PURCHASE, SALE AND CONTRIBUTION AGREEMENT

Exhibit 10.18

 

PURCHASE, SALE AND CONTRIBUTION

AGREEMENT

 

BY AND AMONG

 

BIT HOLDINGS SEVENTEEN, INC.

 

SELLER

 

AND

 

MHI HOSPITALITY, L.P.

 

BUYER

 

AND

 

MHI HOTELS, LLC

 

OPERATOR

 

DATED: May 20, 2005

TABLE OF CONTENTS

 

PURCHASE, SALE AND CONTRIBUTION AGREEMENT

 

THIS PURCHASE, SALE AND CONTRIBUTION AGREEMENT (this “Agreement ”) is made and entered into as of May 20 2005, by and among BIT HOLDINGS SEVENTEEN, INC., a Maryland corporation (“ Seller ”), MHI HOSPITALITY, L.P., a Delaware limited partnership (“ Buyer ”), and MHI HOTELS, LLC, a Virginia limited liability company and successor by merger to MHI Recovery Management, Inc., a Virginia corporation (“ Operator ”).

 

EXPLANATORY STATEMENT

 

A. Seller is the owner of the Property (as defined below);

 

B. Buyer desires to purchase the Property from Seller and Seller desires to sell the Property to Buyer, all on the terms and conditions hereinafter set forth; and

 

C. Operator desires to contribute to Buyer certain personal property relating to the Hotel and its interests under the Operating Agreements (as defined below) in exchange for Units (as defined below).

 

D. Operator has previously entered into the Construction Loan (as hereinafter defined) from the Trustee, which Construction Loan will be paid off in connection with the transfers described herein.

 

NOW, THEREFORE , for and in consideration of the sum of Ten Dollars ($10) and other good and valuable consideration in hand paid by Buyer to Seller, and by Operator to Buyer, on the execution of this Agreement, the receipt and sufficiency of which are hereby acknowledged by each of Seller, Buyer, and Operator, Seller, Buyer and Operator hereby agree as follows:

 

1. DEFINITIONS.

 

Wherever used in this Agreement, the following terms shall have the meanings set forth below:

 

“ ADA ” is defined in Section 8B.12.

 

“ Anti-Terrorism Law ” means any law rule or regulation relating to terrorism or money-laundering, including Executive Order No. 13224 and the USA Patriot Act.

 

“ Assignment and Assumption ” is defined in Section 5.3.3.

 

“Assignment, Contribution and Assumption” is defined in Section 5.4.1.

“ Bill of Sale ” is defined in Section 5.3.2.

 

“ Building ” means collectively the 10 story hotel located on the Land consisting of not less than 296 hotel rooms and an aggregate of about 314,589 square feet of space.

 

“ Business Day ” means Monday through Friday excluding holidays recognized by the Maryland state government and the state government where the Land is located.

 

“ Buyer Group ” means Buyer, on behalf of itself and its successors and assigns, and its and their parent, subsidiaries, divisions, agents, employees, officers, directors, attorneys, and representatives of every kind whatsoever.

 

“ Closing ” means the consummation and closing of the purchase and sale contemplated in this Agreement.

 

“ Closing Date ” means July 20, 2005, subject to extension as provided in Section 5.2.

 

“ Code ” is defined in Section 8A.5.

 

“ Common Stock ” is defined in Section 8B.8.

 

“ Condemnation Proceeding ” means any proceeding in condemnation, eminent domain, or any written request for a conveyance in lieu thereof, or any notice that such proceedings have been or will be commenced against any portion of the Property.

 

“ Construction Loan ” means that certain loan made by Trustee, as trustee of the Trust, to Operator (successor by merger to MHI Recovery Management, Inc.) in the original principal amount of up to $9,500,000 pursuant to the Construction Loan Agreement.

 

“ Construction Loan Agreement ” means that certain Construction Loan and Security Agreement dated December 21, 1995 between Trustee, as trustee of the Trust, and Operator (successor by merger to MHI Recovery Management, Inc.).

 

“ Deed ” is defined in Section 5.3.1.

 

“ Deposit ” means, as of any date, the Initial Deposit and the Extension Fee, to the extent then delivered or required to be delivered under this Agreement.

 

“ Deposit Escrow Agreement ” means the Deposit Escrow Agreement dated as of even date herewith by and among Buyer, Seller and Escrow Agent, the form of which is attached hereto as Exhibit A .

 

“ Environment ” shall mean and include soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basin, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

 

2

“ Environmental Laws ” shall mean and include, any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle or common law, regulation, statute, or treaty, that requires or relates to: (i) advising any and all appropriate governmental bodies, employees, and the public of intended or actual spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; (ii) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; (iii) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; (iv) protecting resources, species, or ecological amenities; (v) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances; (vi) cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such clean up or prevention; or (vii) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ Escrow Agent ” means Chicago Title Insurance Company, as escrow agent under the Deposit Escrow Agreement.

 

“ Executive Order 13224 ” means the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, relating to “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”.

 

“ Extension Fee ” means the sum of One Hundred Thousand and 00/100 Dollars ($100,000.00), to be paid by Buyer to Escrow Agent upon the Buyer’s exercise of its right to extend the Closing Date under Section 5.2 hereof, together with all interest earned thereon.

 

“ Governmental Body ” means any federal, state, municipal, or other governmental or quasi-governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign.

 

“ Hazardous Materials ” shall mean and include any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials.

 

“ Hotel ” means the Improvements located on the Land.

 

3

“ Improvements ” means the Building and any other buildings, structures (surface and subsurface), and other improvements and fixtures situated on or attached to any parcel of the Land.

 

“ Initial Deposit ” means the earnest money deposit in the amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) to be paid by Buyer to Escrow Agent upon the execution hereof, together with all interest earned thereon.

 

“ Knowledgeable Party ” means David C. Schenning.

 

“ Land ” means that certain tract(s) or parcel(s) of land described on Exhibit B , together with all rights, rights of way, easements, appurtenances, in any manner belonging to, or pertaining to such tract(s) or parcel(s) of land, and all right, title, and interest, if any, of Seller in and to any and all strips and gores of land located on or adjacent to the Land, and in and to any roads, streets, and ways, public or private, open or proposed, in front of or adjoining all or any part of the land and serving the land, and all rights of Seller (if any, and only to the extent assignable) to development of the land granted by any Governmental Body having jurisdiction over the Land.

 

“ Leases ” is defined in Section 8B.11.

 

“ Legal Requirement ” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, and similar items, of every Governmental Body pertaining to the use, operation, and existence of the Property.

