in the Pledged
Property) for (i) the payment of any Debt, (ii) the performance of any covenant
or obligation under any Transaction Document or (iii) monetary damages for the
breach of performance of any covenant or obligation contained in any Transaction
Document; provided, however, that in the event of any fraud, material
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misrepresentation or misappropriation of funds under any Transaction Document or
under the Management Agreement, nothing herein or in such other documents shall
estop the Lender from prosecuting an Action against the party or parties
committing such fraud, misappropriation or material misrepresentation, or
misappropriating such funds, or the recipient or beneficiary of such fraud,
material misrepresentation or misappropriation, whether or not such party,
recipient or beneficiary is the Borrower or a Partner or the Manager, to the
extent of losses relating to or arising from such fraud, material
misrepresentation or misappropriation of funds under any Transaction Document;
provided, further, that the Borrower's obligations in respect of the
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Environmental Indemnity Agreement and the covenants, indemnities,
representations and warranties relating to environmental matters contained in
any Transaction Document shall not be Non-Recourse to the Borrower (but shall be
Non-
Recourse to its Partners other than the General Partner). The foregoing
provisions shall not (a) prevent recourse to the Pledged Property or constitute
a waiver, release or discharge of any Debt, and the same shall continue until
paid or discharged, (b) limit the right of any Person, if required by applicable
law, to name the Borrower or any successor or assign of the Borrower as a party
defendant in any Action in the exercise of any remedy under any Transaction
Document, so long as no judgment seeking the performance of any act requiring
the expenditure of money shall be sought against the Borrower or any such
successor or assign and so long as any monetary judgment seeking the expenditure
of money is payable only from the Pledged Property or (c) impair any right of
the Lender to obtain a deficiency judgment against the Borrower or any such
successor or assign in any Action where necessary as a matter of law to preserve
the rights and remedies of the Lender against the Pledged Property, provided
that such deficiency judgment may only be enforced against the Pledged Property.
Notwithstanding the foregoing, under no circumstances shall the Debt be recourse
to any limited partner of the Partnership in its capacity as such.
"Note" means that certain Consolidated Secured Promissory Note, dated the
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Closing Date, from the Borrower to the Lender in the principal sum of
$140,000,000.
"NSI" has the meaning set forth in Section 7.1(a).
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"Officer's Certificate" means a certificate signed by any officer of the
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General Partner who is authorized to act hereunder on behalf of the Borrower.
"Operating Account" has the meaning set forth in Section 7.7 of the Cash
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Management Procedures.
"Operating Budget" has the meaning set forth in Section 5.2(d)(vii).
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"Operating Profit Payment Date" has the meaning set forth in Section 2.4
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of the Cash Management Procedures.
"Operational Agreements" means the Management Agreement, the Property
----------------------
Agreements, the Equipment Leases, the Leases, if any, and any assignments and
assumption agreements or other agreements related thereto.
"Optional Prepayment Date" means March 11, 2006.
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"Partners" means the limited partners of the Borrower as constituted from
--------
time to time and the General Partner, in their capacities as such.
"P&I Payments" has the meaning set forth in Section 2.3(c).
------------
"Permits" means all permits, licenses, certificates, approvals,
-------
authorizations and other documents necessary for the construction, use,
operation or maintenance of the Inns and the Properties.
"Permitted Exceptions" has the meaning set forth in the Mortgages.
--------------------
"Permitted Investments" has the meaning set forth in Exhibit D hereto.
--------------------- ---------
"Person" means any individual, corporation, partnership, joint venture,
------
association, limited liability company, joint stock company, estate, trust,
unincorporated organization or other business entity or Governmental Authority.
"Phase-In Period" has the meaning set forth in Section 1.2 of the Cash
---------------
Management Procedures.
"Plan(s)" means an employee benefit or other plan established or
-------
maintained by the Borrower or any ERISA Affiliate or to which the Borrower or
any ERISA Affiliate makes or is obligated to make contributions and which is
covered by Title IV of ERISA or Section 302 of ERISA or Section 412 of the IRC.
"Pledged Property" means the Properties and the other collateral in which a
----------------
security interest is being granted pursuant to the Security Documents.
"Potential Event of Default" means an event which, with the giving of any
--------------------------
applicable notice and/or lapse of any applicable time period, would become an
Event of Default.
"Principal Payment" has the meaning set forth in the Note.
-----------------
"Property" or "Properties" means any or all of those 22 Residence Inn by
--------- ----------
Marriott hotels at the locations set forth in Exhibit E hereto, including all
---------
improvements thereon, fixtures thereto, direct interests therein, and personal
property related thereto or included therein; provided, however, that "Property"
-------- -------
or "Properties" shall not include (i) any property owned by tenants,
guests, licensees or concessionaires of or to such Property or Properties, or
(ii) any Property or Properties released from the Lien of the Security Documents
pursuant to the provisions of this Agreement or any Security Document from and
after the date of such release.
"Property Agreements" means all material agreements, contracts and other
-------------------
documents not specifically referred to herein relating to the operation of the
Inns other than agreements for services performed by third parties which
services are generally available from other third parties and which agreements
can be terminated on not more than 30 days' prior notice without payment of any
damages or penalty.
"Purchase Money Security Interest" means purchase money mortgages or
--------------------------------
security interests, conditional sale arrangements and other similar security
interests on furniture, fixtures or equipment acquired by the Borrower in the
ordinary course of business (and not inconsistent with customary industry
practices), with the proceeds of the indebtedness secured thereby; provided,
--------
however, that (i) any Purchase Money Security Interest shall attach only to the
-------
furniture, fixtures or equipment acquired in such transaction (and any proceeds,
as defined in the Uniform Commercial Code, thereof), and (ii) such indebtedness
shall not exceed the cost of such furniture, fixtures or equipment.
"Quarterly Report" shall have the meaning set forth in 5.6(c)(i).
----------------
"Rating Agencies" means one or more of S&P, Fitch Investors Services Inc.
---------------
and DCR that are, at the time of determination, selected by NACC to rate the
Securities.
"Rating Comfort Letter" a letter from each Rating Agency pursuant to
---------------------
which it confirms that the taking of the action referred to therein will not
result in a withdrawal, qualification or reduction of the then existing ratings
of the Securities.
"Release Date" has the meaning set forth in Section 2.3(a)(i).
------------
"Release Price" means the amount of the proceeds of the Loan allocated to
-------------
each Property as set forth in Exhibit F annexed hereto. Release Prices will be
---------
adjusted as follows: If the principal amount of the Note is prepaid as a result
of (i) the release of a property pursuant to Section 2.6, (ii) the application
of U.S. Obligations pursuant to Section 2.3(g), or (iii) optional prepayment
pursuant to the last sentence of Section 3.1, the Release Price for each
Property shall equal the product of (x) a
fraction the numerator of which is the Release Price of such Property
immediately before such adjustment and the denominator of which is the aggregate
Release Prices for all Properties immediately before such adjustment, times (y)
the outstanding principal amount of the Note immediately after such adjustment.
"REMIC" has the meaning set forth in Section 2.3(a).
-----
"S&P" means Standard & Poor's Rating Services.
---
"Securities" has the meaning set forth in Section 6.1.
----------
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Securitization" has the meaning set forth in Section 6.1.
--------------
"Security Documents" means (a) the Mortgages, (b) the collateral
------------------
assignment of documents and property rights, dated as of the Closing Date, by
the Borrower to the Lender, (c) the assignment of leases, rents and profits,
dated as of the Closing Date, by the Borrower to the Lender, (d) the collateral
account agreement, dated as of the Closing Date, among the Servicer, the
Borrower and the Lender, (e) the Environmental Indemnity Agreement, (f) all
Uniform Commercial Code financing statements relating to the Debt and (g) any
other documents securing the Debt.
"Servicer" means Amresco Inc., a Texas corporation, its assigns and
--------
successors and any other nationally recognized servicer of commercial mortgage
loans selected by the Lender.
"Servicing Expenses" has the meaning set forth in Section 4.3(A)(i) of the
------------------
Cash Management Procedures.
"Subsidiary" means Bossier RIBM Two LLC.
----------
"Subsidiary Inn" means the Residence Inn by Marriott hotel owned by the
--------------
Subsidiary.
"Subordinate Debt" means Indebtedness incurred after March 21, 1998 that is
----------------
expressly subordinate in right of payment to the Debt pursuant to the provisions
of the Mortgages and with respect to which evidence is provided satisfactory to
the Lender that the pro forma Debt Service Coverage Ratio on its date of
--- -----
issuance (the "Issuance Date") is at least 2:1 and as to which the Rating
Agencies deliver a Rating Comfort Letter. For the purpose of calculating such
Debt Service Coverage Ratio, Debt Service Expense
shall be the aggregate amount of scheduled interest and principal payable on the
proposed subordinate indebtedness and any other Indebtedness secured by any
assets of the Borrower.
"Substantive Consolidation Opinion" has the meaning set forth in Section
---------------------------------
6.1(b).
"Successor Entity" has the meaning set forth in Section 2.3(e).
----------------
"Tax and Insurance Account" means the escrow accounts provided for in
-------------------------
Section 5.1 of the Cash Management Procedures.
"Third Party Payors" has the meaning set forth in Section 1.2(ii) of the
------------------
Cash Management Procedures.
"Transaction Documents" means this Agreement, the Security Documents, the
---------------------
Note and all other documents executed and delivered by the Borrower in favor of
the Lender in connection with the Loan, including, without limitation, all
agreements, instruments and documents pursuant to which the Pledged Property is
assigned, collaterally assigned and/or pledged to the Lender hereunder.
"Transition Period" has the meaning set forth in Section 7.1.2(ii) of the
-----------------
Cash Management Procedures.
"Triggering Event" has the meaning set forth in Section 5.6(c).
----------------
"Trustee" means the trustee to which NACC assigns its interest in the
-------
Transaction Documents in connection with a Securitization.
"U.S. Obligations" has the meaning set forth in Section 2.3(f).
----------------
"USAH" means the Uniform System of Accounts for Hotels, Eighth Edition, or
----
any other subsequent edition as may be determined by the accountants for the
Borrower to be applicable to the operations of the Borrower, or if USAH is no
longer published, GAAP.
"United States" means the United States of America (including the States
-------------
and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"Welfare Plan" means an employee welfare benefit plan, as defined in
------------
Section 3(1) of ERISA.
"Work" has the meaning set forth in Section 8.1 of the Cash Management
----
Procedures.
"Yield Maintenance Premium" shall mean an amount in cash that would be
-------------------------
necessary to purchase U.S. Obligations in an amount that would be sufficient,
together with U.S. Obligations that could be purchased with the unpaid principal
of and accrued interest on the Note paid to the Lender upon an acceleration of
the Note pursuant to Section 4.2, to provide the payments due on or prior to,
but as close as possible to, all successive Debt Service Payment Dates after the
receipt of such amount in respect of (i) the remaining Monthly Debt Service
Payments that would be required under the Note through and including April 11,
2006 and (ii) a balloon payment of the outstanding principal balance of the Note
and accrued and unpaid interest as of such date as if such balloon payment were
then due and payable.
ARTICLE II
PROVISIONS CONCERNING THE ACCOUNTS AND PLEDGED PROPERTY
Section II.1 Cash Management Procedures
--------------------------
The provisions of Exhibit B are incorporated herein by reference.
---------
Section II.2 Right to Contest. To the extent consistent with the
----------------
Mortgages, the Borrower at its expense may contest, by appropriate Action
conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or Lien therefor or any
Legal Requirement or Insurance Requirement or the application of any instrument
of record affecting the Pledged Property or any part thereof or any claims or
judgments of mechanics, materialmen, suppliers or vendors or Liens therefor, and
may direct the Manager or the Servicer, as the case may be, to withhold payment
of the same pending such Action if permitted by law; provided, however, that (a)
-------- -------
in the case of any Impositions or Liens therefor or any claims or judgments of
mechanics, materialmen, suppliers or vendors or Liens therefor, such Action
shall suspend the enforcement thereof and the accrual of penalties thereon from
the Borrower, the Manager, the Servicer and the Pledged Property, (b) neither
the Pledged Property nor any part thereof or interest therein could be in any
danger of being sold, forfeited or lost if the Borrower pays the amount or
satisfies the condition being contested, and the Borrower would
have the opportunity to so pay or satisfy if the Borrower fails to prevail in
the contest and (c) in the case of an Insurance Requirement, the failure of the
Borrower to comply therewith shall not impair the validity of any insurance
required to be maintained by the Borrower under the applicable Mortgage or the
right to full payment of any claims thereunder.
Section II.3 Defeasance.
----------
(a) At any time after the date which is the earlier of (i) two years after
the "startup day," within the meaning of Section 860G(a)(9) of the IRC, of a
"real estate mortgage investment conduit," within the meaning of Section 860D of
the IRC (a "REMIC"), that holds the Note (if the Note has been transferred to a
-----
REMIC prior to March 22, 1998) and (ii) March 22, 2000, but prior to the
Optional Prepayment Date, and provided no Event of Default has occurred and is
continuing (other than an Event of Default that will be cured by the release of
a Property or Properties from the Lien of the Security Documents pursuant to the
provisions of clause (e) of Section 4.1A), the Borrower may defease such Lien to
cause the release of one or more Properties from such Lien by providing the
Lender with funds in an amount sufficient to purchase U.S. Obligations in an
amount equal to the Defeasance Deposit for that portion of the Note which the
Borrower wishes to defease, upon the satisfaction of the following conditions:
(i) not less than 30 days' notice to the Lender specifying a Debt
Service Payment Date (the "Release Date") on which the Defeasance Deposit is to
------------
be made;
(ii) the payment to the Lender of interest accrued and unpaid on the
principal balance of the Note and all other Debt due through and including the
Release Date;
(iii) the payment to the Lender of the Defeasance Deposit; and
(iv) the delivery to the Lender of:
(A) a security agreement (the "Defeasance Security Agreement"),
-----------------------------
in form and substance satisfactory to the Lender, creating a
first priority perfected security interest in favor of the
Lender in the Defeasance Deposit and the U.S. Obligations
purchased with the Defeasance Deposit in accordance with
this
subsection (a) (together, the "Defeasance Collateral");
---------------------
(B) form(s) of release of the Property(ies) to be released from
the Lien of the Security Documents (for execution by the
Lender) appropriate for the jurisdiction(s) in which such
Property(ies) are located;
(C) an Officer's Certificate certifying that the requirements
set forth in subsections (a) (ii)-(iv) have been satisfied;
(D) an opinion of counsel for the Borrower (which may be a
"reasoned" opinion), in form and substance satisfactory to
the Lender, that (i) the transfer of the Defeasance
Collateral in exchange for release(s) of the Property(ies)
to be released will not constitute an avoidable preference
under Section 547 of the United States Bankruptcy Code in
the event of a filing of a petition for relief under the
United States Bankruptcy Code for or against the Borrower,
(ii) the Defeasance Collateral has been duly and validly
assigned and delivered to the Trustee for the benefit of the
holders of the Securities, (iii) the Trustee holds a first
priority perfected security interest in the Defeasance
Collateral for the benefit of such holders, (iv) such
transfer will not result in a deemed exchange of the
Securities pursuant to Section 1001 of the IRC, (v) such
transfer will not, by itself, adversely affect the status of
the Securities as indebtedness for federal income tax
purposes and (vi) such transfer will not adversely affect
the status of the entity holding the Debt as a REMIC
(assuming for such purposes that such entity otherwise
qualifies as a REMIC and that the Note was transferred to
such REMIC not later than two years prior to the Release
Date);
(E) a certificate of a certified public accountant acceptable to
the Lender that the Defeasance Collateral complies with the
requirements set forth in subsection (b) below;
(F) such other certificates, documents or instruments as the
Lender may reasonably request;
(G) evidence satisfactory to the Lender that the Defeasance Debt
Service Coverage Ratio will be maintained for the twelve
full months commencing immediately after the Release Date at
the greater of (x) the Initial Debt Service Coverage Ratio
and (y) the ratio of the Net Operating Income for the
thirteen (13) full Accounting Periods next preceding the
Release Date divided by the difference between (i) Debt
Service Expense for such period and (ii) the payments
received for such period from or with respect to U.S.
Obligations purchased by the Lender with the Defeasance
Deposits paid to it by the Borrower pursuant to this Section
2.3(a) and then held as security for the Note for such
period; and
(H) If the defeasance is made after the Securitization, the
Rating Agencies deliver a Rating Comfort Letter.
(b) If, following the release of the subject Property(ies), less than all
of the Properties shall have been released, the Lender shall use the Defeasance
Deposit to purchase U.S. Obligations that provide payments on or prior to, but
as close as possible to, all successive Debt Service Payment Dates after the
Release Date equal to the sum of (i) 125% of the portion of the P&I Payments due
on such Debt Service Payment Dates allocable to the Property(ies) to be released
from the Lien of the Security Documents on such Release Date (determined, pro
---
rata, on the basis of the Release Prices) through and including the Optional
----
Prepayment Date and (ii) 125% of the amount allocable to such Property(ies)
(determined, pro rata, on the basis of the Release Prices) of a balloon payment
--- ----
equal to the outstanding principal balance of the Note, and accrued and unpaid
interest thereon, that would remain unpaid as of the Optional Prepayment Date as
if such balloon payment were then due and payable. If a Property is released
pursuant to this Section 2.3 as a result of a condemnation or casualty, the
payments provided for in the preceding sentence shall be equal to the greater of
(A) the Release Price and (B) the lesser of (x) the Defeasance Deposit and (y)
the net Condemnation Proceeds or the net Insurance Proceeds received on account
of such
Property. The Lender shall deliver such U.S. Obligations to the Servicer
for application pursuant to Sections 4.3(A) and 7.9(A) of the Cash Management
Procedures.
(c) If, as a result of the release of the subject Property(ies), all of
the Properties shall have been released, the Lender shall use the Defeasance
Deposit to purchase U.S. Obligations that provide, together with any U.S.
Obligations purchased in connection with any prior releases of Properties,
payments on or prior to, but as close as possible to, all successive Debt
Service Payment Dates after the Release Date equal to the sum of (i) the
remaining Monthly Debt Service Payments (such Monthly Debt Service Payments due
on such Debt Service Payment Dates being herein referred to as the "P&I
---
Payments") that would be required under the Note through and including the 120th
--------
Debt Service Payment Date and (ii) a balloon payment of the outstanding
principal balance of the Nothe applicable Rating Agencies.
(d) For purposes of this Section 2.3, "Defeasance Deposit" shall mean an
------------------
amount in cash necessary to purchase U.S. Obligations whose cash flows are in an
amount sufficient to make the P&I Payments required under subsections (b) or
(c), as the case may be, plus any costs and expenses incurred or to be incurred
in making such purchase; "U.S. Obligations" shall mean obligations or securities
----------------
not subject to prepayment, call or early redemption which are direct obligations
of, or obligations fully guaranteed as to timely payment by, the United States
of America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America; and "Defeasance Debt Service Coverage Ratio" shall mean, in
--------------------------------------
respect of any fiscal period, the ratio of (i) Net Operating Income of the
Properties for such period remaining after a defeasance pursuant to this Section
2.3 to (ii) the difference between (x) Debt Service Expense for such period and
(y) the payments to be received from or with respect to U.S. Obligations then
held as security for the Note for such period.
(e) If the payment of accrued and unpaid interest and principal of the
Note and any other Debt has not been made in full by the Optional Prepayment
Date, payments from or with respect to U.S. Obligations then held by the Lender
and such payments received by the Lender thereafter shall be applied on the date
such payment is received (i) first, to payment of accrued and unpaid interest on
the Note and (ii) second, to prepayment of the Principal Payments in inverse
order of maturity.
(f) Notwithstanding the provisions of subsection (a) of this Section
2.3, the Borrower may defease the Lien of the Security Documents to cause the
release of a Property for the purpose set forth in clause (e) of Section 4.1A
prior to the date set forth in such subsection (a) if it provides to the Lender
an opinion in form and substance, and from a firm, acceptable to the Lender, in
the exercise of its sole discretion, that such release will not adversely affect
the status of the entity holding the Debt as a REMIC (assuming for such purpose
that such entity otherwise qualifies as a REMIC).
Section II.4 Sale of all the Properties. Provided that no Event of
--------------------------
Default has occurred and is continuing, upon at least 60 days' notice to the
Lender, the Borrower has the right to sell all the Properties, subject to the
Debt, to any Person so long as such Person is approved by the Lender, and, after
the Securitization, by the Lender, such approval not to be unreasonably
withheld, and the Rating Agencies deliver a Rating Comfort Letter. It is
understood that the Rating Agencies may require, as a condition to such
delivery, matters equivalent to those contained in clauses (i) and (ii) of
Section 2.5. Upon such approval and delivery, the Lender shall deliver to the
Borrower for execution and delivery such instruments as may be reasonably
required to effect an assignment and assumption of the Debt and a release of the
obligations of the Borrower under the Transaction Documents, including, without
limitation, a new Note as to which the purchaser of the Properties shall be the
obligor, in a principal amount equal to the then outstanding principal amount of
the Note.
Section II.5 Change of Control. There shall be no Change of Control;
-----------------
provided, however, that if no Event of Default has occurred and is continuing
-------- -------
there can be a Change of Control if (i) the Borrower submits to the Lender an
opinion in form and substance and from a firm satisfactory to the Lender, with
respect to the requested Change of Control, to the same effect as the
Substantive Consolidation Opinion, (ii) the organizational documents of the
Person involved in the requested Change of Control are approved by the Lender
and (iii) after the Securitization, the Rating Agencies deliver a Rating Comfort
Letter.
Section II.6 Partial Release after the Optional Prepayment Date. On
--------------------------------------------------
any Debt Service Payment Date after the Optional Prepayment Date, upon the sale
of any Property to any Person, the Borrower may cause the release of such
Property from the Lien of
the Security Documents upon the satisfaction of the following conditions:
(a) not less than 30 days' notice to the Lender specifying a Debt
Service Payment Date on which the amount set forth in clause (c) below is to be
provided to the Servicer which notice shall be accompanied by an Officer's
Certificate to the effect that no Potential Event of Default or Event of Default
has occurred and is continuing (or in the case of a Potential Event of Default
or Event of Default that shall be cured or avoided by the release of the
affected Propert(ies)) describing the nature of the Potential Event of Default
or Event of Default and certifying that such Potential Default or Event of
Default shall be cured by the release and that no other Potential Event of
Default or Event of Default has occurred and is continuing) and that such
Release will comply with all applicable requirements of this Section 2.6;
(b) the payment to the Lender of interest accrued and unpaid on the
principal balance of the Note and all other sums due under the Transaction
Documents, through and including such Debt Service Payment Date;
(c) the payment to the Lender, to be applied to prepayment of the
Principal Payments in inverse order of maturity, of an amount equal to 125% of
the Release Price of such Property; provided, however, that if a Property is
-------- -------
released pursuant to this Section 2.6 as a result of a condemnation or casualty,
such payment shall be an amount equal to the greater of (a) the Release Price
for such Property and (b) the lesser of (x) 125% of such Release Price and (y)
the net Condemnation Proceeds or net Insurance Proceeds received on account of
such Property;
(d) delivery to the Lender for execution of forms of release of such
Property from the Lien of the Security Documents appropriate for the
jurisdiction in which such Property is located; and
(e) delivery to the Lender of evidence satisfactory to the Lender that
the Debt Service Coverage Ratio will be maintained for the twelve full months
commencing after the release date at the greater of (x) the Initial Debt Service
Coverage Ratio and (y) the ratio of the Net Operating Income for the thirteen
Accounting Periods next preceding the release date divided by the difference
between (i) Debt Service Expense for such period and (ii) the payments received
from U.S. Obligations purchased by the Lender with the Defeasance Deposits, if
any, delivered to it by the
Borrower pursuant to Section 2.3(a) and then held as security for the Note for
such period.
Section II.7 Bossier Reserve Account
-----------------------
(a) On the Closing Date the Servicer will establish a segregated
deposit account (the "Bossier Reserve Account") in its name on behalf of the
-----------------------
Lender at LaSalle National Bank or another bank selected by the Lender. The
Bossier Reserve Account shall be an Eligible Account. The Borrower shall deposit
directly into the Bossier Reserve Account the annual sum of $250,000 prior to
March 11, 1997 and March 11 of each subsequent 12-month period thereafter
through and including the later to occur of (A) March 11, 2006 and (B) if funds
from the NACC Account have been provided to the Borrower pursuant to the
provisions of subsection (c) below, the date such funds are reimbursed to NACC
by the Borrower. If there is a shortfall in such annual sum required to be
deposited prior to any date referred to above, the Borrower hereby directs the
Servicer to fund such shortfall in the Bossier Reserve Account through the use
of all amounts which the Borrower is entitled to receive on each Debt Service
Payment Date from the Servicer after the applicable March 11 pursuant to
Sections 4.3(F) and 7.9(C) of the Cash Management Procedures.
(b) The Servicer shall invest amounts in the Bossier Reserve Account in
Permitted Investments that have a maturity of not more than one year. The
Servicer shall remit to the Borrower monthly all interest received with respect
to such Permitted Investments.
