AGREEMENT OF SALE AND PURCHASE

Exhibit 10.21

 

AGREEMENT OF SALE AND PURCHASE

 

between

 

UP STONECREEK, INC.,

an Arizona corporation,

 

“Seller”

 

and

 

EHP OPERATING PARTNERSHIP, L.P.,

a Maryland limited partnership,

 

“Buyer”

 

with Escrow Instructions for

 

STEWART TITLE GUARANTY COMPANY,

 

as Escrow Agent

 

 

TABLE OF CONTENTS

 

and

 

LIST OF EXHIBITS AND SCHEDULES

 

 

i

 

ii

 

iii

 

EXHIBITS AND SCHEDULE

 

 

iv

 

AGREEMENT OF SALE AND PURCHASE

 

THIS AGREEMENT OF SALE AND PURCHASE (this “ Agreement ”), dated as of December 29, 2004, is between UP STONECREEK, INC., an Arizona corporation (“ Seller ”), and EHP OPERATING PARTNERSHIP, L.P., a Maryland limited partnership (“ Buyer ”).

 

ARTICLE 1

CERTAIN DEFINITIONS

 

Section 1.1. Definitions . The parties hereby agree that the following terms shall have the meanings hereinafter set forth, such definitions to be applicable equally to the singular and plural forms, and to the masculine and feminine forms, of such terms:

 

“Additional Contracts” shall have the meaning set forth in Section 8.2 hereof.

 

“Additional Deposit” shall have the meaning ascribed in Section 2.3 .

 

“Advance Bookings” means all guest, banquet room, meeting room and restaurant reservation agreements and agreements for conferences and tournaments affecting or pertaining to the Hotel and all deposits made thereunder for periods after the Closing, a complete list of which is set forth on Schedule 1.1-1 attached hereto.

 

“Affiliate” shall mean any person or entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Buyer or Seller, as the case may be. For the purposes of this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have the meanings correlative to the foregoing.

 

“Agreement” shall mean this Agreement, as the same may be amended, modified, or supplemented from time to time in writing by the parties hereto.

 

“Approved Contracts” shall mean all Contracts and Additional Contracts, but shall specifically exclude all Disapproved Contracts.

 

“Assignment and Assumption of Contracts” shall have the meaning ascribed in Section 9.3(d) .

 

“Assignment and Assumption of Leases” shall have the meaning ascribed in Section 9.3(c) .

 

“Bill of Sale” shall have the meaning ascribed in Section 9.3(b) .

 

“Buyer Indemnitees” means Buyer’s officers, directors, shareholders, members, partners, employees, affiliates, beneficiaries, subsidiaries, successors and assigns.

 

“Buyer’s Surviving Obligations” means the obligations of Buyer pursuant to Sections 3.4 , 5.4 , 6.2 , 7.3 , 7.4 , 8.7 , 8.10 , 9.6 , 9.7 , 9.10 , 10.9 and 10.11 of this Agreement, or elsewhere which expressly recite that such obligations survive the termination of this Agreement or the Closing, as applicable, and shall include all obligations set forth in any of the documents delivered by Buyer at Closing.

 

“Capital Leases” means the leases of equipment used in the operation of the Hotel and which are described on Exhibit D attached hereto.

 

“Closing” shall have the meaning ascribed in Section 9.2 .

 

“Closing Date” shall mean, TIME BEING OF THE ESSENCE, the date on which the Closing shall occur, but in no event later than the date set forth in Section 9.2 .

 

“Code” means the United States Internal Revenue Code of 1986, as amended.

 

“Contracts” shall have the meaning ascribed in Section 6.1(i) .

 

“Deed” shall have the meaning ascribed in Section 9.3(a) .

 

“Deposit” shall mean the Initial Deposit and the Additional Deposit, in the aggregate.

 

“Disapproved Contracts” shall have the meaning ascribed in Section 3.1 .

 

“Disclosure Items” shall have the meaning ascribed in Section 6.1 .

 

“Due Diligence” shall mean the review contemplated by Section 3.1 and related provisions of this Agreement.

 

“Due Diligence Items” shall mean those items, documents and deliveries described in Section 3.2 .

 

“Due Diligence Period” shall mean the time period contemplated by Section 3.1 of this Agreement.

 

“Effective Date” shall mean the date of this Agreement.

 

“Environmental Laws” means all federal, state and local environmental laws, rules, statutes, directives, binding written interpretations, binding written policies, ordinances and regulations issued by any Governmental Entity and in effect as of the date of this Agreement with respect to or which otherwise pertain to any Hazardous Materials or pertain to or affect the Land or the Improvements, or any portion thereof, the use, ownership, occupancy or operation of the Land or the Improvements, or any portion thereof, or Seller or Buyer, and as same have been amended, modified or supplemented from time to time prior to the date of this Agreement, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.), the Hazardous Substances Transportation Act (49 U.S.C. § 1802 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. § 300f

 

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et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Solid Waste Disposal Act (42 U.S.C. § 6901 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. § 11001 et seq.), the Radon and Indoor Air Quality Research Act (42 U.S.C. § 7401 note, et seq.), the Superfund Amendment Reauthorization Act of 1986 (42 U.S.C. § 9601 et seq.), comparable state and local laws, and any and all rules and regulations which have become effective prior to the date of this Agreement under any and all of the aforementioned laws.

 

“Escrow Agent” shall mean the Title Company.

 

“ Fixed Asset Supplies ” means, collectively, all linen (which linen shall include, without limitation, all pillows, bedding, duvets, duvet covers, quilts, blankets, featherbeds, bathrobes and towels), uniforms and similar items whether in use or in stock for future use, which are owned or leased by Seller and used in connection with the operations of the Hotel and other items which are owned or leased by Seller and used in connection with the Hotel and are within “Property and Equipment” under the Uniform System of Accounts, subject to depletion and including such resupplies thereof between the date hereof and the Closing Date in the normal course of business, including at least two (2) par linen, pillows, bedding and terry for each guest room in the Hotel.

 

“ FF&E ” means, collectively, all items of tangible personal property to the extent owned or leased by Seller and which are affixed to, installed in or used in connection with or otherwise related to the operations at the Hotel, including all machinery, vehicles, furniture, furnishings, fixtures, carpeting, equipment, including equipment, computers, reservation equipment, data processing hardware, computer equipment, manuals and software and all databases.

 

“Franchise Agreement” means the amended and Restated Franchise and License Agreement Embassy Suites Phoenix, Scottsdale dated October 21, 2002 between Seller, as “Franchisee,” and Hilton Hotels Corporation, as “Franchisor”.

 

“Franchise Assignment Agreement” means an assignment and assumption of the Franchise Agreement if and to the extent permitted by Franchisor whereunder Seller assigns to Buyer (or Buyer’s designee) and Buyer (or Buyer’s designee) assumes Seller’s obligations under the Franchise Agreement, which assignment and assumption shall be agreed to between Buyer and Franchisor on or prior to the expiration of the Due Diligence Period.

 

“Governmental Entity” means the various governmental, quasi-governmental, regulatory or administrative bodies or agencies having jurisdiction over Seller, the Land the Improvements, or any portion thereof.

