CREDIT AGREEMENT

Exhibit 10.21

CREDIT AGREEMENT

dated as of

May 8, 2006

among

MHI HOSPITALITY CORPORATION,

MHI HOSPITALITY, L.P.,

and

MHI HOSPITALITY TRS HOLDING, INC.,

as Borrowers,

The Initial Guarantors Listed Herein,

The Lenders Listed Herein,

KEYBANK NATIONAL ASSOCIATION, as Syndication Agent

REGIONS BANK, as Co-Documentation Agent,

MANUFACTURERS AND TRADERS TRUST COMPANY, as Co-Documentation Agent

and

BRANCH BANKING AND TRUST COMPANY,

as Administrative Agent

TABLE OF CONTENTS

 

 

ii

 

iii

 

iv

CREDIT AGREEMENT

THIS CREDIT AGREEMENT is dated as of May 8, 2006 among MHI HOSPITALITY, L.P., a Delaware limited partnership, MHI HOSPITALITY CORPORATION, a Maryland corporation and MHI HOSPITALITY TRS HOLDING, INC., a Maryland corporation, as borrowers, the INITIAL GUARANTORS listed on the signature pages hereof, as guarantors, the LENDERS listed on the signature pages hereof and BRANCH BANKING AND TRUST COMPANY, as Administrative Agent.

The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions . The terms as defined in this Section 1.01 shall, for all purposes of this Agreement and any amendment hereto (except as otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein:

“Acquisition” means the acquisition of (i) a controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute all or any material part of the assets of such Person or of a line or lines of business conducted by such Person. Notwithstanding the foregoing, the term “Acquisition” shall not be deemed to include Lodging Investments made by the Borrowers or any of their Subsidiaries in the ordinary course of business and in compliance with the Real Estate Acquisition and Underwriting Policy.

“Adjusted Monthly Libor Index” has the meaning set forth in Section 2.06(c).

“Administrative Agent” means BB&T, in its capacity as administrative agent for the Lenders hereunder, and its successors and permitted assigns in such capacity.

“Administrative Agent’s Letter Agreement” means that certain letter agreement, dated as of January 13, 2006, between MHI Hospitality Corporation and the Administrative Agent relating to the terms of this Agreement, and certain fees from time to time payable by the Borrowers to the Administrative Agent, together with all amendments and modifications thereto. If there is any conflict between the provisions of this Agreement and the provisions of the Administrative Agent’s Letter Agreement, the provisions of this Agreement will control.

“Advances” means collectively the Revolver Advances and the Swing Line Advances. “Advance” means any one of such Advances, as the context may require.

“Affiliate” of any Person means (i) any other Person which directly, or indirectly through one or more intermediaries, controls such Person, (ii) any other Person which directly, or indirectly through one or more intermediaries, is controlled by or is under common control with such Person, or (iii) any other Person of which such Person owns, directly or indirectly, 10% or

more of the common stock or equivalent equity interests. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” means this Credit Agreement, together with all amendments and supplements hereto.

“Agreements Concerning Hotel Management Agreement” shall mean each of the Agreements Concerning Hotel Management Agreement which shall have been executed and delivered to the Administrative Agent by a Borrower (and/or other appropriate Loan Party, as reasonably determined by Administrative Agent) and the applicable manager, substantially in the form set forth as Exhibit O hereto, for each of the Borrowing Base Assets, as the same may be amended, restated, modified or supplemented from time to time.

“Agreements Concerning Lease Agreements” shall mean each of the Agreements Concerning Lease Agreements (Operating Lease) which shall have been executed and delivered to the Administrative Agent by Borrower (and/or other appropriate Loan Party, as reasonably determined by Administrative Agent) and TRS Lessee, substantially in the form set forth as Exhibit P hereto, for each of the Eligible Properties, as same may be amended, restated, modified or supplemented from time to time.

“Applicable Margin” has the meaning set forth in Section 2.06(a).

“Appraisal” means an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is state licensed or state certified if required under the laws of the state where the applicable Borrowing Base Asset is located, who meets the requirements of FIRREA, if any, and who is otherwise reasonably satisfactory to the Administrative Agent and Required Lenders.

“Appraised Value” means, with respect to a Borrowing Base Asset an amount equal to the fair market value of such Borrowing Base Asset as set forth in an Appraisal in form, content and all other respects reasonably satisfactory to the Administrative Agent and the Required Lenders. All appraisals shall be on an “as stabilized” basis utilizing the budget and projections included in the applicable Mortgaged Property Diligence Package (as such budget and projections may be adjusted by the appraiser in his sole discretion) in form and content reasonably satisfactory to the Administrative Agent.

“Asset Value” shall be determined as of the end of each Fiscal Quarter and shall mean for: (a) a Stabilized Eligible Property or Stabilized Hotel Property, (i) the NOI of such Property for the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters divided by (ii) 10%; and (b) a Newly Acquired Hotel Property, the Net Book Value of such Newly Acquired Hotel Property, plus accumulated depreciation.

“Assignee” has the meaning set forth in Section 9.07(c).

 

2

“Assignment and Acceptance” means an Assignment and Acceptance executed in accordance with Section 9.07(c) in the form attached hereto as Exhibit C.

“Assignment of Leases and Rents” shall mean collectively (or individually as the context may indicate) an Assignment of Leases and Rents executed by TRS Lessee as assignor to the Administrative Agent on behalf of the Secured Parties in respect of each Mortgaged Property in the form attached hereto as Exhibit H and incorporated herein by reference.