(c) The Borrower may request the Servicer to sell such of the Permitted
Investments as may be required to provide to the Borrower funds necessary to
satisfy a liability described in clause (ii) of Section 5.6(c); provided,
--------
however that the Borrower may not make such request unless and until the
-------
Borrower has applied or caused to be applied to satisfy such liability: (i)
first, the Operating Profit (as such term is defined in the management agreement
between the Manager and the Subsidiary) of the Subsidiary after deduction of (y)
reasonable reserves established by the Subsidiary in connection with the
operations of the Subsidiary Inn (z) incentive management fees paid, and manager
loans repaid, to the Manager pursuant to such management agreement and (ii)
next, the net sales proceeds from the sale of the Subsidiary Inn unless the
Subsidiary Inn cannot be sold despite the Subsidiary's good faith efforts. In
connection with any such request, a senior officer of the General Partner shall
certify to the Servicer the accuracy of the conditions to such request set forth
herein. If, after the use by the Borrower of the amounts set forth in the
preceding clauses (i)
and (ii) and the amounts available from the Bossier Reserve Account, there
remains a shortfall in the funds required to satisfy such liability as certified
to the Servicer by such senior officer, the Borrower shall notify NACC of such
shortfall and NACC shall direct the Servicer to sell such of the Permitted
Investments in the NACC Account as shall be designated by NACC and as may be
required to provide to the Borrower the amount of such shortfall. The Borrower
will apply any amount received from the NACC Account solely for the purposes
contemplated by this subsection (c).
(d) The Servicer shall deliver to the Borrower the funds and the
Permitted Investments contained in the Bossier Reserve Account upon
certification by NACC to the Servicer that there are no obligations of the
Borrower to NACC pursuant to Section 5 of that certain Letter Agreement, dated
the Closing Date, among the Borrower, NACC and the Servicer and the earlier to
occur of: (y) the repayment of the Loan or (z) receipt by the Servicer of (i) an
opinion in form and substance and from counsel satisfactory to the Servicer to
the effect that the Borrower has received a written determination by the United
States Environmental Protection Agency, the Louisiana Department of
Environmental Quality or such other agency as may hereafter have jurisdiction
over the property described by the United States Environmental Protection Agency
in HRS Documentation Record dated January 21, 1995 as the old "Citgo Refinery
(Bossier City)" (the "Citgo Refinery Site") that no further remedial activities
-------------------
are required at the Citgo Refinery Site and the applicable statute of
limitations for contribution or other actions with respect to the Citgo Refinery
Site against the Subsidiary and the Borrower has expired and (ii) the delivery
by the Rating Agencies of a Rating Comfort Letter, it being understood that such
letter shall be based upon the Rating Agencies determination that the opinion
referred to in clause (i) is in form and substance and from counsel satisfactory
to the Rating Agencies.
ARTICLE III
PAYMENTS
Section III.1 Payments on the Note. All payments made on the Note
--------------------
shall be made in the manner, and subject to the conditions, provided in this
Agreement and the Note. The Note shall not be prepayable except as expressly
provided for in this Section 3.1, Section 2.6 and Sections 4.4(F) and 7.10(C) of
the Cash Management Procedures. In addition, on the Optional Prepayment Date and
each Debt Service Payment Date thereafter, the Note may be prepaid, at the
option of the Borrower, in full or in part, without penalty or premium.
Section III.2 Interest. The Note shall bear interest as provided
--------
therein.
Section III.3 Payments without Deduction, etc. All payments of the
--------------------------------
Debt to the Lender shall be absolute and unconditional, shall be paid strictly
in accordance with the terms of the Transaction Documents without being subject
to any claim, set-off, defense or other right which the Borrower may have
against the Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any other circumstance or
happening whatsoever. The Borrower shall pay such payments to the Lender free
and clear of, and without deduction for, any and all present or future taxes,
levies, imposts, deductions, charges, penalties or withholdings, and any
liabilities with respect thereto, by whomever imposed, other than present or
future taxes on the income of the Lender or franchise taxes imposed on the
Lender as a result of its conducting business in specific jurisdictions. The
Borrower shall pay and indemnify and hold the Lender harmless from and against,
any present or future claim for liability for United States, state or local
taxes on the ownership by the Lender of the debt obligations of the Borrower
evidenced by the Note, the Mortgages or on the principal, interest, fees or
other amounts payable under any Transaction Document or otherwise in respect of
the Debt (other than income or franchise taxes imposed on the Lender or its
Affiliates by any jurisdiction). The obligations of the Borrower hereunder shall
survive repayment of the Debt and termination of the Transaction Documents.
ARTICLE IV
DEFAULT; REMEDIES; ENFORCEMENT
Section IV.1A Events of Default. Any of the following shall constitute a
-----------------
default under this Agreement (an "Event of Default"):
----------------
(a) failure by the Borrower to pay on the due date any interest or
principal due and payable on the Note as set forth therein; or
(b) failure by the Borrower to make any other payment due under any
Transaction Document within ten (10) days after demand therefor shall have been
made; or
(c) any representation or warranty of the Borrower contained in any
Transaction Document shall have been untrue or incorrect when made in any
respect that may have a Material Adverse Effect; provided, however, that for the
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purpose of this clause (c) the words "To the Best Knowledge of the Borrower"
shall be deleted, where used, from the provisions of each representation and
warranty contained in Section 5.1.
(d) failure by the Borrower to perform its covenants in Section 5.2(d),
and such failure continues unremedied for ten days after notice thereof by the
Lender to the Borrower requiring the same to be remedied; or
(e) failure by the Borrower to perform or observe any other of its
covenants under any Transaction Document that has a Material Adverse Effect, and
such failure continues unremedied for 30 days after notice thereof by the Lender
to the Borrower requiring the same to be remedied; provided, however, that it
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shall not be an Event of Default if (a) such failure is curable but is not
reasonably capable of being cured within such 30-day period and the Borrower
shall have commenced to cure such failure within such 30-day period and
thereafter shall diligently pursue such cure to completion, but in no event
later than 180 days after the date on which the Borrower received such written
notice from the Lender or (b) such failure affects one or more but not all of
the Properties and the Borrower, within thirty (30) days after the Borrower's
receipt of such notice from the Lender, gives notice to the Lender of its intent
to release such Property from the Lien of the Security Documents pursuant to the
provisions of Section 2.3 or 2.6 and, thereafter diligently pursues efforts to
take such action and, within 180 days after the date on which the Borrower
received such written notice from the Lender, effects such release pursuant to
the provisions of Section 2.3 or 2.6, as the case may be; or
(f) an order (that has not been vacated or stayed within 60 days from the
entry thereof) is made for, or the Partners take any action with regard to, the
winding up of the Borrower or the General Partner except a winding up for the
purpose of a merger, restructuring or contribution, the terms of which have
previously been approved in writing by the Lender; or
(g) (A) the Borrower or the General Partner shall commence any Action (1)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors
(collectively, "Insolvency Law") seeking to have an order for relief entered
--------------
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (2)
seeking appointment of a receiver, trustee, custodian or other similar official
(each a "Bankruptcy Custodian") for it or for all or substantially all of its
--------------------
assets, or the Borrower or the General Partner shall make a general assignment
for the benefit of its creditors; or (B) there shall be commenced against the
Borrower or the General Partner any Action of a nature referred to in clause (A)
above which (1) results in the entry of any order for relief or any such
adjudication or appointment and (2) remains undismissed, undischarged or
unbonded for a period of 60 days; or (C) there shall be commenced against the
Borrower or the General Partner any Action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or substantially
all of its assets which results in the entry of an order for any such relief
that shall not have been vacated, discharged, stayed, satisfied or bonded
pending appeal within 60 days from the entry thereof; or (D) the Borrower or the
General Partner shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(h) Unless (a) the Borrower causes all of the Properties then owned by the
Borrower to come under management by another nationally recognized hotel
operator acceptable to the Lender, in the exercise of its reasonable discretion,
(b) such Properties are operated as part of a comparable nationally recognized
hotel system acceptable to the Lender and (c) each of the Rating Agencies
delivers to the Lender a Rating Comfort Letter with respect thereto: (A) the
Manager shall commence any Action (1) under any Insolvency Law seeking to have
an order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (2) seeking appointment of a Bankruptcy Custodian for it or for all or
substantially all of its assets, or the Manager shall make a general assignment
for the benefit of its creditors; or (B) there shall be commenced against the
Manager any Action of a nature referred to in clause (A) above which (1) results
in the entry of any order for relief or any such adjudication or appointment and
(2) remains undismissed, undischarged or unbonded for a period of 60 days; or
(C) there shall be commenced against the Manager any Action seeking issuance of
a warrant of attachment, execution, distraint or similar process against all or
substantially all of its assets which results in the entry of an order for any
such relief that shall not have been vacated, discharged, stayed, satisfied or
bonded pending appeal within 60 days from the entry thereof; or (D) the Manager
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due;
(i) one or more judgments or decrees, not covered by insurance, in an
aggregate amount exceeding $2,000,000 shall be entered against the Borrower or
the General Partner, and such judgments or decrees shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within 60 days from the
entry thereof; or
(j) there is a Change of Control, unless permitted under Section 2.5.
Section 4.1B Event of Default Cure. None of the foregoing shall
---------------------
constitute an Event of Default if after the occurrence thereof, the Borrower
tenders a cure for such Event of Default or a plan to cure such Event of Default
and the Lender accepts such tender, such acceptance to contain such conditions
as the Lender, in the exercise of its sole discretion, may require. If the
Borrower tenders to the Lender all sums, the non-payment of which constituted an
Event of Default under clauses (a) or (b) of Section 4.1A, and the Lender
accepts such sums (which shall be evidenced by Lender's failure to return such
sums to the Borrower within 15 days from the date of Lender's receipt thereof),
such non-payment shall not constitute an Event of Default. If the Lender does
not accept any such payment or tender, the Event of Default shall be continuing.
If the Lender fails to respond to the Borrower within 30 days of its receipt of
such tender, it shall be deemed to be rejected.
Section IV.2 Remedies. If an Event of Default shall have occurred and be
--------
continuing, the Lender shall have the right, in its sole discretion, by notice
to the Borrower (with a copy to the Manager) (except upon the occurrence of an
Event of Default under clauses (f) or (g) of Section 4.1A, in which case all
principal and accrued interest thereon will be immediately due and payable on
the Note without any declaration or other act on the part of the Lender) to take
one or more of the following actions:
(a) To declare the principal of and all amounts accrued but unpaid under
the Note and the Transaction Documents, together with the Yield Maintenance
Premium, to be immediately due and payable, and such amounts shall thereupon
become immediately due and payable, without presentment, demand, protest or
notice of any kind, other than any notice specifically required by this Section
4.2, all of which are hereby expressly waived by Borrower;
(b) Pursue such rights and remedies against the Borrower, or otherwise, as
are provided under and pursuant to the Mortgages or any of the other Transaction
Documents and as may be available to the Lender at law or in equity, including,
without limitation, during such time as the Lender may be considering a tender
of a cure or a plan pursuant to Section 4.1B; provided, however, that the Lender
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shall not initiate foreclosure proceedings unless five (5) Business Days' prior
notice of such intention is given to Borrower and the tender of a cure or a plan
therefor shall not have been accepted by the Lender pursuant to the provisions
of Section 4.1B before the end of such 5 Business Day period; and
(c) If the Event of Default involves the Borrower's failure to pay any
Imposition or to comply with the Insurance Requirements, or to perform or
observe any other covenant, condition or term in any Transaction Document or in
the Management Agreement, the Lender may, at its option, without waiving or
affecting any of its rights or remedies hereunder, pay,perform or observe the
same, and, in connection therewith, the Lender shall be entitled to rely on any
representations and statements of the Manager under the Management Agreement in
regard to alleged breaches or violations thereof, and all payments made or costs
or expenses incurred by the Lender in connection therewith shall be repaid by
Borrower to the Lender within fifteen (15) days after demand therefor, and shall
be added to and become a part of the Debt. The Lender is hereby empowered to
enter and to authorize others to enter upon any Property for the purpose of
performing or observing any such defaulted covenant, condition or term, without
thereby becoming liable to Borrower or any Person in possession holding under
Borrower.
Section IV.3 Remedies Cumulative; Delay or Omission Not a Waiver. To the
---------------------------------------------------
extent permitted by law, every remedy given hereunder or in any other
Transaction Document to the Lender shall not be exclusive of any other remedy or
remedies, and every such remedy shall be cumulative and in addition to every
remedy provided by statute, law, equity or otherwise. The Lender may exercise
all or any of the powers, rights or remedies given to it hereunder or which may
be now or hereafter given by statute, law, equity or otherwise, in its absolute
discretion. No course of dealing between the Borrower and the Lender or any
delay or omission of the Lender to exercise any power, right or remedy accruing
upon any Event of Default shall impair any power, right or remedy or shall be
construed to be a waiver of any such Event of Default or acquiescence therein,
and every power, right and remedy given by each Transaction Document to the
Lender may, to the extent permitted by law, be exercised from time to time and
as often as may be deemed expedient by the Lender.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section V.1 Representations and Warranties of the Borrower. The Borrower
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represents and warrants to, and covenants with the Lender, that, as of the
Closing Date, except as set forth on the Disclosure Schedule:
(a) Exhibit G hereto sets forth the organizational structure of the
---------
Borrower, and the equity interests and holders therein. The Borrower is a
limited partnership validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business in each jurisdiction where the
nature of its business or location of the Properties requires it to be so
qualified; the General Partner is a corporation validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
in each jurisdiction where the nature of its business or location of the
Properties requires it to be so qualified. Neither the General Partner nor the
Borrower has engaged in any business unrelated to the ownership of the
Properties. Neither the General Partner nor the Borrower has assets other than
those related to the Properties.
The Subsidiary is a limited liability company validly existing and in good
standing under the laws of the State of Delaware and will be qualified to do
business in Louisiana as soon as possible after the Closing Date; the Managing
Member is a corporation
validly existing and in good standing under the laws of the state of Delaware.
The Subsidiary was organized in March 1996 and since such date has not engaged
in any business unrelated to the ownership of the Residence Inn by Marriott
located in Bossier City, Louisiana. All of the capital stock of the Managing
Member and 99% of the membership interests in the Subsidiary is held of record
and beneficially by the Borrower.
(b) The Borrower has, and at relevant times has had, the requisite power
and authority to own its assets and conduct its business, to execute and deliver
each of the Transaction Documents and all Operational Agreements to which the
Borrower is a party and to carry out the transactions contemplated thereby.
(c) The execution, delivery and performance by the Borrower of (i) each
of the Transaction Documents and (ii) the Operational Agreements to which the
Borrower is a party have been duly and validly authorized by all necessary
actions and proceedings on the part of the General Partner and the Borrower, and
no further approvals or filings of any kind, including, without limitation, any
approval of or filing with any Governmental Authority, are required as a
condition thereto.
(d) Neither the execution and delivery of each of the Transaction
Documents and the Operational Agreements, nor the fulfillment of or compliance
with the terms and conditions thereof:
(i) will conflict with or result in any breach or violation of any
law, rule or regulation issued by any Governmental Authority,
or any judgment or order applicable to the Borrower, the
General Partner, the Subsidiary or the Managing Member or to
which the Borrower, the General Partner, the Subsidiary or the
Managing Member or any of the Properties or the Subsidiary Inn
are subject;
(ii) will conflict with or result in any breach or violation of, or
constitute a default under, any of the provisions of the
Amended and Restated Agreement of Limited Partnership of the
Borrower, the Restated Certificate of Incorporation of the
General Partner, the Limited Liability Company Agreement of the
Subsidiary or the Certificate of Incorporation of the Managing
Member or any agreement or instrument to which the Borrower,
the General Partner, the Subsidiary or the Managing Member is a
party or to which the Borrower, the
General Partner the Subsidiary or the Managing Member or any
of the Properties is subject; or
(iii) will result in or require the creation of any Lien on any of
the Properties or the Subsidiary Inn, except Permitted
Exceptions.
(e) Each of (i) the Transaction Documents and (ii) the Operational
Agreements to which the Borrower is a party, and, to the Best Knowledge of the
Borrower, each of the Operational Agreements, if any, to which the Borrower is
not a party, has been duly executed and delivered by the Borrower and to the
Best Knowledge of the Borrower, the other parties thereto and constitutes the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms subject to the effects of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and general equitable principles (whether
considered in a proceeding in equity or at law).
(f) There is no Action pending to which the Borrower, the General
Partner, the Subsidiary or the Managing Member is a party or to which any
Property is subject, directly or indirectly, and, to the Best Knowledge of the
Borrower and, based on a certification to the Borrower by the Manager, of the
Manager, no such Action is threatened or contemplated by any Person, in each
case, other than an Action that does not involve an amount in controversy in
excess of $25,000.
(g) Neither the Borrower nor the Subsidiary has received notice of, and
does not have any knowledge of, any violations of any Legal Requirements
affecting any Property or the construction, development, use, operation,
maintenance or management thereof, except as set forth in the Exhibits and
Schedules to this Agreement.
(h) Neither the Borrower, the General Partner, the Subsidiary nor the
Managing Member has any subsidiaries, except that the Borrower is a 99% member
of the Subsidiary and the 100% shareholder of the Managing Member and the
Managing Member is a 1% member of the Subsidiary.
(i) Except for the Debt, since September 20, 1988, the Borrower has not
incurred Indebtedness other than Purchase Money Security Interests; since its
date of formation, the Subsidiary has not incurred any Indebtedness.
(j) Neither the Borrower nor the Subsidiary has any employees.
(k) True and complete copies of the Operational Agreements (including all
amendments, agreements, side letters and all other material documents relating
thereto other than those effected in the ordinary course of business and which
individually or in the aggregate do not have an Individual Material Adverse
Effect) have been made available to the Lender; each such agreement is
unmodified and in full force and effect; to the Best Knowledge of the Borrower,
there is no default by any party thereunder; and no event has occurred and is
continuing which, with the passage of time and/or the giving of notice, would
constitute a default or event of default by the Borrower thereunder in such
circumstances that such default or event of default might have an Individual
Material Adverse Effect. All necessary consents to the transactions described in
the Transaction Documents required by such agreements have been obtained. Since
its inception, neither the Borrower nor the General Partner has entered into any
agreements or obligations other than the Transaction Documents and the
Operational Agreements.
(l) All necessary governmental consents, if any, to the transactions
described in the Transaction Documents have been obtained.
(m) The Operating Budget annexed hereto as Exhibit H contains all
---------
anticipated operating expenses for the Properties for the year ending December
31, 1996. The Capital Budget annexed hereto as Exhibit I contains all
---------
anticipated Capital and FF&E Expenditures for the Properties for the year ending
December 31, 1996.
(n) All Permits material to the operations of each Property have been
obtained and are in full force and effect.
(o) Each Property has available to it adequate parking to comply with all
Legal Requirements and to permit the operation of the Property as a hotel
conforming to at least the standards applicable to Residence Inn by Marriott and
is in compliance with the Management Agreement.
(p) Neither the Borrower nor the Subsidiary is subject to any United
States or state income, unincorporated business, capital, franchise or similar
gross income or income based taxes.
(q) (i) Neither the Borrower, any ERISA Affiliate of the Borrower, the
Subsidiary nor any ERISA Affiliate of
the Subsidiary maintains, sponsors, contributes to or is
obligated to contribute to, or during the five (5) years ending
on the date of the execution and delivery of this Agreement,
has maintained, sponsored, contributed to or was obligated to
contribute to, any Plan.
(ii) The Borrower does not, and is not obligated to, maintain,
sponsor or contribute to any Welfare Plan.
(iii) The assets of the Borrower are not nor are they deemed "plan
assets", whether by operation of law or under regulations
promulgated under ERISA.
(r) The Borrower (1) has not entered into any Transaction Document with
the actual intent to hinder, delay, or defraud any creditor and (2) has received
reasonably equivalent value in exchange for its obligations under the
Transaction Documents. The fair saleable value of the Borrower's assets is
greater than the Borrower's probable liabilities, including the maximum amount
of its contingent liabilities or its debts as such debts become absolute and
matured. The Borrower's assets do not constitute unreasonably small capital to
carry out its business as conducted or as proposed to be conducted. The Borrower
does not intend to, and does not believe that it will, incur debts and
liabilities (including, without limitation, contingent liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
the Borrower).
(s) Neither the Borrower nor the Subsidiary has sustained any loss or
interference with its business from fire, explosion, flood or other calamity, or
from any labor dispute or governmental action, order or decree, nor has there
been any material adverse change, nor any other development or event that, in
each case, may have an Individual Material Adverse Effect.
(t) The Security Documents, when duly executed and delivered, and (to the
extent required or contemplated) filed or recorded, will create a valid and
enforceable first priority perfected security interest in the Borrower's right,
title and interest in and to the rights and properties described therein, as to
which perfection may be effected by such filing or recording, for the benefit of
the Lender, subject only to Permitted Exceptions.
(u) The Borrower is not (1) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, (2) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, nor (3) subject to any other federal or state
law or regulation which purports to restrict or regulate its ability to borrow
money.
(v) There exists no Event of Default or Potential Event of Default.
(w) To the Best Knowledge of the Borrower, no representation or warranty
by the Borrower made in any Transaction Document, and no schedule, exhibit,
certificate, written statement, list, document or other material furnished or to
be furnished to the Lender pursuant to or in connection with any Transaction
Document or any of the transactions contemplated thereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
(x) There is no offset, defense, counterclaim or right to rescission with
respect to the Note or the other Transaction Documents.
(y) All taxes and governmental assessments currently due and owing in
respect of, and affecting, the Properties, have been paid, or an escrow of funds
in an amount sufficient to cover such assessments has been established with the
Servicer or title insurance company.
(z) Except as set forth in the Disclosure Report, there is no Action
pending, or, to the Best Knowledge of the Borrower, for the total or partial
condemnation of any Property or the Subsidiary Inn, and except for ADA
Compliance Work, Deferred Maintenance Work and Environmental Remediation Work,
each Property is in good repair and free and clear of any damage that could
affect materially and adversely the value of such Property as security for the
Note or the use for which such Property was intended.
(aa) Insurance required to be maintained pursuant the Insurance
Requirements is in effect; and the Properties and the use and operation thereof
constitute a legal use under applicable zoning regulations and comply in all
respects with all applicable Legal Requirements.
(bb) To the Best Knowledge of the Borrower, the amounts deposited in the
Capital Expenditure and FF&E Reserve Account for ADA Compliance Work, Deferred
Maintenance Work and Environmental Remediation Work are sufficient for their
intended purposes.
(cc) None of the Properties is listed in or, to the Best Knowledge of the
Borrower and, based on a certification to the Borrower by the Manager, of the
Manager, proposed for listing in the United States Environmental Protection
Agency's National Priorities List of sites or any other comparable list of sites
maintained by any state or local governmental agency.
(dd) Except as set forth on the Disclosure Schedule, none of the
Properties is subject to any Lien or claim for Lien in favor of any Governmental
Authority or any other Person as a result of any Hazardous Substance (as such
term is defined in the Environmental Indemnity Agreement) on, in or affecting
the Property.
(ee) None of the Properties is subject to any collective bargaining or
other union contracts.
(ff) Each of the Borrower and the General Partner has (a) not sought or
consented to any dissolution, winding up, liquidation, consolidation, merger or
sale of all or substantially all of its assets, (b) not failed to correct any
known misunderstanding regarding its separate identity, (c) maintained its
accounts, books and records separate from any other person or entity, (d)
maintained its books, records, resolutions and agreements as official records,
(e) not commingled its funds or assets with those of any other person or entity
and has held its assets in its own name, (f) conducted its business in its name
(except that all the Properties are operated under the name "Residence Inn By
Marriott" or similar names), (g) maintained its financial statements, accounting
records and other entity documents separate from any other person or entity, (h)
paid its own liabilities out of its own funds and assets, (i) observed all
partnership and corporate formalities, as the case may be, (j) not assumed or
guaranteed or become obligated for the debts of any other person or entity or
held out its credit as being available to satisfy the obligations of any other
person or entity, (k) not acquired obligations or securities of its partners or
shareholders, as the case may be, except as set forth in the Disclosure Report,
(l) allocated fairly and reasonably any overhead for shared office space and
used separate stationery, invoices and checks from those of any entity, (m) not
pledged any of its assets for the benefit of any other person or entity, except
as set forth in the Disclosure Report, (n)
held and identified itself as a separate and distinct entity under its own name
and not as a division or part of any other person or entity, (o) not made any
loans to any person or entity, (p) not identified its partners or shareholders,
as the case may be, or any of its Affiliates as a division or part of it, or (q)
not entered into or become a party to any transaction with its partners or
shareholders, as the case may be, or its Affiliates except in the ordinary
course of its business and on terms which are fair and are no less favorable to
it than would be obtained in a comparable arm's length transaction with an
unrelated third party, (r) not filed a bankruptcy or insolvency petition or
otherwise instituted insolvency proceedings with respect to itself or to any
other entity in which it has a direct or indirect legal or beneficial ownership
interest, (s) maintained adequate capital in light of its contemplated business
operations, (t) not engaged in any business activity other than as stated in
Section 2.03 of the Amended and Restated Agreement of Limited Partnership of the
Borrower and Article THIRD of the Amended and Restated Certificate of
Incorporation of the General Partner, as the case may be and (u) maintained an
arms' length relationship with partners, affiliates and any other party
furnishing services to it.
(gg) The Permitted Exceptions do not materially and adversely affect (1)
the ability of the Borrower to pay in full the principal and interest on the
Note in a timely manner or (2) the use of any Property for the use currently
being made thereof, the operation of any Property as currently being operated or
the value of any Property.
(hh) [Intentionally omitted]
(ii) To the Best Knowledge of the Borrower, neither the Borrower nor the
Subsidiary has any material contingent liabilities.