 

“Governmental Regulations” means any local, state and federal laws, ordinances, rules, requirements, resolutions, policy statements and regulations (including, without limitation, those relating to land use, subdivision, zoning, environmental, labor relations, notification of sale to employer, Hazardous Materials, occupational health and safety, water, earthquake hazard reduction and building and fire codes) bearing on the construction, development, alteration, rehabilitation, maintenance, use, operation or sale of the Property.

 

“Hazardous Materials” means any pollutants, contaminants, hazardous or toxic substances, materials or wastes (including petroleum, petroleum by-products, radon, asbestos and

 

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asbestos containing materials, polychlorinated biphenyls (“PCBs”), PCB-containing equipment, radioactive elements, flammable explosives, radioactive materials, any mold or other biological or bacteriological contamination the exposure to which in indoor air causes an allergic, toxic or inflammatory response, including acremonium, alternaria, aspergillus, chaetomium, cladosporium, fusarium, paecilomyces, penicillium, stachybotrys, and trichoderma, infectious agents, and urea formaldehyde), (excluding solvents, cleaning fluids and other lawful substances used in compliance with all Environmental Laws and in the ordinary operation and maintenance of the Land, to the extent in closed containers). The term “Hazardous Materials” includes, any material or substance which (a) contains urea formaldehyde foam insulation, (b) is designated as a “hazardous substance” pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. § 1317), (c) is defined as a “hazardous waste” pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. § 6901 (42 U.S.C. § 6903), or (d) is defined as a “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 (42 U.S.C. § 9601). Each reference to a statute or law in this definition shall be deemed to include any amendments thereto which are enacted from time to time.

 

“Hotel” means the 270-room hotel and related facilities operated as the Embassy Suites, Scottsdale, Arizona, which is located upon the Land.

 

“Improvements” shall mean the buildings, improvements, and structures owned by Seller and located on the Land, but shall expressly exclude improvements and fixtures owned by any tenants under the Leases.

 

“Initial Deposit” shall have the meaning ascribed in Section 2.3 .

 

“Intangible Property” shall mean all of the interest of Seller in each of the following, if any owned by Seller: (i) any intangible personal property which relates to and is used in connection with or is reasonably required for the ownership, operation or functioning of the Hotel or Property generally; (ii) any and all trade names, trademarks and logos, and copyrights, used in association with the Hotel; (iii) customer and guest lists and files, club hip lists, pre-paid advertising, group files, credit records, assignable telephone numbers and fax numbers identified with the Hotel and the Property; (iv) computer programs and systems, websites and URLs for the Hotel; (v) goodwill associated with the Hotel; (vi) utility and development rights and privileges, general intangibles, business records, plans and specifications pertaining to the Land, Improvements and the Personal Property; (vii) the Buyer’s share of the Tray Ledger determined under Section 9.6(f)(1) hereof; (viii) Advance Bookings; (ix) any and all representations, covenants, warranties, guarantees, permits and other rights owned by or in favor of Seller, if any, relating to the acquisition, construction, ownership, operation maintenance, repair, renovation or functioning of all or any part of the Property, including under any construction, service or maintenance contracts; and (x) all Licenses and Permits all of which shall, to the extent permitted under applicable law, be assigned to Buyer pursuant to the Assignment and Assumption of Contracts.

 

“ Inventories ” means, collectively, all provisions in storerooms, other merchandise intended for sale or resale, fuel, mechanical supplies, stationery and other expensed supplies, and all goods, materials and supplies used or intended for use at, or held for sale (and if off-site, to

 

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the extent owned by Seller), and whether opened or unopened as of the Closing Date in connection with, the business of the Hotel or, all of which shall be maintained at levels typically maintained by Seller, including: (i) food and liquor in unbroken packages, (ii) raw and uncooked food, unopened beverages and other salable merchandise, (iii) reserve stocks of operating supplies not in use, (iv) engineering and maintenance supplies, (v) guest supplies, including linens, china, glassware and silverware, (vi) housekeeping supplies, including uniforms, (vii) brochures and promotional and advertising material, books, records (excepting employee files), (viii) operating supplies, (ix) opened or unopened supplies, or other goods, if any, and similar items defined as “Inventories” in the Uniform System of Accounts.

 

“Land” shall mean those certain parcels of land described on Exhibit A including all easements, rights of way, privileges, appurtenances, rights, titles, benefits and interests pertaining thereto.

 

“ Leases ” means the leases or subleases to which Seller is lessor or sublessor and affecting any portion of the Land, Improvements or Personal Property and set forth on Exhibit B hereto.

 

“Licensee Parties” shall mean those authorized agents, contractors, consultants and representatives of Buyer who shall inspect, investigate, test or evaluate the Property on behalf of Buyer in accordance with this Agreement.

 

“Licenses and Permits” shall mean, collectively, to the extent assignable under applicable law, all licenses, authorizations, permits, entitlements, approvals, certificates of occupancy, dedications, subdivision maps and entitlements now or hereafter issued, approved or granted by any Governmental Entity in connection with the Hotel or any other portion of the Property, including the Liquor License and all temporary and final certificates of occupancy, together with all deposits made for the benefit of Seller thereunder.

 

“Liens” shall have the meaning ascribed in Section 4.2 .

 

“Liquor Act” means Arizona Revised Statutes Section 4-101 et seq., as the same may be amended from time to time.

 

“Liquor Inventory” means all wine, beer and other alcoholic beverages on hand at the Hotel as of the Transfer Time.

 

“ Liquor License ” means the liquor license owned by Seller and utilized in connection with the operation of the Hotel, more particularly described on Schedule 1.1-2 attached hereto.

 

“Liquor License Application” means an application to be filed by Buyer with the Department of Liquor Licenses and Control for approval of an interim permit (the “ Interim Permit ”) and a new Series 11 (Hotel – Motel) liquor license to Buyer or, at Buyer’s election, Buyer’s lessee or manager, pursuant to the terms and conditions of Section 8.7 hereof.

 

“Liquor Rules “ means the rules and regulations promulgated under the Liquor Act.

 

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“Losses” means claims, demands, liabilities, actions, causes of action, judgments, liens, penalties, fines, damages, losses, costs and expenses (including, but not limited to, attorneys’ fees and costs as and when incurred).

 

“ Management Agreement ” means the Embassy Suites Paradise Valley Resort Hotel Operating Agreement by and between Seller and Manager dated October 23, 1998, as amended by a First Amendment to Embassy Suites Paradise Valley Resort Hotel Operating Agreement dated as of July          , 2004, relating to the management of the Hotel.

 

“ Manager ” means Windsor Capital Group, Inc., a Colorado corporation.

 

“ Manager’s General Release and Termination Agreement ” means the General Release, Waiver and Termination Agreement, to be duly executed and delivered by Manager in accordance with Section 9.3 of this Agreement if Buyer elects to cause the Management Agreement to be terminated at Closing, whereunder Manager acknowledges that the Management Agreement has terminated and Manager has released and waived any and all claims and rights it has, or may have, to operate the Hotel, or otherwise claim any ownership interest in and to the Hotel. The Manager’s General Release shall be in a form agreed to between the parties prior to expiration of the Due Diligence Period and thereafter shall be attached hereto as Exhibit J .

