MEMBERSHIP INTERESTS CONTRIBUTION AGREEMENT

Exhibit 10.1

 

EXECUTION COPY

 

 

 

 

 

 

 

MEMBERSHIP INTERESTS CONTRIBUTION AGREEMENT

 

 

by and among

 

 

 

WATERFORD HOSPITALITY GROUP, LLC

 

and

 

MYSTIC HOTEL INVESTORS, LLC

 

and

 

 

HERSHA HOSPITALITY LIMITED PARTNERSHIP

 

 

 

 

Dated as of: June 15, 2005

 

 

 

 

TABLE OF CONTENTS

 

 

EXHIBITS

 

Exhibit 1.1	Membership Interests and Owner Entities
Exhibit 1.2	Description of the Property
Exhibit 1.3	Form of LLC Agreement
Exhibit 1.4	Asset Management Agreement
Exhibit 1.5	Lessee LLC Agreement
Exhibit 1.6	Lease Agreement
Exhibit 1.7	Management Agreement
Exhibit 1.8	Allocation of the Contribution Value
Exhibit 1.9	Permitted Exceptions
Exhibit 1.10	Existing Debt and Reserves
Exhibit 8.3	Required Consents
Exhibit 8.5	Litigation
Exhibit 8.7	Environmental Matters
Exhibit 8.8	Space Leases and Security Deposits
Exhibit 8.12	Service Contracts
Exhibit 8.13	Pending Applications
Exhibit 8.19	Franchise Agreements
Exhibit 8.21	Owner Entities, Part Owned Property Owners and Minority Interest holders
Exhibit 8.22	Insurance
Exhibit 8.28	Liabilities
Exhibit 9.5	Securities Law Matters
Exhibit 15.3.1	Omnibus Assignment

 

 

INDEX OF DEFINED TERMS

 

1933 Act	24		Lessee Company Affiliate	2
Adjustment Amount	2		Lessee LLC Agreement	2
Agreement	1		Liabilities	3
Asset Management Agreement	1		LLC Agreement	1
Asset Manager	1		Management Agreement	2
Cash Payment	5		Manager	2
CBA	20		Managing Member	1
Closing	2		Membership Interest	1
Closing Date	28		Minority Interest Acquisition Expenses	26
Closing Statement	14		Minority Interests	26
Commission	8		Mortgage	3
Company	1		Mortgage Escrows	12
Contribution Value	2		Mystic	1
Contributor	1		Outside Accountants	15
Credit Reserves	12		Outside Closing Date	28
Cutoff Time	10		Owner Entities	1
Debt	3		Part Owned Property	4
Deferred Property	28		Part Owned Property Lessee Company	30
Deferred Property Outside Closing Date	28		Permitted Exceptions	4
Development Assets	3		Person	4
Effective Date	35		Personal Property	4
ERISA	20		PIP	10
Escrow Agent	3		Plans	20
Existing Debt	3		Properties	1, 4
Existing Debt Documents	3		Property	1, 4
Existing Lender	3		Repaid Debt	34
Franchise Agreement	3		Representatives	7
Franchise Fees	10		Review Period	4
Franchisor	10		Security Deposits	4
Ground Lease Estoppel Certificates	29		Service Contracts	4
Ground Leases	19		Space Lease(s)	4
Guest Ledger Receivables	11		Stabilized Assets	5
Information	35		Subsidiaries	5
Initial Deposit	3		Survey	15
Investor	1		Tax	5
Investor Lessee Member	1		Tax Return	5
IRC	3		Title Commitment	15
IRS	3		Title Company	5
Lease Agreement	2		Title Correction	16
Lessee Company	2		Waterford	1

 

 

MEMBERSHIP INTERESTS CONTRIBUTION AGREEMENT

 

This Membership Interests Contribution Agreement is made as of the 15 ^th day of June, 2005 (this “ Agreement ”), by and among:

 

Mystic Hotel Investors, LLC, a Delaware limited liability company (“ Mystic ”), having an address at 914 Hartford Turnpike, P.O. Box 715, Waterford, CT 06385,

 

Waterford Hospitality Group, LLC a Delaware limited liability company (“ Waterford ”) having an address at 914 Hartford Turnpike, P.O. Box 715, Waterford, CT 06385 (Waterford and Mystic, collectively, “ Contributor ”), and

 

Hersha Hospitality Limited Partnership, a Virginia limited partnership (“ Investor ”) having an address at 510 Walnut Street, 9 ^th fl., Philadelphia, PA 19106.