(jj) Neither the Borrower nor the Subsidiary has any material financial
obligation under any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Borrower or the Subsidiary is a party or by
which the Borrower, or any Property or the Subsidiary Inn is bound, other than
obligations incurred in the ordinary course of the operation of the Properties
and the Subsidiary Inn and under the Transaction Documents.
(kk) The Borrower has not borrowed or received debt financing that has not
been heretofore or contemporaneously herewith repaid in full, other than
Purchase Money Security Interests permitted by the provisions of this Loan
Agreement.
(ll) To the Best Knowledge of the Borrower, no principal of the Borrower,
the General Partner, the Subsidiary or the Managing Member or officer authorized
to execute and deliver an Officer's Certificate has ever been indicted and/or
convicted of a felony under any federal, state or foreign laws.
(mm) There are no pending or, to the Best Knowledge of the Borrower,
proposed, special or other assessments for public improvements or otherwise
affecting any of the Properties or the Subsidiary Inn, nor, to the Best
Knowledge of the Borrower and, based on a certification to the Borrower by the
Manager, of the Manager, are there any contemplated improvements to any of the
Properties or the Subsidiary Inn that may result in such special or other
assessment.
(nn) All of the rooms at each of the Inns are in service, except for
rooms that are temporarily out of service for routine maintenance and repair.
(oo) The Borrower has or anticipates that it will have sufficient funds
available to it for implementing the reasonably anticipated Capital and FF&E
Expenditures.
Section V.2 Affirmative Covenants. So long as any of the Debt remains
---------------------
outstanding as an obligation of the Borrower, the Borrower shall:
(a) do all things necessary to keep in full force and effect its valid
existence as a limited partnership and the valid existence of the Subsidiary as
a limited liability company and to qualify to do business in each jurisdiction
in which such qualification is necessary to the conduct of its business or to
protect the validity and enforceability of the Transaction Documents;
(b) do all things necessary to enable it and the Subsidiary to comply
with all applicable legal, fiscal and accounting rules and regulations;
(c) keep and cause the Subsidiary to keep proper books of account and
records in which full, true and correct entries in accordance with GAAP shall be
made of all transactions in relation to its business and activities; allow the
Lender access to such books of account and records at all reasonable times
during normal business hours upon reasonable notice; and permit the Lender to
discuss the affairs, finances and accounts of the Borrower or the
Subsidiary with any of the management employees of the General Partner, the
Manager and the Managing Member;
(d) furnish to the Lender (and after the Securitization, also to NACC):
(i) not later than 120 days after the end of each Fiscal Year,
audited financial statements (including balance sheet, income
statement and statement of cash flows of the Borrower),
prepared in accordance with GAAP consistently applied,
audited by a "Big Six" accounting firm (copies of all such
information provided for above being also furnished to NACC
after the Securitization);
(ii) not later than 27 days after the end of each Accounting
Period (i) unaudited financial statements substantially in
the form of Exhibit J(1) attached hereto, covering such
------------
Accounting Period and the annual amount for the period to
date showing in detail for each Inn separately, among other
things, a breakdown of sales revenues and operating expenses
and the calculation of house profit, average suite and
average occupancy rates, each of the foregoing with a
comparison to budget and prior year, and (ii) an unaudited
profit and loss statement and escrow analysis on a
consolidated basis in the form of Exhibit J(2) attached
------------
hereto, and (iii) unaudited periodic and year-to-date reports
detailing for each Property the calculation of Operating
Profit substantially in the form of Exhibit J(3) attached
------------
hereto (copies of all such information provided for above
being also furnished to NACC after the Securitization);
(iii) not later than 60 days after the end of each Accounting
Quarter, quarterly and year-to-date unaudited financial
statements for the Borrower (including without limitation
balance sheets, income statements and statements of cash
flows) (copies of all such information provided for above
being also furnished to NACC after the Securitization);
(iv) such other reports and other documents as shall be
replacements of the foregoing, which reports and other
documents shall not contain less detail than
that provided for in clauses (i), (ii) and (iii) above;
(v) not later than 27 days after the end of each Fiscal Year, an
Officer's Certificate stating whether or not the signer
thereof knows of any Event of Default; and
(vi) if the financial statements provided for in clauses (i), (ii)
and (iii) above do not include the operations of the
Subsidiary, such financial statements, to the extent such
financial statements are prepared for the Subsidiary; and
(vii) on or before January 15 of each year commencing on January
15, 1997, an annual plan (the "Annual Plan") for such year
-----------
for each Property which annual Plan shall include a detailed
operating budget (an "Operating Budget") and a detailed
----------------
capital expenditure budget (a "Capital Budget"), reflecting
--------------
the Manager's best good faith estimate of the anticipated
results of management fees, Management Expenses, and Capital
and FF&E Expenditures. The Annual Plan shall contain
provisions for deposit into the Capital Expenditures and FF&E
Reserve Account of an aggregate amount equal to at least (5%)
of projected Gross Revenues for each year.
(e) (i) if the Borrower has the right under the Management Agreement
to approve any aspect of each Annual Operating Projection or
the Repairs and Equipment Estimate (as such terms is defined
in the Management Agreement) or any other budget, submit each
of the foregoing to the Lender for its approval;
(ii) submit to the Lender for its approval the Building Estimate
(as such term is defined in the Management Agreement);
(iii) the Lender's review and approval of each of the foregoing
shall not be unreasonably withheld or delayed;
(f) take all reasonable actions necessary so that the Borrower is not
required to register as an investment company under the Investment Company Act
of 1940, as amended;
(g) promptly inform the Lender in writing of the following:
(i) the Borrower becoming aware of the commencement of any rule
making or disciplinary proceeding or the promulgation of any
proposed or final rule affecting the Borrower, any Property,
the Subsidiary or the Subsidiary Inn (other than a rule or
proceeding which has general applicability to Persons
including the Borrower and the Subsidiary);
(ii) the Borrower becoming aware of the commencement of any Action
by or against the Borrower or the Subsidiary or with respect
to any Property or the Subsidiary Inn before any Governmental
Authority or arbitration board, or the written threat of any
such Action;
(iii) the receipt of written notice from any Governmental Authority
that (1) the Borrower or the Subsidiary is being placed under
regulatory supervision, (2) any Permit material to the conduct
of the Borrower's or the Subsidiary's business is to be
suspended or revoked or (3) the Borrower or the Subsidiary is
to cease and desist any practice, procedure or policy employed
by the Borrower or the Subsidiary in the conduct of its
business; and
(iv) the receipt of written notice from the Manager that the
Borrower has not complied with any of its obligations under
the Management Agreement or the Subsidiary has not complied
with any of its obligations under its management agreement
with the Manager or altering in any material respect the
rules, standards and requirements of the Manager under each
such agreement;
(h) generally pay and cause the Subsidiary to generally pay its debts as
they become due;
(i) do or cause to be done all things necessary to establish, perfect,
maintain and continue the perfection and first priority (subject to Permitted
Exceptions) of the security interest of the Lender in the Pledged Property and
pay the costs and expenses of all filings and recordings and all searches
necessary to establish and determine the validity and the priority of such
security interest;
(j) subject to Section 2.2, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, all taxes, assessments and
governmental charges levied or imposed upon the Borrower or the Subsidiary or
upon the income, profits or property of the Borrower (including the Properties)
or the Subsidiary (including the Subsidiary Inn);
(k) subject to Section 2.2, pay or cause to be paid all operating expenses
and all other costs and expenses associated with the operation and maintenance
of (i) the Properties in accordance with the Annual Operating Projections,
Repairs and Equipment Estimate, and Building Estimate in accordance with the
provisions of the Management Agreement and (ii) the Subsidiary Inn in accordance
with the management agreement between the Subsidiary and the Manager;
(l) complete all items of Deferred Maintenance Work, ADA Compliance Work
and Capital and FF&E Expenditures as set forth in the Capital Budget for the
year ended December 31, 1996, attached hereto as Exhibit I, from funds deposited
in the Capital Expenditure and FF&E Reserve Account prior to December 31, 1996
and, to the extent necessary for such completion, from Excess Cash Flow;
(m) pay over to the Servicer for application pursuant to the applicable
Mortgage, Insurance Proceeds and Condemnation Proceeds;
(n) complete as promptly as possible all Deferred Maintenance Work, ADA
Compliance Work and Environmental Remediation Work (under the supervision of a
licensed architect or engineer, if the item of Work requires the expenditure of
at least, $50,000 or if such supervision is required by Legal Requirements), and
in a good and workmanlike manner, using materials comparable in quality to the
original installation and all items of Capital and FF&E Expenditures as set
forth in the Capital Budget for the year ending December 31, 1996 attached
hereto as Exhibit I and the then effective Annual Operating Projection, Building
Estimate, or Repairs and Equipment Estimate (as such terms are defined in the
Management Agreement) under the supervision of a licensed architect or engineer
or comparable professional, as appropriate, and in all events, complete all such
work as required under the Management Agreement and this Agreement and any
additional work that shall be necessary to maintain standards at least as high
as those standards apply generally to inns in the "Residence Inn by Marriott"
system. Any work to be completed in accordance with this provision shall
be completed despite the insufficiency, if any, of funds in the Capital
Expenditure and FF&E Reserve Account to complete such work;
(o) promptly on request, furnish to the Lender copies of all material
contracts, bills of sale, statements, receipted vouchers and agreements in its
possession or control under which the Borrower claims title to any materials,
fixtures or articles of personal property used in construction at or operation
of the Properties.
(p) cause the Manager to operate the Properties as hotels open for
business under the Management Agreement and the Subsidiary Inn as a hotel open
for business under the management agreement between the Subsidiary and the
Manager;
(q) promptly on request, from time to time, deliver to the Lender a
statement setting forth all of the accounts maintained by the Borrower or the
Manager with respect to the Inns and the Properties, the purposes of such
accounts and the balances thereof;
(r) maintain or cause to be maintained each of the liquor licenses and all
other Permits in connection with the Inns and the Subsidiary Inn, in full force
and effect (or replace any thereof that may be cancelled or otherwise lapsed),
and observe and perform or cause to be observed or performed all of its
obligations thereunder;
(s) comply with and cause each Property and the Subsidiary Inn to be in
compliance with all Legal Requirements and all Insurance Requirements;
(t) give the Lender prompt notice upon the discovery, to the Best
Knowledge of the Borrower, of the occurrence of any Potential Event of Default
or Event of Default;
(u) give the Lender prompt notice of any Grant of any equity interest in
the General Partner or the partnership interest of the General Partner in the
Borrower or the acquisition by either MII or Host Marriott of more than 5% of
the limited partnership interests in the Borrower;
(v) ensure that the Manager pays all trade indebtedness within 60 days of
the date incurred except for such trade indebtedness that is subject to a bona
----
fide dispute;
----
(w) ensure that the General Partner and the Managing Member shall have an
Independent Director acceptable to the Lender at all times, which may be the
same individual;
(x) provide to the Lender not less than (10) days prior to the execution
thereof, a true and complete copy of any (i) proposed amendment to the
Partnership Agreement of the Borrower (other than amendments of a ministerial
nature that will not have any adverse impact on the Lender, the value of the
Pledged Property, the validity or priority of the Lender's security interest
therein, or any of the Lender's rights or remedies under the Transaction
Documents) and (ii) proposed amendments to the Limited Liability Company
Agreement of the Subsidiary (other than amendments of a ministerial nature that
will not have an adverse impact on the Lender, the value of the Subsidiary Inn
or any of the obligations of the Borrower with respect to the Subsidiary under
this Loan Agreement;
(y) ensure that the representations and warranties contained in Section
5.1(a) and 5.1(af) remain true and accurate at all times with respect to itself
and the Subsidiary; and
(z) cause the Subsidiary (xx) to be insured in the manner required of a
Property pursuant to Schedule X of each of the Mortgages; and (yy) to hold and
apply any Insurance Proceeds or Condemnation Proceeds, as the case may be, in
accordance with the requirements of the Mortgages, specifically including
Paragraph 13 (with respect to Insurance Proceeds) and Paragraph 14 (with respect
------------ ------------
to Condemnation Proceeds) of the Mortgages; provided, however, that the
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Subsidiary may cause the insurance with respect to this sub-clause to be issued
by insurance carrier(s) who would not be Qualified Insurers pursuant to Schedule
X of each of the Mortgages so long as each of such insurance carrier(s) is a
reputable carrier licensed to do business in the State of Louisiana.
Section V.3 Negative Covenants. So long as any portion of the Debt shall
------------------
remain outstanding as an obligation of the Borrower, except as expressly
permitted in this Agreement, each of the Borrower and the Subsidiary shall not,
without the prior consent of the Lender,
(a) purchase any real properties other than, in the case of the Borrower,
the Properties and, in the case of the Subsidiary, the Subsidiary Inn, have any
assets or liabilities other than assets or liabilities derived from or related
to in the case of the Borrower, the Properties and, in the case of the
Subsidiary, the Subsidiary Inn, or engage in any business or undertake any
activity
other than as permitted herein, including, without limitation, the operation, as
a lessee or otherwise, of any property other than in the case of the Borrower,
the Properties, and, in the case of the Subsidiary, the Subsidiary Inn;
(b) have any subsidiaries other than the Subsidiary and the Managing
Member;
(c) amend, supplement or otherwise modify its partnership agreement, in
the case of the Borrower, and its Limited Liability Company Operating Agreement,
in the case of the Borrower, in any way that would cause a breach of the
covenants in this Agreement;
(d) Grant any of the Pledged Property other than as permitted in the
Transaction Documents and pursuant to the Permitted Exceptions; provided,
--------
however, that the Borrower may sell or otherwise dispose of personalty or
-------
fixtures from time to time constituting portions of any Property so long as such
personalty or fixtures are replaced by personalty or fixtures of equal or better
quality to those sold or otherwise disposed of and except for immaterial amounts
of personalty disposed of in the ordinary course of business and items that need
not be replaced to continue the then existing level of quality of operation;
(e) dissolve, liquidate, merge or consolidate with any Person (and the
Borrower agrees that upon any dissolution, liquidation, merger or consolidation
in breach of this clause (v), the Pledged Property shall continue to be held
under and otherwise subject to the Lien of the Security Documents until the Debt
is paid in full);
(f) in the case of the Borrower permit the validity or effectiveness of
any of the Transaction Documents or, unless replaced with other necessary
agreements that do not have an Individual Material Advance Effect, any of the
Operational Agreements to be impaired or permit the Lien of the Security
Documents to be amended, hypothecated, subordinated, terminated or discharged or
permit any Liens to be created on or extend to or otherwise arise upon or burden
the Pledged Property or any part thereof or any interest therein or the proceeds
thereof (other than any Permitted Exceptions);
(g) take any action if such action is likely to interfere with the
enforcement of any rights of the Lender under the agreements or instruments
relating to any of the Pledged Property;
(h) in the case of the Borrower, incur any Indebtedness other than (a) the
Note, (b) Subordinate Debt, or (c) unsecured
Indebtedness incurred (i) in connection with capitalized equipment leases as
permitted by Section 7.02(c) of the Management Agreement or (ii) to provide
working capital and to fund any shortfalls in the Debt Service Reserve Account,
in an aggregate amount, which when added to the outstanding balance of previous
indebtedness incurred and outstanding for such purpose, shall not exceed the
average amount of the Management Expenses for each Accounting Period during the
preceding full 13 Accounting Periods; provided, however, that in the case of
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indebtedness incurred pursuant to clause (ii) the payee of such indebtedness
shall agree not to assert any remedies with respect to the non-payment thereof
so long as the Debt is outstanding or (d) Indebtedness covered by Purchase Money
Security Interests, in an aggregate amount not to exceed $1,000,000 outstanding
at any time;
(i) in the case of the Subsidiary, incur any Indebtedness other than in
connection with capitalized equipment leases as permitted by the management
agreement between the Subsidiary and the Manager;
(j) enter into any Equipment Lease other than solely with the supplier of
the furnishings, fixtures or equipment subject to such lease or sell any such
furnishings, fixtures, or equipment to any third party under a "Sale Leaseback"
arrangement;
(k) terminate, amend or modify any Operational Agreements if the same
would have an Individual Material Adverse Effect and, in the case of the
Subsidiary, terminate, amend or modify any agreement relating to the operation
of the Subsidiary Inn to which the Subsidiary is a party if the same would have
a Material Adverse Effect on the condition (financial or otherwise), business,
prospects, assets, liabilities, management, financial position or results of
operations of the Subsidiary Inn;
(l) (a) maintain, sponsor, contribute to or become obligated to
contribute to, or suffer or permit any ERISA Affiliate of the Borrower or the
Subsidiary to, maintain, sponsor, contribute to or become obligated to
contribute to, any Plan or any Welfare Plan or (b) permit the assets of the
Borrower or the Subsidiary to become "plan assets," whether by operation of law
or under regulations promulgated under ERISA;
(m) engage in any transactions with its Affiliates except, on terms at
least as favorable to the Borrower or the Subsidiary, as the case may be, as
those obtainable from unrelated third parties acting in their own best interests
and without duress and which,
taken singly or in the aggregate, would not reasonably be expected to have an
Individual Material Adverse Effect;
(n) (A) cancel, release, terminate or surrender the Management Agreement
or permit any cancellation, release, termination or surrender thereof or (B)
amend, modify or alter the terms of the Management Agreement in any material
respect; provided, however, that the Borrower may cancel, release, terminate,
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surrender, amend, modify or alter the Management Agreement in connection with
the replacement of the Manager if, before the date on which the Manager ceases
to be the Manager of any Inn, (i) the Borrower causes such Inn to come under
management by a nationally recognized hotel operator acceptable to the Lender,
in the exercise of its reasonable discretion, (ii) such Hotel continues to be
part of a comparable nationally recognized hotel system acceptable to the
Lender, and (iii) each of the Rating Agencies delivers to the Lender a Rating
Comfort Letter;
(o) take any action in furtherance of, or stating its consent to,
approval of, or acquiescence in, any of the acts set forth above;
(p) permit the General Partner or the Managing Member to amend its
Certificate of Incorporation (other than amendments of a ministerial nature that
will not have an adverse impact on the Lender, the value of any Property or any
of the obligations of the Borrower under this Loan Agreement); or
(q) In the case of the Borrower, resign or withdraw as a member of the
Subsidiary or apply for a decree of judicial disillusion of the Subsidiary under
Section 18-802 of the Delaware Limited Liability Company Act.
Section V.4 Further Assurances. The Borrower shall execute and
------------------
deliver or cause to be executed and delivered, all such additional instruments,
and do, or cause to be done, all such additional acts as (i) may be necessary or
proper, to carry out the purposes of this Agreement and to make subject to the
Lien of the Security Documents any property intended so to be subject,
including, without limitation, the delivery of such instruments and documents,
including confirmatory and corrective Mortgages, financing statements and
continuation statements under the Uniform Commercial Code of each applicable
jurisdiction, and the delivery of such updated mortgagee's title insurance
policies or endorsements (or commitments therefor) in favor of the Lender as may
be reasonably required to confirm and/or secure continued coverage under the
title policies issued to the Lender in respect
of the Properties or the Mortgages, including payment of all fees and title
insurance premiums required to maintain such continuity of title insurance
coverage, (ii) may be necessary or proper to transfer to any assignee of the
Lender the estate, powers, instruments and funds held in trust hereunder and to
confirm the Security Documents, or (iii) the Lender may reasonably request in
connection with the Loan; provided, however, that such instruments shall contain
express unconditional exculpations of the Partners and the Borrower's officers,
employees or agents and any of their successors or assigns exculpating such
Persons from any liability arising under or by reason of their obligations,
covenants, representations, warranties and agreements contained in such
instruments, subject to the exceptions set forth in the definition of Non-
Recourse. If, in connection with the Securitization, the Borrower is required to
furnish newly issued title policies with respect to the Properties, the Lender
shall bear the cost thereof.
Section V.5 Representations, Warranties and Covenants of NACC. NACC
-------------------------------------------------
represents and warrants to, and agrees with the Borrower, that, as of the
Closing Date: (i) it has the power and authority to perform its obligations
under this Agreement and the other Transaction Documents, (ii) this Agreement
and the other Transaction Documents have been duly authorized, executed and
delivered by NACC, and constitute valid and legally binding instruments
enforceable against NACC in accordance with their respective terms, subject to
the effects of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and general
equitable principles (whether considered in a proceeding in equity or at law),
and (iii) it has such knowledge, sophistication and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Note, is able to bear the economic risk of an investment in
the Note and is an "accredited investor" within the meaning of Section 2(15) of
the Securities Act and (iv) no part of the Loan shall be deemed "plan assets"
within the meaning of ERISA.
Section V.6 Other.
-----
(a Neither the Borrower nor any Person acting on behalf of the Borrower
has dealt with any broker or any other Person entitled to a fee or commission in
connection with the Loan and the Borrower agrees to indemnify and hold NACC and
its Affiliates harmless from and against any claims or commissions, finder's fee
and other payments, no matter how described, and against any and all
costs and expenses including, without limitation, attorneys' fees relating to
any such claim.
(b Notwithstanding anything in the Management Agreement or the
management agreement between the Subsidiary and the Manager to the contrary, the
Borrower, the Lender, the Servicer, and the Trustee may disclose information
regarding such agreements and the operation of the Inns and the Subsidiary Inn,
and provide copies of such agreements and any financial statements or reports
delivered by the Manager pursuant to such Agreements or the requirements of
Section 5.2(d) to the Lender, the Trustee and the Servicer or any holder of the
Securities, and any counsel to or agents, officers, employees, and
representatives of any such Person, and may disclose and describe the terms
hereof and thereof in any offering memorandum, prospectus, or registration
statement or other filing required under applicable law, provided, however, that
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(i) the Borrower, the Servicer, the Lender, and the Trustee shall implement
procedures to restrict the dissemination of information to the holders of the
Loan or the Securities concerning revenues per available rooms, Gross Revenues,
Operating Profit, and occupancy and room rate statistics of individual Inns to
the extent reasonably practicable, giving due regard to the desire of holders of
the Securities to have access to such information and to the requirements of
applicable securities laws, and (ii) any disclosure of information in any
offering memorandum, prospectus, or registration statement or other filing
required under applicable law or to any prospective holder of the Securities
concerning revenues per available rooms, Gross Revenues, Operating Profit,
occupancy and room rate statistics of individual Inns shall be made in a format
with no identification as to which information applies to which specific Inn,
but which may refer to the Inns on a Property by Property basis under which each
Inn is identified by a code and the Inns are grouped by the following regions:
Northern, Carolinas, Other Southeastern, Florida, California, and Southwestern
(e.g. an Inn may be identified as "Northern -1"). Notwithstanding the foregoing,
any such offering memorandum, prospectus, registration or other filing required
under applicable law or given to any prospective holder of the Securities, may
include a report dated December 31, 1995 which identifies each Inn (without
coding) by specific location, number of rooms, date of opening, appraised value,
average occupancy, average daily room rate, and revenue per available rooms, and
such other information as is required by applicable securities laws.
(c (i The Borrower shall promptly notify the Lender in writing
of any Triggering Event.
For the purpose of this subsection (c), "Triggering Event" means the
receipt by the Borrower of notice of any claim, investigation, proceeding or
litigation from any third party with respect to the Subsidiary Inn relating to
or arising from any Environmental Condition (as such term is defined in the
Environmental Indemnity Agreement) with respect to the Subsidiary Inn under any
Environmental Law, including, without limitation, by any Governmental Authority
in which the Borrower or the Subsidiary is identified as a Potentially
Responsible Party, as defined by Environmental Laws, with respect to the
Subsidiary Inn.
If a Triggering Event occurs, the Borrower shall provide notice of such
Triggering Event within five Business Days of the occurrence thereof and
thereafter, written reports to the Lender on a quarterly basis ("Quarterly
---------
Report"). Each Quarterly Report shall contain a detailed description of the
------
Triggering Event, including, without limitation, copies of notices, reports,
correspondence and other written material received by or on behalf of the
Borrower, a list of other parties involved, the status of the matter, the steps
taken by the Borrower to respond to the Governmental Authority, a financial plan
and such other information as the Lender reasonably determines to be necessary.
The financial plan shall include an estimate of Borrower's liability, if any, to
the Governmental Authority in connection with the Triggering Event and a
proposed budget to demonstrate how the Borrower intends to satisfy any such
liability. In addition, the Borrower shall promptly provide to the Lender notice
of any hearing or any other preceding with respect to the foregoing.
If there is a material change in the litigation or other proceeding as
described in the Quarterly Report, the Borrower shall provide an immediate
written update to the Lender and a revised financial plan.
(ii If the Borrower incurs any liability in connection with the
foregoing, it shall satisfy such liability by applying or causing to be applied
the following sources of funds in the order indicated: (a) first, the Operating
Profit of the Subsidiary (as such term is defined in the management agreement
between the Manager and the Subsidiary) after deduction of (y) reasonable
reserves established by the Subsidiary in connection with operation of the
Subsidiary Inn and (z) Contingent Management Fees (Base) and Contingent
Management Fees (IMF) to the Manager pursuant to such management agreement, (b)
next, the net sales proceeds, if any, from the sale of the Subsidiary Inn (which
sale the Borrower shall cause the Subsidiary to pursue in good faith), (c) next,
the Bossier Reserve Account pursuant to the provisions of Section 2.7,
(d) next, an amount equal to the difference between (i) the Operating Profit of
the Borrower after deduction of (y) Contingent Management Fees (Base) and
Contingent Management Fees (IMF), and Manager Loans repaid, to the Manager
pursuant to the Management Agreement and (z) the Borrower's Administrative
Expenses (as such term is defined in the Management Agreement) and (ii) the Debt
then due and payable, so long as the Debt Service Coverage Ratio as of the date
such application is made is not less than 1.25:1, and (e) next, the net sales
proceeds, if any, from the sale of one or more of the Properties. If the
Subsidiary Inn or any direct or indirect membership interest of the Borrower in
the Subsidiary or any interest of the Borrower in the Managing Member is sold
prior to such time as the proceeds of such sale are required for the purpose set
forth in this clause (ii), the net sales proceeds from such sale shall be
maintained by the Servicer in a separate deposit account to be used for such
purpose until such time as the Lender determines, in the exercise of its sole
discretion, that any such liability is not likely to be incurred by the
Borrower.