 

“ Miscellaneous Assets ” means, collectively, if any owned by Seller: (a) all books and records maintained in connection with the ownership, development, construction, maintenance or operation of the Property; (b) all preliminary, final and “as-built” plans and specifications respecting the Land and Improvements; (c) all structural reviews, architectural drawings, and engineering, soil, seismic, geologic and architectural reports, studies and certificates and other documents pertaining to the Land or Improvements; (d) all surveys, architectural, consulting and engineering blueprints, plans and specifications, drawings and reports (excluding materials proprietary to Seller or any affiliate) owned or leased by Seller and related to the Hotel or the Property; (e) all books and records (financial and otherwise) and (f) and all personal property owned or leased by Seller as of the Closing Date with respect to the Hotel.

 

“ Monetary Title Encumbrances ” shall have the meaning ascribed in Section 4.1 .

 

“ Notice to Proceed ” shall have the meaning set forth in Section 2.3 .

 

“Permitted Exceptions” shall mean and include all of the following: applicable zoning and building ordinances and land use regulations, such state of facts as would be disclosed by a current and accurate ALTA as-built survey of the Land and Improvements, the lien of taxes and assessments on the Land not yet delinquent, any exclusions from coverage set forth in the jacket of an ALTA Owner’s Policy of Title Insurance (1970 Form B rev. 10/17/70), any exceptions caused by Buyer, its agents, representatives or employees, the rights of the Tenants under the Leases, and any matters deemed to constitute Permitted Exceptions under Section 4.2 hereof.

 

“Permitted Outside Parties” shall have the meaning ascribed in Section 3.5 .

 

“Personal Property” shall mean all of the right, title, and interest of Seller in and to all tangible personal property, which is located at and used in connection with the Land and/or the

 

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Improvements which are on hand on the date of this Agreement, subject to such depletion and restocking as shall occur and be made in the normal course of business, including (i) FF&E, (ii) Fixed Asset Supplies, (iii) Inventories, (iv) Miscellaneous Assets and (v) budgets, strategic plans for the Land and/or the Hotel, if any, all of which shall be transferred and assigned to Buyer pursuant to the Bill of Sale, free and clear of all liens, security interests, claims of title and encumbrances. Personal Property does not include any of the following: (a) any personal property owned, financed or leased by the Tenants under the Leases or (b) any appraisals, for the Land and/or the Hotel and, internal analyses, marketing information, submissions relating to Seller’s obtaining of corporate authorization, attorney and accountant work product, attorney-client privileged documents, or other information in the possession or control of Seller or Seller’s property manager which Seller deems proprietary.

 

“PIP” means the Hilton Hotels Corporation Product Improvement Report provided by Franchisor to Seller, a copy of which is attached hereto as Exhibit L ; provided, however , that if the PIP is not attached hereto on the date of this Agreement, it shall be attached hereto as Exhibit L upon delivery of the PIP by Seller to Buyer.

 

“PIP Work” means that work identified in the PIP.

 

“Property” shall mean the Land, the Hotel, the Improvements, the Personal Property, the Intangible Property, and Seller’s right in the Leases and the Approved Contracts.

 

“Purchase Price” shall have the meaning ascribed in Section 2.2 .

 

“Seller Indemnitees” means Seller’s officers, directors, shareholders, members, partners, employees, affiliates, beneficiaries, subsidiaries, successors and assigns.

 

“Seller Indemnitor” means Property Asset Management Inc., a Delaware corporation.

 

“Seller Indemnity Agreement” means an indemnity agreement, the form of which shall be agreed to by Seller and Buyer prior to the expiration of the Due Diligence Period and thereafter attached hereto as Exhibit K pursuant to which Seller Indemnitor shall agree to indemnify Buyer from and against any Losses that are actually incurred by Buyer as a result of Seller’s failure to perform Seller’s Surviving Obligations.

 

“Seller’s Surviving Obligations” means the obligations of Seller pursuant to Sections 5.1 , 5.5 , 6.1 , 6.2 , 8.3 , 8.9 , 9.6 , 9.5 , 9.7 , 9.10 , 10.9 , 10.11 and 10.23 of this Agreement, or elsewhere which expressly recite that such obligations survive the termination of this Agreement or the Closing, as applicable, and shall include all obligations set forth in any of the documents delivered by Seller at Closing.

 

“Title Commitment” shall have the meaning ascribed in Section 4.1 .

 

“Title Company” shall mean Stewart Title Guaranty Company, acting through its office located at 100 Pine Street, Suite 150, San Francisco, California 94111, Attention: Richard Blumenthal, (415) 394-9270.

 

“Title Documents” shall have the meaning ascribed in Section 4.1 .

 

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“Title Objections” shall have the meaning ascribed in Section 4.2 .

 

“Title Policy” shall have the meaning ascribed in Section 4.3 .

 

“Transfer Time” means 12:01 a.m. (Phoenix time) on the Closing Date.

 

“Tray Ledger” shall have the meaning ascribed in Section 9.6(f)(1) .

 

“ Uniform System of Accounts ” means the latest edition of the Uniform System of Accounts for Hotels, as published by the Hotel Association of New York City, Inc.

 

“WARN Act” shall have the meaning ascribed in Section 9.1(d) .

 

Section 1.2 Rules of Construction . Article and Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. All references to “Article” or “Sections” without reference to a document other than this Agreement, are intended to designate articles and sections of this Agreement, and the words “herein,” “hereof,” “hereunder,” and other words of similar import refer to this Agreement as a whole and not to any particular Article or Section, unless specifically designated otherwise. The use of the term “including” shall mean in all cases “including but not limited to,” unless specifically designated otherwise. No rules of construction against the drafter of this Agreement shall apply in any interpretation or enforcement of this Agreement, any documents or certificates executed pursuant hereto, or any provisions of any of the foregoing.

 

ARTICLE 2

AGREEMENT OF PURCHASE AND SALE; PURCHASE PRICE

 

Section 2.1 Agreement to Purchase and Sell . In consideration of the terms and provisions of this Agreement, Seller agrees to sell, convey, transfer and assign to Buyer, and Buyer agrees to purchase, accept and assume subject to the terms and conditions stated herein, all of Seller’s right, title and interest in and to the Property, for the Purchase Price set forth in Section 2.2 , subject to the Permitted Exceptions.

 

Section 2.2 Purchase Price . The purchase price for the Property shall be Thirty Three Million and no/100 Dollars ($33,000,000.00) (“ Purchase Price ”), at the Closing in immediately available funds. The Purchase Price and such other funds as may be necessary to pay Buyer’s expenses hereunder, subject to closing adjustments, shall be deposited with the Escrow Agent at least one (1) business day before the Closing Date in accordance with this Agreement and paid to Seller upon satisfaction of all conditions precedent to the Closing as described herein.