 

WITNESSETH :

 

WHEREAS, Contributor is the owner of the membership interests specified on Exhibit 1.1 (the “ Membership Interests ”) in the limited liability companies (the “ Owner Entities ”) specified on Exhibit 1.1 ;

 

WHEREAS, each of the Owner Entities owns or has a leasehold interest in the respective land, as identified on Exhibit 1.2 , and the hotel and other improvements located thereon (each, individually, a “ Property ” and collectively, the “ Properties ”), all as more particularly described on Exhibit 1.2 ;

 

WHEREAS, Contributor and Investor desire to form a limited liability company under the laws of the State of Delaware (the “ Company ”), and to enter into a LLC Agreement in the form attached hereto as Exhibit 1.3 (the “ LLC Agreement ”) with respect to the Company, pursuant to which LLC Agreement Contributor shall contribute to the Company the Membership Interests;

 

Contributor desires to form or cause to be formed a limited liability company under the laws of the State of Delaware to serve as the managing member of the Company, unless Contributor, itself, shall serve in that capacity (in either case, “ Managing Member ”);

 

WHEREAS, Managing Member shall act as the managing member of the Company and Investor shall become a non-managing member of the Company;

 

WHEREAS, Contributor and Investor desire to cause the Owner Entities (or the Manager) to enter into Asset Management Agreements in the form attached as Exhibit 1.4 (the “ Asset Management Agreement ”) with an affiliate of Investor (“ Asset Manager ”) with respect to all of the Properties;

 

 

WHEREAS, Contributor and Investor, each through a respective Affiliate (“ Investor Lessee Member ”) desire to form a limited liability company under the laws of the State of Delaware (the “ Lessee Company ”), and to enter into an LLC Agreement in the form attached hereto as Exhibit 1.5 (the “ Lessee LLC Agreement ”);

 

WHEREAS, Contributor and Investor desire to cause each of the Owner Entities to lease its respective Property to the Lessee Company (or an Affiliate of the Lessee Company with an equity structure reflecting the ownership of the relevant Owner Entity, for Part Owned Properties each, a “ Lessee Company Affiliate ”) pursuant to a Lease Agreement substantially in the form attached hereto as Exhibit 1.6 (the “ Lease Agreement ”); and

 

WHEREAS, Contributor and Investor desire to cause the Lessee Company and each Lessee Company Affiliate to enter into a Management Agreement with Waterford Hotel Group, Inc., a Connecticut corporation (the “ Manager ”) in the form attached hereto as Exhibit 1.7 (the “ Management Agreement ”) for each Property.

 

NOW, THEREFORE, in consideration of Ten Dollars ($10) and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and the mutual covenants herein contained, the parties hereto hereby agree as follows:

 

 

 

As used herein, defined terms shall have the meanings given to them in the text of this Agreement (refer to the Index of Defined Terms in the Table of Contents), and in addition, the following terms shall have the meanings indicated.

 

“ Adjustment Amount ”: the net amount of all adjustments (as set forth in Article 6 or elsewhere in this Agreement) subtracted from (or, in the case of a negative Adjustment Amount, added to) the Contribution Value of the Properties. The Adjustment Amount will begin at zero and decrease with amounts owed to Contributor and increase with amounts owed to Investor or the Company, as set forth herein.

 

“ Closing ”: the transfer by Contributor of the Membership Interests to the Company, the payment (in cash and in kind) of the Contribution Value in connection therewith and the Company’s issuance of membership interests to Investor and Contributor, each subject to and otherwise in accordance with the terms of this Agreement.

 

“ Contribution Value ”: as of the Closing: Two Hundred Forty-Eight Million Three Hundred Twenty-Five Thousand Dollars ($248,325,000) (which the parties have agreed to allocate among the Properties in accordance with Exhibit 1.8 attached hereto), adjusted as follows: (i) plus or minus the Adjustment Amount, (ii) minus the amount of any Existing Debt (interest and principal) outstanding as of the Closing, (iii) minus any debt obligations incurred after the date hereof in replacement of Repaid Debt, (iv) minus an amount equal to the product of the allocated value of each Part Owned Property, as adjusted by the result of items (i), (ii) and (iii) with respect to such Part Owned Property, multiplied by the percentage equity ownership of the Minority Interests with respect to such Part Owned Property, (v) plus any Minority Interest Acquisition Expenses, and (vi) plus any costs and expenses that the members have agreed that the Company may incur, or have otherwise agreed to treat as Company expenses, as of the Closing Date pursuant to the terms of this Agreement. The parties shall confirm the final Contribution Value pursuant to the Closing Statement as of the Closing Date.

 

 

“ Debt ” of any Person at any date means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (d) all obligations of such Person under leases which are or should be, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable, (e) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or property), (f) all deferred obligations of such Person to reimburse any bank or other Person in respect of amounts paid or advanced under a letter of credit or other instrument, (g) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, and (h) all Debt of others guaranteed directly or indirectly by such Person or as to which such Person has an obligation substantially the economic equivalent of a guarantee.

 

“ Development Assets ” the following Properties: Hartford Hilton, Hartford, CT; and Hartford Marriott, Hartford, CT, as more particularly described on Exhibit 1.2 .

 

“ Escrow Agent ”: First American Title Insurance Company.

 

“ Existing Debt ”: all Debt (including principal and interest) of the Owner Entities, including all Debt secured by a lien on certain of the Properties in favor of the lenders (in each case, an “ Existing Lender ”).

 

“ Existing Debt Documents ”: all documents, agreements, instruments and understandings evidencing, securing or otherwise relating to the Existing Debt.