(d) The Borrower shall cause the Subsidiary to implement the procedures
described in Exhibit K within the time frames set forth on such Exhibit. The
---------
Borrower has caused the Subsidiary to establish an environmental reserve account
with the Servicer in the aggregate amount of $41,875 to implement such
procedures. The Borrower may request the Servicer to disburse amounts in such
account to it upon the submission to the Servicer of invoices in the amount
requested for work relating to such procedures.
ARTICLE VI
SECURITIZATION
Section VI.1 Securitization. The Borrower and the General Partner shall
--------------
use commercially reasonable best efforts to cooperate with NACC in its
activities in connection with the sale of the Loan as a whole loan or any
securitization of the Loan (the "Securitization"), including obtaining ratings
--------------
by the Rating Agencies. The Securitization will involve the issuance of rated
single- or multi-class securities secured by or evidencing ownership interests
in the Transaction Documents (the "Securities"). Such cooperation shall include,
----------
without limitation, the obligation to:
(a maintain the ownership of the Properties in an entity that permits the
Borrower to comply with its obligations under clauses (w) and (y) of Section
5.2;
(b to the extent permitted under its existing partnership agreement
without the consent of its limited partners, structure and maintain the
organizational, operational and financial affairs of the Borrower and the
General Partner, (collectively, the "Entities") to enable its counsel to render
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a reasoned opinion if requested by the Rating Agencies in form and substance
customary or required for rating the Securities (the "Substantive Consolidation
-------------------------
Opinion") that upon a petition for bankruptcy under the United States Bankruptcy
--------
Code, neither Host Marriott as a debtor in possession nor its bankruptcy
trustees nor creditors should cause a court to order the substantive
consolidation of the assets and liabilities of the General Partner or the
Borrower with those of Host Marriott, which counsel and which opinion shall be
satisfactory to NACC and the Rating Agencies;
(c provide such financial and other information with respect to each
Property, the Borrower, the Subsidiary and, if such information is reasonably
available to the Borrower, the Manager, as may be requested by the Rating
Agencies or as may be reasonably requested by NACC, including, without
limitation, audits or agreed-upon procedures of operating cash flow and Net
Operating Income on an individual and aggregate Property basis, occupancy
statistics, and average rents and quarterly and annual financial statements for
each Property (reviewed and in the case of annual financial statements audited)
by a firm of certified public accountants acceptable to NACC and the Rating
Agencies to the extent customarily given in similar transactions;
(d prepare and deliver such agreements and instruments relating to the
Note, the Securities, the Properties and the Entities, including (A) agreements
to indemnify the Rating Agencies, NACC and any servicer or trustee, to the
extent customarily given in commercial mortgage-backed securities transactions,
and (B) amendments of any of the Transaction Documents" that are necessary to
effect the Securitization, in form and scope satisfactory to the Rating Agencies
and reasonably satisfactory to NACC;
(e perform or permit to be performed such appraisals, surveys, site
inspections, market studies, current environmental reviews and reports (Phase
I's, including, without limitation, testing for asbestos, lead paint or radon
gas and Phase II's and other environmental investigations recommended by
environmental consultants), structural engineering reports (which shall include
an analysis of requirements for deferred maintenance and ongoing capital
expenditure and furniture, fixtures and equipment reserve
requirements), reviews of property, casualty, business interruption, earthquake,
flood, liability and title insurance and other due diligence items customarily
requested by nationally recognized underwriters in connection with the
origination and securitization of comparably sized commercial real estate loans
or by the Rating Agencies in connection with rating the Loan or the Securities;
provided, however, NACC shall use its best efforts to limit the circumstances
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under which the Borrower or the General Partner will be required to duplicate
its efforts or third party costs in complying with its obligations under this
clause (e);
(f) provide business plans and budgets relating to the Properties as may
be requested by the Rating Agencies;
(g) cause counsel to render opinions (which may be reasoned opinions) with
respect to the Properties, the Entities, and the Transaction Documents as to
bankruptcy remoteness and other matters customary in securitization
transactions, which may be requested by the Rating Agencies in form and
substance customary or required for Rating the Securities which counsel and
which opinion shall be satisfactory to the Rating Agencies and reasonably
satisfactory to NACC; provided, however, that if the Rating Agencies request
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opinions subsequent to the Closing Date in connection with the Securitization
that are materially different from the opinions delivered on the Closing Date,
the Lender shall bear the fees and expenses incurred by counsel in rendering
such opinions
(h) make such representations and warranties with respect to the
Properties, the Entities, and the Transaction Documents as are customary in
securitization transactions and as may be requested by the Rating Agencies and
reasonably requested by NACC and consistent with the facts covered by such
representations and warranties as they exist on the date thereof, including the
representations and warranties made in the Transaction Documents;
(i) cooperate with the Lender in providing to the Rating Agencies such
information as is customarily provided in connection with annual reviews
conducted in commercial mortgage backed securities transactions similar to the
Securitization;
(j) cooperate with NACC in the preparation, at NACC's cost, of a private
placement memorandum, prospectus, prospectus supplement or other disclosure
document to be used by NSI or any of its Affiliates to privately place or
publicly distribute the Loan as a whole loan or the Securities in a manner and
to the extent that the same satisfy the requirements of the Securities Act and
applicable state securities laws; and
(k) subject to the provisions of Section 5.6(B), permit NACC to provide
to the Rating Agencies, potential investors in the Securities and others as may
be required to effect the Securitization or the sale of the Loan as a whole
loan, the information provided to NACC by the Borrower and the Manager and their
respective Affiliates in connection with the transactions contemplated by this
Agreement.
Any and all due diligence materials (including without limitation
appraisals, engineering reports and environmental reports) shall be addressed to
and shall run to the benefit of NACC and its successors and assigns, the Rating
Agencies and the Borrower, and shall, upon delivery, become the property of
NACC, its successors and assigns and the Borrower.
ARTICLE VII
PAYMENT OF FEES AND EXPENSES; INDEMNIFICATION
Section VII.1 Fees and Expenses.
-----------------
(a) The Borrower shall pay or reimburse NACC and after the Securitization,
NACC and the Lender, on demand, without set-off, withholding or deduction, for
the payment of all of the reasonable fees, costs and expenses incurred by NACC
in connection with the underwriting, negotiation, documentation and closing of
the Loan, including, without limitation, the finder's fee due to Nomura
Securities International, Inc. ("NSI") as provided for in that certain Finder's
---
Fee Agreement, dated December 8, 1995, between the Borrower and NSI, and the
fees, costs and expenses of the following:
(i) title insurance, transfer taxes (if any), mortgage taxes and
recording fees;
(ii) counsel and local counsel to the Borrower;
(iii) counsel and local counsel to NACC, which shall be reasonable;
(iv) due diligence activities of NACC including, without limitation,
auditors, lien searches, surveys, appraisals, environmental
reports, engineering reports, insurance reviews and site
inspections;
(v) bank charges relating to the operation of the Lockbox Account,
the Capital Expenditure and FF&E Reserve Account, the Tax and
Insurance Account, the Cash Collateral Account, and the
Operating Account; and
(vi) initial and ongoing activity of any special servicer incurred
as a result of an Event of Default; and
(vii) the Rating Agencies (for the annual ratings reviews).
(b) The Lender shall pay the initial and regular ongoing fees of the
Servicer and the Trustee.
(c) The Borrower has provided $400,000 to NACC for deposit in an interest
bearing account (the "Expense Deposit") for the payment of the fees, costs and
---------------
expenses payable by the Borrower described in Section 7.1(a). If any portion of
the Expense Deposit remains after payment of such fees, costs and expenses, NACC
shall pay such portion to the Borrower within 30 days after the closing of the
Loan. The establishment of the Expense Deposit shall not limit the Borrower's
obligations to pay the fees, costs and expenses described in Section 7.1(a).
Section VII.2 Indemnification.
---------------
(a) The Borrower, for itself and all those claiming under or through the
Borrower, to the fullest extent permitted by law, hereby releases and shall
defend, hold harmless and indemnify NACC and after the Securitization, NACC and
the Lender, and its respective directors, officers, agents and employees,
(together, the "Indemnified Parties") from and against any and all liabilities,
-------------------
claims, charges, losses, expenses or damages of any kind or nature, including
reasonable attorneys' fees and disbursements, which may arise in connection with
(i) the performance or non-performance by the Borrower of any of the Transaction
Documents, or the operation of the Properties by the Borrower and (ii) any
breach or failure by the Borrower to comply with any representation, warranty or
covenant made by the Borrower herein or in any other document furnished by the
Borrower in connection with the transactions contemplated by the Transaction
Documents, except to the extent caused by the willful acts or omissions,the
gross negligence or bad faith of any Indemnified Party. It is understood that if
the Borrower performs its obligations set forth in the Transaction Documents
strictly in
accordance with the terms and provisions thereof, the provisions of clause (i)
of the foregoing sentence in so far as they relate to the "performance... by the
Borrower of any of the Transaction Documents, shall not be applicable. The
Borrower shall appear in and defend any Action that might in any way in the good
faith judgment of the Lender affect the value of the Properties, the title to
the Properties, the priority of the Mortgages or the rights and powers of the
Lender. Any sums due under this Section 7.2 shall be payable by the Borrower
within 10 days of demand therefor with evidence of the amount due and, if not
paid within such 10-day period, shall bear interest from the date of demand to
the date of payment at the Default Rate (as defined in the Note). The Borrower
shall pay the cost of suit, cost of evidence of title and reasonable attorneys'
fees and disbursements in any Action brought by the Lender to foreclose any
Mortgage, including trial and any appeal with respect to any such Action.
(b The Borrower hereby indemnifies and holds NACC and its controlling
persons and Affiliates, including, without limitation, NSI, harmless against all
costs, expenses and damages incurred by NACC and its controlling persons and
affiliates (including, without limitation, all liabilities under all applicable
federal and state securities laws) as a direct result of any untrue statement of
a material fact contained in the offering documents used in connection with the
Securitization based on information provided by the Borrower or the Manager,
which describes the Borrower or the Manager, the Properties (and the management
thereof) or any aspect of the Loan or the parties directly involved therein, or
as a result of any untrue statement of a material fact in any of the financial
statements of the Borrower or the Manager incorporated into such offering
documents or the failure to include in such financial statements or in such
offering documents any material fact relating to the Borrower or the Manager,
the Properties (and the management thereof) and any aspect of the Loan necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided that the Borrower shall have had
an opportunity to review, comment on and approve the relevant portions of such
offering documents. The Borrower shall act reasonably and promptly in connection
with its approval of the relevant portions of the offering documents. The
Borrower shall not indemnify NACC for any cost, expense or damage incurred as a
result of the inclusion of any erroneous or misleading information in such
offering documents, or the omission of material information from the offering
documents, provided that the Borrower or its counsel shall have previously
indicated to NACC or its counsel the erroneous or misleading nature of such
information or the omission of material information, as the case
may be. At the time of the use of such offering documents, NACC shall execute
and deliver to the Borrower an instrument (in form and substance reasonably
satisfactory to the Borrower) indemnifying and holding each of the Borrower, the
General Partner (and the officers and directors thereof), and its agents and
employees harmless against all costs, expenses and damages (other than costs and
expenses specifically agreed by the Borrower to be borne by it) incurred by them
(including, without limitation, all liabilities under all applicable federal and
state securities laws) caused by and directly relating to the offering described
in such Offering Documents; provided, however, that such indemnification shall
not apply if any such costs, expenses or damages arise out of or are based upon
an untrue statement of a material fact or an omission to state a material fact
in such offering documents or in the Borrower's financial statements for which
the Borrower is providing indemnification as provided above.
(c) The obligations of the Borrower under this Section 7.2 shall survive
termination of this Agreement.
ARTICLE VIII
IMMUNITY
Section VIII.1 Partners, Employees and Agents of the Borrower Immune from
----------------------------------------------------------
Liability. Notwithstanding anything to the contrary herein, including, without
---------
limitation, Article Seven, the obligations under each Transaction Document shall
be Non-Recourse.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section IX.1 Notices. All notices, requests, demands, consents, reports or
-------
other communications, including, without limitation, a tender of a cure pursuant
to Section 4.1B, to or upon the respective parties hereto shall be in writing
and be deemed to have been duly given or made when received, addressed to the
party to which such notice, request, demand or other communication is being
given at its address set forth below, or at such other address as any of the
parties hereto may hereafter notify the others by notice given hereunder:
If to NACC:
Nomura Asset Capital Corporation
2 World ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Director
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Rosenman & Colin LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
and:
Nomura Asset Capital Corporation
2 World ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrower:
Marriott Residence Inn II Limited Partnership
c/o Host Marriott Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Law Department 923/Assistant General Counsel,
Asset Management
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Marriott Residence Inn II Limited Partnership
c/o Host Marriott Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Lodging Partnerships Department 908
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Evidence of such receipt shall include personal delivery, electronic
confirmation (hard copy to be sent by regular mail) and the failure to accept a
communication sent by registered or certified U.S. mail, postage prepaid.
Section IX.2 Benefit of Agreement. This Agreement shall be binding upon,
--------------------
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the
consent of the Lender which may be withheld in the sole discretion of the
Lender. Except as expressly provided otherwise in the Agreement, any such
assignment or transfer shall not release the Borrower from any obligations or
liabilities hereunder. The Lender's interests under the Transaction Documents
shall be freely assignable and transferrable. No party other than the parties
hereto and their permitted assigns shall be deemed to have any benefits or
obligations under this Agreement.
Section IX.3 Governing Law. This Agreement and the rights and obligations
-------------
of the parties under the Transaction Documents (except for the Mortgages and the
assignments of leases, rents and profits, dated the Closing Date, from the
Borrower to the Lender which shall be governed by the jurisdiction in which the
Property covered thereby is located) shall be governed by the internal laws of
the State of New York.
Section IX.4 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
Section IX.5 Index, Descriptive Headings. The Index to this Agreement and
---------------------------
the descriptive headings of the several Sections and Articles of this Agreement
are inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement. In the preparation of the
Transaction Documents indistinguishable contributions were made by
representatives of both NACC and the Borrower, and each of the Lender and the
Borrower waives any and all rights, either at law or in equity, to have the
provisions of any Transaction Document interpreted in favor of one over the
other based on a claim that representatives of one or the other were the
principal draftsmen thereof.
Section IX.6 Amendment or Waiver; Integration. No provision of this
--------------------------------
Agreement may be amended, changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the amendment, change, waiver, discharge or termination is sought. This
Agreement and the other Transaction Documents set forth the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof, and supersede any and all prior agreements and understandings of the
parties hereto with respect to the subject matter hereof and thereof including,
without limitation, that certain Finder's Fee Agreement and Commitment Letter,
each of which is dated December 8, 1995 and is between the Borrower and NACC or
NSI, which prior agreements and understandings are terminated in all respects.
Section IX.7 Survival of Representations and Warranties; Reliance. All
----------------------------------------------------
representations and warranties contained in this Agreement and the
indemnification provisions hereof shall survive the execution and delivery of
this Agreement, the making of the Loan and shall be considered to have been
relied upon by the Lender regardless of any investigation made by or on behalf
of it.
Section IX.8 Returned Payments. If after receipt of any payment of all
-----------------
or any part of the Debt, the Lender is for any reason compelled to surrender
such payment to any Person because such payment is determined to be void or
voidable as a preference, an impermissible set-off, a diversion of trust funds
or for any other reason, this Agreement shall continue in full force, and the
Borrower shall be liable to, and shall indemnify and hold the Lender harmless
for, the amount of such payment surrendered until the Lender shall have been
finally and irrevocably paid in full. The provisions of the foregoing sentence
shall be and remain effective notwithstanding any contrary action which may have
been taken by the Lender in reliance upon such payment, and any such contrary
action so taken shall be without prejudice to the Lender's rights under this
Agreement and shall be deemed to have been conditioned upon such payment having
become final and irrevocable.
SECTION IX.9 JURISDICTION AND SERVICE; WAIVER OF JURY TRIAL. EACH OF THE
----------------------------------------------
GENERAL PARTNER AND THE BORROWER HEREBY (I) IRREVOCABLY CONSENTS AND SUBMITS
ITSELF AND ACKNOWLEDGES AND RECOGNIZES THE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR PURPOSES OF ANY ACTION
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, RELATING TO, OR BASED UPON ANY
TRANSACTION DOCUMENT OR THE SUBJECT MATTER THEREOF, (II) AGREES THAT SUCH COURTS
SHALL BE THE SOLE AND EXCLUSIVE COURTS AND FORUMS FOR THE PURPOSE OF ANY SUCH
ACTION AND (III) WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE OR OTHERWISE, IN
ANY SUCH ACTION, ANY CLAIM THAT SUCH COURTS DO NOT HAVE JURISDICTION OVER IT OR
THAT SUCH ACTION IS BROUGHT IN AN INCONVENIENT FORUM; PROVIDED, HOWEVER, THAT
NOTHING CONTAINED HEREIN SHALL LIMIT, IN ANY MANNER, THE RIGHT OF NACC TO
INSTITUTE OR TAKE ANY ACTION IN ANY COURT IN ANY JURISDICTION FOR THE PURPOSE OF
PROTECTING, PRESERVING OR REALIZING UPON ANY COLLATERAL, IF ANY, SECURING THE
DEBT OR ENFORCING ANY JUDGMENT OBTAINED BY IT IN CONNECTION WITH ANY TRANSACTION
DOCUMENT OR THE SUBJECT MATTER THEREOF. EACH OF THE GENERAL PARTNER, THE
BORROWER AND NACC HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, RELATING TO, OR BASED UPON ANY
TRANSACTION DOCUMENT OR THE SUBJECT MATTER THEREOF, AND AGREES THAT PROCESS IN
ANY SUCH ACTION, IN ADDITION TO ANY OTHER METHOD PERMITTED BY LAW, MAY BE SERVED
UPON IT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO
THE GENERAL PARTNER OR THE BORROWER OR NACC AT THE ADDRESS SET FORTH IN SECTION
9.1 OR AT SUCH OTHER ADDRESS AS THE GENERAL PARTNER OR THE BORROWER OR NACC MAY
DESIGNATE BY NOTICE, AND SUCH SERVICE SHALL BE DEEMED EFFECTIVE AS IF PERSONAL
SERVICE HAD BEEN MADE UPON IT WITHIN NEW YORK COUNTY.
Section IX.10 Enforceability. Any provision of this Agreement which is
--------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the Borrower hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
Section IX.11 Conflicting Terms. In the event of any direct conflict
-----------------
between any provision of this Agreement and any provision of any other
Transaction Document, this Agreement shall govern; provided, however, that (a)
notwithstanding the foregoing, the remedies contained in the Mortgages and any
other Transaction Document shall govern in the event of any direct conflict with
any remedy contained in this Agreement, and (b) the parties intend that the
terms and provisions of each of the Transaction Documents be given full effect,
and, accordingly, the provisions of the other
Transaction Documents, to the fullest extent possible, shall be construed to be
additional and supplementary to, and not in conflict with or in derogation of,
the provisions of this Agreement.
Section IX.12 Relationship of Parties. The relationship of
-----------------------
the Borrower to the Lender is strictly and solely that of borrower and lender
and mortgagor and mortgagee and nothing contained in any Transaction Document
is intended to create, or shall in any event or under any circumstance be
construed as creating, a partnership, joint venture, tenancy-in-common, joint
tenancy or other relationship of any nature whatsoever between the Borrower and
the Lender other than as borrower and lender and mortgagor and mortgagee. The
Borrower acknowledges that (a) NACC engages in the business of real estate
financings and other real estate transactions and investments which may be
viewed as adverse to or competitive with the business of the Borrower or its
Affiliates, (b) it is represented by competent counsel and has consulted counsel
before executing this Agreement and (c) it shall rely solely on its own
judgement and advisors in entering into the transactions contemplated hereby
without relying in any manner on any statements, representations or
recommendations of NACC or any Affiliate of NACC except as set forth in Section
5.6.
(Signature page follows)
IN WITNESS WHEREOF, each of the Borrower and NACC has caused this Agreement to
be signed and delivered, all as of the day and year first above written.
NOMURA ASSET CAPITAL CORPORATION
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Director
MARRIOTT RESIDENCE INN II LIMITED
PARTNERSHIP
By: Marriott RIBM Two Corporation,
General Partner
By:
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Vice President
65
EXHIBIT 10.3
EXHIBIT B
CASH MANAGEMENT PROCEDURES
Capitalized terms used in this Exhibit and not defined herein shall
have the meanings ascribed to them in Schedule I hereto and if not defined
therein, in the Management Agreement.
1. Deposit of Funds into Accounts: Phase--In of Procedures
1.1 All Gross Revenues from and after the Closing Date (other
than any Gross Revenues deposited into the Local Accounts) shall be deposited
into the Manager's Account within one full Business Day after receipt thereof
and identification as belonging to the Borrower (or, at such time as the
procedures described in Section 7 hereof become applicable, into the Lockbox
Account), other than customary amounts of ▇▇▇▇▇ cash held at each Property, and
shall be applied only for such purposes and in such manner as set forth in this
Exhibit. All Condemnation Proceeds and Insurance Proceeds received after the
Closing Date shall be deposited in the accounts specified herein and applied for
such purposes and in such manner as set forth in this Exhibit.
1.2 The obligations of the Borrower and the Manager to follow
the procedures set forth in this Exhibit shall be phased in during the period of
up to 120 days after the Closing Date (the "Phase-In Period") as follows:
---------------
(i) Within fifteen Business Days after the Closing
Date, the Manager shall establish a segregated account in the name of
the Manager or MII for which separate accounting of deposits and
withdrawals shall be maintained (such account, including any
supplements thereto or replacements thereof, the "Manager's Account").
-----------------
The Manager's Account shall be established and maintained either as an
Eligible Account or, for so long as the central cash management system
of MII is maintained at Mellon Bank, as a segregated account at Mellon
Bank. The Manager's Account may be a subaccount of MII's cash
management system (the "Master Account") maintained for various hotels
--------------
and other properties managed by MII and its subsidiaries.
(ii) From and after the Closing Date, the Manager
will notify third parties from whom the Borrower has accounts
receivable, including, without limitation, credit card companies (but
not including guests who pay by cash or check at an Inn) ("Third Party
-----------
Payors") in their billing statements or otherwise that all payments
------
owing to the Borrower thereafter should be sent either to the Manager's
Account (unless and until such payments are required to be sent to the
Lockbox Account pursuant to Section 7 below) or to the Manager for
deposit in a Local Account; provided, however, that credit card
-------- -------
companies will be notified that all payments should be sent only to the
Manager's Account. With regard to those Third Party Payors for which it
is not feasible to redirect their next scheduled payments to the
Manager's Account, including certain credit card companies, the Manager
will work diligently with such Third Party Payors to enable them to
send their payments to the Manager's Account at the earliest reasonably
practicable date but not later than the end of the 120 day period
referred to above. Within 60 days after the Closing Date, the Manager
will deliver a report to the Borrower, which shall provide copies
thereof to the Lender or, if the Securitization has been effected, to
NACC, the Lender and each Rating Agency, regarding the status of the
transition to the new cash management procedures, and upon the request
of the Lender or, if the Securitization has been effected, the Lender
or a Rating Agency, shall provide up to two additional reports (no more
frequently than 30 days after the prior report) regarding the status
thereof.
(iii) The Manager will cause all Gross Revenues
received by the Manager to be deposited within one Business Day after
receipt thereof and identification as belonging to the Borrower, into
the Manager's Account or into a Local Account in accordance with the
procedures described in Section 3 below. Notwithstanding the foregoing,
during the Phase-In Period, Gross Revenues received in the Master
Account may be retained there and applied to the payment of operating
expenses and remittance to the Borrower, as described in Section 2
hereof. Following the Phase-In Period, Gross Revenues received in the
Master Account will be deposited into the Manager's Account within one
full Business Day after the receipt thereof and identification as
belonging to the Borrower.
2. Manager's Account; Payments of Operating Expenses;
Remittance to the Borrower
2.1 Subject to the special provisions applicable during the
Phase-In Period, as set forth in Section 1.2 hereof, the Manager shall deposit
into the Manager's Account, within one full Business Day after the receipt
thereof and identification as belonging to the Borrower, all Gross Revenues
received by the Manager, other than Gross Revenues deposited in a Local Account
and customary amounts of ▇▇▇▇▇ cash held at each Property, and shall direct all
Third Party Payors (other than guests who pay by cash or check at an Inn) to
send their payments with respect to the Borrower directly to the Manager's
Account or to the Manager for deposit into a Local Account. As noted above,
payments from credit card companies will be sent only to the Manager's Account.
2.2 The Manager's Account will be controlled by the Manager or
MII. Funds on deposit in the Manager's Account shall not be commingled with
funds related to any other properties owned or managed by the Manager or any
Person other than the Borrower. Until such time as the procedures described in
Section 7 hereof become applicable, the Manager will be free, at any time and
from time to time, to transfer funds from the Manager's Account into the Master
Account in accordance with the Manager's and MII's customary cash management
practices and commingle such transferred funds with other funds held in the
Master Account.