 

Section 2.3 Deposit . Buyer will, within one (1) business day after execution hereof deposit with the Escrow Agent the sum of Five Hundred Thousand and no/100 Dollars ($500,000.00) in immediately available funds as a deposit with Escrow Agent whose address is as indicated in Section 10.3 (the “ Initial Deposit ”). Within two (2) business days after the expiration or termination of the Due Diligence Period, and assuming that Buyer has elected to proceed with this transaction at the end of the Due Diligence Period by providing a notice to Seller of its intention to proceed delivered prior to the expiration of the Due Diligence Period (a

 

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“ Notice to Proceed ”), Buyer shall make an additional deposit of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) (the “ Additional Deposit ”) with Escrow Agent. Escrow Agent shall immediately deposit all Deposits upon receipt in Federally insured interest-bearing accounts. If a Notice to Proceed is given by Buyer, the Deposit shall be non-refundable except as expressly provided in this Agreement, including Sections 3.1 , 4.2 , 5.1 , 9.2(b) and 10.2(b) and shall be held in a federally-insured interest-bearing account and delivered by Escrow Agent in accordance with the provisions of Article 5 . Interest earned on the Deposit shall be considered part of the Deposit. Except as otherwise expressly set forth herein, the Deposit shall be applied against the Purchase Price on the Closing Date. Failure to timely deliver the Notice to Proceed shall be deemed an election by Buyer to terminate this Agreement, in which case the Initial Deposit shall be returned to Buyer and, thereafter, the parties shall have no further rights or obligations hereunder except for Buyer’s Surviving Obligations and Seller’s Surviving Obligations. If Buyer does not deliver a Notice to Proceed, or notifies Seller at any time prior to the expiration of the Due Diligence Period that it desires to terminate this Agreement (which Buyer may do in its sole and absolute discretion), then the Deposit shall be promptly returned to Buyer free of any offset or any claim of Seller and, thereafter, the parties shall have no further rights or obligations hereunder except for Buyer’s Surviving Obligations and Seller’s Surviving Obligations; provided, however , that as a condition to the return of the Deposit to Buyer, and in consideration to Seller entering into this Agreement, Buyer shall deliver to Seller, without representation or warranty of any kind, copies of all due diligence reports, studies or other materials obtained by Buyer from third parties in connection with its due diligence investigations, and Buyer shall return to Seller any such materials which were delivered or made available by Seller to Buyer and remain in Buyer’s possession upon such termination.

 

Section 2.4 Indivisible Economic Package . Buyer has no right to purchase, and Seller has no obligation to sell, less than all of the Property, it being the express agreement and understanding of Buyer and Seller that, as a material inducement to Seller and Buyer to enter into this Agreement, Buyer has agreed to purchase, and Seller has agreed to sell, all of the Property, subject to and in accordance with the terms and conditions hereof.

 

Section 2.5 Allocation of Purchase Price . Seller acknowledges that Buyer intends to allocate the Purchase Price between the Land, Improvements, FF&E and Personal Property (with further allocation between the tangible personal property and Intangible Property, at Buyer’s election), for purposes of complying with the Code and the Arizona State equivalent. Buyer and Seller shall endeavor to agree upon a proposed allocation of the Purchase Price prior to the expiration of the Due Diligence Period; provided, however , that if Buyer and Seller cannot agree upon such allocation in good faith, then each party may prepare financial statements and file of all tax returns as it determines is appropriate in its good faith discretion. Following any express agreement of the parties as to such determination, Seller and Buyer agree to be bound by such allocation and to act in accordance with the allocation in the preparation of financial statements and filing of all tax returns and in the course of any tax audit, tax review or tax litigation relating thereto. No party shall take any position inconsistent with such allocation. Each party shall keep the allocation made by the other party confidential except to the extent that disclosure is required by law or appropriate for tax or accounting purposes in the ordinary course of business.

 

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ARTICLE 3

BUYER’S DUE DILIGENCE; CONDITION OF THE PROPERTY

 

Section 3.1 Buyer’s Inspections and Due Diligence . Buyer acknowledges that for a period commencing on the Effective Date and expiring at 5:00 p.m. Pacific Time on the date that is forty-five (45) days following the Effective Date (the “ Due Diligence Period ”), Buyer may conduct its examinations, inspections, testing, studies and investigations (herein collectively called the “ Due Diligence ”) of the Property, information regarding the Property and such documents applicable to the Property as Seller is to deliver or make available as set forth in Section 3.2 below; provided, however , that if the PIP is not attached to this Agreement on the date of execution, and Seller does not thereafter deliver the PIP to Buyer within ten (10) days thereafter, or if Seller does not cause the Title Commitment to be delivered within five (5) business days after the Effective Date, then the Due Diligence Period shall be extended, on a day-for-day basis, for each day thereafter until Seller delivers the PIP or the Title Commitment, as applicable, to Buyer; provided, further , that if any other Schedules or Exhibits to this Agreement are not attached to this Agreement on the date of execution, and Seller does not thereafter deliver such Schedules and Agreements to Buyer within five (5) business days after the Effective Date, then the Due Diligence Period shall be extended, on a day-for-day basis, for each day thereafter until Seller delivers the applicable Schedules and Exhibits to Buyer. Except for any limitations as may be imposed by Section 3.3 below, Buyer may conduct such due diligence activities, inspections, and studies of the Property as it deems necessary or appropriate, and examine and investigate to its full satisfaction all facts, circumstances, and matters relating to the Property (including the physical condition and use, availability and adequacy of utilities, access, zoning, compliance with applicable laws, environmental conditions, engineering and structural matters), title, survey matters, and any other matters it deems necessary or appropriate for purposes of consummating this transaction. The Due Diligence shall be at Buyer’s sole cost and expense. Buyer shall have the right to disapprove of any Contracts (the “ Disapproved Contracts ”) by delivering written notice thereof to Seller prior to the expiration of the Due Diligence Period. Seller shall, at its sole cost and expense and prior to the Closing, terminate all Disapproved Contracts.

 

Section 3.2 Delivery Period .

 

(a) From and after the date hereof, Seller will deliver or made available to Buyer for inspection at the Property or at the office of the Seller, the due diligence items described on Exhibit I attached hereto, to the extent that such items are in the possession or control of Seller (the “ Due Diligence Items ”). Prior to the Closing, Seller shall continue to make available to Buyer such other documents or information as Buyer may reasonably request relating to the Hotel, or Property, which are in Seller’s or Manager’s possession or control. Notwithstanding anything to the contrary contained herein, Seller shall not be obligated to deliver or make available to Buyer any internal memoranda or correspondence of Seller subject to the attorney client privilege and any appraisals or other valuation information relating to the Property or any portion thereof.

 

(b) All documents, materials, and information furnished to or made available to Buyer pursuant to this Section 3.2 are being furnished or made available to Buyer for information purposes only and without any representation or warranty by Seller with respect

 

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thereto, express or implied, except as may otherwise be expressly set forth in Section 6 below and as limited by Section 6.2 and 7.3(b) below, and all such documents, materials, and information are expressly understood by Buyer to be subject to the confidentiality provisions of Section 3.5 below.