 

“ Franchise Agreement ”: any franchise agreement or similar agreement affecting any Property.

 

“ Initial Deposit ”: a deposit in the amount of One Million Dollars ($1,000,000), payable by Investor, and a deposit in the amount of Two Hundred Fifty Thousand Dollars ($250,000), payable by Contributor.

 

“ IRC ”: the Internal Revenue Code of 1986, as amended, and as it may further be amended from time to time, and any successor statutes thereto.

 

“ IRS ”: the Internal Revenue Service, an agency of the United States Department of the Treasury.

 

“ Liabilities ”: monetary claims, debts, liabilities, obligations, duties and responsibilities of any kind and description, whether absolute or contingent, direct or indirect, known or unknown or matured or unmatured.

 

“ Mortgage ”: each mortgage securing any of the Existing Debt with respect to the relevant Property.

 

 

“ Part Owned Property ”: any Property that is not wholly owned by Contributor, the Company or by a wholly owned subsidiary of Contributor or the Company. On the date hereof, the following Properties are Part Owned Property:

 

“ Permitted Exceptions ”:   the Franchise Agreements, the Existing Debt Documents, the Service Contracts, the Space Lease, the Ground Lease, the documents identified on Exhibit 1.9 , and any matter indicated on a Title Commitment or Survey and not objected to by Investor prior to the Closing.

 

“ Person ”: any individual, partnership, limited liability company, joint venture, corporation, trust, or other similar entity.

 

“ Personal Property ”:   any furniture, furnishings, tools, equipment, supplies (consumable and otherwise) and other movable property (if any) located at and used in connection with the ownership, use and operation of the Properties or portion thereof that are now or at the Closing owned by Contributor or any Owner Entity; files that are in the possession of Contributor or any Owner Entity and are necessary or appropriate for the efficient operation of the Properties or a portion thereof, including sepias, drawings, surveys, plans and specifications; and all licenses, permits, certificates of occupancy (or local equivalent) in the possession of or available to Contributor or any Owner Entity.

 

“ Property ” and “ Properties ”:   those plots, pieces and parcels of land described on Exhibit 1.2 , and all of the buildings, fixtures and equipment (including permanent signs) and other improvements thereon, together with the Personal Property, the tenant’s interest under the Ground Lease, the landlord’s interest under the Space Leases, the Owner’s interest under the Franchise Agreements and all the other assets described in Article 2 pertaining thereto.

 

“ Repaid Debt ”: any Existing Debt to be repaid on or before the Closing Date (including principal and interest).

 

“ Security Deposits ”: all security deposits held by Contributor pursuant to any Space Leases, which Security Deposits Contributor shall assign to the Company at the Closing.

 

“ Service Contracts ”:   all written or oral agreements (including purchase orders) pursuant to which goods, services, supplies or other items are furnished on a continuing basis for the operation of the Properties or any portion thereof.

 

“ Space Lease(s) ”:   all tenant space leases, licenses, concessions or other occupancy or use agreements, including all written modifications, addenda and supplements thereto and guarantees thereof, applicable to the Properties or any portion thereof.

 

 

“ Stabilized Assets ”: the following Properties: (1) Residence Inn by Marriott and Whitehall Mansion, Mystic, CT; (2) Courtyard by Marriott, Warwick, RI; (3) Courtyard by Marriott and Rosemont Suites, Norwich, CT; (4) SpringHill Suites by Marriott, Waterford, CT; (5) Mystic Marriott Hotel and Spa, Groton, CT; (6) Residence Inn by Marriott, Southington, CT, and ancillary Dunkin Donuts; (7) Residence Inn by Marriott, Danbury, CT.

 

“ Subsidiary ”: any Person in which a Person owns, directly or indirectly, a majority of the member interests, partnership interests, or similar equity interests and of which that Person, as the case may be, has the power, directly or through a Subsidiary, to direct the management and policies of such Person.

 

“ Tax ”: any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

“ Tax Return ”: any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“ Title Company ”: First American Title Insurance Company.

 

A reference to any agreement, budget, document or schedule shall include such agreement, budget, document or schedule as revised, amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement. The singular includes the plural and the plural includes the singular. The words “include”, “includes” and “including” are not limiting. Reference to a particular “Section” or “Articles” refers to that section or articles of this Agreement unless otherwise indicated. The words “herein”, “hereof”, “hereunder” and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement.

 

 

On the terms and subject to the conditions set forth herein, at the Closing, Contributor shall contribute and convey to the Company and the Company shall accept from Contributor the Membership Interests free and clear of all liens, claims, encumbrances or interests of others.

 

 

Subject to the terms, conditions and provisions of this Agreement, at the Closing:

 

3.1     Cash Payments by Investor . Investor shall contribute to the Company as a capital contribution a cash payment (the “ Cash Payment ”) in presently available funds in the amount of sixty-six and seven-tenths percent (66.7%) of the adjusted Contribution Value attributable to the Stabilized Assets, plus fifty percent (50%) of the adjusted Contribution Value attributable to the Development Assets.