“Authority” has the meaning set forth in Section 8.02.

“Bankruptcy Code” means the United States Bankruptcy Reform Act of 1978 (11 U.S.C. §§101, et. seq.), as amended from time to time.

“Base Rate” means for any Base Rate Advance for any day, the rate per annum equal to the Prime Rate. For purposes of determining the Base Rate for any day, changes in the Prime Rate shall be effective on the date of each such change.

“Base Rate Advance” means, with respect to any Advance, such Advance during Interest Periods when such Advance bears or is to bear interest at a rate based upon the Base Rate.

“BB&T” means Branch Banking and Trust Company, and its successors.

“Borrowers” means MHI Hospitality Corporation, MHI Hospitality, L.P., MHI Hospitality TRS Holding, Inc. and their respective successors and permitted assigns.

“Borrowing” means a borrowing hereunder consisting of Revolver Advances made to the Borrowers, or any of them, at the same time by the Lenders pursuant to Article II or a Swing Line Advance by BB&T pursuant to Section 2.18.

“Borrowing Base” shall mean, based on the most recent Borrowing Base Certification Report which as of the date of a determination of the Borrowing Base has been received by the Administrative Agent, an amount equal to the sum of the Eligible Property Values of the Borrowing Base Assets as determined and adjusted from time to time in accordance with Section 2.14; provided that at the time of such determination there are less than three Borrowing Base Assets included in the Borrowing Base, to the extent the Eligible Property Value of any one Mortgaged Property included in the Borrowing Base as a Borrowing Base Asset exceeds $25,000,000 such excess shall be excluded from the calculation of the Borrowing Base and such excess shall not be excluded if there are three or more Borrowing Base Assets included in the Borrowing Base at the time of such determination. The Administrative Agent shall also be entitled to hold and subtract a reserve of no more than 20% of the Appraised Value of a Borrowing Base Asset against the Borrowing Base as security for payment of the Notes and the obligations of the Guarantors under Article X of this Agreement if the Administrative Agent reasonably deems that its security in the Collateral is impaired.

“Borrowing Base Acquisition Cost” means, with respect to the acquisition of a Borrowing Base Asset by an Eligible Property Owner, an amount equal to the sum of the

 

3

following (without duplication): (i) the amount of any cash and fair market value of other property (excluding the unpaid principal amount of any debt instrument) paid by the Eligible Property Owner to any Person that is not an Affiliate of such Eligible Property Owner as consideration for the Borrowing Base Asset; and (ii) the amount of hard costs actually incurred and paid by the applicable Eligible Property Owner to any Person that is not an Affiliate of such Eligible Property Owner for the development, construction, renovation and management of the construction and renovation of improvements on the Borrowing Base Asset; provided that the amounts described in (ii) of this definition of “Borrowing Base Acquisition Cost” shall include: (1) amounts paid by the applicable Eligible Property Owner to an Affiliate of such Eligible Property Owner to the extent such payments are reimbursements of hard costs actually incurred and paid by such Affiliate to a Person that is not an Affiliate of the applicable Eligible Property Owner; and (2) an aggregate annual fee payable to the Eligible Operator as manager under the Eligible Management Agreement which shall not exceed a percentage of gross revenue per annum that is then the market rate for an arms-length transaction but in no event greater than three and one quarter percent (3.25%) of gross revenue per annum.

“Borrowing Base Asset” means a Mortgaged Property which is also an Eligible Property and which is included in the Borrowing Base pursuant to Section 2.14. A Property, the value of which was previously included in the Borrowing Base calculation as a Borrowing Base Asset, shall cease to be a Borrowing Base Asset and shall be excluded from such Borrowing Base calculation if at any time such Property shall cease to meet all the requirements of an Eligible Property contained in the definition thereof or shall cease to be a Mortgaged Property.

“Borrowing Base Certification Report” means a report in the form attached hereto as Exhibit N, and otherwise satisfactory to the Administrative Agent, certified by the chief financial officer or other authorized officer of the Borrowers setting forth the calculations required to establish the Eligible Property Value for each Borrowing Base Asset and the Eligible Property Value for all Borrowing Base Assets as of a specified date, all in form and detail satisfactory to the Administrative Agent.

“Capital Expenditures” means for any period the sum of all capital expenditures incurred during such period by the Borrowers and their respective Consolidated Subsidiaries, as determined in accordance with GAAP.

“Capital Securities” means, with respect to any Person, any and all shares, interests (including membership interests and partnership interests), participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital (including any instruments convertible into equity), whether now outstanding or issued after the Closing Date.

“CERCLA” means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. §9601 et seq. and its implementing regulations and amendments.

“CERCLIS” means the Comprehensive Environmental Response Compensation and Liability Information System established pursuant to CERCLA.

“Change of Law” shall have the meaning set forth in Section 8.02.

 

4

“Closing Certificate” has the meaning set forth in Section 3.01(d).

“Closing Date” means May 8, 2006.

“Code” means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. Any reference to any provision of the Code shall also be deemed to be a reference to any successor provision or provisions thereof.

“Collateral” shall mean collectively: (1) the Mortgaged Properties; (2) the Collateral (as defined in the Security Agreement); (3) the Pledged Equity Interests; and (4) any other property or asset which secures the Obligations pursuant to the Collateral Documents.

“Collateral Documents” means, collectively, the Equity Pledge Agreement, the Mortgaged Property Security Documents, the Security Agreement and all other agreements (including control agreements), instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrowers, the Guarantors, any Subsidiary of a Borrower or Guarantor or any Pledgor shall grant or convey to the Secured Parties a Lien in, or any other Person shall acknowledge any such Lien in, property as security for all or any portion of the Obligations, as any of them may be amended, modified or supplemented from time to time.