 

Section 3.3 Site Visits . Buyer and its Licensee Parties shall have reasonable access to the Hotel, and the Land (during customary business hours, and with at least twenty-four (24) hours prior notice to Seller). Seller shall have the right to have a representative present during any visits to or inspections of the Hotel, or the Land by Buyer or any Licensee Parties. Buyer will conduct its Due Diligence in a manner that is not disruptive to the normal operation of the Hotel. Buyer will not enter the Hotel or the Land to conduct Due Diligence or contact any Hotel employees, without Seller’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. If Buyer desires to conduct any physically intrusive Due Diligence, such as sampling of soils, other media, building materials, or the like, Buyer will identify in writing exactly what procedures Buyer desires to perform and request Seller’s express written consent. Seller may withhold or condition consent to any physically intrusive Due Diligence in Seller’s sole and absolute discretion. Upon receipt of Seller’s written consent, Buyer and all Licensee Parties shall, in performing such Due Diligence, comply with the agreed upon procedures and with any and all laws, ordinances, rules, and regulations applicable to the Property and will not engage in any activities which would violate any permit, license, or environmental law or regulation. Buyer and any Licensee Parties will: (a) maintain commercial general liability (occurrence) insurance of not less than $2,000,000 per occurrence with an insurance company reasonably satisfactory to Seller, covering any accident caused by Buyer or the other Licensee Parties on the Property, and deliver a certificate of insurance, which names the Seller as an additional insured thereunder verifying such coverage to Seller prior to entry upon the Property; (b) promptly pay when due to all Licensee Parties the costs of all entry and inspections and examinations done with regard to the Property; and (c) restore the Property to substantially the condition in which the same was found before any such entry upon the Property and inspection or examination was undertaken.

 

Section 3.4 Buyer’s Due Diligence Indemnity . Buyer shall defend, indemnify, and hold harmless Seller and the Seller Indemnitees from and against all Losses (whether arising out of injury or death to persons or damage to the Property or otherwise) including costs of remediation, restoration and other similar activities, mechanic’s and materialmen’s liens and attorneys’ fees, arising out of or in connection with Buyer’s Due Diligence, Buyer’s breach of its obligations under Section 3.5 or Buyer’s or any Licensee Parties’ entry upon the Property, except solely to the extent any of the same are caused by the gross negligence or willful misconduct of Seller, Seller Indemnitees or Manager. The provisions of this Section 3.4 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement, and shall not be subject to the twelve (12) month limitation set forth herein.

 

Section 3.5 Confidentiality . Buyer agrees that any information obtained by Buyer or its, attorneys, prospective partners, accountants and other consultants and advisors, prospective lenders or prospective investors (collectively, for purposes of this Section 3.5 , the “ Permitted Outside Parties ”) in the conduct of its Due Diligence shall be treated as confidential pursuant to Section 10.11 of this Agreement, shall be used only to evaluate the acquisition of the Property. Buyer further agrees that within its organization, or as to the Permitted Outside Parties, the Due

 

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Diligence Items will be disclosed and exhibited only to those persons within Buyer’s organization or to those Permitted Outside Parties who are responsible for advising Buyer with respect to its acquisition of the Property. Buyer further acknowledges that the Due Diligence Items and other information relating to the operation of the Hotel are confidential in nature. Buyer agrees not to divulge the contents of such Due Diligence Items or any other information except in strict accordance with Sections 3.5 and 10.11 of this Agreement. In permitting Buyer and the Permitted Outside Parties to review the Due Diligence Items and other information to assist Buyer, Seller has not waived any privilege or claim of confidentiality with respect thereto, and no third party benefits or relationships of any kind, either express or implied, have been offered, intended or created by Seller and any such claims are expressly rejected by Seller and waived by Buyer. Nothing in this Section 3.5 or in Section 10.11 shall preclude Buyer (x) from discussing with or disclosing such information to (i) any person who is employed by Buyer or who, on behalf of Buyer or such party, is actively and directly participating in or evaluating the purchase and sale of the Property, including to such party’s shareholders, partners, members, investors, existing or prospective lenders, attorneys, accountants and other consultants and advisors, prospective franchisors, prospective managers, or (ii) the Title Company or any governmental administrative or regulatory agencies or authorities, including, without limitation, the Securities and Exchange Commission (Seller acknowledges that Buyer is required to disclose this transaction and certain information and documentation (some of which Seller may deem confidential) pertaining to this transaction to the Securities and Exchange Commission) and the Arizona Department of Liquor Licenses and Control; or (y) from disclosing such information as required by law or pursuant to any legal or dispute proceeding or to comply with any legal requirements; provided, however , that if Buyer is required by applicable law or legal process to disclose any such information, Buyer agrees to furnish only that portion of such information which Buyer is legally compelled to disclose and to use its commercially reasonable efforts to obtain assurance that, if possible, confidential treatment will be accorded to such information.

 

Section 3.6 Due Diligence Period . As provided in Section 2.3 , above, the failure of Buyer to deliver the Notice to Proceed shall terminate Buyer’s obligations hereunder without further liability except as described in Sections 3.4 , 9.7 , and 10.11 . If Buyer fails to deliver the Notice to Proceed as provided in Section 2.3 , above (which Buyer may do in its sole and absolute discretion), then Buyer shall have no additional time after the expiration of the Due Diligence Period to conduct further physical Due Diligence.

 

ARTICLE 4

TITLE AND SURVEY

 

Section 4.1 Title to Land . Seller shall, at its sole cost and expense, deliver or cause to be delivered to Buyer not later than five (5) business days after the Effective Date (a) a title commitment with respect to the Land issued by the Title Company (the “ Title Commitment ”), (b) copies of all recorded documents referred to on Schedule B of the Title Commitment as exceptions to coverage (the “ Title Documents ”) and (c) a copy of any existing survey of the Land and Improvements in Seller’s possession.

 

Section 4.2 Certain Exceptions to Title . Buyer shall have the right to object in writing to any title matters that are not Permitted Exceptions and that affect Buyer’s title to the Land which are disclosed in the Title Commitment (herein collectively called “ Liens ”) prior to

 