 

 

3.2     Cash Payment to Contributor . The Company shall distribute to Contributor the Cash Payment.

 

3.3     Payment of Costs . Investor shall pay to the Company 57.96% of the costs payable by the Company pursuant to Section 15.6.1 and Contributor shall pay to the Company 42.04% of the costs payable by the Company pursuant to Section 15.6.1 , unless any particular cost may reasonably be attributed to a specific Property, in which case Investor shall pay to the Company 50% of the costs, with respect to Development Assets, and 66.7% of the costs, with respect to Stabilized Assets, and Contributor shall pay to the Company 50% of the costs, with respect to Development Assets, and 33.3% of the costs, with respect to Stabilized Assets.

 

3.4     Issuance to Contributor . The Company shall issue to Contributor, pursuant to the LLC Agreement, in partial consideration for the contribution of the Membership Interests, limited liability company interests in the Company with an initial Capital Account (as defined in the LLC Agreement) with respect to such limited liability company interest equal to thirty-three and three-tenths percent (33.3%) of the Contribution Value attributable to the Stabilized Assets and fifty percent (50%) of the Contribution Value attributable to the Development Assets. The parties acknowledge and agree that the contribution of the Membership Interests shall be treated as a part disguised sale, described in Section 707 of the IRC and the Treasury Regulations promulgated thereunder, part reimbursement of capital expenditures described in Treasury Regulations Section 1.707-4(d) and as a part capital contribution described in Section 721.

 

3.5     Issuance to Investor . The Company shall issue to Investor, pursuant to the LLC Agreement, limited liability company interests in the Company with an initial Capital Account (as defined in the LLC Agreement) with respect to such limited liability company interest equal sixty-six and seven-tenths percent (66.7%) of the Contribution Value attributable to the Stabilized Assets and fifty percent (50%) of the Contribution Value attributable to the Development Assets.

 

 

4.1     Deposit . Within three days after the date hereof, Investor and Contributor shall each place their respective portions of the Initial Deposit in escrow with Escrow Agent.

 

4.2     Payment . Escrow Agent shall invest the Initial Deposit in escrow in a money market fund or bank account paying interest or dividends, in Escrow Agent’s name, separate from its personal and other business accounts. Investor shall make all investment decisions; Contributor shall have no control over such investment decisions with respect to the escrowed funds. At the Closing, the Initial Deposit (plus all interest and dividends earned thereon) shall be paid to Contributor, and Investor shall receive a credit against the Cash Payment in the amount of the Initial Deposit deposited by it, and all interest and dividends earned thereon. If the Closing does not occur as a result of a default by Contributor, the Initial Deposit (plus all interest and dividends earned thereon) shall be paid to Investor. If the Closing does not occur as a result of a default by Investor, the Initial Deposit (plus all interest and dividends earned thereon) shall be paid to Contributor. If the Closing does not occur for any reason other than a default by Investor or Contributor, then Escrow Agent shall return the Initial Deposit to Investor and Contributor in the amounts deposited by them (plus all interest and dividends earned thereon). The parties shall furnish Escrow Agent with their respective tax identification numbers. Contributor and the Company shall share equally all escrow fees, if any, charged by Escrow Agent.

 

 

4.3     Escrow Terms . Escrow Agent shall hold the Initial Deposit as set forth in Section 4.2 unless (i) Escrow Agent receives any instructions jointly executed by Investor and Contributor directing Escrow Agent with respect to distribution of the Initial Deposit, in which event Escrow Agent shall forthwith apply the Initial Deposit as instructed without any further requirement; or (ii) Investor or Contributor makes a written demand upon Escrow Agent for the Initial Deposit accompanied by an affidavit signed by the party making the demand stating sufficient facts to show that said party is entitled to receive the Initial Deposit pursuant to the terms of this Agreement, provided that the following procedures of this Section shall have been complied with. Upon receipt of such demand, Escrow Agent shall give ten days’ written notice to the other party of such demand and of Escrow Agent’s intention to remit the Initial Deposit to the party making the demand on the stated date, together with a copy of the affidavit. If Escrow Agent does not receive a written objection before the proposed date for remitting the Initial Deposit, Escrow Agent is hereby authorized to so remit. However, if Escrow Agent actually receives written objection from any other party before the proposed date on which the Initial Deposit is to be remitted, Escrow Agent shall continue to hold the Initial Deposit until otherwise directed by joint written instructions from Investor and Contributor or until a final judgment by an appropriate court is made. In the event of such dispute, Escrow Agent may deposit the Initial Deposit with an appropriate court and, after giving written notice of such action to the parties, Escrow Agent shall have no further obligations with respect to the Initial Deposit.

 

4.4     Protection of Escrow Agent . The parties acknowledge that Escrow Agent is acting as a stakeholder at their request and for their convenience, that Escrow Agent shall not be deemed to be the agent of either of the parties, and Escrow Agent shall not be liable to the parties for any act or omission on its part unless taken or suffered in bad faith or in willful or negligent disregard of this Agreement. Contributor and Investor shall jointly and severally indemnify and hold Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys’ fees, incurred in connection with the faithful performance of Escrow Agent’s duties hereunder. Escrow Agent acknowledges its consent to the provisions of this Agreement applicable to it by signing on the signature page of this Agreement.