2.3 From and after the Closing Date, and until such time as
the procedures described in Section 7 hereof become applicable, the Manager
shall make disbursements on behalf of the Borrower from funds on deposit in the
Manager's Account, the Local Accounts and the Master Account, or from ▇▇▇▇▇ cash
at the Properties, to pay Management Expenses (i.e. "Deductions," as such term
----------
is defined in the Management Agreement) and to make deposits into the Capital
Expenditure and FF&E Reserve Account.
2.4 Unless Section 6.4 applies, commencing with the Accounting
Period that begins on March 23, 1996, on the last Business Day of the third week
of each Accounting Period (each such day, an "Operating Profit Payment Date")
-----------------------------
the Manager will transfer cash (with the first of such transfers to take place
on April 11, 1996) from the Manager's Account or the Master Account, by federal
wire, automated clearing house funds, or other transfer of next-day available
funds, to the Cash Collateral Account; provided, however, that any such transfer
-------- -------
made within five days prior to a Debt Service Payment Date shall be made by
federal wire of immediately available funds. The amount of cash transferred on
such Business Day will be equal to the Operating Profit for the immediately
preceding Accounting Period. On or before the last Business Day of the fourth
week in each Accounting Period, the Borrower will provide to the Lender a
statement setting forth the calculation for the amount of Operating Profit
transferred to the Cash Collateral Account with respect to the immediately
preceding Accounting Period and certifying that the correct amount has been
transferred.
2
3. Local Accounts
The Manager shall be entitled to establish, from time to time,
segregated accounts in the name of the Manager or the name under which an
individual Property operates, which are not required to be Eligible Accounts, at
financial institutions located in the vicinity of individual Properties or the
Manager's principal business offices (each a "Local Account"), solely for the
-------------
purpose of (i) receiving deposits of Gross Revenues, other than payments from
credit card companies, received by the Manager and (ii) paying certain operating
expenses for such Properties that, in the ordinary course of the Manager's
business, are customarily paid from such Local Accounts. Funds on deposit in the
Local Accounts shall not be commingled with funds related to any other
properties owned or managed by the Manager or any Person other than the
Borrower. At least twice each week, the Manager shall transfer, by federal wire,
automated clearing house funds, or other transfer of next-day available funds,
into the Manager's Account or, if the procedures described in Section 7 hereof
are then applicable, into the Lockbox Account, all available funds held on
deposit in each Local Account, less amounts required to pay Property operating
expenses previously incurred that in the ordinary course of the Manager's
business are customarily paid from such Local Accounts, not previously reserved
for, plus an amount to be held as ▇▇▇▇▇ cash or as a reserve for operating
expenses not yet incurred that are customarily paid out of the Local Accounts;
provided, however, that the aggregate amount of such ▇▇▇▇▇ cash and reserves for
-------- -------
the Local Account for each Property shall not exceed $25,000 (subject to
adjustment at the end of each Fiscal Year for increases in the CPI since the end
of the preceding Fiscal Year) and for all of the Local Accounts shall not exceed
$375,000 (subject to such adjustment and reduction by $15,000 for each Property
that is sold or otherwise released from the applicable Mortgage) after giving
effect to all transfers made from the Local Accounts on any day.
4. Cash Collateral Account
4.1 On or before the Closing Date, the Servicer shall
establish and maintain one or more segregated accounts in the name of the
Servicer on behalf of the Lender (collectively the "Cash Collateral Account"),
-----------------------
which must be Eligible Accounts, into which all amounts received by the Servicer
from the Manager's Account, the Master Account, the Operating Account, and the
Lockbox Account, as applicable, and all other funds of the Borrower (other than
funds held in the Capital Expenditure and FF&E Reserve Account) held as security
for the Loan shall be deposited.
4.2 From time to time, the Servicer will establish one or more
segregated subaccounts of the Cash Collateral Account into which (a) Insurance
Proceeds held by the Lender in accordance with Section 13 of the Mortgages, the
text of which is set forth in Schedule II hereto, shall be deposited, (b)
certain payments of Condemnation Proceeds held by the Lender pursuant to Section
14 of the Mortgages, the text of which is set forth in Schedule II hereto, shall
be deposited, (c) the tax and insurance escrows required by Section 6 hereof
shall be deposited and (d) the amounts in the Borrower Debt Service Reserve
Account required by the provisions of these Cash Management Procedures shall be
deposited. All Condemnation Proceeds and Insurance Proceeds (except Condemnation
Proceeds and Insurance Proceeds that the Borrower is permitted to retain under
the terms of the applicable Mortgage) will be deposited into the appropriate
subaccount to be disbursed by the Servicer in the manner contemplated by the
applicable Mortgage.
4.3 On each Debt Service Payment Date prior to the Optional
Prepayment Date, unless the procedures set forth in Section 7 apply, withdrawals
from the Cash Collateral Account (excluding amounts held in escrow, reserve, or
other subaccounts, which shall be withdrawn and applied solely for the purposes
for which such subaccounts are maintained) shall be made by the Servicer only
for the following purposes and in the following order of priority:
(A) (i) if the Securitization has been effected, to transfer
funds to the Collection Account (as such term is defined in the Pooling
and Servicing Agreement used in
3
the Securitization) in the amount needed (y) to pay the fees, costs and
expenses (together, the "Servicing Expenses") to be paid or reimbursed
------------------
by the Borrower pursuant to the provisions of clauses (v) and (vi) of
Section 7.1(a) of the Loan Agreement, the text of which is set forth in
Schedule II hereto, to the parties entitled thereto and (z) to the
extent that the payments called for under this clause (i) have not been
received by the Servicer from or with respect to U.S. Obligations held
by the Servicer in accordance with the provisions of Section 2.3 of the
Loan Agreement, the text of which is set forth in Schedule II hereto
(the "U.S. Obligations"), (a) first, to the payment of the interest at
----------------
the Base Rate and/or Default Rate, as applicable, then due and payable
under the Note, (b) next, to the Principal Payment then due and payable
under the Note, and (c) next, to the payment of any other Debt then due
and payable to the Lender (Items (a) and (b) hereinafter, the "Monthly
-------
Debt Service Payment");
--------------------
(ii) if the Securitization has not been effected, (y)
to pay the Servicing Expenses and (z) to the extent that the payments
called for under this clause (ii) have not been received by the
Servicer from or with respect to U.S. Obligations, (a) first, to make
the Monthly Debt Service Payment and (b) next, to the payment of any
other Debt then due and payable to the Lender;
(B) if required under the terms of Section 6 hereof, to
transfer amounts necessary to fund the escrow accounts maintained by
the Servicer thereunder for real estate taxes and insurance premiums,
as subaccounts of the Cash Collateral Account;
(C) commencing on April 11, 1997, to fund any shortfall in the
Borrower Debt Service Reserve Account in the amount required under
Section 5.1;
(D) to fund any shortfall in the Capital Expenditure and FF&E
Reserve Account in accordance with Section 8.2; and
(E) to remit to the Manager any funds in the Cash Collateral
Account (other than the amounts described in (A) through (D) above and
Insurance Proceeds or Condemnation Proceeds required to be held for
payment of the expenses of restoration or repair of a Property in
accordance with Sections 13 and 14 of the Mortgages (the "Excluded
--------
Amounts"), as set forth in Schedule II), to which the Manager is
-------
entitled pursuant to the provisions of the Management Agreement; and
(F) subject to Section 6.5, so long as no Event of Default has
occurred and is continuing, to remit to the Borrower any funds
remaining in the Cash Collateral Account other than the Excluded
Amounts.
In making the distribution specified in clause (D) and (E) above, the
Servicer shall be entitled to rely conclusively on written instructions that the
Manager shall provide (with copies to the Borrower) as to the amounts to be paid
and compliance with the provisions of the documents named therein. In making the
distributions specified in clause (F) above, the Servicer shall be entitled to
rely on information provided to it by the Manager (with copies to the Borrower).
The Servicer shall have no duty to recompute, recalculate, or verify the data
contained in such instructions or information and shall incur no liability to
the Borrower or the Manager if the Servicer disburses funds in accordance
therewith.
4.4 Until the Note has been Paid In Full, unless the
procedures set forth in Section 7 apply, on the Optional Prepayment Date, and
each other Debt Service Payment Date thereafter, withdrawals from the Cash
Collateral Account (excluding amounts held in escrow, reserve, or other
subaccounts, which shall be withdrawn and applied solely for the purposes for
which such subaccounts are maintained) shall be made by the Servicer only for
the following purposes and in the following order of priority on each Debt
Service Payment Date:
4
(A) (i) if the Securitization has been effected, to transfer
funds to the Collection Account (as such term is defined in the Pooling
and Services Agreement used in the Securitization) in the amount needed
to pay (x) the Servicing Expenses, (y) next, the Monthly Debt Service
Payment and (z) next, any other Debt then due and payable to the Lender
(other than pursuant to the provision of clause (F) below);
(ii) if the Securitization has not been effected, to
pay (x) the Servicing Expenses, (y) next, the Monthly Debt Service
Payment and (z) next, any other Debt then due and payable to the Lender
(other than pursuant to the provision of clause (F) below);
(B) if required under the terms of Section 6 hereof, to
transfer amounts necessary to fund the escrow accounts maintained by
the Servicer thereunder for real estate taxes and insurance premiums,
as subaccounts of the Cash Collateral Account;
(C) to fund any shortfall in the Borrower Debt Service Reserve
Account in the amount required under Section 5.1;
(D) to fund any shortfall in the Capital Expenditure and FF&E
Reserve Account in accordance with Section 8.2: and
(E) to the Manager, to be applied to (i) repayment of each
Manager Loan and accrued interest thereon; provided, however, that for such
--------
purpose the principal balance of each Manager Loan shall be amortized on a five
year straight line basis, from the later of (x) the date funds are advanced or
(y) the Optional Prepayment Date, and (ii) payment of Incentive Management Fees
earned in the then current Fiscal Year;
(F) subject to the provisions of Section 6.5, to the extent of
Excess Cash Flow for each of the Operating Profit Payment Dates occurring during
the period from and including the eleventh (11th) day of the calendar month
immediately preceding such Debt Service Payment Date to the tenth (10th) day of
the calendar month in which such Debt Service Payment Date occurs, (A) first, to
prepayment of each Principal Payment required to be made on each Debt Service
Payment Date in inverse order of maturity until the principal of the Note has
been paid in full, and (B) next, to payment of the difference, if any, between
(y) the sum of (i) interest accrued and unpaid on the Note calculated at the
Adjusted Rate and (ii) interest on such accrued and unpaid amount at the
Adjusted Rate and (z) interest at the Base Rate paid on each Debt Service
Payment Date pursuant to subsection (A) of this section 4.4.
In making the distributions and payments specified in clauses (D) and
(E) above, the Servicer shall be entitled to rely conclusively on written
instructions that the Manager shall provide (with copies to the Borrower) as to
the amounts to be paid and compliance with the provisions of the documents named
therein. In making the distribution specified in clause (F) above, the Servicer
shall be entitled to rely on information provided to it by the Manager (with
copies to the Borrower). The Servicer shall have no duty to recompute,
recalculate, or verify the data contained in such instructions or information
and shall incur no liability to the Borrower or the Manager if the Servicer
disburses funds in accordance therewith.
5. Debt Service Reserve Account
5.1 The Servicer shall maintain, as a sub-account of the Cash
Collateral Account, an account (the "Borrower Debt Service Reserve Account") to
-------------------------------------
be used by the Servicer to pay Monthly Debt Service Payments, if the amounts
available from Operating Profit transmitted by the Manager to the Servicer
pursuant to the provisions of Section 2.4, Section 6.4 and Section 7.8.2 are
insufficient for such payments. The Borrower shall deposit in the Borrower Debt
Service Reserve Account an amount equal to two months' Monthly Debt Service
Payments in 12 approximately equal consecutive
5
monthly installments commencing on April 11, 1996 and on each Debt Service
Payment Date thereafter until the Borrower Debt Service Reserve Account contains
$2,321,056.02. Thereafter, the Borrower Debt Service Reserve Account shall be
funded in accordance with the provisions set forth in Sections 4.3(C), 4.4(C)
and 7.8.1 to an amount equal to twice the Monthly Debt Service Payments in
effect from time to time.
5.2 The Servicer will maintain an account (the "NACC Debt
---------
Service Reserve Account") pursuant to the provisions of that certain Letter
-----------------------
Agreement, dated as of the date hereof, among the Borrower, NACC and the
Servicer. The NACC Debt Service Reserve Account shall be used by the Servicer to
pay Monthly Debt Service Payments if the amounts available from (i) Operating
Profit transmitted by the Manager to the Servicer pursuant to the provisions of
Sections 2.4, 6.4 and 7.8.2 and (ii) amounts contained in the Borrower Debt
Service Reserve Account are insufficient for such payments.
6. Single Downgrade Procedures
The procedures set forth in this Section 6, in addition to the other
procedures set forth in this Exhibit (other than those set forth in Section 7
hereof), shall apply during each period, if any, from time to time, beginning
with the first day of the first full Accounting Period following such time as
(a) the long-term senior unsecured debt of MII (the "MII Debt") is rated BBB+ by
--------
S&P, unless a Lockbox Event occurs, in which event the procedures in Section 7
hereof shall apply, and (b) the Servicer delivers a notice to the Manager and
the Borrower that such procedures are in effect. The Borrower will notify the
Servicer and the Lender promptly after becoming aware of the event described
above.
6.1 The Servicer will maintain escrow accounts, as subaccounts
of the Cash Collateral Account, for payments of the next succeeding payments of
all insurance premiums (including property, liability, and other insurance, but
not including workers compensation insurance) and real estate taxes coming due
for each Property. The escrow accounts will be funded (i) upon commencement of
these procedures, by transfers from the Manager's Account and/or the Master
Account to the Cash Collateral Account of amounts previously deducted by the
Manager for payment of future insurance premiums and real estate taxes for the
Properties, but not expended and, (ii) thereafter, from cash in the Cash
Collateral Account on each Debt Service Payment Date in accordance with Section
4.3 hereof, such that the balance in each escrow account is equal, with respect
to each tax payment or insurance premium owing with respect to the Properties,
to the product of (x) the amount of such next payment or premium (or, the most
recent payment or premium if the amount of the next payment or premium is
unknown) times (y) a fraction, the numerator of which is the number of whole
Accounting Periods since the date of the last payment of the applicable tax or
premium and the denominator of which is the number of whole Accounting Periods
from the date of the last payment of the applicable tax or premium to the date
of the next payment of such tax or premium. With regard to any insurance
obtained for the Properties from MII's blanket insurance program, the premiums
shall be the Properties' allocable share of insurance premiums and such premiums
shall be paid directly to MII when due out of such escrows or other funds in the
Cash Collateral Account or provided by the Borrower.
6.2 Provided that the necessary invoices or bills have been
provided to the Servicer by the Manager or the Borrower, the Servicer will pay
directly all real estate taxes and insurance premiums with respect to which
escrows have been established from the amounts held in such escrows or, if such
amounts are insufficient, from amounts available in the Cash Collateral Account
and the Manager will be relieved of any such obligation. The Borrower and/or the
Manager shall promptly send all such invoices or bills to the Servicer. Upon
acceleration of the maturity of the Note following an Event of Default, the
Lender shall be entitled to apply the funds held in such escrows (other than
escrows for payment of liability insurance premiums) to payment of the Note.
6
6.3 During any period when the procedures set forth in this
Section 6 apply, the amounts of Operating Profit remitted by the Manager to the
Cash Collateral Account pursuant to Section 3 hereof shall be calculated without
deduction for any such taxes or premiums.
6.4 On the last Business Day of the first and third week of
each Accounting Period, the Manager will transfer cash from the Manager's
Account and/or the Master Account to the Cash Collateral Account for application
by the Servicer on the next Debt Service Payment Date. The amount of cash
transferred on or before the last Business Day on the first week in each
-----
Accounting Period will be equal to 50% of the budgeted Operating Profit for the
immediately preceding Accounting Period. The amount of cash transferred on or
before the last Business Day of the third week in each Accounting Period will be
-----
an amount equal to (x) the actual Operating Profit for the immediately preceding
Accounting Period, minus (y) the amount previously transferred with respect to
such immediately preceding Accounting Period. On or before the last Business Day
of the fourth week in each Accounting Period, the Borrower will provide to the
------
Lender a statement setting forth the calculation for the amount of Operating
Profit transferred to the Cash Collateral Account with respect to the Accounting
Period ended four weeks earlier and certifying that the correct amount has been
transferred.
6.5 The Borrower shall deposit into the Borrower Debt Service
Reserve Account an amount equal to the Monthly Debt Service Payment then in
effect in six approximately equal consecutive monthly installments commencing on
the first day referred to in the preamble to this Section 6 such that at the end
of the later of such six-month period and March 11, 1997, the Borrower Debt
Service Reserve Account will contain an aggregate amount equal to three times
the Monthly Debt Service Payment then in effect; provided, however, that the
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Borrower shall be deemed to be in compliance with the provisions of this Section
6.5 if the Borrower delivers an irrevocable direction to the Servicer to deposit
such amount out of (y) prior to the Optional Prepayment Date, all amounts
payable to the Borrower pursuant to Sections 4.3(F) and 7.9(C) and (z) after the
Optional Prepayment Date, amounts available immediately prior to the application
of Excess Cash Flow pursuant to the provisions of Sections 4.4(F) and 7.10(C)
but after amounts are paid to the Manager pursuant to Section 4.4(E) and
7.10(B).
6.6 Beginning with the first full Accounting Period following
such time as the MII Debt is rated at least A- by S&P, (i) the Borrower will no
longer be required to maintain the escrow accounts described in Section 6.1 and
all amounts then held in such escrow accounts will be transferred to the
Manager's Account and thereafter the Manager will be responsible for paying real
estate taxes and insurance premiums in accordance with the terms of the
Management Agreement, and (ii) the Manager will no longer be required to make
the transfers provided for in Section 6.4 (the provisions of Section 2.4 being
operative in lieu thereof) and (iii) all amounts then held in the Borrower Debt
Service Reserve Account in excess of two Monthly Debt Service Payments will be
returned to the Borrower.
7. Lockbox
A "Lockbox Event" shall occur at any time or times if (a) (i) any of
-------------
the MII Cash Management Conditions are not satisfied or (ii) S&P does not rate
the MII Debt at least BBB+ or (iii) either (x) at any time after September 11,
1996, S&P rates the MII Debt at least A- and the Borrower Debt Service Reserve
Account contains less than one Monthly Debt Service Payment in effect at such
time or (y) at any time after March 11, 1997, S&P rates the MII Debt BBB+ and
the Borrower Debt Service Reserve Account contains less than two Monthly Debt
Service Payments in effect at such time and (z) in each of cases (x) and (y)
above, the Borrower does not fund the shortfall in the Borrower Debt Service
Reserve Account within fifteen days of notice to such effect from the Servicer
to the Borrower and the Manager and (b) the Servicer delivers a notice to the
Manager and the Borrower that the procedures described in this Section 7 are in
effect. If a Lockbox Event occurs, such procedures shall apply in lieu of the
procedures set forth in Sections 2, 4.3, 4.4 and 6 hereof
7
during the period, as provided below, beginning no later than the later of (A)
two weeks after the date on which the Servicer delivers the notice described in
subclause (b) above and (B) 120 days after the Closing Date, and continuing
thereafter until the first day of the first full Accounting Period after (i)
each of the MII Cash Management Conditions is again satisfied, (ii) S&P rates
the MII Debt at least BBB+, and (iii) either (y) if S&P rates the MII Debt at
least A-, the Borrower Debt Service Reserve Account contains at least two
Monthly Debt Service Payments then in effect or (z) if S&P rates the MII Debt
BBB+, the Borrower Debt Service Reserve Account contains at least three Monthly
Debt Service Payments then in effect (any such period, a "Lockbox Period"). The
--------------
Servicer shall advise the Manager when the procedures set forth in this Section
7 are no longer in effect. The Borrower will notify the Lender and the Servicer
promptly after becoming aware that a Lockbox Event has occurred.
7.1 The following transition procedures will apply after a Lockbox
Event:
7.1.1 During the period indicated, the Manager will take the
following steps:
(i) during the first two weeks following the Lockbox
Event, if the Manager's Account is not an Eligible
Account at such time, determine if the Manager's
Account can be used as the Lockbox Account;
(ii) as soon as possible but, in any event, not later
than 120 days after the end of such two week
period, develop the systems necessary for the cash
management procedures set forth in this Section 7;
and
(iii) during the first two weeks following the Lockbox
Event, identify the exact amount of funds of the
Borrower then held in the Master Account.
7.1.2 Following the two-week period described in Section 7.1.1
(i) hereof, a lockbox account (the "Lockbox Account") will be established, as a
---------------
segregated account in the name of the Servicer on behalf of the Lender, into
which payments from Third Party Payors will be deposited (other than Third Party
Payors that send payments to the Manager for deposit in a Local Account) and
funds from the Local Accounts will be transferred during the Lockbox Period. The
Lockbox Account either will be the same account as the Manager's Account or will
be a newly established Eligible Account, as follows:
(i) if the Manager's Account is an Eligible Account or
the Manager determines that the Manager's Account
can become the Lockbox Account, then the Manager
shall change the name on the Manager's Account to
the Servicer and the account will become the
Lockbox Account. The Servicer on behalf of the
Lender will have sole control over the Lockbox
Account.
(ii) If the Manager's Account is not an Eligible
Account and the Manager is unable to determine
that the Manager's Account can become the Lockbox
Account, then the Servicer will open a new
Eligible Account to be the Lockbox Account and
also will convert the Manager's Account into a
lockbox account, in the name of the Servicer over
which the Servicer on behalf of the Lender will
have sole control. In this event, the transition
8
procedures described in Section 7.2 below will
apply for a period (the "Transition Period") of up
-----------------
to 120 days after the beginning of the Lockbox
Period.
(iii) If the Manager determines, in its good faith
reasonable judgment after due inquiry, that
LaSalle National Bank or any other bank suggested
by the Servicer appears capable of putting in
place within the Transition Period the systems
required to service the Manager's cash management
needs and LaSalle National Bank or such other
suggested bank then meets the requirements for
establishing an Eligible Account, then Manager
shall select such bank to hold the Lockbox
Account.
7.2 In the event that the Manager's Account does not become the
Lockbox Account, the Manager will notify Third Party Payors in their billing
statements or otherwise that all payments owing to the Borrower thereafter
should be sent either to the Lockbox Account or to the Manager for deposit in a
Local Account; provided, however, that no credit card companies' payments will
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be sent to any Local Account. The Manager will work diligently with Third Party
Payors to enable them to send their payments to the Lockbox Account at the
earliest reasonably practicable date and, in any event, no later than 120 days
after the beginning of the Lockbox Period. During the Transition Period, such
Third Party Payors may continue to send their payments to the Manager's Account.
Any amounts received into the Manager's Account during the Lockbox Period will
be transferred by the Servicer, within one Business Day of receipt, to the Cash
Collateral Account. Within 60 days after the beginning of the Lockbox Period,
the Manager will deliver a report to the Borrower, which shall provide copies
thereof to the Lender or, after the Securitization, the Lender and each Rating
Agency, regarding the status of the transition to the new cash management
procedures, and upon the request of NACC or, after the Securitization, the
Lender or a Rating Agency, shall provide up to two additional reports (no more
frequently than 30 days after the prior report) regarding the status thereof.
7.3 The Manager shall deposit into the Lockbox Account, within one
full Business Day after the receipt thereof and identification of a payment as
belonging to the Borrower, all Gross Revenues received by the Manager other than
(i) Gross Revenues deposited by the Manager in a Local Account, (ii) customary
amounts of ▇▇▇▇▇ cash held at each Property, and (iii) payments made into the
Manager's Account (if it does not become the Lockbox Account).
7.4 Commencing as soon as practicable but, in any event, not later
than 120 days from the Lockbox Event, the Manager shall transfer into the
Lockbox Account, at least twice each week, by federal wire, automated clearing
house funds, or other transfer of next-day available funds, all available funds
held on deposit in each Local Account, less amounts required to pay Management
Expenses previously incurred and customarily paid out of the Local Accounts, not
previously reserved for, plus an amount to be held as ▇▇▇▇▇ cash or as a reserve
for Management Expenses customarily paid out of the Local Accounts; provided,
--------
however, that the aggregate amount of such ▇▇▇▇▇ cash and reserves for the Local
-------
Account for each Property shall not exceed $25,000 (subject to adjustment at the
end of each Fiscal Year for increases in the CPI since the end of the preceding
Fiscal Year), and for all of the Local Accounts shall not exceed $375,000
(subject to such adjustment and reduction by $15,000 for each Property that is
released from the applicable Mortgage) after giving effect to all transfers made
from the Local Accounts on any day.