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the expiration of the Due Diligence Period. Any exceptions that are timely objected to by Buyer shall be herein collectively called the “ Title Objections ”. Seller may elect (but shall not be obligated) to remove or cause to be removed, or with Buyer’s consent, insured over, at Seller’s expense and at Closing, any Title Objections, and Seller shall be entitled to a reasonable adjournment of the Closing (not to exceed fifteen [15] days) for the purpose of such removal. Seller shall notify Buyer in writing (“ Seller’s Title Response Notice ”) within ten (10) days after receipt of Buyer’s notice of Title Objections whether Seller elects to remove the same on or before the Closing. If Seller is unable (other than by the payment of money or delivery of documents or instruments) to remove any Title Objections prior to the Closing, or if Seller elects not to remove one or more Title Objections, Buyer may elect to either (a) terminate this Agreement by giving written notice (“ Buyer’s Termination Notice ”) to Seller on or before five (5) days following Buyer’s receipt of Seller’s Title Response Notice (or five (5) days following the expiration of the ten (10) day period that Seller has to deliver to Buyer the Seller Title Response Notice if Seller fails to deliver such notice) or within five (5) days following the scheduled Closing Date (if Seller is unable to remove any Title Objections prior to the Closing, as may be extended as provided above), in which event the Deposit shall be paid to Buyer and, thereafter, the parties shall have no further rights or obligations hereunder except for Buyer’s Surviving Obligations and Seller’s Surviving Obligations, or (b) waive such Title Objections, in which event such Title Objections shall be deemed additional “Permitted Exceptions” and the Closing shall occur as herein provided without any reduction of or credit against the Purchase Price. If Buyer fails to timely give Seller Buyer’s Termination Notice, then Buyer shall be deemed to have elected to waive such Title Objections and its right to terminate this Agreement pursuant to this Section. Notwithstanding the foregoing, Seller shall deliver the Hotel and all Personal Property free and clear of any encumbrances or obligations arising from judgments, abstracts of judgment, mortgages, deeds of trust, security agreements, delinquent taxes, or other similar liens and be obligated at Closing to cause the release of the liens of any financing obtained by Seller which are secured by the Land or Personal Property (collectively, “ Monetary Title Encumbrances ”). Notwithstanding anything herein to the contrary, Seller shall be obligated to pay and discharge the Monetary Title Encumbrances and obtain releases satisfactory to Buyer and the Title Company without notice of Buyer’s objections thereto. If Seller fails to cause any Monetary Title Encumbrances to be removed at Closing, then Buyer may apply a portion of the Purchase Price to pay such Monetary Title Encumbrances and enable the Title Company to issue Buyer’s Title Policy without exception for such Monetary Title Encumbrances.

 

If the Title Commitment is amended after expiration of the Due Diligence Period to add matters or exceptions in addition to the Permitted Exceptions (which are not Monetary Title Encumbrances), Buyer shall by the expiration of five (5) business days after written notification of such amendment and receipt of the underlying documents pertaining to the new exception: (i) accept such amended Title Commitment including such additional matters and exceptions, in which case such matters or exceptions shown there shall be deemed additional Permitted Exceptions, or (ii) object to such additional matters or exceptions by written notice to Seller (“ Additional Title Objections ”). If Buyer does not make timely written objection, Buyer shall be deemed to have accepted such matters or exceptions as Permitted Exceptions. If Buyer makes a timely objection, Seller shall, within five (5) business days following receipt of such Additional Title Objections notice, either: (i) provide written notice to Buyer that Seller is unable (other than by the payment of money or delivery of documents or instruments) or unwilling to cure the Additional Title Objections, or (ii) elect to remove or cause to be removed, or with Buyer’s

 

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consent, insured over, such Additional Title Objections on or before the Closing, which removal will be deemed effected by the issuance of title insurance eliminating or insuring against the effect of the Additional Title Objections, and Seller shall be entitled to a reasonable adjournment of the Closing (not to exceed fifteen [15] days) for the purpose of such removal. If Seller notifies Buyer in writing that it is unable or unwilling to cure such Additional Title Objections, Buyer may within five (5) business days of its receipt of such notice from Seller, either: (i) terminate this Agreement by written notice to Seller, in which event the Deposit shall be promptly delivered to Buyer and neither party shall have any further rights or obligations under this Agreement, except for Buyer’s Surviving Obligations and Seller’s Surviving Obligations, or (ii) waive such Additional Title Objections, in which event Buyer shall be deemed to have accepted such additional matters or exceptions as Permitted Exceptions and the Closing shall occur as herein provided without any reduction of or credit against the Purchase Price. In the event Buyer does not terminate this Agreement within five (5) business days as set forth in the preceding sentence, Buyer shall be deemed to have accepted such matters as additional Permitted Exceptions. If Seller elects to remove or cause the removal of such Additional Title Objections but is unable to do so by the scheduled Closing Date or within fifteen (15) days thereafter, then Buyer may terminate this Agreement by written notice to Seller, in which event the Deposit shall be promptly delivered to Buyer and neither party shall have any further rights or obligations under this Agreement, except for Buyer’s Surviving Obligations and Seller’s Surviving Obligations. If the periods for responding to new title matters or exceptions extend beyond the scheduled Closing Date, then the Closing Date shall be extended to the date that is three (3) business days following the expiration of the latest period Seller or Buyer has to respond to the other, as set forth herein.

 

Section 4.3 Title Insurance . As a condition precedent to Buyer’s obligation to close Escrow hereunder, at Closing, the Title Company shall issue to Buyer or be irrevocably and unconditionally committed to issue to Buyer an ALTA owner’s extended coverage (1970 Form B, rev. 10/17/70) form title policy (the “ Title Policy ”), in the amount of the Purchase Price, insuring that fee simple title to the Land is vested in Buyer subject only to the Permitted Exceptions and Buyer shall be entitled to request that the Title Company provide such endorsements (or amendments) to the Title Policy as Buyer may reasonably require, provided that (a) such endorsements (or amendments) shall be at no cost to, and shall impose no additional liability (other than as may be imposed by the Title Company’s standard owner’s title affidavit) on, Seller, (b) Buyer’s obligations under this Agreement shall not be conditioned upon Buyer’s ability to obtain such endorsements and, if Buyer is unable to obtain such endorsements, Buyer shall nevertheless (but subject to the other conditions in this Section 4.3 ) be obligated to proceed to close the transaction contemplated by this Agreement without reduction of or set off against the Purchase Price, and (c) the Closing shall not be delayed as a result of Buyer’s request. Buyer shall finalize the form of the Title Policy acceptable to Buyer during the Due Diligence Period and shall attach the form to be issued at Closing to Buyer’s Notice to Proceed.

 

ARTICLE 5

REMEDIES AND DEPOSIT INSTRUCTIONS

 

Section 5.1 Permitted Termination; Seller Default . If the sale of the Property is not consummated due to any permitted termination of this Agreement by Buyer as herein expressly provided, the Deposit shall be promptly returned to Buyer. If the sale of the Property is not

 

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consummated due to Seller’s default hereunder, Buyer shall be entitled, as its sole remedy, either (a) to terminate this Agreement by written notice to Seller, upon which the Deposit shall be promptly returned to Buyer; or (b) to enforce specific performance of this Agreement. Except as otherwise provided in Article 6 Buyer expressly waives its rights to seek any damages in the event of Seller’s default hereunder; provided , however that if the sale of the Property is not consummated due to the occurrence of any one or more of the following: (i) fraud by Seller in connection with this Agreement; (ii) Seller’s sale of the Property to another person during the contract period; (iii) after Buyer delivers its Notice to Proceed, Seller’s failure to cause the removal of a non-monetary lien or encumbrance which was caused by Seller after the date when Buyer delivers its Notice to Proceed (and Seller fails to cause such exception or lien to be removed or insured over to Buyer’s satisfaction within five (5) business days following Seller’s receipt of written notice from Buyer of such failure), or (iv) on the scheduled Closing Date, Seller willfully fails to deliver the closing documents specified in Section 9.3 , below, then, upon Buyer’s election of the remedy provided in clause (a) of this Section 5.1 , Buyer shall be entitled to receive from Seller Buyer’s reasonable out-of-pocket costs actually incurred in connection with the negotiation of this Agreement and the investigation of the Property not to exceed $200,000 in the aggregate. Buyer shall be deemed to have elected to terminate this Agreement and receive back the Deposit and, to the extent provided above, be reimbursed for its costs and expenses, if Buyer fails to file suit for specific performance against Seller in a court prescribed by Section 10.5 hereof, on or before thirty (30) days following the date upon which Closing was to have occurred.