 

“ Lien ” means any mortgage, security deed, lien, judgment, pledge, conditional sales contract, security interest, past-due taxes, past-due assessments, or similar encumbrance against the Property of a monetary nature, except any of such arising out of actions of Buyer Group.

 

“ Limited Partnership Act ” is defined in Section 8A.8.

 

“ Limited Partnership Agreement ” means the amended and restated agreement of limited partnership of Buyer dated December 21, 2004.

 

“ Local Time ” means the local time in the state in which the Land is located.

 

“ MHI ” means MHI Hospitality Corporation, a Maryland corporation and general partner of Buyer.

 

“ Names ” means all right, title, and interest (if any) of Seller in and to any name or tradename by which the Land or Improvements or any part thereof may be known, and all registrations (if any) for such names, excluding, however, any name or tradename which includes, or makes reference to, the Trust.

 

4

“ Operating Agreements ” means the Operating Lease, and all other leases, purchase agreements, licenses, contracts and warranties relating to the Property to which Operator is a party and identified on Exhibit C together with any other intangible rights and permits pertaining to or usable in connection with the operation of the Hotel.

 

“ Operating Lease ” means the Hotel Lease dated as of December 21, 1995, as amended by the Assumption and Amendment to Lease and Liquor License Security Agreement dated January 23, 1998, and as further amended by the First Amendment to Hotel Lease dated as of August 16, 2000, between Seller and Operator, together with all amendments to, modifications of, renewals and extensions thereof.

 

“ Operator Deposits ” means all prepaid rents, advance rentals, security deposits, and other deposits, if any, made by Operator and held by Seller with respect to the Operating Lease for any period following the Closing Date.

 

“ Operator Personal Property ” means all Personal Property other than the Personal Property of Seller or any subtenant or licensee of Operator.

 

“ Operator’s Interest ” means an amount equal to $913,482, which is the agreed upon value of Operator’s interest in the Purchase Price as set forth in Section 16.5 of the Operating Lease (and as referred to therein as “Net Sale Proceeds”).

 

“ Operator’s Property Rights ” is defined in Section 2.5.

 

“ Other Interests ” means any other interest of Seller in and to the Land and the Improvements or Seller Personal Property or pertaining thereto, including, but not limited to, all of the right, title, and interest of Seller, if any, in and to the following:

 

(a) Any award including, but not limited to, any award or payment made or to be made (i) for any taking in any Condemnation Proceeding of land lying in the bed of any street, road, highway, or avenue, open or proposed, in front of or adjoining all or any part of the Land, and (ii) for damage to the Property or any part thereof by reason of change of grade or closing of any such street, road, highway, or avenue, and (iii) for any taking in a Condemnation Proceeding of any part of the Property;

 

(b) The Names; and

 

(c) The Warranties and Permits.

 

“ Participating Plans ” are set forth on Exhibit E attached hereto.

 

“ Pavilion Lease ” means that certain Lease Agreement dated January 3, 1996 between MHI Recovery Management, Inc. and the City of Jacksonville, Florida.

 

5

“ Permits ” mean any and all licenses, permits, approvals, and certificates and used in or relating to or required by a Governmental Body or by any Legal Requirement in connection with the ownership, occupancy, maintenance, repair, or operation of all or any part of the Property.

 

“ Permitted Encumbrances ” means each of the following: (a) the rights of Operator in possession under the Operating Lease, any subleases entered into by Operator pursuant to the terms of the Operating Lease and any new leases entered into by Operator pursuant to the terms of the Operating Lease between the date of this Agreement and the Closing Date in accordance with the terms of this Agreement; (b) the Operating Agreements, as applicable; (c) all real estate taxes and assessments, both general and special; (d) zoning ordinances and subdivision regulations; (e) the Record Exceptions (other than (1) those which Buyer is entitled to object pursuant to Section 3.3 hereof and to which (A) Buyer in fact timely objects and (B) Seller agrees to cure, and (2) Liens required to be released by Seller at Closing pursuant to Sections 5.3.5 and 5.3.8); (f) all matters shown on the Survey; (g) all matters shown on Seller’s Title Policy (except for Liens required to be released by Seller at Closing pursuant to Sections 5.3.5 and 5.3.8), and (h) any other title matters approved by Buyer in accordance with this Agreement.

 

“ Personal Property ” means all personal property used for the occupation or operation of all or any part of the Land or the Improvements or both, together with (to the extent not constituting a portion of the Land and Improvements) all fixtures, furniture, furnishings, carpeting, draperies, fittings, equipment, machinery, apparatus, building materials, inventory, appliances and articles, including, but not limited to, all elevators, escalators, boilers, furnaces, heating, ventilating and air-conditioning systems, office furnishings and equipment, building drawings, plans and specifications, building materials and wall partitions, sprinkler and well systems, sewerage systems, electrical equipment, fire prevention and extinguishing apparatus, engineering, maintenance and housekeeping supplies and materials, mowers and edgers and other lawn maintenance equipment and supplies, and other supplies of all kinds used for the maintenance and operation of the Property and located on the Land, which are on hand on the date hereof, subject to such depletion and including such re-supplying as shall occur and be made in the normal course of business.

 

“ Prohibited Person ” means any person or entity (i) listed in the annex to, or otherwise subject to the provisions of Executive Order No. 13224, (ii) owned or controlled by, or acting for or on behalf of, any person or entity listed in the annex to, or otherwise subject to the provisions of, Executive Order No. 13224, (iii) with whom Seller is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (iv) who commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, (v) named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.qov/ofac/tllsdn.pdf or at any replacement website or other official publication of such list; or (vi) affiliated with a person or entity described in clauses (i)-(v) of this definition.

 

“ Property ” means the Land, the Improvements, the Seller’s interest under the Operating Lease, the Operator Deposits, the Seller Personal Property, and the Other Interests.

 

6

“ Protected Information ” means any (a) appraisal of all or any portion of the Property, (b) third party offers to purchase all or any portion of the Property, (c) internal valuation records of Seller, (d) information protected by the attorney-client or work product privileges, (e) personnel records of Seller, (f) documents and records relating to the formation and existence of Seller, (g) documents evidencing any loans, credit facilities, or other financial accommodations made to Seller for its acquisition, ownership, and operation of the Property, and (h) documents relating to the disposition or proposed disposition of all or any portion of the Property.

 

“ Purchase Price ” means an amount equal to Twenty-Two Million and 00/100 Dollars ($22,000,000.00). The Purchase Price shall be payable in the manner described in this Agreement, subject to adjustments as provided in this Agreement.

 

“ Real Property ” means the Land and the Improvements.