7.5 Any funds received directly by the Borrower or the Manager
during a Lockbox Period and not yet deposited into the Lockbox Account shall
irrevocably be deemed to be held in trust for the benefit of the Lender and
(other than receipts received at the Properties and held as ▇▇▇▇▇ cash or
deposited into a Local Account) shall, immediately upon receipt and
9
identification as belonging to the Borrower (and in no event later than one full
Business Day after receipt and identification as belonging to the Borrower), be
deposited by the Borrower or the Manager, as applicable, into the Lockbox
Account or a Local Account. Funds on deposit in the Lockbox Account shall not be
commingled with funds related to any other properties owned or managed by the
Manager or any Person other than the Borrower .Expenses previously incurred and
customarily paid out of the Local Accounts, not previously reserved for, plus an
amount to be held as ▇▇▇▇▇ cash or as a reserve for Management Expenses
customarily paid out of the Local Accounts; provided, however, that the
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aggregate amount of such ▇▇▇▇▇ cash and reserves for the Local Account for each
Property shall not exceed $25,000 (subject to adjustment at the end of each
Fiscal Year for increases in the CPI since the end of the preceding Fiscal
Year), and for all of the Local Accounts shall not exceed $375,000 (subject to
such adjustment and reduction by $15,000 for each Property that is released from
the applicable Mortgage) after giving effect to all transfers made from the
Local Accounts on any day.
7.6 During a Lockbox Period, the Servicer shall maintain escrow
accounts, as subaccounts of the Cash Collateral Account, for (i) prepayments of
the next succeeding payments of all insurance premiums and real estate taxes, as
described in Section 6 hereof and (ii) the Debt Service Reserve. During a
Lockbox Period, provided that the necessary invoices or bills have been provided
to the Servicer by the Manager or the Borrower, the Servicer will pay all real
estate taxes and insurance premiums with respect to which escrows have been
established from the amounts held in such escrows or, if such amounts are
insufficient, from amounts available in the Cash Collateral Account or
additional funds provided by the Borrower, and the Manager will be relieved of
any such obligation. The Borrower and/or the Manager shall promptly send all
such invoices or bills to the Servicer. Upon acceleration of the maturity of the
Note following an Event of Default, the Lender shall be entitled to apply the
funds held in such escrows (other than escrows for payment of liability
insurance premiums) to payment of the Note .Expenses previously incurred and
customarily paid out of the Local Accounts, not previously reserved for, plus an
amount to be held as ▇▇▇▇▇ cash or as a reserve for Management Expenses
customarily paid out of the Local Accounts; provided, however, that the
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aggregate amount of such ▇▇▇▇▇ cash and reserves for the Local Account for each
Property shall not exceed $25,000 (subject to adjustment at the end of each
Fiscal Year for increases in the CPI since the end of the preceding Fiscal
Year), and for all of the Local Accounts shall not exceed $375,000 (subject To
such adjustment and reduction by $15,000 for each Property that is released from
the applicable Mortgage) after giving effect to all transfers made from the
Local Accounts on any day.
7.7 Prior to commencement of a Lockbox Period, the Servicer will
establish a segregated account (the "Operating Account"), in its name on behalf
-----------------
of the Lender, which shall be an Eligible Account at a bank selected by the
Manager and reasonably acceptable to the Lender. If the Manager determines, in
its good faith reasonable judgment after due inquiry that LaSalle National Bank
or any other bank suggested by the Servicer appears capable of putting in place
within the Transition Period the systems required to service the Manager's cash
management needs and LaSalle National Bank or such other suggested bank then
meets the requirements of an Eligible Account, then Manager shall select such
bank to hold the Operating Account. At the beginning of the Lockbox Period, the
Manager shall transfer, by immediately available funds, to the Operating
Account, all funds of the Borrower then held in the Master Account, less (i)
amounts required to cover outstanding checks and (ii) amounts which the Servicer
advises the Manager are required to be applied for the purposes set forth in
First, Second and Third of Section 7.8.1. The Manager shall transfer to the Cash
Collateral Account, by immediately available funds, the amounts advised by the
Servicer to be so required for application by the Servicer for such purposes.
The Manager will have the authority to write checks on and make other transfers
from the Operating Account for payment of Management Expenses (i.e.,
"Deductions," as such term is defined in the Management Agreement)(excluding
----------
real estate taxes and insurance premiums with respect to which escrows are being
maintained by the Servicer). Promptly following the end of each Accounting
Period ending after funds are first deposited into the Operating Account, the
Manager will be required to certify
10
that all prior expenditures from the Operating Account have been for Management
Expenses (excluding real estate taxes and insurance premiums with respect to
which escrows are being maintained) and that, to the best of the Manager's
knowledge, there are no accounts payable of the Properties with an unpaid
balance of more than S20,000 individually, or more than $150,000 in the
aggregate, that are more than 60 days past due (unless payment is being
contested in good faith in accordance with Section 2.2 of the Loan Agreement,
the text of which is set forth in Schedule II hereto), except as otherwise
stated with an explanation therefor.
7.8.1 During a Lockbox Period all Gross Revenues that are received in
cash in the Lockbox Account (and the Manager's Account, if it does not become
the Lockbox Account) in any calendar month shall first be transferred to the
Cash Collateral Account, within one Business Day after receipt thereof, and
shall be applied by the Servicer each Business Day thereafter in the following
order of priority, and to the extent of available funds:
First: to fund the tax and insurance escrows in the amount
specified in Section 6 above (to the extent the balance of any such escrows
is insufficient); and
Second: commencing March 12, 1997, to fund the Borrower Debt
Service Reserve Account until the balance in such Account equals twice the
Monthly Debt Service Payments in effect at such time; and
Third: to fund any shortfall in the Capital Expenditure and
FF&E Reserve Account in accordance with Section 8.2 until the balance in
such Account equals the amount set forth therein; and
Fourth: after the balances in the escrow accounts, the Borrower
Debt Service Reserve Account and the Capital Expenditure and FF&E Reserve
Account described in First, Second and Third are at the required levels,
the remaining Gross Revenues will be transferred by the Servicer from the
Cash Collateral Account to the Operating Account.
In making the funding and payments specified in Third above, the Servicer
shall be entitled to rely conclusively on written instructions that the Manager
shall provide (with copies to the Borrower) as to the amounts to be paid and
compliance with the provisions of the documents named therein. The Servicer
shall have no duty to recompute, recalculate, or verify the information
contained in such instructions and shall incur no liability to the Borrower or
the Manager if the Servicer disburses funds in accordance therewith.
7.8.2 At least one Business Day prior to each Debt Service Payment
Date, the Manager will transfer from the Operating Account to the Cash
Collateral Account, by immediately available funds, an amount equal to the
Operating Profit (calculated without deduction for the real estate taxes and
insurance premiums for which escrows are being maintained by the Servicer or for
shortfalls in the Capital Expenditure and FF&E Reserve Account funded pursuant
to Section 7.8.1 (Third) and subtracting any amount that was transferred during
the applicable period to the Borrower Debt Service Reserve Account instead of
the Operating Account) for each Accounting Period ended at least three weeks
prior to such Debt Service Payment Date with respect to which the Manager has
not theretofore transferred such Operating Profit.
7.9 On each Debt Service Payment Date prior to the Optional
Prepayment Date, the Servicer will make withdrawals from the Cash Collateral
Account in the amount of (and not exceeding) the Operating Profit transferred to
the Cash Collateral Account by the Manager pursuant to Section 7.8.2 with
respect to such Debt Service Payment Date only for the following purposes and in
the following order of priority (excluding amounts held in escrow, reserve, or
other subaccounts, which shall be withdrawn and applied solely for the purposes
for which such subaccounts are maintained):
11
(A) (i) if the Securitization has been effected, to transfer funds to
the Collection Account (as such term is defined in the Pooling and Servicing
Agreement used in the Securitization) in the amount needed (y) to pay the
Servicing Expenses and (z) to the extent that the payments called for under this
clause (i) have not been received by the Servicer from or with respect to U.S.
Obligations, (a) first, to the payment of Monthly Debt Service Payment and (b)
next, to the payment of any other Debt then due and payable to the Lender;
(ii) if the Securitization has not been effected, (y) to pay the
Servicing Expenses and (z) to the extent that the payments called for under this
clause (ii) have not been received by the Servicer from or with respect to U.S.
Obligations, (a) first, to payment of Monthly Debt Service Payment and (b) next,
to the payment of any other Debt then due and payable to the Lender; and
(B) to remit to the Manager that portion of the remainder of such
Operating Profit, other than the Excluded Amounts, to the extent to which it is
entitled thereto pursuant to the provisions of the Management Agreement.
(C) subject to the provisions of Sections 6.5 and 7.13, so long as no
Event of Default has occurred and is continuing, to remit to the Borrower the
remainder of such Operating Profit other than the Excluded Amounts.
In making the distribution specified in clause (B) above, the Servicer
shall be entitled to rely conclusively on written instructions that the Manager
shall provide (with copies to the Borrower) as to the amounts to be paid and
compliance with the provisions of the documents named therein. In making the
distribution specified in clause (C) above, the Servicer shall be entitled to
rely on information provided to it by the Manager (with copies to the Borrower).
The Servicer shall have no duty to recompute, recalculate, or verify the data
contained in such instructions or information and shall incur no liability to
the Borrower or the Manager if the Servicer disburses funds in accordance
therewith.
7.10 Until the Note has been Paid In Full, on the Optional Prepayment
Date and each other Debt Service Payment Date thereafter, the Servicer will make
withdrawals from the Cash Collateral Account in the amount of the Operating
Profit (and not exceeding) transferred to the Cash Collateral Account by the
Manager pursuant to Section 7.8.2 with respect to such Debt Service Payment Date
only for the following purposes and in the following order of priority
(excluding amounts held in escrow, reserve, or other subaccounts, which shall be
withdrawn and applied solely for the purposes for which such subaccounts are
maintained):
(A) (i) if the Securitization has been effected, to transfer funds to
the Collection Account in the amount needed to pay (x) the Servicing Expenses,
(y) next, the Monthly Debt Service Payment then due and payable and (z) next,
any other Debt then due and payable to the Lender (other than pursuant to the
provisions of clause (C) below;
(ii) if the Securitization has not been effected, to pay (x) the
Servicing Expenses, (y) next, the Monthly Debt Service Payment then due and
payable, and (z) next, any other Debt then due and payable to the Lender (other
than pursuant to the provisions of clause (C) below;
(B) to the Manager, to be applied to (i) repayment of each Manager Loan
and accrued interest thereon, provided that for such purpose the principal
balance of each Manager Loan shall be amortized on a five year straight line
basis, from the later of (x) the date funds were advanced, or (y) the optional
Prepayment Date, and (ii) payment of Incentive Management Fees earned in the
then current Fiscal Year; and
(C) subject to the provisions of Sections 6.5 and 7.13, to the extent of
Excess Cash Flow for each of the Operating Profit Payment Dates occurring during
the period from and including the
12
eleventh (11th) day of the calendar month immediately preceding such Debt
Service Payment Date to the tenth (10th) day of the calendar month in which such
Debt Service Payment Date occurs, (A) first, to prepayment of each Principal
Payment required to be made on each Debt Service Payment Date in inverse order
of maturity until the principal of the Note has been paid in full, and (B) next,
to payment of the difference, if any, between (y) the sum of (i) interest
accrued and unpaid on the Note calculated at the Adjusted Rate and (ii) interest
on such accrued and unpaid amount at the Adjusted Rate and (z) interest at the
Base Rate paid on each Debt Service Payment Date pursuant to subsection (A) of
this Section 7.10; and
At such time as the Note has been Paid-In Full, the Servicer shall
remit (a) to the Manager, for application consistent with the Management
Agreement, any funds remaining in the Cash Collateral Account (including
subaccounts thereof, subject to the exception set forth in (b) below), the
Operating Account, the Lockbox Account, the Capital Expenditure and FF&E Reserve
Account and the Manager's Account if such account is a lockbox account and (b)
to the Borrower any funds remaining in the Borrower Debt Service Reserve
Account.
In making the distributions and payments specified in paragraph (B) above,
the Servicer shall be entitled to rely conclusively on written instructions that
the Manager shall provide (with copies to the Borrower) as to the amounts to be
paid and compliance with the provisions of the documents named therein. In
making the distribution specified in clause (C) above, the Servicer shall be
entitled to rely on information provided to it by the Manager (with copies to
the Borrower). The Servicer shall have no duty to recompute, recalculate, or
verify the data contained in such instructions or information and shall incur no
liability to the Borrower or the Manager if the Servicer disburses funds in
accordance therewith.
7.11 At such time as the Lockbox Period terminates and until a
further Lockbox Event occurs, the Manager will have the option of reinstating
the cash management procedures set forth in Sections 2, 3, 4.3, 4.4 and 6 hereof
(as applicable) by notice to the Lender, the Servicer, the Borrower and if NACC
is not the Lender, NACC, and all funds then held in the Operating Account shall
be transferred to the Manager's Account (and, if the Manager's Account was
changed into the Lockbox Account in accordance with Section 7.1 hereof, the
Lockbox Account will be changed to the Manager's Account and if the Manager's
Account was not so changed into the Lockbox Account, the Servicer will change
the Lockbox Account into an account over which the Manager will have the
authority to write checks or other transfers for payment to implement the
provisions of this Section 7.12) and, unless the provisions of Section 6 hereof
apply, all funds held in the real estate tax and insurance escrows shall be
transferred to the Manager's Account.
7.12 If an entity that is an Affiliate of MII or MII itself is not
the manager, the Borrower shall take such action or may be required to ensure
that the procedures set forth in Section 7, to the maximum extent possible, are
followed by a replacement manager. In any event, the Borrower shall ensure that
credit card companies continue to send payments directly to the Lockbox Account.
7.13 The requirements set forth in Section 6.5 to deposit an
additional Monthly Debt Service Payment into the Borrower Debt Service Reserve
Account are hereby incorporated by reference except that the obligation to make
such deposit set forth therein shall commence on the date the Servicer delivers
a notice to the Manager and the Borrower that the lockbox procedures are in
effect, as provided for in the preamble to Section 7. If a Lockbox Period
terminates pursuant to the provisions of the preamble to Section 7 prior to the
completion of such obligation, the requirement to make such deposits shall
continue in effect.
13
8. Capital Expenditure and FF&E Reserve Account
8.1 On or before the Closing Date, the Servicer will establish and
maintain a segregated deposit account, which shall be an Eligible Account, in
its name on behalf of the Lender at LaSalle National Bank (the "Capital
-------
Expenditure and FF&E Reserve Account"), into which $1,568,788.63 (i.e., the
------------------------------------
existing balance in the Repairs and Equipment Reserve, as such term is defined
in the Management Agreement, less amounts required to cover outstanding checks)
will be deposited on the Closing Date. In addition to such balance, the Borrower
will deposit in the Capital Expenditure and FF&E Reserve Account on the Closing
Date (i) $1,992,000 for Deferred Maintenance Work, (ii) $117,000 for ADA
Compliance Work and (iii) $206,000 for Environmental Remediation Work
(collectively, the "Work"). In addition, the Borrower has deposited $297,000 in
----
the Capital Expenditure and the FF&E Reserve Account on the Closing Date.
8.2 On or before the date three weeks after the end of each
Accounting Period, the Manager shall make deposits directly into the Capital
Expenditure and FF&E Reserve Account in an amount equal to 5% (or such other
greater percentage contribution as may be required from time to time under the
Management Agreement) of Gross Revenues during the immediately preceding
Accounting Period, provided, however, that (i) the amount set forth in the last
-------- -------
sentence of Section 8.1 shall not be credited towards the Manager's obligation
to make the deposits provided for in this Section 8.2 and (ii) for the purpose
of determining the amount to be funded in the Capital Expenditure and FF&E
Reserve account pursuant to the provisions of Sections 4.3, 4.4 and 7.8.1, the
maximum amount to be so funded shall be equal to 5% of Gross Revenues and, if
the Manager elects to increase such amount to up to 6% of Gross Revenues at any
time starting with the Fiscal Year beginning nearest to January 1, 2001 pursuant
to the provisions of the Management Agreement, up to 6% of Gross Revenues,
during the immediately preceding Accounting Period with respect to which such
funding is made. Within 75 days after the end of each Fiscal Year, amounts
deposited into the Capital Expenditure and FF&E Reserve Account during such
Fiscal Year shall be adjusted to ensure that the aggregate amount of all
deposits made into the Capital Expenditure and FF&E Reserve Account during such
Fiscal Year is equal to 5% of Gross Revenues (or up to 6% of Gross Revenues, at
Manager's election at any time starting with the Fiscal Year beginning nearest
to January 1, 2001) of aggregate Gross Revenues for such Fiscal Year. Any
shortfall in the Capital Expenditure and FF&E Reserve Account on the date such
adjustment is computed based on such percentage shall be funded into the Capital
Expenditure and FF&E Reserve Account from amounts that otherwise would be
distributed to the Borrower from the Cash Collateral Account at the end of the
month in which such adjustment is computed, and any overages shall be
transferred from the Capital Expenditure and FF&E Reserve Account to the Cash
Collateral Account on such date.
8.3 So long as each of the MII Cash Management Conditions shall
remain satisfied, the Manager will be permitted to request withdrawals of funds
from the Capital Expenditure and FF&E Reserve Account once each week (or more
frequently in the case of an Emergency Expenditure, as certified by the Manager
to the Lender), based on its reasonable estimate of upcoming, near-term
expenditures for Capital and FF&E Expenditures, such Emergency Expenditure and
Work and, to the extent permitted by the Management Agreement, for expenditures
("Additional Capital Expenditures") set forth in an approved Building Estimate
-------------------------------
as such term is defined in the Management Agreement. The Manager will be
required to certify within 20 days of the end of each Accounting Period to the
Lender that (i) withdrawals made from the Capital Expenditure and FF&E Reserve
Account during the preceding Accounting Period were necessary for the aforesaid
purposes (and to the extent the same were used for Additional Capital
Expenditures, that the applicable provisions of the Management Agreement have
been complied with), (ii) all funds that it previously has withdrawn from the
Capital Expenditure and FF&E Reserve Account (other than amounts being retained
for reasonably estimated future Capital and FF&E Expenditures) have been used to
pay Capital and FF&E Expenditures, Work, or subject to the foregoing provisions
of this Section 8.3, Additional Capital Expenditures, and (iii) that, to the
Best Knowledge of the Manager, there are no accounts payable of the Properties
for Capital and FF&E Expenditures or Work with an
14
unpaid balance of more than $25,000 individually, or more than $100,000 in the
aggregate, that are more than 60 days past due (unless payment is being
contested in good faith in accordance with Section 2.2 of the Loan Agreement, as
set forth in Schedule II), except as otherwise stated with an explanation
therefor. If, to the Best Knowledge of the Manager, any such account payable is
more than 60 days past due (other than for the reason specified in the preceding
sentence), the Manager shall inform the Lender of such fact concurrently with a
request for funds. The Manager will not be required to obtain approval of the
Lender or any other Person for individual expenditures, except as otherwise
required by the Management Agreement. Upon the request of the Lender in writing,
the Borrower will provide a detailed written accounting of expenditures for
Capital and FF&E Expenditures, Work and Additional Capital Expenditures, in a
form customarily maintained by the Manager in the ordinary course of business.
8.4 During a Lockbox Period, the Manager shall be permitted to
request disbursements from the Capital Expenditure and FF&E Reserve Account
after the submission to the Lender of (a) a certificate of the Manager verifying
that (i) the amounts requested are necessary for Capital and FF&E Expenditures
or Work, (ii) all funds that it previously has withdrawn from the Capital
Expenditure and FF&E Reserve Account (other than amounts being retained for
reasonably estimated future Capital and FF&E Expenditures) have been used to pay
Capital and FF&E Expenditures or Work, and (iii) that, to the Best Knowledge of
the Manager, there are no accounts payable of the Properties for Capital and
FF&E Expenditures or Work with an unpaid balance of more than $25,000,
individually, or more than $100,000 in the aggregate, that are more than 60 days
past due (unless payment is being contested in good faith in accordance with
Section 2.2 of the Loan Agreement, as set forth in Schedule II), except as
otherwise stated with an explanation therefor, and (b) a schedule setting forth
the names of the payees and amounts to be paid out of the proceeds of such
disbursement. The Manager will not be required to obtain approval of the Lender
or any other Person for individual expenditures, except as otherwise required by
the Management Agreement.
8.5 Upon the receipt of a request from the Manager for a
disbursement from the Capital Expenditure and FF&E Reserve Account, the Servicer
shall disburse the requested amount to the Manager by automated clearing house
funds or by Federal wire on the same day for requests made no later than 11:00
a.m. on any Business Day or on the next Business Day for requests made after
such time on any Business Day, to be held in the name of the Manager for payment
of Capital and FF&E Expenditures or Work.
9. Security for Loan
The funds on deposit in the Lockbox Account, the Capital Expenditure
and FF&E Reserve Account, the Operating Account, and the Cash Collateral Account
and each subaccount thereof, and all Permitted Investments thereof, are pledged
to the Lender as further security for the Loan pursuant to the Security
Agreement and the Collateral Account Agreement. The authority of the Manager to
pay Management Expenses with respect to the Properties in the manner set forth
in this Exhibit shall not be terminated, unless the Management Agreement shall
have been terminated and until all Management Expenses incurred or contracted
for prior to or as a result of such termination have been paid or an amount
sufficient to pay such expenses is set aside in a reserve. Unless and until the
Management Agreement is terminated and all expenses relating to Capital and FF&E
Expenditures made or contracted for prior to termination have been paid in full,
or an amount sufficient to pay such expenses has been set aside in a reserve,
(a) the Lender shall not freeze or otherwise restrict the ability of the Manager
to obtain disbursements of funds from the Capital Expenditure and F&E Reserve
Account in accordance with Section 8 hereof or apply funds on deposit in the
Capital Expenditure and FF&E Reserve Account to repayment of the Note and (b)
the right of the Manager to direct the expenditure of funds in the Capital
Expenditure and FF&E Reserve Account in accordance with the procedures set forth
in Section 8 hereof shall not be terminated unless otherwise agreed by the
Lender and the Manager.
15
10. Investment of Funds in Accounts
The Borrower shall have the right to instruct the Servicer to invest
funds, if any, in the Cash Collateral Account and the Capital Expenditure and
FF&E Reserve Account, at the risk of and for the benefit of the Borrower, in
Permitted Investments.
11. Notice of New Accounts
The Manager shall notify the Lender in writing of the account name and
account numbers of the Manager's Account and each Local Account, and of each
supplemental or replacement account established by the Manager from time to time
in connection with the Properties, and the institution in which each such
Account is maintained. The Manager shall not change the Manager's Account
without obtaining the consent of the Lender, which shall not be unreasonably
withheld. If a Local Account shall be changed, or any new Local Account shall be
opened, by the Manager or the Borrower, the Manager or the Borrower, as the case
may be, shall send a notice to the Lender, specifying the new or changed Local
Account and any Local Account replaced thereby.
12. General
12.1 The Lender shall cause the Manager and the Borrower to have
access to information each Business Day regarding activity and balances and
source of receipts in the Cash Collateral Account and all subaccounts thereof,
the Capital Expenditure and FF&E Reserve Account, the Operating Account, the
Lockbox Account, and during such time as the Manager's Account is a lockbox
account, the Manager's Account.
12.2 Unless the context specifies otherwise, transfers of funds held
in any Account that are required by this Agreement shall require only the
transfer of available funds.
12.3 Once each Accounting Period, the Manager will certify to the
Lender that, to its Best Knowledge, it has complied with the cash management
procedures set forth in this Exhibit in all material respects.
12.4 If the principal amount of the Note or a portion thereof is
prepaid by the application of payments received (i) from or with respect to U.S.
Obligations held on the Optional Prepayment Date pursuant to Section 2.3(g) of
the Loan Agreement, (ii) from the release of a Property from the Lien of the
Security Documents pursuant to Section 2.6(c) of the Loan Agreement, (iii) on
and after the Optional Prepayment Date, pursuant to the last sentence of Section
3.1 of the Loan Agreement, or (iv) otherwise, with the Lender's consent, the
Monthly Debt Service Payment payable on each Debt Service Payment Date
thereafter shall be reduced in an amount equal to the percentage reduction in
the principal amount payable under the Note effected by such prepayment.
12.5 Notwithstanding the definition of Monthly Debt Service Payment
set forth in Section 4.3(A)(i), the use of such term in these Cash Management
Procedures other than in Sections 4.3(A), 4.4(A), 7.9(A) and 7.10(A) shall mean
the constant monthly payment set forth in Paragraph 4(b) of the Note, as
adjusted in accordance with Paragraph 4(c) of the Note.