 

4.5     Due Diligence Review . For the purposes hereof, “ Review Period ” means a period of time that commences on the date of this Agreement and shall expire at midnight on July 8, 2005. Investor shall have the Review Period within which to inspect and examine the Owner Entities, Properties, Personal Property; Space Leases, Service Contracts and other customary legal, financial, environmental and engineering matters with respect to the Owner Entities and the Properties. However, Investor may not conduct any invasive environmental or engineering tests without the express prior, written consent of Contributor, not to be unreasonably withheld. Further, Investor will give Contributor advance notice (which may be oral) prior to making any site visits. Investor agrees to restore any damage caused or relating to any test or investigation it has performed, and Investor shall indemnify and hold harmless Contributor from any loss, cost, damage or expense caused thereby, which obligation shall survive the expiration or sooner termination of this Agreement.

 

 

4.5.1     From and after the date hereof and until the Closing (or the termination of this Agreement by Investor pursuant to Article 17 ), Investor and its designated representatives shall have access to the Properties for the purpose of making reasonable engineering, survey or other inspections and independent investigations. During the Review Period, Contributor shall provide Investor and its agents promptly and without charge with all material and necessary information within its or its affiliates’ possession or control with respect to the Properties, including full and accurate copies of Space Leases, Service Contracts, title information or instruments, surveys, all tax bills for the past year, and an inventory of all tangible Personal Property owned or leased (as lessee) by Contributor or Owner Entities and located on the Properties, and access to and, upon request, copies of all books and records of the Owner Entities and Contributor relating to the Owner Entities and the ownership, management, development and financing of the Properties. Contributor also shall provide access by Investor’s representatives, to all financial and other information relating to the Owner Entities and the Properties which would be sufficient to enable them to prepare audited financial statements in conformity with Regulation S-X of the Securities and Exchange Commission (the “ Commission ”) and to enable them to prepare a registration statement, report or disclosure statement for filing with the Commission. Contributor shall also provide to Investor’s representatives a signed representative letter and a hold harmless letter which would be sufficient to enable an independent public accountant to render an opinion on the financial statements related to the Owner Entities and the Properties.

 

4.5.2     Investor shall undertake all inspections, investigations and examinations by Investor’s representatives, agents and/or consultants at the Company’s sole cost and expense. Investor shall endeavor not to unreasonably disturb or interfere with the rights of any hotel guest and any tenant under a Space Lease with respect to the Properties and shall otherwise comply with all notice and other requirements under applicable law and such Space Leases. The performance of any invasive tests shall be scheduled only upon receipt by Contributor of prior written notice and its consent thereto (such consent not to be unreasonably withheld or delayed). Investor shall, at its sole cost and expense, restore any portion of any Property that may be damaged or otherwise disturbed by reason of such tests and/or inspections to its condition existing immediately prior to conducting such test or inspection.

 

4.5.3     Investor shall defend, indemnify and hold Contributor and any affiliate or Subsidiary of Contributor, and all shareholders, employees, officers, partners, members and directors of Contributor or such affiliate or Subsidiary, as the case may be, harmless from any and all liability, cost and expense (including reasonable attorneys’ fees, court costs and costs of appeal) such party suffered or incurred for injury to person or property caused by or as a result of Investor’s inspection of the Properties.

 

4.5.4     In the event that during the Review Period, Investor, in its sole and exclusive judgment based in good faith on the results of on its due diligence review, determines to terminate this Agreement and not to enter into the LLC Agreement, then, on or prior to the last day of the Review Period, Investor shall have the right to cancel and terminate this Agreement without liability to Investor, by so sending notice to Contributor (with a copy to Escrow Agent) on or prior to such day (as of which date time shall be of the essence), in which case each party shall be entitled to a return of the portion of the Initial Deposit deposited by it and all interest earned thereon, less one half of any fees of the Escrow Agent. In the event Investor does not cancel and terminate this Agreement prior to the end of the period set forth in Section 4.5 , then this Agreement shall remain in full force and effect.

 

 

4.5.5     If Investor cancels and terminates this Agreement pursuant to this Section, all non-public information obtained by Investor from Contributor during the Review Period shall be kept confidential, except to the extent disclosure is required pursuant to applicable law, regulation or court proceeding. Investor shall deliver to Contributor copies of all environmental and engineering reports it has obtained after Contributor has reimbursed Investor for Investor’s costs in obtaining such items.