 

“ Record Exceptions ” means all instruments recorded in the real estate records of the jurisdiction in which the Land is located that affect the status of title to the Land or Improvements, including, but not limited to, those items described on Exhibit F .

 

“ Rental Payments ” means all payments received by Seller from Operator under the Operating Lease including minimum or base rent, additional rent, percentage rent, termination or cancellation charges, or other required reimbursements.

 

“ Response Period ” is defined in Section 3.3.1.

 

“ Seller Cure Obligation ” is defined in Section 3.3.1.

 

“ Seller Group ” means Seller, its affiliates and related business entities, agents, employees, officers, directors, successors, assigns, attorneys, insurers, and representatives of every kind whatsoever.

 

“ Seller Personal Property ” means all Personal Property other than Personal Property that is the property of Operator or any subtenant or licensee of Operator.

 

“ Seller’s Condemnation Notice ” is defined in Section 9.2.

 

“ Seller’s Knowledge ” means the actual present knowledge of the Knowledgeable Party, it being understood and agreed that (a) Seller has not conducted any independent investigation of the Property, and (b) Seller’s primary contact with the Property has been through Operator.

 

“ Seller’s Title Policy ” means the owner’s policy of title insurance issued by Chicago Title Insurance Company to Seller under policy #10-2348-04-000062, bearing an effective date of December 21, 1995, in the amount of $14,000,000, with respect to the Property.

 

7

“ Settlement Statement ” means the settlement statement approved by Buyer, Operator and Seller, showing all prorations and adjustments to the Purchase Price as provided in Section 4.3 hereof.

 

“ Study Period ” means the thirty-one (31) day period following execution of this Agreement by Seller, Buyer and Operator, ending at 5:00 p.m., prevailing eastern time, on June 20, 2005.

 

“ Survey ” means the as-built plat of survey of the Land dated March 20, 1995 and prepared by Atlantic-Gulf Surveying Co., Inc.

 

“ Survival Period ” is defined in Section 7.

 

“ Title Commitment ” means the written commitment by the Title Company to issue to Buyer an owner’s policy of title insurance with respect to the Land and the Improvements.

 

“ Title Company ” means Chicago Title Insurance Company, the title insurance company selected to insure Buyer’s title to the Land and Improvements.

 

“ Title Defect ” means a defect in title disclosed in the Title Commitment which is not contained in the Seller’s Title Policy, that renders fee simple title to the Property unmarketable.

 

“ Title/Survey Review Period ” means the initial fifteen (15) day period of the Study Period.

 

“ Trust ” means the AFL-CIO Building Investment Trust, a trust existing under the laws of Maryland.

 

“ Trustee ” means Mercantile-Safe Deposit and Trust Company, a Maryland corporation, in its capacity as Trustee of the Trust, and not in its corporate capacity.

 

“ Trustee Loan ” means the mortgage loan by Trustee to Buyer to be made on the Closing Date contemporaneous with Closing, and secured, inter alia , by the Property.

 

“ Unit Certificates ” is defined in Section 5.4.2.

 

“ Units ” or “ Unit ” refers to limited partnership interests in Buyer.

 

“ Updated Survey ” is defined in Section 3.3.

 

“ USA Patriot Act ” means the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” (Public Law 107-56).

 

8

“ Warranties ” means each now existing and outstanding guaranty, bond, and warranty concerning the Land or the Improvements located thereon or the Personal Property, all in conjunction with the construction, operation, and/or maintenance of the Improvements, or arising out of, made, given, or issued, by manufacturers or suppliers, in conjunction with the Improvements or the Personal Property.

 

2. PURCHASE AND SALE; CLOSING.

 

2.1 Purchase and Sale . Buyer shall purchase from Seller, and Seller shall sell to Buyer, the Property. The purchase and sale of the Property shall be on the terms and conditions hereinafter set forth. The purchase and sale of the Property constitutes a “Third Party Sale” as defined in Section 16.1 of the Operating Lease.

 

2.2 Contribution . In exchange for Units, Operator shall contribute to Buyer or its designated assign all of Operator’s interest in and to the Operating Agreements and all of Operator’s right, title and interest in and to the Operator Personal Property free and clear of any liens, claims and encumbrances, except for (i) those items of Operator Personal Property identified on Exhibit G , and (ii) Operator’s obligation to the Trustee pursuant to the terms of the Construction Loan, which obligation shall be satisfied simultaneously with the Closing by Seller from a portion of the proceeds of the Purchase Price paid to Seller, as provided in the Operating Lease. Buyer shall provide Operator the ability to guarantee, on a “bottom dollar” basis, a portion of Buyer’s debt equal to the Construction Loan.

 

2.3 Closing . The Closing shall be conducted as provided in Section 5 below.

 

2.4 Allocation . The Purchase Price shall be allocated among the Property and the Operator Property Rights as set forth in Exhibit H .

 

2.5 Repayment of Construction Loan and Transfer of Operator’s Property Rights in Exchange for Units . Pursuant to the Operating Lease, Seller is obligated in connection with the sale contemplated hereby to cause the Construction Loan to be repaid, and the Operator is obligated to convey to Seller the Operator Personal Property. In addition, Operator is entitled to receive certain payments from Seller pursuant to the Operating Lease. In order to satisfy these rights and obligations of Seller and Operator, it is expressly agreed that at the Closing, (i) Operator will transfer directly to Buyer all of Operator’s right, title and interest to the Operator Personal Property and Operator’s rights and interest under the Operating Agreements (“ Operator’s Property Rights ”), (ii) Buyer will acquire the Operator’s Property Rights subject to the obligations of Operator to the Trustee pursuant to the Construction Loan, (iii) simultaneously, Buyer will transfer to Operator the number of Units required to be distributed to Operator under Section 4.2.3., (iv) simultaneously, Buyer shall make the wire transfer specified in Section 4.2.2 to Seller of the amount set forth in such provision, and (v) Seller shall simultaneously pay to the Trustee all principal, interest and penalties, if any, due under the Construction Loan, so that at the completion of the Closing, Buyer owns both the Property and the Operator’s Property Rights free and clear (except for Permitted Encumbrances) of all encumbrances, liens, claims and obligations created by or for the benefit of the Seller or the Trustee, including but not limited to any encumbrances, liens, claims and obligations arising under the Construction Loan, and Operator owns the number of Units specified in Section 4.2.3.