“Collateral Pool” means collectively the Borrowing Base Assets and all other Mortgaged Properties.

“Collateral Pool EBITDA” shall be determined as of the end of each Fiscal Quarter and shall mean EBITDA of the Borrowing Base Assets for the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters.

“Collateral Pool Interest Coverage Ratio” shall be determined as of the end of each Fiscal Quarter and shall mean the ratio of: (A) Collateral Pool EBITDA, to (B) Collateral Pool Interest Expense.

“Collateral Pool Interest Expense” shall be determined as of the end of each Fiscal Quarter and shall mean, interest whether expensed or capitalized, in respect of the Debt of the Borrowing Base Assets outstanding for the Fiscal Quarter then ending and the immediately preceding three (3) Fiscal Quarters, all as determined in accordance with GAAP.

“Company” shall mean MHI Hospitality Corporation, a Maryland corporation.

“Compliance Certificate” has the meaning set forth in Section 5.01(c).

“Consolidated Debt” means at any time the Debt of the Company and its Consolidated Subsidiaries, determined on a consolidated basis as of such date.

“Consolidated EBITDA” shall be determined as of the end of each Fiscal Quarter and shall mean EBITDA, of the Borrowers and their respective Consolidated Subsidiaries, on a consolidated basis for the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters, all as determined in accordance with GAAP.

 

5

“Consolidated Interest Expense” for any period means interest, whether expensed or capitalized, in respect of Debt of the Borrowers or any of their respective Consolidated Subsidiaries outstanding during such period on a consolidated basis.

“Consolidated Net Income” means, for any period, the Net Income of the Borrowers and their respective Consolidated Subsidiaries determined on a consolidated basis, but excluding (i) extraordinary items and (ii) any equity interests of the Borrowers or any Consolidated Subsidiary of a Borrower in the unremitted earnings of any Person that is not a Subsidiary of a Borrower.

“Consolidated Subsidiary” means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of any Borrower in any such Borrower’s consolidated and consolidating financial statements as of such date.

“Consolidated Tangible Net Worth” means at any time, Stockholders’ Equity less the sum of the value, (to the extent reflected in determining Stockholders Equity) as set forth or reflected on the most recent consolidated balance sheet of the Company and its Consolidated Subsidiaries, on a consolidated basis prepared in accordance with GAAP, of

(A) The amount of any write up of assets subsequent to December 31, 2005;

(B) All assets which would be treated as intangible assets for balance sheet presentation purposes under GAAP, including without limitation goodwill (whether representing the excess of cost over book value of assets acquired, or otherwise), trademarks, tradenames, copyrights, patents and technologies, and unamortized debt discount and expense; provided that Non Core Investments shall be included in the calculation of Consolidated Tangible Net Worth at Net Book Value;

(C) To the extent not included in (B) of this definition, any amount at which the Capital Securities of the Company and its Consolidated Subsidiaries appear as an asset on the balance sheet of the Company and its Consolidated Subsidiaries;

(D) Loans or advances to owners of Capital Securities, directors, officers, managers or employees; and

(E) To the extent not included in (B) of this definition, deferred expenses.

“Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with any Loan Party, are treated as a single employer under Section 414 of the Code.

“Costs of Acquisition” means, with respect to any Acquisition, as at the date of entering into any agreement therefor, the sum of the following (without duplication): (i) the value of the Capital Securities of the Borrowers or any Subsidiary to be transferred in connection

 

6

therewith, (ii) the amount of any cash and fair market value of other property (excluding property described in clause (i) and the unpaid principal amount of any debt instrument) given as consideration, (iii) the amount (determined by using the face amount or the amount payable at maturity, whichever is greater) of any Debt incurred, assumed or acquired by the Borrowers or any Subsidiary in connection with such Acquisition, (iv) all additional purchase price amounts in the form of earnouts and other contingent obligations that should be recorded on the financial statements of the Borrowers and their Subsidiaries in accordance with GAAP, (v) all amounts paid in respect of covenants not to compete, consulting agreements that should be recorded on financial statements of the Borrowers and their Subsidiaries in accordance with GAAP, and other affiliated contracts in connection with such Acquisition, (vi) the aggregate fair market value of all other consideration given by the Borrowers or any Subsidiary in connection with such Acquisition, and (vii) out of pocket transaction costs for the services and expenses of attorneys, accountants and other consultants incurred in effecting such transaction, and other similar transaction costs so incurred. For purposes of determining the Cost of Acquisition for any transaction, (A) the Capital Securities of the Borrowers shall be valued (I) in the case of capital stock that is then designated as a national market system security by the National Association of Securities Dealers, Inc. (“NASDAQ”) or is listed on a national securities exchange, the average of the last reported bid and ask quotations or the last prices reported thereon, (II) in the case of Capital Securities of the Operating Partnership which track the value of the common stock of the Company listed on NASDAQ or a national securities exchange, then by the value of such common stock determined in accordance with the immediately foregoing clause (I), and (III) with respect to any other Capital Securities, as determined by the board of directors or members, as the case may be, of the Borrowers and, if requested by the Administrative Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 5.01(a), (B) the Capital Securities of any Subsidiary other than the Operating Partnership shall be valued as determined by the board of directors or members, as the case may be, of such Subsidiary and, if requested by the Administrative Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 5.01(a), and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion.