 

 

5.1     Pre-Closing Actions . During the period from the date of this Agreement until the Closing, except as consented to in writing by Investor, Contributor shall, and shall cause the Owner Entities to: (i) conduct its business and cause the Properties to be operated only in the ordinary course and in substantially the same manner as heretofore conducted and in compliance with all applicable insurance company requirements, all federal, state and local laws, ordinances and requirements; (ii) use commercially reasonable efforts to preserve intact its business organizations and goodwill; (iii) not offer any interest in the Owner Entities or the Properties for sale to any Person, consider unsolicited offers from any Person for the purchase of any interest in the Owner Entities or the Properties or enter into a contract for the sale of any interest in the Owner Entities or the Properties to any Person, whether or not such contract is contingent on the termination of this Agreement; (iv) not enter into discussions with any other Person regarding the sale of any interest in the Property LLCs or the Properties directly or indirectly; (v) timely comply with all of Contributor’s and the Owner Entities material obligations under all Franchise Agreements, Space Leases, Ground Leases, Service Contracts, Existing Debt Documents and other Permitted Exceptions and timely make all payments due and payable thereunder, (vi) maintain the Properties and the related Personal Property or cause the same to be maintained in the same condition as exists on the date hereof, reasonable wear and tear excepted, and shall keep the same or cause the same to be kept fully insured against fire and extended coverage consistent with prior practice insurance company requirements, all federal, state and local laws, ordinances and requirements; (vii) not modify, amend or terminate or permit the modification, amendment or termination of any Franchise Agreements, Space Leases, Ground Leases, Service Contracts, Existing Debt Documents and other Permitted Exceptions; or (viii) enter into any lease, contract or other agreement that would be binding upon any Property or any of the Owner Entities after Closing. Notwithstanding the foregoing, Investor agrees that with respect to items (vii) and (viii), no Investor consent shall be required for the amendment, termination or incurrence of any obligation that either (a) is terminable by the Company without penalty on 30 days or less notice, or (b) with respect to the relevant Property, aggregates an obligation of not more than $50,000 in any year with respect to that Property (without taking into account obligations that Investor has consented to hereunder). Investor covenants not to unreasonably withhold any consent with respect to items (vii) and (viii), and further agrees that its failure to respond to any request for consent within three days after receipt thereof shall be deemed a consent. Within three business days after the execution of such new Space Lease, Service Contract or any other item listed in clause (viii) after the date hereof, Contributor shall provide Investor with a copy of the same. Contributor shall promptly notify Investor of any material adverse change in the physical condition of the Properties.

 

 

5.2     Property Condition . Except as otherwise stated to the contrary in this Agreement, the Company shall, at the Closing, accept the Properties in their “As Is, Where Is” condition as exists on the date hereof, subject also to the provisions of Section 5.1 .

 

5.3     Franchise Agreements . Contributor shall use its commercially reasonable efforts to obtain a new franchise agreement (“ New Franchise Agreement ”) issued by each franchisor (“ Franchisor ”) under the existing Franchise Agreements in the name of the Lessee Company for each property substantially in the form of the existing Franchise Agreement for such Property, with any changes or modifications to such Existing Franchise Agreement approved in writing by Investor (which approval shall not be unreasonably withheld) to the extent required by any Franchisor, a Property Improvement Plan (“ PIP ”) shall have been obtained by and at the cost of the Company from each Franchisor. The estimated cost (exclusive of any licensing fees) of any improvements to any Property required by any PIP shall be paid by the application of the Credit Reserves, to the extent available, and otherwise shall be an expense of the Company. In the event that any franchise fees (“ Franchise Fees ”) currently payable with respect to each Property under the Franchise Agreements are increased in the New Franchise Agreements, the present value of any such increase (with respect to the term up to the franchise expiration date as in effect on the date hereof, only) shall be deducted as an adjustment to the Contribution Value. For the purpose of determining present value, projected payments shall be discounted at the same rate of interest as the secured Debt affecting the relevant Property as of the Closing Date.

 

 

6.1     Adjusted Items . Contributor shall be entitled to all income produced from the operation of the Properties that is allocable to the period prior to 12:01 A.M. on the day the Closing occurs (the “ Cutoff Time ”) and shall be responsible for all expenses allocable to that period, and the Company shall be entitled to all income and responsible for all expenses from the operations of the Properties allocable to the period beginning at the Cutoff Time. At the Closing, all items of income and expense listed below with respect to the Properties shall be prorated in accordance with the foregoing principles and the rules for the specific items set forth hereafter:

 

6.1.1     Contributor shall arrange for a billing under all those Service Contracts for which fees are based on usage and with utility companies for a billing for utilities not paid directly by tenants, to include all utilities or service used up to the day the Closing occurs, and shall pay or cause to be paid the resultant bills. If any of the Service Contracts set forth on Exhibit 8.12 cover periods beyond the Closing, the same shall be prorated on a per diem basis.