16
EXHIBIT D
"Permitted Investments" means any one or more of the following obligations
---------------------
or securities:
(a) obligations of, or obligations fully guaranteed as to payment of
principal and interest by, the United States or any agency or
instrumentality thereof provided such obligations are backed by the
full faith and credit of the United States of America including,
without limitation, obligations of the U. S. Treasury (all direct or
fully guaranteed obligations), the Farmers Home Administration
(certificates of beneficial ownership) the General Services
Administration (participation certificates), the U. S. Maritime
Administration (guaranteed Title XI financing), the Small Business
Administration (guaranteed participation certificates and guaranteed
pool certificates), the U. S. Department of Housing and Urban
Development (local authority bonds) and the Washington Metropolitan
Area Transit Authority (guaranteed transit bonds); provided, however,
that the investments described in this clause must (A) have a
predetermined fixed dollar of principal due at maturity that cannot
vary or change, (B) if rated by S&P, must not have an "r" highlighter
affixed to their rating, (C) if such investments have a variable rate
of interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(b) Federal Housing Administration debentures;
(c) obligations of the following United States government sponsored
agencies: Federal Home Loan Mortgage Corp. (debt obligations), the
Farm Credit System (consolidated systemwide bonds and notes), the
Federal Home Loan Banks (consolidated debt obligations), the Federal
National Mortgage Association (debt obligations), the Student Loan
Marketing Association (debt obligations), the Financing Corp. (debt
obligations), and the Resolution Funding Corp. (debt obligations);
provided however, that the investments described in this clause must
(A) have a predetermined fixed dollar of principal due at maturity
that cannot vary or change, (B) if rated by S&P, must not have an "r"
highlighter affixed to their rating, (C) if such investments have a
variable rate of interest, such interest rate must be tied to a single
interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) such investments must not be
subject to liquidation prior to their maturity;
(d) federal funds, unsecured certificates of deposit, time deposits,
bankers' acceptances and repurchase agreements having maturities of
not more than 365 days of any bank, the short term obligations of
which are rated in the highest short term rating category by each
Rating Agency (or, if not rated by any Rating Agency other than S&P,
otherwise acceptable to such Rating Agency or Agencies, as applicable,
as confirmed in writing that such investment would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to the Securities); provided, however, that
the investments described in this clause must (A) have a predetermined
fixed dollar of principal due at maturity that cannot vary or change,
(B) if rated by S&P, must not have an "r" highlighter affixed to their
rating, (C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus a
fixed spread (if any) and must move proportionately with that index,
and (D) such investments must not be subject to liquidation prior to
their maturity;
(e) fully Federal Deposit Insurance Corporation-insured demand and time
deposits in, or certificates of deposit of, or bankers' acceptances
issued by, any bank or trust
17
company, savings and loan association or savings bank, the short term
obligations of which are rated in the highest short term rating
category by reach Rating Agency (or, if not rated by any Rating Agency
other than S&P, otherwise acceptable to such Rating Agency or
Agencies, as applicable, as confirmed in writing that such investment
would not, in and of itself, result in a downgrade, qualification or
withdrawal of the then current ratings assigned to the Securities);
provided, however, that the investments described in this clause must
(A) have a predetermined fixed dollar of principal due at maturity
that cannot vary or change, (B) if rated by S&P, must not have an "r"
highlighter affixed to their rating, (C) if such investments have a
variable rate of interest, such interest rate must be tied to a single
interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) such investments must not be
subject to liquidation prior to their maturity;
(f) debt obligations with maturities of not more than 365 days and rated
by each Rating Agency (or, if not rated by any Rating Agency other
than S&P, otherwise acceptable to such Rating Agency or Agencies, as
applicable, as confirmed in writing that such investment would not, in
and of itself, result in a downgrade, qualification or withdrawal of
the then current ratings assigned to the Securities) in the highest
long-term unsecured rating category; provided, however, that the
investments described in this clause must (A) have a predetermined
fixed dollar of principal due at maturity that cannot vary or change,
(B) if rated by S&P, must not have an "r" highlighter affixed to their
rating, (C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus a
fixed spread (if any) and must move proportionately with that index,
and (D) such investments must not be subject to liquidation prior to
their maturity;
(g) commercial paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand or on a
specified date not more than one year after the date of issuance
thereof) with maturities of not more than 365 days and rated by each
Rating Agency (or, if not rated by any Rating Agency other than S&P,
otherwise acceptable to such Rating Agency or Agencies, as applicable,
as confirmed in writing that such investment would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to the Securities) in its highest short-term
unsecured debt rating; provided, however, that the investments
described in this clause must (A) have a predetermined fixed dollar of
principal due at maturity that cannot vary or change, (B) if rated by
S&P, must not have an "r" highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, such interest rate
must be tied to a single interest rate index plus a fixed spread (if
any) and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their
maturity; and
(h) the Federated Prime Obligation Money Market Fund (the "Fund") so long
as the Fund is rated "AAA" by each Rating Agency (or, if not rated by
any Rating Agency other than S&P, otherwise acceptable to such Rating
Agency or Agencies, as applicable, as confirmed in writing that such
investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to
the Securities);
(i) any other demand, money market or time deposit, or any other
obligation, security or investment, provided that, each rating Agency
has confirmed in writing to the Lender, that such investment would
not, in and of itself, result in a downgrade, qualification or
withdrawal of the then current ratings assigned to the Securities; and
18
(j) such other obligations as are acceptable as Permitted Investments to
each Rating Agency, as confirmed in writing to the Lender, that such
obligations would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to
the Securities;
provided, however, that, in the judgment of the Lender, such instrument
continues to qualify as a "cash flow investment" pursuant to Code Section
860G(a)(6) earning a passive return in the nature of interest and that no
instrument or security shall be a Permitted Investment if (i) such instrument or
security evidences a right to receive only interest payments or (ii) the right
to receive principal and interest payments derived from the underlying
investment provides a yield to maturity in excess of 120% of the yield to
maturity at par of such underlying investment.
19
Schedule I
1. The terms defined in this Section have the meanings assigned to them in
this Section, and include the plural as well as the singular.
"ADA Compliance Work" means the repairs, improvements and replacements to
-------------------
the Properties to comply with the Americans with Disabilities Act of 1990, as
amended from time to time, in the amounts more particularly described on Exhibit
-------
A to the Loan Agreement.
-
"Adjusted Rate" means the Base Rate adjusted in accordance with paragraph
-------------
4(e) of the Note.
"Base Rate" means 8.85% per annum.
---------
"Borrower" means Marriott Residence Inn II Limited Partnership, a Delaware
--------
limited partnership
"Business Day" means a day on which banks and foreign exchange markets are
------------
open for business in New York, New York.
"CPI" means the Consumer Price Index, all items for All Urban Consumers,
---
U.S. City Average and (a) using 1982-1984 as the standard reference base period
equal to 100 or (b) if the CPI ceases to be issued with the reference base
period referred to in clause (a) for any time period for which the CPI is to be
determined hereunder, using for the CPI for the time period for which such
reference base period is not used the standard reference base period for such
time period times a conversion factor that will convert such CPI to a value
corresponding to a 1982-1984 base period equal to 100.
"Capital and FF&E Expenditures" means the expenditure of amounts for the
-----------------------------
purpose of the Repairs and Equipment Reserve, as such term is defined in the
Management Agreement.
"Closing Date" means the date of execution and delivery of the Loan
------------
Agreement.
"Condemnation Proceeds" means all awards or payments, and any interest paid
---------------------
or payable with respect thereto, which may be made with respect to all or any
portion of the Properties, whether from the exercise of right of condemnation,
eminent domain or similar proceedings (including any transfer made in lieu of
the exercise of said right), or from any taking for public use, or for any other
injury to or decrease in the value of all or any portion of the Premises
(including, without limitation, any awards resulting from a change of grade of
streets and awards for severance damages), all of the foregoing to be held,
applied and paid in accordance with the provisions of the applicable Mortgage.
"Cure Notice" shall mean a written notice delivered to Manager by Lender
-----------
acknowledging that an Event of Default has been cured (and such cure has been
accepted by Lender) or waived, which notice Lender agrees to deliver promptly
upon any such cure (if accepted by Lender) or waiver.
"Debt" means the obligations of the Borrower under the Transaction
----
Documents, together with all interest thereon, and all other sums, including,
without limitation, fees, expenses, commissions, premiums and indemnities, which
may or shall become due under any of the Transaction Documents, including the
costs and expenses of enforcing any provision of the Transaction Documents that
may be reimbursable under the Transaction Documents.
"Debt Service Payment Date" means the 11th day of each calendar month or
-------------------------
the next Business Day immediately thereafter.
"Default Notice" shall mean any notice of a Payment Event of Default or
--------------
Non-Payment Event of Default from Lender or the Servicer to Manager.
"Default Rate" means a rate per annum equal to the lesser of (aa) two
------------
percent (2%) above the Base Rate or Adjusted Rate, as applicable, and (bb) the
maximum rate allowed by law.
"Deferred Maintenance Work" means the repairs, improvements and
-------------------------
replacements to the Properties in the amounts more particularly described on
Exhibit B to the Loan Agreement.
---------
"Eligible Account" means either (i) an account maintained with a federal or
----------------
state chartered depository institution or trust company, the long-term unsecured
debt obligations of which (or, in the case of a depository institution or trust
company that is the principal subsidiary of a holding company, the long-term
unsecured debt obligations of such holding company) are rated by each Rating
Agency in one of its two highest rating categories (or such other ratings as
will not result in the rating of any of the Securities being reduced below their
respective ratings on the date determination is to be made and as to which the
Rating Agencies may otherwise agree) at the time of the deposit therein, or the
short-term unsecured debt obligations of such depository institution or trust
company (or holding company), as the case may be, are rated by each Rating
Agency not lower than A-1+ by S&P and D1+ by DCR, or (ii) a segregated trust
account maintained with the trust department of a federal or state chartered
depository institution or trust company acting in its fiduciary capacity
provided that such account is subject to fiduciary funds on deposit regulations
(or internal guidelines) substantially similar to 12 C.F.R. (S)9.10 (b), or
(iii) after the Securitization, an account in any other insured depository
institution reasonably acceptable to the Servicer and the trustee, so long as
prior to the establishment of an account in any such other depository
institution each of the Rating Agencies shall have delivered a Rating Comfort
Letter with respect thereto.
"Environmental Remediation Work" means the actions taken with respect to
------------------------------
the Properties set forth on Exhibit C to the Loan Agreement.
"Events of Default" means any of the following:
-----------------
iii
1. failure by the Borrower to pay on the due date any interest or
principal due and payable on the Note as set forth therein; or
2. failure by the Borrower to make any other payment due under any
Transaction Document within ten (10) days after demand therefor shall have been
made; or
3. any representation or warranty of the Borrower contained in any
Transaction Document shall have been untrue or incorrect when made in any
respect that may have a Material Adverse Effect; or
4. failure by the Borrower to perform its covenants in Section 5.2(iv),
and such failure continues unremedied for ten days after notice thereof by NACC
to the Borrower requiring the same to be remedied; or
5. failure by the Borrower to perform or observe any other of its
covenants under any Transaction Document, and such failure continues unremedied
for 30 days after notice thereof by NACC to the Borrower requiring the same to
be remedied; provided, however, that it shall not be an Event of Default if (a)
-------- -------
such failure is curable but is not reasonably capable of being cured within such
30-day period and the Borrower shall have commenced to cure such failure within
such 30-day period and thereafter shall diligently pursue such cure to
completion, but in no event later than 180 days after the date on which the
Borrower received such written notice from NACC or (b) such failure affects one
or more but not all of the Properties and the Borrower, within thirty (30) days
after the Borrower's receipt of such notice from NACC, gives notice to NACC of
its intent to release such Property from the Lien of the Security Documents
pursuant to the provisions of Section 2.6 or 2.9 and, thereafter diligently
pursues efforts to take such action and, within 180 days after the date on which
the Borrower received such written notice from NACC, effects such release
pursuant to the provisions of Section 2.4 or 2.7, as the case may be; or
6. an order (that has not been vacated or stayed within 60 days from the
entry thereof) is made for, or the Partners take any action with regard to, the
winding up of the Borrower or the General Partner except a winding up for the
purpose of a merger, restructuring or contribution, the terms of which have
previously been approved in writing by NACC; or
iv
7. (A) the Borrower or the General Partner shall commence any Action (1)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors
(collectively, "Insolvency Law") seeking to have an order for relief entered
--------------
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (2)
seeking appointment of a receiver, trustee, custodian or other similar official
(each a "Bankruptcy Custodian") for it or for all or substantially all of its
--------------------
assets, or the Borrower or the General Partner shall make a general assignment
for the benefit of its creditors; or (B) there shall be commenced against the
Borrower or the General Partner any Action of a nature referred to in clause (A)
above which (1) results in the entry of any order for relief or any such
adjudication or appointment and (2) remains undismissed, undischarged or
unbonded for a period of 60 days; or (C) there shall be commenced against the
Borrower or the General Partner any Action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or substantially
all of its assets which results in the entry of an order for any such relief
that shall not have been vacated, discharged, stayed, satisfied or bonded
pending appeal within 60 days from the entry thereof; or (D) the Borrower or the
General Partner shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
8 . Unless (a) the Borrower causes all of the Properties
then owned by the Borrower to come under management by another nationally
recognized hotel operator acceptable to NACC, (b) such Properties are operated
as part of a comparable nationally recognized hotel system acceptable to NACC
and (c) each of the Rating Agencies delivers to NACC a Rating Comfort Letter
with respect thereto: (A) the Manager shall commence any Action (1) under any
Insolvency Law seeking to have an order for relief entered with respect to it,
or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (2) seeking appointment of a
Bankruptcy Custodian for it or for all or substantially all of its assets, or
the Manager shall make a general assignment for the benefit of its creditors; or
(B) there shall be commenced against the Manager any Action of a nature referred
to in clause (A) above which (1) results in the entry of any order for relief or
any such adjudication or appointment and (2) remains undismissed,
v
undischarged or unbonded for a period of 60 days; or (C) there shall be
commenced against the Manager any Action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or substantially
all of its assets which results in the entry of an order for any such relief
that shall not have been vacated, discharged, stayed, satisfied or bonded
pending appeal within 60 days from the entry thereof; or (D) the Manager shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due;
9. one or more judgments or decrees, not covered by insurance, in an
aggregate amount exceeding $2,000,000 shall be entered against the Borrower or
the General Partner, and such judgments or decrees shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within 60 days from the
entry thereof; or
10. there is a Change of Control, unless permitted under Section
2.6.
"Impositions" has the meaning set forth in the applicable Mortgage.
-----------
"Inns" means the residence inns and the residence inns operations located
----
at the Properties.
"Insurance Proceeds" means all proceeds of, and any unearned premiums on,
------------------
the Policies (as hereinafter defined) and any other insurance policies covering
all or any portion of the Properties, the Equipment, the Personal Property
and/or the Rents, including, without limitation, the right to receive and apply
the proceeds of any insurance, judgments, or settlements made in lieu thereof,
for damage to all or any portion of the Properties, the Equipment and/or the
Personal Property, and any interest actually paid with respect thereto, all of
the foregoing to be held, applied and paid in accordance with the provisions of
the Mortgage.
"Lender" means NACC or any person to whom the rights and obligations of
------
NACC under the Transaction Documents are assigned.
"Loan" means the loan evidenced by the Note.
----
vi
"Management Agreement" means the Amended and Restated Management Agreement,
--------------------
executed as of the Closing Date, by the Borrower and the Manager relating to the
management and operation of the Properties as such agreement is amended by the
Modification, Subordination and Non-Disturbance Agreement, Estoppel and Consent,
dated as of the Closing Date, among the Manager, the Lender and the Borrower.
"Management Expenses" means the following (without duplication):
-------------------
(i) The cost of operations including salaries, wages (including accruals
for year-end bonuses to key management employees), fringe benefits, payroll
taxes and other costs related to employees of each Hotel (the foregoing costs
shall not include salaries and other employee costs of executive personnel of
the Manager who do not work at one of the Inns on a regular basis; except that
the foregoing costs shall include the allocable portion of the salary and other
employee costs of any general manager or other supervisory personnel (not
including regional vice-presidents or regional salespeople) assigned to a
"cluster" of hotels and inns which includes one or more of the Inns; (ii)
departmental expenses, administrative and general expenses and the cost of
marketing, advertising and business promotion, heat, light and power, and
routine repairs, maintenance and minor alterations, the cost of which can be
expensed under GAAP, as may be deemed by the Manager to be necessary to maintain
each Inn in good repair and condition and in conformity with Legal Requirements;
(iii) the cost of Inventories (as defined in USAH) and items included within
"Property and Equipment" under USAH consumed in the operation of each Inn; (iv)
a reasonable reserve for uncollectible accounts receivable as determined by the
Manager; (v) all costs and fees of independent accountants or other third
parties who perform services required or permitted hereunder; (vi) all costs and
fees of technical consultants and operational experts for specialized services;
(vii) the Residence Inn System Fee (as such term is defined in the Management
Agreement) in an amount equal to the greater of 4% of Suites Revenues (as such
term is defined in the Management Agreement) or the actual fee incurred; (viii)
the Base Management Fee (as such term is defined in the Management Agreement) in
an amount equal to the greater of 2% of Gross Revenues or the actual fee
incurred; (ix) the Inns' pro rata share of costs and expenses incurred by
Manager in providing Chain Services (as such term is defined in the Management
Agreement) in
vii
an amount equal to the greater of 2.5% of Gross Revenues or the actual costs and
expenses incurred; (x) insurance costs and expenses (without duplication); (xi)
taxes, if any, payable by or assessed against the Manager related to this
Agreement or to the Manager's operation of the Inns (exclusive of Manager's
income taxes) and all Impositions (without duplication); (xii) deposits required
to be made into the Capital Expenditure and FF&E Reserve Account and the Tax and
Insurance Account to the extent required by the Cash Management Procedures (but
not including any amounts paid from such Accounts); (xiii) the contributions
required to be made, as they may change from time to time, to the Marketing Fund
(as such term is defined in the Management Agreement) in an amount equal to the
greater of 2.5% of Gross Revenues or the actual contributions made; and (xiv)
Such other costs and expenses as are otherwise reasonably necessary for the
proper and efficient operation of the Inns.
"MII" means Marriott International, Inc., a Delaware corporation.
---
"MII Cash Management Conditions" means the following conditions: (i) the
------------------------------
Properties from which Gross Revenues are to be deposited in the Manager's
Account are managed by the Manager under the Management Agreement and (ii) the
Manager is a wholly owned, direct or indirect, subsidiary of MII.
"Monthly Debt Service Payment" means the constant monthly payment set forth
----------------------------
in Paragraph 4(b) of the Note.
--------------
"NACC" means Nomura Asset Capital Corporation.
----
"Note" means that certain Secured Promissory Note, dated the Closing Date,
----
from the Borrower to NACC in the principal sum of $140,000,000.
"Optional Prepayment Date" means April 11, 2006.
------------------------
"Paid in Full" shall mean, with respect to the Note, that all indebtedness
------------
evidenced by the Note has been paid, provided,
viii
however, that the Note shall be deemed to have been Paid in Full for purposes of
this Agreement (but not for purposes of the Loan Documents) at such time as all
of the Property has been transferred to Lender or its designee, or to a third
party purchaser, through foreclosure or Deed in Lieu of Foreclosure, it being
understood that the Note shall not be deemed to have been Paid in Full (unless
all indebtedness evidenced by the Note shall actually have been paid) so long as
any of the Property remains subject to the lien of a Mortgage.
"Payment Event of Default" shall mean any Event of Default resulting from a
------------------------
default in payment required under any Loan Document.
"Principal Payment." Payment of principal on the Note in reduction of such
-----------------
principal in the amount of the difference between the Monthly Debt Service
Payment and the Base Rate Interest
"Property" or "Properties" means any or all of those 22 residence inns at
-------- ----------
the locations set forth in Exhibit E to the Loan Agreement including all
---------
improvements thereon, fixtures thereto, direct interests therein, and personal
property related thereto or included therein; provided, however, that "Property"
or "Properties" shall not include (i) any property owned by tenants, guests,
licensees or concessionaires of or to such Property or Properties, or (ii) any
Property or Properties released from the Lien of the Security Documents pursuant
to the provisions of this Agreement or any Security Document from and after the
date of such release.
"Rating Agencies" means one or more of S&P, Fitch Investors Services Inc.,
---------------
▇▇▇▇▇'▇ Investor Services Inc. and DCR that are, at the time of determination,
selected by NACC to rate the Securities.
"S&P" means Standard & Poor's Rating Services.
---
"Securitization" means any securitization of the Loan.
--------------
"Servicer" means Amresco, Inc., its assigns and successors and any other
--------
nationally recognized servicer of commercial mortgage loans selected by NACC.
ix
"Transaction Documents" means the Loan Agreement, the Security Documents,
---------------------
the Note and all other documents executed and delivered by the Borrower in favor
of NACC in connection with the Loan, including, without limitation, all
agreements, instruments and documents pursuant to which the Pledged Property is
assigned, collaterally assigned and/or pledged to NACC hereunder.
x
Schedule II
LOAN AGREEMENT
Section 2.2 Right to Contest. To the extent consistent with the Mortgages,
----------------
the Borrower at its expense may contest, by appropriate Action conducted in good
faith and with due diligence, the amount or validity or application, in whole or
in part, of any Imposition or Lien therefor or any Legal Requirement or
Insurance Requirement or the application of any instrument of record affecting
the Pledged Property or any part thereof or any claims or judgments of
mechanics, materialmen, suppliers or vendors or Liens therefor, and may direct
the Manager or the Servicer, as the case may be, to withhold payment of the same
pending such Action if permitted by law; provided, however, that (a) in the case
-------- -------
of any Impositions or Liens therefor or any claims or judgments of mechanics,
materialmen, suppliers or vendors or Liens therefor, such Action shall suspend
the enforcement thereof and the accrual of penalties thereon from the Borrower,
the Manager, the Servicer and the Pledged Property, (b) neither the Pledged
Property nor any part thereof or interest therein could be in any danger of
being sold, forfeited or lost if the Borrower pays the amount or satisfies the
condition being contested, and the Borrower would have the opportunity to so pay
or satisfy if the Borrower fails to prevail in the contest and (c) in the case
of an Insurance Requirement, the failure of the Borrower to comply therewith
shall not impair the validity of any insurance required to be maintained by the
Borrower under the applicable Mortgage or the right to full payment of any
claims thereunder.
i
Section 2.3 Defeasance.
----------
(a) At any time after the date which is the earlier of (i) two years after
the "startup day," within the meaning of Section 860G(a)(9) of the IRC, of a
"real estate mortgage investment conduit," within the meaning of Section 860D of
the IRC (a "REMIC"), that holds the Note (if the Note has been transferred to a
-----
REMIC prior to March 22, 1998) and (ii) March 22, 2000, but prior to the
Optional Prepayment Date, and provided no Event of Default has occurred and is
continuing (other than an Event of Default that will be cured by the release of
a Property or Properties from the Lien of the Security Documents pursuant to the
provisions of clause (e) of Section 4.1A), the Borrower may defease such Lien to
cause the release of one or more Properties from such Lien by providing the
Lender with funds in an amount sufficient to purchase U.S. Obligations in an
amount equal to the Defeasance Deposit for that portion of the Note which the
Borrower wishes to defease, upon the satisfaction of the following conditions:
(i) not less than 30 days' notice to the Lender specifying a Debt
Service Payment Date (the "Release Date") on which the Defeasance Deposit is to
------------
be made;
(ii) the payment to the Lender of interest accrued and unpaid on the
principal balance of the Note and all other Debt due through and including the
Release Date;
(iii) the payment to the Lender of the Defeasance Deposit;
(iv) the delivery to the Lender of:
(a) a security agreement (the "Defeasance Security
-------------------
Agreement"), in form and substance satisfactory to the
---------
Lender, creating a first priority perfected security
interest in favor of the Lender in the Defeasance Deposit
and the U.S. Obligations purchased with the Defeasance
Deposit in accordance with this subsection (a) (together,
the "Defeasance Collateral");
---------------------
(b) form(s) of release of the Property(ies) to be released
from the Lien of the Security Documents (for execution by
the Lender)
ii
appropriate for the jurisdiction(s) in which such
Property(ies) are located;
(c) an Officer's Certificate certifying that the requirements
set forth in subsections (a) (ii)-(iv) have been
satisfied;
(d) an opinion of counsel for the Borrower (which may be a
"reasoned" opinion), in form and substance satisfactory to
the Lender, that (i) the transfer of the Defeasance
Collateral in exchange for release(s) of the Property(ies)
to be released will not constitute an avoidable preference
under Section 547 of the United States Bankruptcy Code in
the event of a filing of a petition for relief under the
United States Bankruptcy Code for or against the Borrower,
(ii) the Defeasance Collateral has been duly and validly
assigned and delivered to the Trustee for the benefit of
the holders of the Securities, (iii) the Trustee holds a
first priority perfected security interest in the
Defeasance Collateral for the benefit of such holders,
(iv) such transfer will not result in a deemed exchange of
the Securities pursuant to Section 1001 of the IRC, (v)
such transfer will not, by itself, adversely affect the
status of the Securities as indebtedness for federal
income tax purposes and (vi) such transfer will not
adversely affect the status of the entity holding the Debt
as a REMIC (assuming for such purposes that such entity
otherwise qualifies as a REMIC and that the Note was
transferred to such REMIC not later than two years prior
to the Release Date);
(e) a certificate of a certified public accountant acceptable
to the Lender that the Defeasance Collateral complies with
the requirements set forth in subsection (b) below;
(f) such other certificates, documents or instruments as the
Lender may reasonably request;
iii
(g) evidence satisfactory to the Lender that the Defeasance Debt
Service Coverage Ratio will be maintained for the twelve
full months commencing immediately after the Release Date at
the greater of (x) the Initial Debt Service Coverage Ratio
and (y) the ratio of the Net Operating Income for the
thirteen (13) full Accounting Periods next preceding the
Release Date divided by the difference between (i) Debt
Service Expense for such period and (ii) the payments
received for such period from or with respect to U.S.
Obligations purchased by the Lender with the Defeasance
Deposits paid to it by the Borrower pursuant to this Section
2.3(a) and then held as security for the Note for such
period; and
(v) If the defeasance is made after the Securitization, the Rating
Agencies deliver a Rating Comfort Letter.