“Debt” of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) 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, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker’s acceptance, (vi) all Redeemable Preferred Securities of such Person, but excluding Redeemable Preferred Securities of the Operating Partnership to the extent that such Redeemable Preferred Securities are redeemable at the option of the limited partner of the Operating Partnership in accordance with Section 8.04(a) of the Operating Partnership’s Amended and Restated Agreement of Limited Partnership dated December 21, 2004 as in effect on the Closing Date, (vii) all obligations (absolute or contingent) of such Person to reimburse any bank or other Person in respect of amounts which are available to be drawn or have been drawn under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any

 

7

asset of such Person, whether or not such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such Person, (x) all obligations of such Person with respect to interest rate protection agreements, foreign currency exchange agreements or other hedging agreements (valued as the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association and agreed to by such Person in the applicable hedging agreement, if any); and (xi) the principal portion of all obligations of such Person under any synthetic lease, tax retention operating lease, asset securitization, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is not classified as indebtedness under GAAP.

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived in writing, become an Event of Default.

“Default Rate” means, with respect to the Advances, on any day, the sum of 2% plus the then highest interest rate (including the Applicable Margin determined as if the Total Leverage Ratio is greater than 0.40 to 1) which may be applicable to any Advance (irrespective of whether any such type of Advance is actually outstanding hereunder).

“Depreciation and Amortization” means for any period an amount equal to the sum of all depreciation and amortization expenses of the Borrowers and their respective Consolidated Subsidiaries for such period, as determined on a consolidated basis in accordance with GAAP.

“Dividends” means for any period the sum of all dividends and distributions paid or declared during such period in respect of any Capital Securities and Redeemable Preferred Securities (other than dividends and distributions paid or payable in the form of additional Capital Securities).

“Dollars” or “$” means dollars in lawful currency of the United States of America.

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial Banks in North Carolina are authorized or required by law to close.

“Domestic Subsidiary” means any Subsidiary which is organized under the laws of any state or territory of the United States of America.

“EBITDA” means and includes, for any Fiscal Quarter for which the amount thereof is to be determined, the sum of (a) Consolidated Net Income for such period; plus , (b) to the extent such amounts were deducted in computing Consolidated Net Income for such period: (i) Consolidated Interest Expense for such period; and (ii) Depreciation and Amortization for such period, all determined on a consolidated basis in accordance with GAAP.

“Eligible Lease” means, with respect to any Eligible Property, a lease with TRS Lessee, as lessee, in substantially the form of the leases existing on the Closing Date set forth on Schedule 1.1 – Existing Leases pursuant to which TRS leases the Eligible Property.

 

8

“Eligible Management Agreement” means, with respect to any Eligible Property, a management agreement pursuant to which the manager undertakes the management of the hotel on the Eligible Property (a) in substantially the form of the management agreement existing on the Closing Date (set forth on Schedule 1.1 – Existing Management Agreement), between TRS Lessee and the Eligible Operator, as manager and (b) which provides that the aggregate annual fee payable to the manager under said agreement is limited to the percentage of gross revenue per annum that is then the market rate for an arms-length transaction but in no event greater than three and one quarter percent (3.25%) of gross revenues per annum.

“Eligible Operator” means MHI Hotel Services, LLC, a Virginia limited liability company.

“Eligible Property” means a Property which satisfies all of the following requirements:

(a) such Property is an existing hotel located in one of the 48 contiguous states of the United States of America or in the District of Columbia;

(b) neither such Property, nor any interest of any Borrower or any Subsidiary thereof (including without limitation any Eligible Property Owner) therein, is subject to any Lien (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties created pursuant to the Loan Documents, Liens arising under restaurant and office equipment leases and Permitted Liens), any Negative Pledge or any springing lien of any kind;

(c) such Property is owned by an Eligible Property Owner and is a Wholly Owned Property;

(d) no direct or indirect ownership interest in such Eligible Property Owner is subject to any Lien, (other than Liens pursuant to the Loan Documents), any Negative Pledge or any springing lien of any kind;

(e) a Borrower directly, or indirectly through a Wholly Owned Subsidiary, has the right to take the following actions without the need to obtain the consent of any Person: (A) to create Liens on such Property as security for Debt of the Borrowers, any other Loan Party or a Subsidiary of a Loan Party, as applicable and (B) to sell, transfer or otherwise dispose of such Property;

(f) such Property is free of all structural defects, title defects, environmental conditions or other adverse matters except for defects, deficiencies, conditions or other matters individually or collectively which are fully insured against (subject to reasonable and customary deductibles) or are not material to the profitable operation of such Property;

(g) good and indefeasible fee simple title to such Property is owned by the Eligible Property Owner free and clear of any liens (other than Permitted Liens and Liens in favor of the Administrative Agent for the benefit of the Secured Parties created pursuant to the Loan Documents) and 100% of the Capital Securities of such Eligible Property Owner have been pledged pursuant to the Equity Pledge Agreement;

 

9

(h) the only Franchise Agreement applicable to such Property is in full force and effect and the subject of a Franchisor Estoppel and Recognition Letter; each party to such Franchise Agreement has performed and is in compliance with all of the material terms of such Franchise Agreement and no default or event of default exists under such Franchise Agreement;

(i) the only lease burdening the Property (other than a Permitted Sublease) is an Eligible Lease which is in full force and effect and the subject of an Agreement Concerning Lease Agreement; each party to such lease has performed and is in compliance with all of the material terms of such lease and no default or event of default exists under such lease;

(j) the only management agreement burdening the Property is an Eligible Management Agreement which is in full force and effect and the subject of an Agreement Concerning Hotel Management Agreement; each party to such management agreement has performed and is in compliance with all of the material terms of such management agreement and no default or event of default exists under such management agreement;

(k) such Property was acquired by the Eligible Property Owner in accordance with the terms of the Real Estate Acquisition and Underwriting Policy; and

(l) all of the representations and warranties set forth in this Agreement, the Mortgage with respect to such Property and the other Loan Documents are true and correct. In furtherance and not in limitation of the foregoing in no event shall a Non-Core Investment be deemed an Eligible Property.