 

9

3. STUDY PERIOD.

 

3.1 “As Is, Where Is With All Faults” Condition . Acknowledging the prior use of the Property by the Operator under the Operating Agreements, that Operator is an affiliate of Buyer, and Buyer’s opportunity to inspect the Property, Buyer agrees that the Property is being sold by Seller and acquired by Buyer “ AS IS, WHERE IS, WITH ALL FAULTS ” condition without, except as expressly provided herein, any representation or warranty, either express or implied, oral or written, about the Property or the condition of the Property. Buyer acknowledges that, except for those representations and warranties set forth herein or in the attachments hereto, Seller has not made, does not make, and specifically negates, renounces, and disclaims any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever, whether express or implied, oral or written, as to, concerning, or with respect to, (a) the value, investment potential, operation, or resale of the Property, or the nature, quality, or condition of the Property, including, but not limited to, the water, soil, and geology, (b) the suitability of the Property for any and all activities and uses that may be conducted thereon, (c) the compliance of or by the Property with any Legal Requirement, (d) the habitability, merchantability, marketability, profitability, or fitness for a particular purpose of the Property, (e) the quality of construction and integrity of the Property, (f) the environmental condition of the Property, (g) the operations of the Property, or (h) any other matter or attribute with respect to the Property. Buyer acknowledges and agrees that Seller shall be under no duty to make any affirmative disclosures regarding any matter that may be known to Seller, its partners, officers, contractors, agents, or employees, except as specifically set forth in this Agreement. Pursuant to Section 404.05618, Florida Statutes (1988), the following notification regarding radon gas is hereby made, and all parties executing this Agreement acknowledge receipt of this notification:

 

“RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT”. Notwithstanding anything in this Agreement to the contrary, the agreements of Buyer contained in this Section 3 shall survive indefinitely the Closing and any termination of this Agreement.

 

3.1.1 Independent Inspection . In connection with Buyer’s acquisition of the Property, Buyer acknowledges and agrees that it (a) is relying solely on its own independent investigation of the Property and representations made by Operator herein (Buyer acknowledging and agreeing that Seller shall have no liability whatsoever for such representations of Operator) and not on any information provided or to be provided by Seller, its agents, or contractors, (b) has inspected or, during the Study Period, will conduct an independent inspection of the Property with its own professionals, including, but not limited to, engineers,

 

10

consultants, and others of Buyer’s choice who are trained and qualified to inspect commercial real property, (c) knowingly, voluntarily, and willingly assumes the risk of the physical condition and state of repair of the Property, (d) except as otherwise expressly provided in this Agreement, shall accept the Property in its “ AS IS, WHERE IS WITH ALL FAULTS ” condition on the Closing Date, including the environmental condition thereof, and (e) has not been induced by and has not relied on any representations, warranties, or statements, whether express or implied, oral or written, made by Seller, or any agent, employee, or other representative of Seller, or by any broker or any other person representing or purporting to represent Seller, which are not expressly set forth in this Agreement. The Purchase Price shall not be reduced as a consequence of reasonable use, wear, tear, and natural deterioration of the Property between the date hereof and the Closing Date.

 

3.1.2 Various Materials . During the Study Period, Seller shall provide such cooperation of its staff, investment advisors, and agents, and shall provide such documents, agreements, and other information (excepting any Protected Information) reasonably requested by Buyer and in the possession of Seller. Buyer acknowledges and agrees that Seller makes no representation or warranty (express or implied, oral or written) and provides no assurances regarding (a) the accuracy, completeness, or reliability of such documents, agreements, and other information, and (b) whether such documents, agreements, and other information constitute all of the documents, agreements, and other information in the possession of Seller relating to the Property. Buyer acknowledges and agrees that its decision to purchase the Property shall be based on its independent inspection of the Property, and that it is not basing its decision to purchase the Property on its review of any such documents, agreements, and other information. Operator shall provide Buyer with all data, documents, agreements and other information reasonably requested by Buyer relating to the operations and performance of the Hotel and shall cooperate and shall cause its staff and the management company that operates the Hotel to cooperate in collecting such financial and operational data as may be deemed necessary by Buyer, in its sole discretion, to develop audited historic financial data with respect to the operations of the Hotel for such periods as determined by Buyer in its sole discretion. This obligation and covenant of Operator shall continue beyond the Study Period and shall survive indefinitely the Closing and shall be a continuing obligation of Operator.

 

3.2 Inspections . During the Study Period, Buyer shall, at its expense, make such independent examinations of the Property and the operation thereof, and all other matters affecting or relating to the transactions contemplated hereby as the Buyer deems necessary in its sole judgment, including, but not limited to, with respect to the Property, surveys, structural, and engineering studies and analyses, soil tests, environmental tests, and other tests of surface and subsurface conditions, investigations, feasibility studies, and all other desired independent due diligence investigations, tests, and studies for the Property. Buyer shall conduct such independent inspections by using engineers, consultants, and others of Buyer’s choice who are trained and qualified to inspect commercial real property.

 

3.2.1 Notice of Inspection . Buyer shall give Seller reasonable written notice of any inspection of the Property, and Seller or its representative shall have the right to accompany Buyer and its agents during any such inspection of the Property. Buyer and its agents shall conduct such inspections only during reasonable times.

 

11

3.2.2 Permission to Enter Buildings . Buyer and its agents shall enter and inspect the interior of the Building only if such entry and inspection is permitted by the terms of the Operating Lease or as otherwise permitted by Operator. During any such entry and inspection, Buyer and its agents shall use its reasonable efforts to minimize any inconvenience or interference with the use and occupancy of the Building by the Operator.

 

3.2.3 Indemnification . To the maximum extent permitted by applicable law, Buyer shall hold harmless, defend, and indemnify Seller, its partners, officers, directors, affiliates, employees and agents from and against all cost, loss, damage, liability, and expense (including, but not limited to, attorneys’ fees and court costs) resulting from the conduct or exercise by Buyer or its agents of the inspection rights herein granted. The foregoing indemnification shall survive indefinitely Closing and any termination of this Agreement

 

3.2.4 Restoration . Buyer shall, at its expense, promptly repair any damage to the Property caused by Buyer and its agents to substantially the condition in which the Property existed immediately before such damage.

 

3.2.5 Insurance . Before entering on the Property, Buyer shall, at its expense, provide and maintain workers’ compensation insurance, to the extent required under the Workers’ Compensation Law of the state in which the Land is located, and commercial public liability insurance, all in form and with coverage and deductible limits satisfactory to Seller and with insurance companies authorized to do business in the state in which the Land is located. Buyer’s liability insurance shall specifically extend to and include the indemnity agreement set forth herein. Before the commencement of entry by Buyer, Buyer shall furnish evidence of such insurance coverage satisfactory to Seller, and Buyer shall not change or cancel such insurance without providing Seller at least ten (10) days’ prior written notice. Buyer shall also provide evidence to Seller that all such policies of insurance have been endorsed to name Seller as an additional insured.