 

6.1.2     Real estate taxes and personal property taxes on the Properties shall be prorated based upon the period (i.e., calendar or other tax fiscal year) to which they are attributable, regardless of whether or not any such taxes are then due and payable or are a lien. Contributor shall pay or cause to be paid at or prior to the Closing (or the Company shall receive credit for) any unpaid taxes attributable to periods prior to the Closing Date (whether or not then due and payable or a lien as aforesaid). Contributor shall receive credit for any previously paid or prepaid taxes attributable to periods from and after the Closing Date. If as of the date the Closing occurs, the actual tax bills for the tax year or years in question are not available and the amount of taxes to be prorated as aforesaid cannot be ascertained, then rates, millages and assessed valuation of the previous year, with known changes, shall be used; and after the Closing occurs and when the actual amount of taxes for the year or years in question shall be determinable, the parties shall re-prorate such taxes to reflect the actual amount of such taxes. Notwithstanding the foregoing provisions, Section 8.10 shall govern with respect to all general, special and/or betterment assessments with respect to the Properties.

 

 

6.1.3     Rentals and other payments that are payable pursuant to Space Leases shall be prorated on a per diem basis as and when collected. The Company shall not be obligated to make any payment or give any credit to Contributor on account of or by reason of any rental or other payments that are unpaid as of the Closing Date, but shall be required merely to turn over Contributor’s share of the same within fourteen days if, as and when received by the Company after the Closing. Investor and the Company shall not be required to institute any action or proceeding to collect any rent delinquencies.

 

6.1.4     All amounts, including room charges, accrued to the accounts of guests occupying rooms in the Properties (collectively, “ Guest Ledger Receivables ”) as of the Cutoff Time shall be prorated. Contributor shall receive a credit for all Guest Ledger Receivables for all room nights up to and including the room night during which the Cutoff Time occurs, and the Company shall be entitled to the amounts of Guest Ledger Receivables for the room nights after the Cutoff Time. Contributor and the Company shall each receive a credit equal to one half of the amount of Guest Ledger Receivables for the full room night during which the Cutoff Time occurs. All restaurant and bar facilities will be closed as of the Cutoff Time and Contributor shall receive the income from the same until the Cutoff Time.

 

6.1.5     The Company shall receive a credit for advance payments, if any, and prepaid room reservation deposits received by Contributor, to the extent the foregoing related to a period after the Cutoff Time.

 

6.1.6     Cashier's cash funds and the petty cash funds used by Contributor in operating the Properties shall be adjusted at a price equal to the face amount thereof as of the Closing Date.

 

6.1.7     If applicable, franchise payments prepaid pursuant to the Franchise Agreements and applied by the Franchisor to periods subsequent to the Closing Date shall be prorated. All amounts known to be due under the Franchise Agreements with reference to periods prior to the Closing Date shall be paid by Contributor or credited to the Company. Any additional amounts not known at the Closing will be subject to post closing adjustment.

 

6.1.8     Gas, water, electricity, heat, fuel, sewer and other utilities charges to which Section 6.1.1 cannot be applied, and the governmental licenses, permit fees and inspection fees and operating expenses relating to the Properties shall be prorated on a per diem basis;

 

6.1.9     All management fees or other compensation due or accrued prior or subsequent to the date of the Closing to any manager, broker, agent, or other person in connection with the Properties for services rendered to the Owning Entities or any predecessor of Owning Entities in connection with the management and/or leasing of the Properties shall be credited to the Company to the extent not paid by Contributor prior to the Closing (it being agreed that payment of all of the foregoing shall be the sole responsibility of Contributor).

 

 

6.1.10      Any prepaid rentals, other prepaid payments, security deposits, electric, gas, sewer and water deposits deposited with the Owning Entities or Contributor by tenants (including all accrued interest on all of the foregoing, unless Contributor is entitled to retain the benefit thereof) under any Space Leases, license agreements or concession agreements relating to the Properties, shall all belong to the Company and all shall be assigned and delivered to the Company at the Closing with respect to the Properties. At Investor’s option, the Company may take a cash credit in the amount of all Security Deposits to be delivered to the Company at the Closing, and Contributor may retain same.

 

6.1.11      All salaries and benefits of employees whose employment is assumed by the Company or its Lessee pursuant to Section 8.15 hereof shall be prorated.

 

6.1.12      The parties shall make the following additional prorations/adjustments with respect to the Existing Debt:

 

6.1.13      Premiums with respect to any insurance policies of the Owning Entities not terminated as of the Closing Date shall be prorated as of the Closing Date.

 

6.1.14      Any Ground Lease obligations shall be prorated between the Company and Contributor as of the Closing Date on an accrual basis, based on the actual number of days in the applicable period during which the Closing occurs. The Company shall be credited with and Contributor shall be charged with an amount equal to all accrued Ground Lease obligations. The Company shall be fully responsible for and shall pay all Ground Lease obligations accruing after the Closing Date. Any additional rent or other pass-throughs under the Ground Lease shall be pro-rated in a manner reasonably estimated by Contributor on the basis of prior periods, but shall be subject to post-closing adjustment to reflect final billed amounts.

 

6.1.15      The Company shall receive a credit for the following capital improvement reserves (the “ Credit Reserves ”), less any amount of Credit Reserves actually expended between the date hereof and the Closing Date in the ordinary course of business:

 

 

6.2     Proration of Inventory . Usable and in current use inventories of the following items shall also be prorated:

 

6.2.1     uncooked and unopened food, including food in room “mini bars” and sides and shells of frozen meat in storage freezers; and

 

6.2.2     beverages, wine, beer, and liquor in unopened bottles, including beverages in room “mini bars”.