“Eligible Property Owner” means (i) any limited liability company which is a Domestic Subsidiary and a Wholly Owned Subsidiary, all of the membership interests (and all other ownership and equity interests) of which are pledged to the Secured Parties pursuant to the Equity Pledge Agreement or (ii) any limited partnership which is a Domestic Subsidiary and a Wholly Owned Subsidiary, and whose general partner is a corporation or limited liability company and a Domestic Subsidiary and a Wholly Owned Subsidiary, all of the limited partnership interests of which limited partnership and all of the stock of the corporate general partner or all of the membership interests of the limited liability company general partner, as the case may be, of which limited partnership are pledged to the Secured Parties pursuant to the Equity Pledge Agreement.

“Eligible Property Value” means, with respect to any Eligible Property, included in the Borrowing Base for any date of determination an amount equal to: (A) .75, multiplied by (B): (1) in the case of a Stabilized Eligible Property, the Asset Value of such Stabilized Eligible Property; and (2) in the case of a Newly Acquired Eligible Property, an amount equal to the lesser of (a) the Borrowing Base Acquisition Cost of such Eligible Property; or (b) 80% of the Appraised Value of such Eligible Property (determined at the time such Eligible Property is acquired by the Eligible Property Owner or such subsequent time as the Administrative Agent or the Required Lenders may reasonably request).

 

10

“Environmental Authority” means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement.

“Environmental Authorizations” means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites for conducting the business of a Loan Party or any Subsidiary of a Loan Party required by any Environmental Requirement.

“Environmental Judgments and Orders” means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, groundwater or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof.

“Environmental Liabilities” means any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements.

“Environmental Notices” means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement.

“Environmental Proceedings” means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement.

“Environmental Releases” means releases as defined in CERCLA or under any applicable federal, state or local environmental law or regulation and shall include, in any event and without limitation, any release of petroleum or petroleum related products.

“Environmental Requirements” means any legal requirement relating to health, safety or the environment and applicable to a Loan Party, any Subsidiary of a Loan Party or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law.

 

11

“Equity Pledge Agreement” means collectively (or individually as the context may indicate), (i) an Equity Pledge Agreement by the owners of Capital Securities in the Loan Parties (other than the owners of the Capital Securities in the Company and the owners of the limited partnership interests in the Operating Partnership) and in any Eligible Property Owner in favor of the Administrative Agent for the benefit of the Secured Parties to be executed and delivered on or prior to the date of the first Borrowing hereunder and in form and content satisfactory to the Administrative Agent and (ii) any joinders thereto or any additional Equity Pledge Agreement delivered to the Administrative Agent pursuant to Section 5.25.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof.

“Euro-Dollar Advance” means, with respect to any Advance, such Advance during Interest Periods when such Advance bears or is to bear interest at a rate based upon the London InterBank Offered Rate.

“Euro-Dollar Business Day” means any Domestic Business Day on which dealings in Dollar deposits are carried out in the London interBank market.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.06(c).

“Event of Default” has the meaning set forth in Section 6.01.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to BB&T on such day on such transactions as determined by the Administrative Agent.

“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended from time to time.

“Fiscal Quarter” means any fiscal quarter of the Borrowers.

“Fiscal Year” means any fiscal year of the Borrowers.

“Fixed Charge Coverage Ratio” shall be determined as of the end of each Fiscal Quarter and shall mean the ratio of Consolidated EBITDA to the sum of: (i) Consolidated

 

12

Interest Expense for the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters, (ii) regularly scheduled payments of principal on Long Term Debt made during the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters, and (iii) Preferred Dividends made during the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters.

“Franchise Agreement” means each and any franchise or license agreements relating to the Borrowing Base Assets pursuant to which the applicable Loan Party has the right to operate the hotel located on the related Eligible Property under a name and/or hotel system controlled by such franchisor or licensor.

“Franchisor” means a nationally recognized franchisor or licensor under any of the Franchise Agreements.

“Franchisor Estoppel and Recognition Letter” shall mean each of the Letters which shall be executed and delivered to the Administrative Agent by the appropriate Franchisor pursuant to which the Franchisor acknowledges the Administrative Agent’s lien upon the Mortgaged Property, such letter to be in form and content satisfactory to the Administrative Agent in its reasonable discretion.

“Funds from Operations” means, with respect to any Person for any fiscal period, Net Income less extraordinary items, gains or losses from sales of previously depreciated operating real estate assets plus Depreciation and Amortization and other non-cash adjustments to Net Income permitted under GAAP, all after adjustment for any minority interest from unconsolidated partnerships and joint ventures.

“GAAP” means with respect to any date of determination, generally accepted accounting principles in the United States as recognized by the Financial Accounting Standards Board and/or the American Institute of Certified Public Accountants consistently applied and maintained throughout the periods indicated in accordance with Section 1.02.