 

Section 5.2 BUYER DEFAULT; LIQUIDATED DAMAGES . IF THE SALE IS NOT CONSUMMATED DUE TO ANY DEFAULT BY BUYER HEREUNDER THAT IS NOT CURED WITHIN THREE (3) BUSINESS DAYS FOLLOWING WRITTEN NOTICE BY SELLER TO BUYER, THEN, AS SELLER’S SOLE AND EXCLUSIVE REMEDY (WHETHER AT LAW OR IN EQUITY), SELLER SHALL RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES, WHICH RETENTION SHALL OPERATE TO TERMINATE THIS AGREEMENT AND RELEASE BUYER FROM ANY AND ALL LIABILITY HEREUNDER, EXCEPT AS PROVIDED IN SECTIONS 3.4 , 9.7 , AND 10.11 . SAID AMOUNT SHALL BE THE FULL, AGREED AND LIQUIDATED DAMAGES FOR THE BREACH OF THIS AGREEMENT BY BUYER, ALL OTHER CLAIMS TO DAMAGES OR OTHER REMEDIES BEING HEREIN EXPRESSLY WAIVED BY SELLER. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF APPLICABLE LAWS. THE PARTIES HAVE AGREED THAT SELLER’S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER’S DEFAULT, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE

 

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FOREGOING IS NOT INTENDED TO LIMIT BUYER’S INDEMNITY OBLIGATIONS HEREUNDER, INCLUDING SECTIONS 3.4 , 8.7 , 9.7 AND 10.11 .

 

 

Section 5.3 Deposit Instructions . The Escrow Agent joins herein below to evidence its agreement to hold such funds in accordance with the terms and conditions of this Agreement. Further, the following provisions shall control with respect to the rights, duties and liabilities of the Escrow Agent. The Escrow Agent acts hereunder as a depository only and is not responsible or liable in any manner whatsoever for the (a) sufficiency, correctness, genuineness or validity of any written instrument, notice or evidence of a party’s receipt of any instruction or notice which is received by the Escrow Agent, or (b) identity or authority of any person executing such instruction notice or evidence. The Escrow Agent shall invest the amount in escrow in accounts which are federally insured, which invest solely in government securities, or which are reasonably satisfactory to Seller and Buyer, and shall be applied in accordance with the terms of this Agreement.

 

Section 5.4 Designation of Reporting Person . To assure compliance with the requirements of Section 6045 of the Internal Revenue Code of 1986, as amended (for purposes of this Section 5.4 , the “ Code ”), together with any similar reporting requirements applicable in the State of Arizona, the parties hereto agree as follows:

 

(a) Provided the Escrow Agent shall execute a statement in writing (in form and substance reasonably acceptable to the parties hereunder) pursuant to which it agrees to assume all responsibilities for information reporting required under Section 6045(e) of the Code, Seller and Buyer shall designate the Escrow Agent as the person to be responsible for all information reporting under Section 6045(e) of the Code (the “ Reporting Person ”). If the Escrow Agent refuses to execute a statement pursuant to which it agrees to be the Reporting Person, Seller and Buyer shall agree to appoint another third party as the Reporting Person.

 

(b) Seller and Buyer hereby agree:

 

(i) to provide to the Reporting Person all information and certifications regarding such party, as reasonably requested by the Reporting Person or otherwise required to be provided by a party to the transaction described herein under Section 6045 of the Code; and

 

(ii) to provide to the Reporting Person such party’s taxpayer identification number and a statement (on Internal Revenue Service Form W-9 or an acceptable substitute form, or on any other form the applicable current or future Code sections and regulations might require and/or any form requested by the Reporting Person), signed under penalties of perjury, stating that the taxpayer identification number supplied by such party to the Reporting Person is correct.

 

(c) Each party hereto agrees to retain this Agreement for not less than four years from the end of the calendar year in which the Closing occurred, and to produce it to the Internal Revenue Service upon a valid request therefor.

 

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Section 5.5 SELLER DEFAULT; LIQUIDATED DAMAGES . IF, AFTER BUYER DELIVERS ITS NOTICE TO PROCEED, THE SALE IS NOT CONSUMMATED DUE TO SELLER’S SALE OF THE PROPERTY TO ANOTHER PERSON DURING THE CONTRACT PERIOD, THEN SELLER SHALL BE OBLIGATED TO PAY BUYER THE AMOUNT OF $500,000 AS LIQUIDATED DAMAGES IN ADDITION TO THE RETURN OF THE DEPOSIT AND IN ADDITION TO THE SUMS BUYER IS ENTITLED TO RECEIVE FROM SELLER UNDER SECTION 5.1 ABOVE, WHICH PAYMENTS SHALL OPERATE TO TERMINATE THIS AGREEMENT AND RELEASE SELLER FROM ANY AND ALL LIABILITY HEREUNDER, EXCEPT FOR SELLER’S SURVIVING OBLIGATIONS. THE PARTIES HAVE AGREED THAT BUYER’S ACTUAL DAMAGES, IN THE EVENT OF THE OCCURRENCE OF THE EVENT SPECIFIED ABOVE, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNTS SET FORTH ABOVE IN THIS SECTION 5.5 AND IN SECTION 5.1 ARE A REASONABLE ESTIMATE OF THE DAMAGES THAT BUYER WOULD INCUR IN SUCH EVENT, AND IN CONSIDERATION OF SUCH PAYMENTS, AND EFFECTIVE UPON BUYER’S ELECTION TO RECEIVE SUCH PAYMENTS IN LIEU OF SPECIFIC PERFORMANCE, IN BUYER’S SOLE AND ABSOLUTE DISCRETION, BUYER HEREBY WAIVES ITS RIGHT TO SPECIFIC PERFORMANCE AGAINST SELLER. BY PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT SELLER’S SURVIVING OBLIGATIONS.

 

 

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Section 6.1 Representations and Warranties of Seller . Subject to the provisions of Sections 6.2 and 7.5, and except for those matters described in Exhibit C (the “ Disclosure Items ”), for which Seller makes no representations or warranties of any kind and for which Seller shall have no liability or obligation to Buyer of any kind whatsoever, Seller makes the following representations and warranties with respect to the Property, which shall be true and correct as of the Effective Date and on the date of Closing:

 

(a) Status . Seller is a corporation validly existing and in good standing under the laws of the State of Arizona.

 

(b) Authority . The execution and delivery of this Agreement and the performance of Seller’s obligations hereunder have been or will be duly authorized by all necessary action on the part of Seller, and this Agreement constitutes the legal, valid and binding obligation of Seller, subject to equitable principles and principles governing creditors’ rights generally.

 

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(c) Non-Contravention . The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not: (i) violate any judgment, order, injunction, decree, regulation or ruling of any court or Governmental Entity or (ii) conflict with, result in a breach of, or constitute a default under the organizational documents of Seller, any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other material contract, document, agreement or instrument to which Seller is a party or by which Seller may be bound.