 

3.3 Title and Survey . By execution of this Agreement, Buyer acknowledges receipt of a copy of Seller’s Title Policy (together with copies of all exception documents) and the Survey, and Buyer approves all exceptions shown in the Seller’s Title Policy and matters shown on the Survey. Promptly upon execution of this Agreement, Buyer shall engage (i) Title Company to issue the Title Commitment and (ii) a registered land surveyor licensed in the State of Florida to update the Survey, or to prepare a current as-built plat of survey of the Land (in either case, the “ Updated Survey ”). If the Title Commitment or Updated Survey, or both, shall disclose a Title Defect, then Buyer shall notify Seller by written notice to be delivered to Seller on or before the expiration of the Title/Survey Review Period. Such notice shall be accompanied by such materials or information that evidence or disclose the Title Defect. Any Title Defect in existence as of the date of this Agreement to which no objection is taken by Buyer in the manner and time set forth in this Section shall be deemed to have been forever waived by Buyer for purposes of this Agreement.

 

12

3.3.1 Seller’s Option to Cure Title Defect . If the Title Commitment or Updated Survey shall reveal a Title Defect to which Buyer makes timely objection in the manner provided in this Section 3.3 (Title and Survey), then Seller shall have the right, but not the obligation, to take such action as may be necessary, at Seller’s expense, to correct the Title Defect on or before the Closing Date. If Seller corrects the Title Defect within ten (10) days after receipt of the objection to title by Buyer (the “ Response Period ”) under this Section 3.3 (Title and Survey) or, in the alternative, if Seller advises Buyer within the Response Period that Seller will correct, or cause to be corrected, the Title Defect on or before the Closing Date (the “ Seller Cure Obligation ”) and Seller in fact corrects, or causes to be corrected, the Title Defect on or before the Closing Date, then this Agreement shall continue in full force and effect in the same manner and for all intents and purposes as if the Title Defect had never existed. Seller’s failure to satisfy any Seller Cure Obligation shall be a default by Seller hereunder and Buyer’s sole remedy for such default shall be to either (i) waive the default and proceed to Closing or (ii) terminate this Agreement and receive a return of the Deposit; provided, however, that if the Seller Cure Obligation can be cured by payment of money not to exceed $100,000, Buyer shall also be entitled to require Seller to cure such Title Defect and to seek specific performance of the Seller Cure Obligation.

 

3.3.2 Buyer’s Right to Waive Uncured Title Defect or Cancel Agreement . If the Title Commitment or Survey, or both, shall reveal a Title Defect to which Buyer makes timely objection in the manner provided for in this Section 3.3 (Title and Survey), and Seller shall decline or fail to remedy the Title Defect within the Response Period or fail to advise Buyer within the Response Period that Seller will correct the Title Defect on or before the Closing Date, then within the earlier of (i) the expiration of the Study Period or (ii) seven (7) days after the expiration of the Response Period Buyer shall by written notice to Seller either (a) waive the uncured Title Defect, in which event Buyer and Seller (and Operator) shall proceed to Closing under this Agreement in accordance with and subject to the terms and provisions hereof, without reduction in the Purchase Price for the Property, and the Property shall continue to be subject to the Title Defect and any other Permitted Encumbrance, or (b) cancel and rescind this Agreement, in which event Escrow Agent shall return the Deposit to Buyer and this Agreement shall terminate and thereupon each party hereto shall be released from all further liability under this Agreement except as otherwise provided in this Agreement. If Buyer shall fail to deliver to Seller a written notice of election to cancel and rescind this Agreement within such time period set forth above, then in such event Buyer shall be deemed to have elected to waive the uncured Title Defect under this Agreement, in which event Buyer and Seller (and Operator) shall proceed to Closing under this Agreement for the sale of the Property in accordance with and subject to the terms and provisions hereof, without reduction in the Purchase Price for the Property, and Seller’s conveyance of the Property to Buyer shall be made subject to the Title Defect and any other Permitted Encumbrance.

 

3.3.3 Permitted Encumbrances . Subject to Buyer’s right to review, and make objection to, the status of title and Survey as provided in this Agreement, the sale of the Property shall be made subject to the Permitted Encumbrances.

 

13

3.3.4 No Liens . To the extent within Seller’s control, Seller shall not permit, voluntarily create or cause to be created a Lien to attach to the Property between the date of this Agreement and the Closing Date. To the extent within Operator’s control, Operator shall not permit, voluntarily create or cause to be created a Lien to attach to the Property between the date of this Agreement and the Closing Date.

 

3.4 Termination During the Study Period . Buyer may terminate this Agreement for any reason during the Study Period by providing Seller with written notice of termination by no later than 5:00 p.m. Local Time on the final day of the Study Period. Seller may terminate this Agreement during the Study Period by providing Buyer with written notice of termination by no later than 5:00 p.m. Local Time on the final day of the Study Period if the terms of the Trustee Loan and the documents evidencing and securing the same have not been agreed to in writing by Trustee and Buyer. If either Buyer or Seller terminates this Agreement during the Study Period, Seller shall return the Initial Deposit to Buyer and this Agreement shall terminate and thereupon each party hereto shall be released from all further liability under this Agreement except as otherwise provided in this Agreement. If Buyer does not provide Seller with such termination notice by 5:00 p.m. Local Time on the final day of the Study Period, Buyer shall be deemed to have waived its right to terminate this Agreement under this Section 3.4 (Study Period), and the parties shall proceed to Closing as provided in this Agreement, except to the extent Seller has provided Buyer with notice of termination as provided above. If Seller does not provide Buyer with such termination notice by 5:00 p.m. Local Time on the final day of the Study Period, Seller shall be deemed to have waived its right to terminate this Agreement under this Section 3.4 (Study Period), and the parties shall proceed to Closing as provided in this Agreement, except to the extent Buyer has provided Seller with notice of termination as provided above.

 

4. DEPOSIT; PURCHASE PRICE.

 

4.1 Deposit .

 

4.1.1 Initial Deposit . Upon the execution of this Agreement by Buyer, Buyer shall execute the Deposit Escrow Agreement and deposit the Initial Deposit with Escrow Agent pursuant to the Deposit Escrow Agreement. The Initial Deposit shall be made via wire transfer in immediately available federal funds. Seller shall promptly notify Buyer as soon as Seller executes this Agreement and the Deposit Escrow Agreement. Upon expiration of the Study Period, provided this Agreement is not sooner terminated by Buyer as provided herein, the Initial Deposit shall become non-refundable to Buyer except to the extent expressly provided to the contrary in this Agreement.