“Governmental Authority” means the government of any country or sovereign state, or of any state, province, municipality or other political subdivision thereof, and any court, bureau, department, agency, public corporation or other instrumentality that exercises executive, legislative, judicial, regulatory or administrative functions of government, and any successor thereof.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.

 

13

“Guaranteed Obligations” means any and all liabilities, indebtedness and obligations of any and every kind and nature, heretofore, now or hereafter owing, arising, due or payable from any or all of the Borrowers to the Lenders, the Swing Line Lender, the Issuing Bank, the Administrative Agent, the Hedge Counterparty or any of them, arising under or evidenced by this Agreement, the Notes, the Hedging Agreement, the Letter of Credit Agreements, the Collateral Documents or any other Loan Document.

“Guarantors” shall mean collectively: (a) the Initial Guarantors; and (b) all Persons that become a Guarantor pursuant to Section 5.25 or otherwise.

“Hazardous Materials” includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. §6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) any “hazardous substance”, “pollutant” or “contaminant”, as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation and (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time.

“Hazardous Substances Remediation and Indemnification Agreement” shall mean collectively (or individually as the context may indicate) a Hazardous Substances Remediation and Indemnification Agreement executed by the Loan Parties as indemnitors to and for the benefit of the Administrative Agent and the indemnified parties (as defined therein) in the form attached hereto as Exhibit R.

“Hedge Amount” means on any day, an amount equal to the aggregate amount of the Revolver Commitments on such day.

“Hedge Counterparty” means BB&T.

“Hedge Notional Amount” means the aggregate notional amount in effect on any day under all Hedge Transactions entered into pursuant to Section 5.35, that have not matured, been terminated or cancelled.

“Hedge Percentage” means an amount equal to 50%.

“Hedge Transaction” means each interest rate swap transaction between the Borrowers and the Hedge Counterparty that is entered into pursuant to Section 5.35 for the purpose of hedging interest rate risk for indebtedness under this Agreement and is governed by a Hedging Agreement.

 

14

“Hedging Agreement” means each agreement between the Borrowers and the Hedge Counterparty that governs one or more Hedge Transactions entered into pursuant to Section 5.35, which agreement shall consist of a “Master Agreement” in a form published by the International Swaps and Derivatives Association, Inc., together with a “Schedule” thereto in the form the Administrative Agent shall approve in writing, and each “Confirmation” thereunder confirming the specific terms of each such Hedge Transaction.

“Hotel Property” means a hotel (including land, building, improvements, equipment and all related personal property used or useful in connection with such hotel operations) that is wholly owned in fee simple by a Borrower or a Consolidated Subsidiary; provided however the term “Hotel Property” expressly excludes any and all Non-Core Investments.

“Initial Guarantors” shall mean Philadelphia Hotel Associates, LP, a Pennsylvania limited partnership, MHI Hospitality TRS LLC, a Delaware limited liability company, MHI GP, LLC, a Delaware limited liability company and Brownestone Partners, LLC, a North Carolina limited liability company.

“Initial Rate Adjustment Date” means the first Rate Determination Date after March 31, 2006.

“Insolvency Event” means with respect to a specified Person, (a) the filing of a decree or order for relief by a court having jurisdiction in respect of such Person or any substantial part of its property in an involuntary case under any applicable Insolvency Law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person’s affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable Insolvency Law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing.

“Insolvency Laws” means the Bankruptcy Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief laws from time to time in effect affecting the rights of creditors generally.

“Insolvency Proceeding” means any case, action or proceeding before any court or Governmental Authority relating to an Insolvency Event.

“Intellectual Property” means any Property which, under any applicable Law, constitutes a copyright, domain name, mask work, service mark, patent, patent application, trademark, trade name or trade secret, and includes any license or other right to use such Property.

 

15

“Interest Payment Date” shall mean the first day of each month.

“Interest Period” means with respect to each Base Rate Borrowing and each Euro-Dollar Borrowing, one calendar month; provided that:

(A) the initial Interest Period shall mean the period commencing on the Closing Date and ending May 31, 2006; and

(B) the last Interest Period under this Agreement shall end on the Termination Date.

“Investment” means any investment in any Person, whether by means of purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, loan or advance to such Person, making of a time deposit with such Person, Guarantee or assumption of any obligation of such Person or otherwise.

“Issuing Bank” shall mean BB&T.

“Laws” means, collectively, all codes, constitutions, ordinances, rules, regulations, statutes and other laws of any Governmental Authority, as well as all published interpretations or manuals of any Governmental Authority relating to any of the foregoing; and all awards, decisions, decrees, injunctions, writs and other orders of any Governmental Authority or arbitrator.

“Lender” means each lender listed on the signature pages hereof as having a Revolver Commitment and their respective successors and assigns.

“Lending Office” means, as to each Lender, its office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as such Lender may hereafter designate as its Lending Office by notice to the Borrowers and the Administrative Agent.

“Letter of Credit” means the letters of credit issued by the Issuing Bank pursuant to Section 2.03(a) and “Letter of Credit” means any one of such Letters of Credit, as any of such letters of credit may be extended, renewed, replaced or amended from time to time.

“Letter of Credit Advance” means an advance made by the Issuing Bank pursuant to Section 2.03(c).

“Letter of Credit Agreement” means any agreement entered into by any Borrower and the Issuing Bank pursuant to which a Letter of Credit is issued, as amended, modified or restated from time to time.