 

(d) Suits and Proceedings . To Seller’s knowledge, there are no legal, administrative, regulatory or other actions, suits or proceedings pending or served or threatened in writing against Seller or the Property except as set forth on Schedule 6.1(d) attached hereto.

 

(e) Non-Foreign Entity . Seller is not a “foreign person” or “foreign corporation” as those terms are defined in the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

(f) Consents . No consent, waiver, approval or authorization is required from any person or entity (that has not already been obtained) in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of the transactions contemplated hereby.

 

(g) Condemnation . Seller has not received any written condemnation or eminent domain notice with respect to all or part of the Land, and to Seller’s knowledge, no action in condemnation or eminent domain of the Land is currently pending.

 

(h) Bankruptcy . Since October 30, 2002, Seller has not (i) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceedings, to hold, administer and/or liquidate all or substantially all of its property, or (iii) made an assignment for the benefit of creditors nor are any of the foregoing proceedings contemplated by Seller.

 

(i) Contracts . There are no service, supply, construction, capital improvement, maintenance and other similar contracts entered into or, to Seller’s best knowledge, assumed by Seller or Manager and in effect with respect to the Property related to the construction, operation or maintenance of the Property other than those listed on Exhibit D (the “ Contracts ”), true, correct and complete copies of which have been delivered or made available to Buyer. To Seller’s knowledge, no party to the Contracts is in default thereunder in any material respect. For the purposes of the restatement of the representation in this clause (i) at Closing, Seller’s representation shall be limited to Approved Contracts.

 

(j) Leases . There are no space, equipment, capital, facility or other leases, occupancy agreements, concession agreements or subleases to which Seller or Manager (on behalf of Seller) is a lessor, sublessor or lessee and affecting any portion of the Land, Improvements or Personal Property other than those listed on Exhibit B , true, correct and

 

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complete copies of which have been delivered or made available to Buyer. To Seller’s knowledge, no party to the Contracts is in default thereunder in any material respect. For the purposes of the restatement of the representation in this clause (j) at Closing, Seller’s representation shall be limited to an updated Exhibit B .

 

(k) Compliance . To Seller’s knowledge, Seller has not received any notice from any governmental authority that the Property or any portion thereof is currently in violation of any law, ordinance or code, and no such action is pending.

 

(l) Right of First Offer . Except for this Agreement and subject to the rights of guests and patrons of the Property, including guests and patrons under advance bookings, Seller is not a party to any enforceable agreement or option for the transfer, sale or purchase of all or any portion of the Property and has not granted any other party any right or option to lease all or any portion of the Property other than a right of first offer in favor of Hilton Hotels Corporation granted pursuant to the Franchise Agreement.

 

(m) Management Agreement . The Hotel will not be subject to any form of management agreement with a third-party manager as of the Closing and the Management Agreement will be terminated by Seller at its sole cost and expense at or prior to Closing, unless Buyer has elected in its Notice to Proceed that Buyer wishes Seller to continue the Management Agreement on a month-to-month basis post-Closing for a period not to exceed two (2) months following the Closing.

 

(n) Franchise Agreement . Except for the Franchise Agreement, there are no contracts or agreements, written or oral, under which Seller operates the Hotel as a franchise and there are no contracts or agreements, written or oral, under which reservations are made with respect to the Hotel. From the period beginning on October 31, 2002 to the Date of this Agreement, Seller has not received any notices of default under the Franchise Agreement and, to Seller’s knowledge, since October 30, 2002, and except for matters set forth in the PIP, no uncured default exists by Seller thereunder.

 

(o) Taxes . To Seller’s knowledge, since October 30, 2002, Seller has filed all tax returns required by governmental agencies, and has paid and will continue to pay all taxes, assessments and fees imposed by any governmental authority relating to the Property and the operations of Seller prior to, including all income, withholding, unemployment, gross receipts, sales and franchise taxes incurred during periods prior to and as a result of the Closing.

 

(p) Labor and Employment . Seller has no employees. There are no employee benefit plans for the benefit of employees employed at the Hotel for which Seller is a plan sponsor or to which Seller is a party; provided, that Manager maintains a 401k plan for its employees. Since October 30, 2002, neither Seller nor, to Seller’s knowledge, Manager, has been and Seller is not and to Seller’s knowledge Manager is not currently a party to any union, collective bargaining or other labor contract.

 

(q) Financial Information . To Seller’s knowledge, the unaudited financial statements provided to Buyer by Seller, and dated after October 30, 2002, are correct and

 

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complete in all material respects and present fairly the results of the operations of the Property and Seller for the periods indicated.

 

(r) Hazardous Materials . Except as disclosed on Schedule 6.1(r) attached to this Agreement (including, in any of the environmental reports referenced therein), since October 30, 2002, Seller has received no written notice from any Governmental Authority or any third party alleging a violation of any Environmental Law, which violation remains uncured, or the existence of Hazardous Materials that are currently emanating from the Property.

 

(s) Property Ownership . Seller has good and marketable fee simple title in and to, and is the sole owner of, the Land, Improvements and the Personal Property, subject only to the Title Documents and matters which are disclosed in the Title Commitment.

 

(t) Liquor License . To Seller’s knowledge, Seller has received no notice in the past twelve (12) months from any neighboring property owner, municipal or county official, or law enforcement or liquor enforcement personnel of violations of the Liquor Act or Liquor Rules or the Liquor Permit.

 

Section 6.2 Limited Liability . The representations and warranties of Seller set forth in Section 6.1 , together with Seller’s liability for any breach before Closing of any of Seller’s interim operating covenants under Article 8 , will survive the Closing (and will not be merged into the Deed or other Closing documents delivered at the Closing) for a period of twelve (12) months (the “ Limitations Period ”). Buyer will not have any right to bring any action against Seller as a result of any untruth or inaccuracy of such representations and warranties, or any such breach, unless and until the aggregate amount of all liability and losses arising out of any such untruth or inaccuracy, or any such breach, exceeds $50,000 (the “ Basket Amount ”), and then only to the extent of such excess. In addition, in no event will Seller’s liability for all such breaches exceed, in the aggregate, $2,000,000 (the “ Liability Cap ”). Seller shall have no liability with respect to any of Seller’s representations, warranties and covenants herein if, prior to the Closing, Buyer has actual knowledge of any breach of a representation, warranty or covenant of Seller herein, or Buyer obtains actual knowledge (from whatever source, including any tenant estoppel certificates, as a result of Buyer’s Due Diligence or written disclosure by Seller or Seller’s agents and employees) that contradicts any of Seller’s representations and warranties herein, and Buyer nevertheless consummates the transaction contemplated by this Agreement. Buyer’s Surviving Obligations and Seller’s Surviving Obligations will survive Closing without limitation unless a specified period is otherwise provided in this Agreement. All other representations, warranties, covenants and agreements made or undertaken by Seller under this Agreement, unless otherwise specifically provided herein, will not survive the Closing Date but will be merged into the Deed and other Closing documents delivered at the Closing. Notwithstanding anything to the contrary in this Agreement, the following claims of Buyer shall not be subject to the Limitations Period, Basket Amount or Liability Cap: (a) claims based upon fraud of Seller, (b) claims under any Closing document