 

4.1.2 Extension Fee . If Buyer timely elects to extend the Closing and the Closing Date as provided in Section 5.2 below, Buyer shall deposit the Extension Fee with Escrow Agent, as provided in Section 5.2. Upon deposit, the Extension Fee shall become non-refundable to Buyer except to the extent expressly provided to the contrary in this Agreement.

 

14

4.1.3 Application of Deposit . At Closing, Escrow Agent shall deliver to Seller the Deposit and Seller shall credit the Deposit against the Purchase Price. If Closing does not occur, Escrow Agent shall deliver the Deposit in accordance with the terms of this Agreement.

 

4.2 Purchase Price.

 

4.2.1 Credit for Deposit and Operator’s Interest . Buyer shall receive a credit against the Purchase Price in an amount equal to the Deposit and the Operator’s Interest.

 

15

4.2.2 Balance of Purchase Price . Buyer shall pay the balance of the Purchase Price, as adjusted by the prorations and expenses to be paid by Seller and Buyer hereunder, to Seller on the Closing Date by making a wire transfer of immediately available federal funds to the account of Seller as follows:

 

†	Please provide advance notice of wire transfer by sending a facsimile at 410.237.5420.

 

4.2.3 Units to be Issued to Operator . At the Closing, Buyer shall issue to Operator a number of Units equal to the quotient realized by dividing Operator’s Interest by the average of the last reported trade price for common stock of MHI for the 10 trading days immediately prior to the Closing Date.

 

4.3 Closing Costs and Prorations .

 

4.3.1 Closing Costs and Timing . In connection with the transactions contemplated by this Agreement, Buyer and Seller shall each pay at Closing one-half (½) of (i) any state, county, and municipal transfer tax or stamp or recording tax or similar tax (regardless of whether a statute or ordinance designates another party as being responsible for such payment) in connection with the execution of the Deed, (ii) the cost of the Title Commitment, (iii) the cost of the Updated Survey; provided, however, that, to the extent union surveyors are available in the Jacksonville, Florida metropolitan area, Seller shall only be required to pay for its share of the cost of the Updated Surveyor if the surveyor is a union surveyor, and (iv) the charges of the Escrow Agent. Buyer, Seller and Operator shall each pay its own legal and other professional fees and expenses. Buyer shall be solely responsible for the cost of any new owner’s policy of title insurance issued to Buyer pursuant to the Title Commitment or otherwise. Buyer shall also be responsible for any and all fees, costs (including, without limitation, Trustee’s attorney’s fees) and taxes (including, without limitation, state, county, and municipal transfer tax or stamp or recording tax or similar tax) in connection with the Trustee Loan. At the Closing, the Purchase Price for the Property shall be adjusted as provided in Section 4.3.2 below. In determining such adjustments and prorations, (a) if Buyer initiates the wire transfer of the balance of the Purchase Price as provided in Section 4.2.2 (Balance of Purchase Price) by no later than 12:00 p.m. Local Time on the Closing Date and provides evidence reasonably satisfactory to Seller confirming such fact, the day of Closing shall belong to Buyer and all prorations hereinafter provided to be made on the Closing Date or “as of Closing” shall each be made as of 11:59 p.m. Local Time on the day preceding the Closing Date, and (b) if Buyer initiates the wire transfer of the balance of the Purchase Price as

 

16

provided in Section 4.2.2 (Balance of Purchase Price) after 12:00 p.m. Local Time on the Closing Date or Buyer is otherwise unable to provide evidence reasonably satisfactory to Seller confirming that Buyer initiated such wire transfer before 12:00 p.m. Local Time on the Closing Date, the day of Closing shall belong to Seller and all prorations hereinafter provided to be made on the Closing Date or “as of Closing” shall each be made as of 11:59 p.m. Local Time on the Closing Date.

 

4.3.2 Prorations/Adjustments .

 

4.3.2.1 Rental Payments . All Rental Payments shall be prorated as of the Closing Date. Any Rental Payments received after the Closing Date by Seller or its agents shall be promptly endorsed to Buyer by the payee thereof and promptly sent to Buyer.

 

4.3.2.2 Operator Deposits . Buyer shall receive a credit against the Purchase Price at Closing for any Operator Deposits held by Seller under the Operating Lease.

 

5. CLOSING.

 

5.1 The Closing . The Closing of the transaction contemplated by this Agreement (that is, the payment of the Purchase Price, the transfer of title to the Property, and the satisfaction of all other terms and conditions of this Agreement) shall occur through the Escrow Agent on the Closing Date. Buyer shall cause the Purchase Price to be received by the Escrow Agent no later than 2:00 p.m. on the Closing Date.

 

5.2 Extension of the Closing and the Closing Date . Not less than three (3) Business Days prior to the Closing Date, Buyer may make a one time election, provided Buyer is not then in default hereunder, to extend the Closing and the Closing Date to a date not later than August 19, 2005 by providing written notice to Seller (which notice shall expressly state the new Closing Date selected by Buyer) and simultaneously depositing with the Escrow Agent the Extension Fee. The Extension Fee shall be deposited with the Escrow Agent via wire transfer in immediately available federal funds. Upon timely notice to Seller and deposit of the Extension Fee with Escrow Agent, the “Closing Date”, as used herein, shall refer to the new Closing Date set forth in such notice by Buyer to Seller.

 

5.3 Seller Conveyances and Deliveries at Closing . At Closing, Seller shall deliver to Buyer, through the Escrow Agent, the following:

 

5.3.1 Deed . An executed deed (“ Deed ”) in the form attached hereto as a part hereof as Exhibit I , subject only to the Permitted Encumbrances and the Title Defects waived or deemed to have been waived by Buyer under this Agreement.

 

5.3.2 Bill of Sale . An executed counterpart of a bill of sale (“ Bill of Sale ”) in the form attached hereto as a part hereof as Exhibit J conveying all of the Seller Personal Property to Buyer with no warranty of title, subject only to the Permitted Encumbrances.

 

17

5.3.3 Assignment and Assumption . An executed counterpart of an assignment and assumption of Operating Lease, the Restaurant Sublease (as defined in Exhibit C), the Building Sublease (as defined in Exhibit C) and Other Interests (the “ Assignment and Assumption ”) in the form of Exhibit K , assigning to Buyer Seller’s interest (i) as landlord under the Operating Lease and (ii) in the Other Interests.

 

5.3.4 Consents and Approvals . Evidence of all approvals, authorizations, consents and waivers by Seller’s board of directors necessary for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

5.3.5 Releases of Liens . At Closing, Seller shall discharge or release, or cause to be discharged or released, any Lien that is a mortgage, deed of trust, judgment lien, mechanic’s lien, tax lien, or similar lien against the Property caused by Seller that can be discharged by the payment of money, provided the validity of such Lien is not in dispute. Seller, however, shall have no obligation to (i) deliver to Buyer or the Title Company any so called “owner’s affidavit” relating to the Property or (ii) discharge or release, or cause to be discharged or released, any Lien created by Operator and/or Buyer Group.