“Lien” means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has

 

16

the practical effect of constituting a security interest or encumbrance, servitude or encumbrance of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, the Borrowers or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan Documents” means this Agreement, the Notes, the Collateral Documents, the Letter of Credit Agreements, the Hedging Agreements, the Letters of Credit, any other document evidencing or securing the Advances or the Letters of Credit, and any other document or instrument delivered from time to time in connection with this Agreement, the Notes, the Letter of Credit Agreements, the Hedging Agreements, the Letters of Credit, the Collateral Documents or the Advances, as such documents and instruments may be amended or supplemented from time to time.

“Loan Parties” means collectively the Borrowers, each Pledgor and each Guarantor that is now or hereafter a party to any of the Loan Documents.

“Lodging Investments” shall mean collectively: (1) the purchase by a Borrower or Wholly Owned Subsidiary of a Hotel Property in the ordinary course of business and consistent with the Real Estate Acquisition and Underwriting Policy; and (2) Non-Core Investments.

“London InterBank Offered Rate” has the meaning set forth in Section 2.06(c).

“Long-Term Debt” means at any date any Consolidated Debt that matures (or the maturity of which may at the option of the Borrower or any Consolidated Subsidiary be extended such that it matures) more than one year after such date.

“Long Term Limited Recourse Mortgage Loan” means a mortgage loan to any Subsidiary from a third party institutional lender for the purpose of financing or refinancing Debt incurred to finance the purchase by said Subsidiary of any Property or Properties, which mortgage loan shall have a term of at least five years, shall be secured by, and have recourse for payment contractually limited to, the Properties so financed or refinanced.

“Margin Stock” means “margin stock” as defined in Regulations T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder.

“Material Adverse Effect” means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business or properties of any Loan Party or any of their respective Subsidiaries, taken as a whole, (b) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents, or the ability of any Borrower or any other Loan Party to perform its obligations under the Loan Documents to which it is a party, as applicable, or (c) the legality, validity or enforceability of any Loan Document.

 

17

“Material Contract” means any contract or other arrangement (other than Loan Documents), whether written or oral, to which the Borrowers, the Guarantors, any Subsidiary of a Borrower or Guarantor or any other Loan Party is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect. The term “Material Contract” shall include, without limitation, each Franchise Agreement, Eligible Management Agreement, and Eligible Lease.

“Mortgages” means, collectively, (i) the fee simple mortgages, deeds of trust and deeds to secure debt by the Eligible Property Owner to be executed and delivered on or prior to the date of the first Borrowing hereunder and in form and content satisfactory to the Administrative Agent and (ii) all subsequent fee simple mortgages, deeds of trust and deeds to secure debt in substantially the form of the Mortgages referred to in clause (i) (with such changes thereto as may be necessitated by state or local law), in each case granting a Lien to the Administrative Agent (or a trustee for the benefit of the Administrative Agent) for the benefit of the Secured Parties in Collateral constituting real property (including certain real property leases) and related personalty, as such documents may be amended, modified or supplemented for time to time.

“Mortgaged Property” means, collectively, the Trust Properties and the Mortgaged Properties (each as defined in the Mortgages) at the Closing Date, and thereafter, any of such property owned, leased or acquired by an Eligible Property Owner or any Loan Party that is or is required to become a Guarantor after the Closing Date pursuant to Section 5.25 , the Capital Securities in which are pledged to the Administrative Agent for the benefit of the Secured Parties pursuant to the Equity Pledge Agreement.

“Mortgaged Property Diligence Package” shall mean, with respect to any Property included in the Borrowing Base, the following: (i) a general description of the Property’s location, market and amenities; (ii) a description of the properties operating history for the preceding three years; (iii) information with respect to the purchase transaction (including, without limitation, the purchase price, the name of the seller, the date of purchase and other material terms of purchase); (iv) a summary (prepared by the environmental firm) of results of a Phase I environmental assessment and, if reasonably requested by the Administrative Agent or any Lender, based upon issues identified in the Phase I environmental assessment summary, the full environmental assessment and any additional environmental assessments; (v) an Appraisal prepared within six months of the date the Property was acquired by the Eligible Property Owner; (vi) a summary of the principal terms of any and all franchise, lease, management and other similar agreements; (vii) copies of all internal Loan Party analyses or reports relating to the investment in such Property, including without limitation the investment write-up and (viii) such other information reasonably requested by the Administrative Agent or any Lender.

“Mortgaged Property Owner” means the owner of the fee simple title to a Mortgaged Property.

 

18

“Mortgaged Property Security Documents” means collectively, the Mortgages, the Agreements Concerning Lease Agreements, the Assignments of Leases and Rents, the Hazardous Substances Remediation and Indemnification Agreement, the Agreements Concerning Hotel Management Agreements, the Franchisor Estoppel and Recognition Letters and all other agreements, instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrowers, the Guarantors or any Subsidiary of a Borrower or Guarantor shall grant or convey to the Administrative Agent and the Lenders a Lien in, or any other Person shall acknowledge any such Lien in, real property as security for all or any portion of the Obligations, as any of them may be amended, modified or supplemented from time to time.