(b) If, following the release of the subject Property(ies), less than all
of the Properties shall have been released, the Lender shall use the Defeasance
Deposit to purchase U.S. Obligations that provide payments on or prior to, but
as close as possible to, all successive Debt Service Payment Dates after the
Release Date equal to the sum of (i) 125% of the portion of the P&I Payments due
on such Debt Service Payment Dates allocable to the Property(ies) to be released
from the Lien of the Security Documents on such Release Date (determined, pro
---
rata, on the basis of the Release Prices) through and including the Optional
----
Prepayment Date and (ii) 125% of the amount allocable to such Property(ies)
(determined, pro rata, on the basis of the Release Prices) of a balloon payment
--- ----
equal to the outstanding principal balance of the Note, and accrued and unpaid
interest thereon, that would remain unpaid as of the Optional Prepayment Date as
if such balloon payment were then due and payable. If a Property is released
pursuant to this Section 2.3 as a result of a condemnation or casualty, the
payments provided for in the preceding sentence shall be equal to the greater of
(A) the Release Price and (B) the lesser of (x) the Defeasance Deposit and (y)
the net Condemnation Proceeds or the net Insurance Proceeds received on account
of such Property. The Lender shall deliver such U.S. Obligations to the Servicer
for application pursuant to Sections 4.3(A) and 7.9(A) of the Cash Management
Procedures.
iv
(c) If, as a result of the release of the subject Property(ies), all of
the Properties shall have been released, the Lender shall use the Defeasance
Deposit to purchase U.S. Obligations that provide, together with any U.S.
Obligations purchased in connection with any prior releases of Properties,
payments on or prior to, but as close as possible to, all successive Debt
Service Payment Dates after the Release Date equal to the sum of (i) the
remaining Monthly Debt Service Payments (such Monthly Debt Service Payments due
on such Debt Service Payment Dates being herein referred to as the "P&I
---
Payments") that would be required under the Note through and including the 120th
--------
Debt Service Payment Date and (ii) a balloon payment of the outstanding
principal balance of the Note and accrued and unpaid interest thereon as of the
Optional Prepayment Date as if such balloon payment were then due and payable.
The Lender shall deliver such U.S. Obligations to the Servicer for application
pursuant to Sections 4.3(A) and 7.9(A) of the Cash Management Conditions.
(d) Upon compliance with the requirements of this Section 2.3, the
Property(ies) to be released shall be released from the Lien of the Security
Documents and shall not be deemed a Property hereunder and the U.S. Obligations
shall constitute substitute collateral which, together with the Security
Documents applicable to the remaining Properties, shall secure the Debt.
(e) If all the Properties have been released, the Borrower may assign its
obligations under the Note together with the U.S. Obligations to a successor
entity (the "Successor Entity") designated by the Lender and thereupon be
----------------
released fully from all obligations relating to the Debt. In such event the
opinion of counsel provided for in clause (a)(iv)(D) of this Section 2.3 shall
provide that the Defeasance Collateral will not be part of the estate of the
Borrower under Section 541 of the United States Bankruptcy Code. The Lender
shall retain its obligation to designate a Successor Entity notwithstanding the
transfer of the Note unless such obligation is specifically assumed by the
transferee. In consideration for the payment of $1,000 by the Borrower, such
Successor Entity shall assume the Borrower's obligations under the Note and the
Defeasance Security Agreement, the Borrower shall be relieved of its obligations
thereunder and the Debt of the Borrower shall not be deemed outstanding for any
purpose of this Agreement. If required by the applicable Rating Agencies, the
Borrower shall also deliver or cause to be delivered a Substantive Consolidation
Opinion with respect to the Successor Entity in form and substance satisfactory
to the Lender and the applicable Rating Agencies.
v
(f) For purposes of this Section 2.3, "Defeasance Deposit" shall mean an
------------------
amount in cash necessary to purchase U.S. Obligations whose cash flows are in an
amount sufficient to make the P&I Payments required under subsections (b) or
(c), as the case may be, plus any costs and expenses incurred or to be incurred
in making such purchase; "U.S. Obligations" shall mean obligations or securities
----------------
not subject to prepayment, call or early redemption which are direct obligations
of, or obligations fully guaranteed as to timely payment by, the United States
of America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America; and "Defeasance Debt Service Coverage Ratio" shall mean, in
--------------------------------------
respect of any fiscal period, the ratio of (i) Net Operating Income of the
Properties for such period remaining after a defeasance pursuant to this Section
2.3 to (ii) the difference between (x) Debt Service Expense for such period and
(y) the payments to be received from or with respect to U.S. Obligations then
held as security for the Note for such period.
(g) If the payment of accrued and unpaid interest and principal of the
Note and any other Debt has not been made in full by the Optional Prepayment
Date, payments from or with respect to U.S. Obligations then held by the Lender
and such payments received by the Lender thereafter shall be applied on the date
such payment is received (i) first, to payment of accrued and unpaid interest on
the Note and (ii) second, to prepayment of the Principal Payments in inverse
order of maturity.
(h) Notwithstanding the provisions of subsection (a) of this Section 2.3,
the Borrower may defease the Lien of the Security Documents to cause the release
of a Property for the purpose set forth in clause (e) of Section 4.1A prior to
the date set forth in such subsection (a) if it provides to the Lender an
opinion in form and substance, and from a firm, acceptable to the Lender, in the
exercise of its sole discretion, that such release will not adversely affect the
status of the entity holding the Debt as a REMIC (assuming for such purpose that
such entity otherwise qualifies as a REMIC).
Section 7.1(a)
(v) initial and ongoing administration by the Servicer of the Lockbox
Account, the Capital Expenditure and FF&E Reserve Account,
vi
the Tax and Insurance Subaccount, the Cash Collateral Account and the Lockbox
Account;
(vi) initial and ongoing activity of any special servicer incurred as a
result of an Event of Default;
MORTGAGE
13. Damage to and Destruction of the Mortgaged Property
---------------------------------------------------
(a) In the event that the Mortgaged Property shall be damaged or
destroyed, in whole or in part, by fire or other casualty, whether insured or
uninsured, Mortgagor shall give prompt written notice thereof to Mortgagee,
together with Mortgagor's best estimate of the cost of restoration (the
"Restoration Cost"). Subject to the provisions of this Paragraph 13, Mortgagor
---------------- ------------
shall restore the Premises to the standard required by Paragraph 12(a)(vi) of
-------------------
this Mortgage. Mortgagor shall timely file all claims or proofs of claim so as
not to prejudice any claim and, if the Restoration Cost is equal to or greater
than an amount (the "Restoration Benchmark") equal to the lesser of (xx)
---------------------
$250,000.00 and (yy) 5% of the Release Price attributed to the Premises in the
Loan Agreement, or, irrespective of the Restoration Cost, if an Event of Default
exists as of the date of submission of any claims or proofs of claim, Mortgagor
shall submit all claims or proofs of claim and other submissions to Mortgagee
for the written approval of Mortgagee prior to any such filing, which approval
shall not be unreasonably withheld, conditioned or delayed.
(b) Provided that no Event of Default exists at the time of
settlement, Mortgagor shall have the right to settle any insurance claim with
respect to any casualty where the Restoration Cost is less than the Restoration
Benchmark, but shall give prompt written notice of any such claim and settlement
to Mortgagee. In such event, Mortgagor shall apply the Insurance Proceeds
relating to such casualty to restoration, replacement, rebuilding or repair
(hereinafter collectively referred to as "Restoration") of the damage to the
-----------
standard required by Paragraph 12(a)(vi) hereof.
-------------------
(c) If the Restoration Cost equals or exceeds the Restoration
Benchmark, and unless Mortgagor has obtained the release of this Mortgage as a
Casualty Event Release (as hereinafter defined) in accordance with the Loan
Agreement,
vii
Mortgagee shall have the right to participate in the settlement of all insurance
claims relating to such casualty, and all Insurance Proceeds relating to such
casualty shall be paid directly to Mortgagee, and, after settlement of the
claim(s) and subject to Paragraph 13(d) hereof, such Insurance Proceeds shall be
---------------
deposited in the Insurance Proceeds Subaccount (as defined in the Loan
Agreement) of the Cash Collateral Account (as defined in the Loan Agreement) and
advanced to Mortgagor from time to time (subject to the conditions set forth
below) in reimbursement for amounts expended by Mortgagor or as direct payments
to contractors in Restoration of the Mortgaged Property. Upon completion of the
entire Restoration and provided no uncured Event of Default exists at the time
of payment, Mortgagee shall pay the remaining amount of the Insurance Proceeds,
if any, to Mortgagor; provided, however, that nothing herein contained shall
-------- -------
prevent Mortgagee from applying at any time the whole or any part of the
Insurance Proceeds to the curing of any default under any Transaction Document
or to the payment of the Debt in the circumstances set forth in Paragraph 13(d).
---------------
Advances of Insurance Proceeds shall be made available to Mortgagor, no less
frequently than monthly, in accordance with the general procedures employed at
the time by Mortgagee in connection with the disbursement of loan proceeds in
general by Mortgagee (including, without limitation, an endorsement to the title
insurance policy of Mortgagee as to the Premises insuring the continued first
priority lien of this Mortgage against mechanics' liens that may arise out of
the Restoration and appropriate certifications from a licensed architect or
engineer selected by Mortgagor subject to the reasonable approval of Mortgagee
(each, an "Architect") that the requested payment is for work completed in
---------
accordance with plans and specifications approved by Mortgagee and that the
balance of funds held on deposit after such payment will be sufficient to pay
the cost of completing the Restoration (provided, however, that if the cost of
the Restoration is or is estimated to be less than $100,000.00, Mortgagee will
accept a certificate of the officer of the general partner of Mortgagor
certifying to this effect), and evidence satisfactory to Mortgagee that no liens
have been filed for the labor and materials used in connection therewith and
that the requested payment will be received in trust, to be applied first to the
payment for such labor and materials in amounts which are equal to the
percentage of completion attained at the time of such advance, less, in the case
of any Restoration in which the original estimated cost or actual cost is
$100,000.00 or more, all amounts previously advanced and a holdback of 10% (or
such lesser amount as may be customary in the trade in such location or as may
be required under the applicable restoration contract, but in no event less than
5% for any contact
viii
where a holdback is required), which remaining amounts will be advanced upon
full completion of the Restoration as due under the applicable Restoration
contract. All Insurance Proceeds and other sums deposited with Mortgagee
pursuant to this Paragraph, until expended or applied as provided in this
Paragraph, shall constitute additional security for the Debt and shall be
invested in "Permitted Investments" (as defined in the Loan Agreement) with
---------------------
income thereon inuring to the benefit of Mortgagor in accordance with the Loan
Agreement.
(d) Notwithstanding the foregoing, if an Event of Default exists or
if, in Mortgagee's reasonable judgment based on professional consultation:
(i) the Restoration of the Improvements cannot be completed (A)
so as to constitute an economically viable building or (B) at least six (6)
months prior to the Maturity Date; or
(ii) the amount of business interruption insurance is
insufficient to cover all fixed and operating expenses of the Premises,
including such portion of debt service on the Loan as is reasonably
allocable to the Premises, during Restoration and until the operation of
Mortgagor's business at the Premises is resumed; or
(iii) the amount of Insurance Proceeds equals or exceeds the
amount of the outstanding principal balance of the Loan; or
(e) Restoration of the Mortgaged Property cannot be completed except
at a cost which exceeds the amount of available Insurance Proceeds and Mortgagor
shall not have deposited with Mortgagee, within ninety (90) days following
Mortgagee's receipt of such Insurance Proceeds and delivery to Mortgagor of
notice of a deficiency, an amount, in cash or cash equivalent, equal to the
excess of the estimated cost of restoration as determined by an Architect over
the amount of such Insurance Proceeds;
then Mortgagee shall have the option to apply Insurance Proceeds to the payment
of the Note, interest accrued and unpaid thereon, and the Yield Maintenance
Premium, and other unpaid amounts, if any, of the Debt, all in such order as
Mortgagee shall designate in accordance with the Transaction Documents,
provided, however, that
-------- -------
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any such application shall in no event affect the payments to be made in respect
of the Note.
(f) Mortgagor shall, promptly after the occurrence of a casualty,
commence and thereafter with reasonable diligence prosecute to completion any
Restoration of the Mortgaged Property or part thereof to the standard required
by Paragraph 12(a)(vi) hereof. Any such Restoration shall be undertaken and
-------------------
completed in accordance with this Paragraph 13, subject to the final provision
------------
of this Paragraph 13(e). All Restoration shall be in a good and workmanlike
---------------
manner with reasonable diligence, and in compliance with all Legal Requirements.
Seasonality or weather permitting, if Mortgagor fails to commence Restoration
within thirty (30) days following Mortgagee's receipt of Insurance Proceeds or
fails to prosecute the Restoration to completion, Mortgagee may upon ten (10)
days' notice to Mortgagor, but shall not be obligated to, perform the
Restoration, and may use any of the Insurance Proceeds and Mortgagor's funds
deposited pursuant to Paragraph 13(c) or 13(d) of this Paragraph in payment
------------------------
therefor. Mortgagor shall pay to Mortgagee, within ten (10) days after written
demand, the amount of any deficiency between funds available for the Restoration
and the cost thereof (including funds deposited by Mortgagor pursuant to
Paragraph 13(c) or 13(d) of this Paragraph) together with interest thereon at
------------------------
the Default Rate from such tenth (10th) day through and including the date of
payment to Mortgagee. Notwithstanding the foregoing provisions of this Paragraph
---------
13(e) or anything else contained in this Paragraph 13, if Mortgagor has obtained
----- ------------
the release of the Premises and the lien of this Mortgage in accordance with the
Loan Agreement by payment of the applicable Release Price and other amounts due,
if any, to obtain a release under the Loan Agreement, and the taking of any
other actions required by the Loan Agreement with respect thereto (the payment
of such amounts and the taking of such actions being collectively called a
"Casualty Event Release"), then Mortgagor shall not be required to undertake the
----------------------
Restoration described herein. As set forth in the Loan Agreement, the payment of
amounts with respect to a Casualty Event Release shall not require the payment
of a Yield Maintenance Premium, and any Insurance Proceeds paid to Mortgagee
shall be credited against payments of the Release Price and any other amounts
due with respect to a Casualty Event Release required to be paid by the
provisions of the Loan Agreement.
(g) It is intended that, anything contained herein to the contrary
notwithstanding, no trust or fiduciary relationship shall be created by the
receipt by Mortgagee of any Insurance Proceeds, but only a debtor-creditor
relationship between
x
Mortgagee, on the one hand, and Mortgagor, on the other, and only to the extent
of the Insurance Proceeds.
(h) If any Insurance Proceeds are not paid until after the
extinguishment of the Debt, whether by foreclosure or otherwise, and Mortgagee
shall not have received the entire amount of the Debt outstanding at the time of
such extinguishment, then such Insurance Proceeds, to the extent of the amount
of the Debt not so received, shall be paid to Mortgagee and be the property of
Mortgagee; and Mortgagor hereby assigns, transfers and sets over to Mortgagee
all of Mortgagor's right, title and interest in and to such proceeds. The
balance of such Insurance Proceeds, if any, shall be paid to and be the property
of Mortgagor. The provisions of this Paragraph shall survive the termination of
this Mortgage by foreclosure or otherwise as a consequence of the rights and
remedies of Mortgagee hereunder after an Event of Default.
(i) Subject to the provisions of Paragraph 13(d) or 13(e), as
------------------------
applicable, nothing herein contained shall be deemed to excuse Mortgagor from
repairing or maintaining the Mortgaged Property as provided in this Mortgage or
restoring all damage or destruction to the Mortgaged Property, regardless of the
sufficiency or availability of Insurance Proceeds, and the application or
release by Mortgagee of Insurance Proceeds shall not be deemed, in and of
itself, to cure or waive any default or Event of Default or notice of default.
Notwithstanding any casualty, Mortgagor shall continue to pay the Debt at the
time and in the manner provided for its payment in this Mortgage and the Note
and the Debt shall not be reduced until any Insurance Proceeds shall have been
actually received by Mortgagee and applied to the discharge of the Debt or
payments with respect to a Casualty Event Release.
(j) Mortgagee, to the extent that Mortgagee has not been reimbursed
therefor by Mortgagor, shall be entitled as a first priority out of any
Insurance Proceeds, to reimbursement for all actual costs, fees, reimbursements
and expenses of Mortgagee incurred in the determination and collection of any
such proceeds.
14. Condemnation Proceedings.
------------------------
(a) In the event that the Mortgaged Property, or any part thereof,
shall be taken pursuant to Condemnation Proceedings, Mortgagee shall, as
hereinafter set forth, have certain consent rights with respect to settlement of
any such Condemnation Proceedings, but shall not participate in any such
Condemnation
xi
Proceedings except as expressly provided herein, and any Condemnation
Proceedings that may be made or any proceeds thereof are hereby assigned to
Mortgagee and shall be received and deposited into the Condemnation Proceeds
Subaccount (as defined in the Loan Agreement) of the Cash Collateral Account and
held and distributed by Mortgagee in the manner herein set forth. Mortgagor will
give Mortgagee prompt notice of the actual commencement of any Condemnation
Proceedings affecting the Mortgaged Property or of any threatened condemnation
of which Mortgagor becomes aware, including proceedings for severance and change
in grade of streets, and will deliver to Mortgagee copies of any and all papers
served in connection with any Condemnation Proceedings. Mortgagee is hereby
authorized to commence, appear in, and prosecute in its own name or Mortgagor's
name any action or proceeding relating to any Condemnation Proceedings, upon not
less than ten (10) Business Days' prior written notice to Mortgagor, if
Mortgagor has not commenced any such action or proceeding. Mortgagor may not
settle or compromise any claim in connection with any Condemnation Proceeding,
whether involving a Total Taking, Partial Taking or Temporary Taking, which
claim equals or exceeds, or, at the outset of any such Condemnation Proceedings,
appears to involve a sum which is likely to equal or exceed, in Mortgagee's
reasonable judgment based on professional consultation, the Restoration
Benchmark, without the prior written consent of Mortgagee in each instance,
which consent shall not be unreasonably withheld, conditioned or delayed, and
Mortgagee shall have the right to settle or compromise any claim in connection
therewith (irrespective of amount), without the consent of Mortgagor after the
occurrence of an Event of Default. Mortgagor agrees to execute any and all
further documents that may be reasonably required in order to facilitate the
collection of any Condemnation Proceeds and the making of any such deposit and
Mortgagor hereby appoints Mortgagee its attorney-in-fact for the limited purpose
of executing any such documents after the occurrence of an Event of Default,
such power being coupled with an interest and irrevocable.
(b) If, at any time during the term of the Loan, there occurs a Total
Taking (as hereinafter defined), Mortgagee shall collect any Condemnation
Proceeds, and apply the same, after payment of Mortgagee's reasonable costs of
collection thereof, including reasonable attorneys' fees and disbursements, to
payment of the Debt (but no Yield Maintenance Premium shall be due), all in such
order as Mortgagee shall designate, provided, however, that any such application
-------- -------
shall in no event affect the payments to be made in respect of the Note. Any
portion of any Condemnation Proceeds remaining after the payment in full of the
Debt shall be
xii
released by Mortgagee to Mortgagor. For the purposes of this Paragraph, a "Total
-----
Taking" shall mean any taking or any constructive taking of Mortgagor's title to
------
the Premises in Condemnation Proceedings or by agreement by Mortgagor which
shall, in the reasonable opinion of Mortgagee, render it impracticable to
restore, within six (6) months prior to the Maturity Date, the portion of the
Premises not subject to such taking to a complete architectural unit of
substantially the same economic viability and for the same purposes and uses as
existed immediately prior to the date of the commencement of the Condemnation
Proceedings.
(c) If, at any time during the term of the Loan, there occurs a
taking which is less than a Total Taking (a "Partial Taking"), then, provided
--------------
that no Event of Default exists as of the date of submission of Mortgagor's
claim in the Condemnation Proceeding with respect to such Partial Taking,
Mortgagor shall have the right to settle any such claim with respect to any
Partial Taking where the Restoration Cost is less than the Restoration
Benchmark, but shall give prompt written notice of any such claim and settlement
to Mortgagee. If the Restoration Cost equals or exceeds, or, at the outset of
such Condemnation Proceedings, appears to involve a sum which is likely to equal
or exceed, in Mortgagee's reasonable judgment based on professional
consultation, the Restoration Benchmark, then, unless Mortgagor has obtained the
release of this Mortgage as a Condemnation Event Release (as hereinafter
defined) in accordance with the Loan Agreement, Mortgagee shall have the right
to participate in the settlement of such claim and all Condemnation Proceeds
relating to such Partial Taking shall be held by Mortgagee and shall be released
to pay the costs of restoration of the Improvements (a "Condemnation
------------
Restoration") subject to and upon satisfaction of the conditions set forth in
-----------
Paragraphs 13(c) and 13(d) hereof as if such Condemnation Proceeds constituted
--------------------------
Insurance Proceeds and the balance, if any, shall be paid to Mortgagor; unless,
------
in Mortgagee's reasonable judgment based on professional consultation, the
Condemnation Restoration cannot be completed in accordance with the conditions
of Paragraphs 13(c) and 13(d). In the event that there exists an Event of
--------------------------
Default, or (xx) any of such conditions shall not have been met, or (yy) the
Condemnation Restoration cannot be completed, in Mortgagee's reasonable judgment
based on professional consultation, prior to a date which is at least six (6)
months prior to the Maturity Date, regardless of compliance with all of the
other conditions of Paragraphs 13(c) and 13(d), or (zz) if the Condemnation
--------------------------
Proceeds exceed the cost of the Condemnation Restoration, Mortgagee, at the
discretion of Mortgagee, shall apply the Condemnation Proceeds, or balance
thereof, to payment of the
xiii
Debt, (but no Yield Maintenance Premium shall be due), all in such order as
Mortgagee shall designate, provided, however, that any such application shall in
-------- -------
no event affect the schedule of payments to be made in respect of the Note. If
there is any balance of any Condemnation Proceeds remaining in the hands of
Mortgagee after any payment of the Debt in full, such balance shall be released
to Mortgagor. In the event that the costs of any permitted Condemnation
Restoration, as estimated reasonably by Mortgagee at any time, shall exceed the
net Condemnation Proceeds received by Mortgagee, Mortgagor shall deposit such
deficiency with Mortgagee.
(d) In the event of any taking of all or any portion of the Mortgaged
Property for temporary use or occupancy ("Temporary Taking"), any Condemnation
----------------
Proceeds with respect to such Temporary Taking shall be treated as Gross
Revenues (as defined in the Loan Agreement) and shall be distributed and applied
in the manner contemplated in the Loan Agreement (but only to the extent that
any such Condemnation Proceeds have not been used for Condemnation Restoration).
(e) Subject to the final provision of this Paragraph 14(e), nothing
---------------
contained in this Paragraph shall relieve Mortgagor of its duty to maintain,
repair, replace or restore the Improvements or the Equipment or rebuild the
Improvements, from time to time, following any Condemnation Proceedings with
respect to a Partial Taking or Temporary Taking and nothing in this Paragraph
shall relieve Mortgagor of its duty to pay the Debt, which shall be absolute,
regardless of any such occurrence with respect to all or any portion of the
Mortgaged Property. Notwithstanding any taking, whether a Total Taking, a
Partial Taking or a Temporary Taking, Mortgagor shall continue to pay the Debt
at the time and in the manner provided for its payment in this Mortgage and the
Note, and the Debt shall not be reduced until any award or payment therefor
shall have been actually received by Mortgagee and applied to the discharge of
the Debt. Notwithstanding the foregoing provisions of this Paragraph 14(e) or
---------------
anything else contained in this Paragraph 14, if Mortgagor has obtained the
------------
release of the Premises and the lien of this Mortgage in accordance with the
Loan Agreement by payment of the applicable Release Price and other amounts, if
any, due to obtain a release under the Loan Agreement, and the taking of any
other actions required by the Loan Agreement with respect thereto (the payment
of such amounts and the taking of such actions being, with respect to any
Condemnation Proceeding(s), being collectively called a "Condemnation Event
------------------
Release"), then Mortgagor shall not be required to undertake the Condemnation
-------
Restoration described herein. As set
xiv
forth in the Loan Agreement, the payment of amounts with respect to a
Condemnation Event Release shall not require the payment of a Yield Maintenance
Premium, and any Condemnation Proceeds paid to Mortgagee shall be credited
against payments of the Release Price and any other amounts due with respect to
a Condemnation Event Release required to be paid by the provisions of the Loan
Agreement. It is recognized that, with respect to a Partial Taking or a Total
Taking, depending on the amount of the award from the Governmental Authority
available to pay the Release Price and any other amounts due under the Loan
Agreement, that Mortgagor may have to pay to Mortgagee monies in addition to the
total available amount of the Condemnation Proceeds to obtain a Condemnation
Event Release.
(f) If a claim under any Condemnation Proceedings arising during the
term of this Mortgage is not paid until after the extinguishment of the Debt,
whether by foreclosure or otherwise, and Mortgagee shall not have received the
entire amount of the Debt outstanding at the time of such extinguishment, then
the Condemnation Proceeds relating to any such Condemnation Proceedings, to the
extent of the amount of the Debt not so received, shall be paid to Mortgagee and
be the property of Mortgagee; and Mortgagor hereby assigns, transfers and sets
over to Mortgagee all of Mortgagor's right, title and interest in and to such
Condemnation Proceeds. The balance of such Condemnation Proceeds, if any, shall
be paid to and be the property of Mortgagor. The provisions of this Paragraph
shall survive the termination of this Mortgage by foreclosure or otherwise as a
consequence of the rights and remedies of Mortgagee hereunder after an Event of
Default.
(g) All Condemnation Proceeds and other sums deposited with Mortgagee
pursuant to this Paragraph, until expended or applied as provided in this
Paragraph, shall constitute additional security for the Debt and shall be
invested in Permitted Investments with income thereon inuring to the benefit of
Mortgagor.
xv