 

5.3.6 Settlement Statement . An executed counterpart of the Settlement Statement.

 

5.3.7 Non-Foreign Status . No later than one (1) business day before Closing, a Certification of Non-Foreign Status under Federal law duly executed. Anything herein contained to the contrary notwithstanding, if Seller is a “foreign person” (as defined in Internal Revenue Code Section 1445) or if Seller fails or refuses to deliver the Certification of Non-Foreign Status described in this Section, or if Buyer receives notice from any seller-transferor’s agent or purchaser-transferee’s agent (each as defined in Internal Revenue Code Section 1445 and the regulations issued thereunder) that, or Buyer has actual knowledge that, such Certification is false, Buyer shall deduct and withhold from the Purchase Price a tax equal to ten (10%) percent thereof, as required by Internal Revenue Code Section 1445. In the event of any such withholding, Seller’s obligation to deliver title to the Property pursuant to this Agreement shall not be excused or otherwise affected, and Buyer shall pay over such withheld amount to the Internal Revenue Service and shall file such form as may be required thereby. In the event of any claimed over-withholding, Seller shall be limited solely to an action against the Internal Revenue Service for a refund, and Seller hereby waives any right of action against Buyer on account of such withholding. An affidavit in the form of Exhibit L attached hereto, certifying that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code.

 

5.3.8 Construction Loan Pay-Off . At Closing, in consideration of (i) Seller’s receipt of the Purchase Price, as reduced by the Operator’s Interest, in lieu of receipt of the FF&E (as defined in the Construction Loan Agreement) as set forth in Section 16.3 of the Operating Lease, and (ii) the termination of the Operating Lease (as provided in Section 5.4.7), Seller shall cause the Construction Loan to be discharged and the Lien securing the same released as provided in Section 2.5 hereof.

 

18

5.4 Buyer Conveyances and Deliveries at Closing . At Closing, Buyer shall deliver to Seller and/or Operator, as applicable, through the Escrow Agent, the following:

 

5.4.1 Purchase Price . The Purchase Price, as adjusted pursuant to Section 4.3 above.

 

5.4.2 Certificates for Units . Certificates (“ Unit Certificates ”) in the name of Operator representing the Units as provided in Section 4.2.3, bearing appropriate legends indicating that the Units have not been registered under the Securities Act of 1933 and that the Limited Partnership Agreement will restrict the transfer of the Units.

 

5.4.3 Assignment and Assumption . An executed counterpart of the Assignment and Assumption assuming in writing the due and full performance of all of Seller’s covenants and obligations accruing on and after the Closing Date under the Operating Lease and the Other Interests.

 

5.4.4 Operator Contribution, Assignment and Assumption . An executed counterpart of an assignment, contribution and assumption (the “ Assignment, Contribution and Assumption ”) in the form of Exhibit M , assuming in writing the due and full performance of all of Operator’s covenants and obligations accruing on and after the Closing Date under the Operating Agreements in partial consideration of the issuance to Operator of Units in Buyer.

 

5.4.5 Approvals, Consents, etc . Evidence of all approvals, authorizations, consents and waivers by Buyer necessary for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

5.4.6 Settlement Statement . An executed counterpart of the Settlement Statement.

 

5.4.7 Termination of Operating Lease . A consent to and confirmation of termination of the Operating Lease in accordance with Section 16.3 of the Operating Lease executed by Buyer (as assignee of Seller pursuant to the Assignment and Assumption, and as assignee of Operator pursuant to the Assignment, Contribution and Assumption).

 

5.5 Operator Conveyances and Deliveries at Closing . At Closing, Operator shall deliver to Buyer and Seller, as applicable, through the Escrow Agent, the following:

 

5.5.1 Assignment, Contribution and Assumption . An executed counterpart of the Assignment, Contribution and Assumption, contributing and assigning to Buyer the Operator’s interest as tenant under the Operating Agreements in consideration of the issuance to Operator of the Units. Buyer shall be entitled to identify not less than two (2) days prior to the Closing agreements in addition to the Operating Agreements it desires to have assigned to it and Operator shall, to the extent such agreements are assignable by it, assign to Buyer at the Closing all of Operator’s right, title and interest in and to such agreements.

 

19

5.5.2 Bill of Sale . A Bill of Sale in the form attached hereto as Exhibit N conveying the Operator Personal Property to Buyer subject only to the obligations of Operator under the Construction Loan Agreement which obligations shall be discharged by Seller with proceeds of the Purchase Price concurrently with the Closing .

 

5.5.3 Approvals, Consents, etc . Evidence of all approvals, authorizations, consents and waivers by Operator necessary for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

5.5.4 Releases of Liens . At Closing, Operator shall discharge or release, or cause to be discharged or released, any Lien against the Operating Agreements, the Pavilion Lease and the Operator Personal Property caused by Operator provided that Operator shall have no obligation to discharge or release, or cause to be discharged or released, any Lien created by Seller and/or Seller Group.

 

5.6 Conditions to Closing .

 

5.6.1 Conditions Precedent to Buyer’s Obligations . Buyer’s obligations under this Agreement are subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): (a) all the Seller’s representations and warranties in this Agreement (considered both collectively and individually) must have been accurate, in all material respects, as of the date of this Agreement, and must be accurate, in all material respects, as of the Closing Date as if then made; (b) all of the covenants and obligations that Seller is required to perform or to comply with under this Agreement on or before the Closing Date must have been duly performed and complied with in all material respects; (c) Seller shall have caused the documents and instruments required by Section 5.3 to be delivered to Buyer (including a release of the Lien securing the Construction Loan as contemplated in Section 16.3 of the Operating Lease, as provided in Section 5.3.8 above); (d) since the date of this Agreement, there must not have been commenced or threatened against Buyer and/or Seller, or against any related person of Buyer and/or Seller, any proceeding involving any challenge to, or seeking damages or other relief in connection with, any of the contemplated transactions, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the contemplated transactions; (e) Trustee and Buyer shall have entered into the Trustee Loan and the Trustee shall have loaned the proceeds thereof to Buyer in accordance with the documents evidencing and securing the Trustee Loan; (f) all of the covenants and obligations that Operator is required to perform or comply with under this Agreement on or before the Closing Date must have been duly performed and complied within all material respects; and (g) all third party consents required to consummate the transactions contemplated herein and the Trustee Loan shall have been obtained.