 

Contributor shall remove all vending machine moneys as of the Cutoff time and retain same.

 

6.3     Basis of Adjustments .

 

6.3.1     Uniform System . Except as otherwise expressly provided herein, all apportionments and adjustments shall be made in accordance with the Uniform System of Accounts for the Lodging Industry, 9 ^th revised edition, as amended, as adopted by the American Hotel and Lodging Association.

 

6.3.2     Generally . Each of the foregoing prorations and adjustments shall be adjusted to reflect that the transaction does not include the Minority Interests, with respect to the Part Owned Property Owners, by multiplying the respective adjustment or proration by the percent of equity in the Part Owned Property Owner that is not subject to the Minority Interests. The parties shall make all prorations and payments under the foregoing provisions based on a written statement or statements delivered to Investor by Contributor and approved by Investor. In the event any prorations, apportionments or computations shall prove to be incorrect for any reason, then either party shall be entitled to an adjustment to correct the same, provided that it makes written demand on the party obligated to make such payment for such adjustment within one year after the erroneous payment or computation was made.

 

6.4     Accounts Receivable . All accounts receivable arising from the Properties shall be disposed of as follows:

 

6.4.1     Contributor shall retain the receivables of the Properties as of the Cutoff Time, other than Guest Ledger Receivables. The Company shall promptly remit to Contributor in accordance with written instructions from Contributor any funds received by the Company in payment of such accounts receivable arising prior to the Cutoff Time. With regard to any collection made from a person or entity who has accounts receivable arising both prior and subsequent to the Cutoff Time, such collection shall be applied as designated by the account debtor (and if designated as payment of an accounts receivable arising prior to the Cutoff Time, the Company shall promptly remit such funds to Contributor in accordance with the preceding sentence), but if there is no designation, then any such collection received shall be applied first to accounts receivable of such debtor arising after the Cutoff Time and then to accounts receivable of such debtor arising prior to the Cutoff Time.

 

 

6.4.2     The Company and Contributor shall treat all rental payments received from a tenant at the Properties (other than room guests) as first applicable to rent that was owed by that tenant, if any, for the month in which the Closing occurs until the rental amount due to Contributor for such period has been collected. If there remains any unpaid rent for a period prior to the month of the Closing, all payments of rent received from such tenant shall be applied first to sums owed to Company with respect to the month after the Closing, then to any amounts owed to Contributor from such tenant, and finally, any excess shall be treated as belonging to the Company.

 

6.4.3     Neither Contributor nor the Company may enter into any transactions that purport to compromise claims belonging to the other, without the other party’s prior written consent.

 

6.4.4     If at the time of the Closing any tenants or guests with respect to the Properties owe Contributor any money, Contributor shall have the right, subsequent to the Closing, to collect such sums directly from such tenants, but shall not have the right to bring lawsuits against such tenants for such collection without the Company’s prior written consent. The Company shall have no obligation to join in any lawsuit and/or cooperate with Contributor (at Contributor’s expense) in its collection attempts.

 

6.5     No Overcharge of Tenants . Contributor represents, warrants and covenants that no tenants have been overcharged for any item of rent or additional rent (including real estate taxes, or insurance reimbursements), for any periods prior to the Closing Date. If, within one year following the Closing, any tenant makes a claim against the Company or any Owner Entity for any such overcharge (including any withholding of rent by reason thereof), Contributor will and hereby agrees to defend, indemnify and hold the Company and such Owner Entity harmless from and against any loss, expense, or damage (including withheld rents or reasonable attorney’s fees) arising from or relating to any such alleged overcharge or rent withholding in connection therewith). The provisions of this Section shall survive the Closing for a period of one year (and for such additional period as may be necessary to resolve any such claim made within a one-year period).

 

6.6     Closing Statement; Post-Closing Adjustment .

 

6.6.1     Contributor shall cause its accounting staff to make such inventories, examinations and audits of the Properties, and of the books and records of the Properties, as Contributor’s Accountants may deem necessary to make the adjustments and prorations required under this Article, or under any other provisions of this Agreement. Investor or its designated representatives may be present at such inventories, examinations and audits of the Properties. Based upon such audits and inventories, Contributor’s accountants will prepare and deliver to the parties no later than two days prior to the Closing a closing statement (the “ Closing Statement ”). The Closing Statement shall contain Contributor’s best estimate of the amounts of the items requiring the prorations and adjustments in this Agreement. The amounts set forth on the Closing Statement shall be the basis upon which the prorations and adjustments provided for herein shall be made at the Closing.

 

 

6.6.2     The Closing Statement shall be binding and conclusive on all parties hereto to the extent of the items covered by the Closing Statement, unless within 30 days after receipt by Investor of the Closing Statement, either Investor or Contributor notifies the other that it disputes such Closing Statement, and specifies in reasonable detail the items and