 

5.6.2 Special Conditions . Notwithstanding anything herein to the contrary, it shall be a condition to Seller’s obligation to sell the Property at Closing hereunder that (i) Buyer shall, contemporaneously with Closing, finance the acquisition and renovation of the Property with the Trustee Loan, substantially on the terms set forth in the Term Sheet

 

20

attached hereto as Exhibit O , (ii) Operator, contemporaneously with Closing, contributes to Buyer the Operator’s interest (A) as tenant under the Operating Lease and (B) in the other Operating Agreements and (iii) Operator shall not be in default under the Construction Loan Agreement or any other document evidencing and/or securing the Construction Loan. Should (i) Buyer fail to consummate the Trustee Loan contemporaneously with the Closing (other than for a failure by Trustee to perform), (ii) Operator fail, at Closing, to contribute to Buyer the Operator’s interest (A) as tenant under the Operating Lease and (B) in the other Operating Agreements, and/or (iii) Operator be in default under the Construction Loan Agreement or any other document evidencing and/or securing the Construction Loan, Closing shall not occur and Buyer’s only remedy hereunder (without affecting the rights, remedies or claims of any party under the Operating Lease or the Existing Loan) shall be to terminate this Agreement (and, to the extent such termination occurs prior to the expiration of the Study Period, receive the Deposit from the Escrow Agent). In such event, Buyer shall reimburse Seller up to $50,000 (exclusive of the Deposit) for Seller’s out-of-pocket expenses actually incurred in connection with the transactions contemplated herein (including, without limitation, the Trustee Loan), which obligation shall survive the termination of this Agreement. Should Trustee fail to consummate the Trustee Loan contemporaneously with the Closing for a reason other than a failure by Buyer, Operator or any member of the Buyer Group to satisfy a condition precedent to the closing of the Trustee Loan (a “ Trustee Failure ”), Seller shall be deemed to have breached this Agreement, Closing shall not occur and Buyer shall be entitled to terminate this Agreement and receive a return of the Deposit and reimbursement by Seller of up to $50,000 for Buyer’s out-of-pocket expenses actually incurred in connection with the transactions contemplated herein (including, without limitation, the Trustee Loan), which obligation shall survive the termination of this Agreement.

 

5.7 Effect of Closing .

 

5.7.1 As to Seller . Effective upon the Closing, in consideration Seller’s receipt of payment of the Purchase Price, as reduced by the Operator’s Interest as provided hereinabove, and the receipt by Operator of the Units in lieu of the Operator’s Interest, and upon the discharge of the Construction Loan as contemplated by 16.3 of the Operating Lease, Seller’s obligation to Operator under Section 16.5 of the Operating Lease shall be discharged and deemed satisfied, and Seller shall not be obliged under the Operating Lease to pay to Operator any portion of the Purchase Price pursuant to such agreement. Effective upon Closing, the Operator shall be deemed to have unconditionally and irrevocably waived, released, acquitted, and forever discharged the Seller Group and/or its and their current and former affiliates and related business entities, agents, partners, employees, officers, directors, successors, assigns, attorneys, insurers, and representatives of every kind whatsoever, of and from any and all claims, demands, damages, actions, causes of action, debts, costs, loss of services, expenses, compensation, liabilities, or controversies of any kind whatsoever, whether known or unknown, latent, patent, non-existent at the present time and that may arise in the future or are unanticipated at this time that Operator has had, now has, or may have against the Seller Group, for any claims, whether known or unknown, which relate in any way to any alleged act, event, transaction, agreement, omission, fraud, misrepresentation, non-disclosure, breach of warranty (express or implied, oral or written), breach of contract (express or implied, oral or written), negligence, gross negligence, reckless, willful, or intentional conduct arising out of, in connection with, or in any way (directly or

 

21

indirectly) related to, the Property. Such waiver and release includes, but is not limited to, a waiver and release of express warranties, implied warranties, warranties of fitness for a particular use, claims of every type and kind, including, but not limited to, claims regarding defects that were not or are not discoverable, product liability claims, product type liability claims, any rights and claims relating to or attributable to environmental conditions, and all other extant or later created or conceived of strict liability or strict liability type claims or rights. The waiver and release in this Section shall survive the Closing and remain in effect indefinitely thereafter.

 

5.7.2 As to Operator . Upon receipt of the Unit Certificates, the Operator shall (i) be deemed to have waived all rights under Section 16 of the Operating Lease, including, without limitation, any right of first offer or first refusal with respect to the sale of the Property, or any obligation of Seller to pay to Operator any amount or amounts (except for the Operator’s Interest, as provided hereinabove) in connection with the termination of the Operating Lease and/or the Third Party Sale (as defined in the Operating Lease), and (ii) accede to the Limited Partnership Agreement as a limited partner.

 

5.7.3 As to Operating Lease . Upon receipt (i) by Seller of the Purchase Price, as reduced by the Operator’s Interest, (ii) by Buyer of the Deed, the Assignment and Assumption, and the Assignment, Contribution and Assumption, and (iii) by Operator of the Unit Certificates, the Operating Lease shall terminate. Nothing herein shall limit the effect of Section 23.23 of the Operating Lease or Seller’s right to enforce the obligations and/or liabilities of Operator (including Buyer, as assignee of Operator’s interest under the Operating Lease pursuant to the Assignment, Contribution and Assumption) accruing prior to the termination thereof, or vice versa.

 

6A. SELLER’S COVENANTS.

 

Between the date of this Agreement and the Closing Date, Seller shall comply with the following provisions:

 

6A.1 Standard of Operation and Maintenance . Seller (i) shall, to the extent within its control under the Operating Lease, cause Operator to operate, manage, and maintain the Property in substantially the same manner as it has been operated, managed and maintained on behalf of Seller to the date hereof, in accordance with the Operating Lease and (ii) shall not sell, assign, transfer or convey any Seller Personal Property or equipment, except for Seller Personal Property consumed in the ordinary course of business or equipment that becomes obsolete or unusable which may be disposed of or replaced in the ordinary course of business.

 

6A.2 New Operating Lease and Modifications to Operating Lease . Seller shall not enter into any new operating lease or cancel, modify, extend, or renew the Operating Lease, nor waive any default under, accept any surrender of, the Operating Lease or accept any prepayment of rent thereunder without in each case the prior written consent of Buyer, which consent may be withheld in the sole and absolute discretion of Buyer. The failure of Buyer to object reasonably, within five (5) Business Days, of receipt of any written request for consent together with the appropriate documentation thereunder shall be deemed an approval of such request.

 

22

6A.3 Representations and Warranties . Seller shall notify Buyer promptly if before the Closing Date Selle