“Mortgaged Property Support Documents” means, for each Mortgaged Property, (i) the Title Policy pertaining thereto, (ii) surveys (unless the title insurance company will insure over the absence of survey), flood hazard certifications and environmental assessments thereof in form and substance satisfactory to Administrative Agent (and in the case of a Mortgaged Property proposed to be included as a Borrowing Base Asset, the Required Lenders), prepared by recognized experts in their respective fields acceptable to the Administrative Agent (and in the case of a Mortgaged Property proposed to be included as a Borrowing Base Asset, the Required Lenders), (iii) as to Mortgaged Properties located in a flood hazard area, flood hazard insurance, (iv) estoppel, waiver and consent certificates and subordination, nondisturbance and attornment agreements, in form and substance satisfactory to the Administrative Agent (and in the case of a Mortgaged Property proposed to be included as a Borrowing Base Asset, the Required Lenders), (v) opinions of local counsel with respect to the Mortgages, in form and substance satisfactory to the Administrative Agent (and in the case of a Mortgaged Property proposed to be included as a Borrowing Base Asset, the Required Lenders), (vi) applicable lease agreements, management agreements and franchise agreements, and (vii) such other documentation as the Administrative Agent (or in the case of a Mortgaged Property proposed to be included as a Borrowing Base Asset, the Required Lenders) may reasonably require, in each case as shall be in form and substance reasonably acceptable to the Administrative Agent. For purposes of determining compliance with the terms and conditions specified in this definition of Mortgaged Property Support Documents, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required by such definition to be consented to or approved by or acceptable to such Lenders unless with regard to any Borrowing Base Asset, a Lender rejects the inclusion of the Mortgaged Property as a Borrowing Base Asset in accordance with Section 2.14.

“Negative Pledge” means, with respect to a given asset, any provision of a document, instrument or agreement (other than any Loan Document) which prohibits or purports to prohibit the creation or assumption of any Lien on such asset as security for Debt of the Person owning such asset or any other Person.

“Net Book Value” in respect of any asset (including without limitation a Property) shall be determined as of the end of each Fiscal Quarter and shall mean the net book value of such asset determined in accordance with GAAP.

 

19

“Net Income” means, as applied to any Person for any period, the aggregate amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP.

“Net Proceeds of Capital Securities/Conversion of Debt” means any and all proceeds (whether cash or non-cash) or other consideration received by any Borrower, Guarantor or any Subsidiary of a Borrower or a Guarantor in respect of the issuance of Capital Securities (including, without limitation, the aggregate amount of any and all Debt converted into Capital Securities), after deducting therefrom all reasonable and customary costs and expenses incurred by such Borrower, Guarantor or Subsidiary directly in connection with the issuance of such Capital Securities.

“Newly Acquired Eligible Property” means an Eligible Property during the Stabilization Period for such Eligible Property.

“Newly Acquired Hotel Property” means a Hotel Property during the Stabilization Period for such Hotel Property.

“NOI” shall be determined as of the end of each Fiscal Quarter and shall mean, as to any Stabilized Eligible Property, Non-Core Investment or Stabilized Hotel Property, as the case may be, the consolidated net operating income with respect to such Stabilized Eligible Property, Non-Core Investment or Stabilized Hotel Property, as the case may be, for the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters, as determined in accordance with GAAP, except that (i) for purposes of determining expenses for management fees, there shall be included the greater of: (A) the actual management expenses incurred or (B) a minimum management fee equal to three percent (3%) of gross room rental revenues, and (ii) for purposes of determining capital improvements expense, there shall be included four percent (4%) of gross room rental revenue.

“Non-Core Investment Value” means at any time the lesser of: (i) the actual cost of the Non-Core Investments of the Company and its Consolidated Subsidiaries on such date; and (ii)(a) the NOI attributable to the Non-Core Investments of the Company and its Consolidated Subsidiaries determined on the last day of each Fiscal Quarter for the Fiscal Quarter then ending and the immediately preceding three Fiscal Quarters in each case adjusted to reflect the ownership interest of the Company and its Consolidated Subsidiaries divided by (b) 12.0%.

“Non-Core Investments” shall mean Investments made by a Consolidated Subsidiary in joint ventures, the principal asset of which is a hotel property, leasehold interests in hotel properties, condominium hotels, distressed debt secured by under performing hotel properties and off balance sheet investments via mezzanine notes secured by hotel properties.

“Notes” means collectively the Swing Line Note and the Revolver Notes, and any and all amendments, consolidations, modifications, renewals, substitutions and supplements thereto or replacements thereof. “Note” means any one of such Notes.

“Notice of Borrowing” has the meaning set forth in Section 2.02.

 

20

“Obligations” means the collective reference to all indebtedness, obligations and liabilities to one or more of the Administrative Agent, the Issuing Bank, the Hedge Counterparty and the Lenders, existing on the date of this Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, of the Loan Parties and Pledgors under this Agreement, the Notes, the Hedging Agreement, the Letter of Credit Agreement or any other Loan Document (including, without limitation, (a) all interest accruing after the commencement of any bankruptcy proceeding whether or not allowed in such proceeding and (b) all indebtedness, liabilities and obligations of any one or more of the Borrowers or Guarantors to BB&T arising out of or relating to any cash management services, merchant card, ACH transfer services or other products or services provided by BB&T or any Affiliate of BB&T).

“Officer’s Certificate” has the meaning set forth in Section 3.01(e).

“Operating Documents” means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the bylaws, operating agreement, partnership agreement, limited partnership agreement, shareholder agreement or other applicable documents relating to the operation, governance or management of such entity.

“Operating Partnership” means MHI Hospitality, L.P., a Delaware limited partnership.

“Organizational Action” means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, any corporate, organizational or partnership action (including any required shareholder, member or partner action), or other similar official action, as applicable, taken by such entity.

“Organizational Documents” means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the articles of incorporation, certificate of incorporation, articles of organization, certificate of limited partnership or other applicable organizational or charter documents relating to the creation of such entity.

“Participant” has the meaning set forth in Section 9.07(b).

“Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, signed into law October 26, 2001.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Liens” means those Liens permitted under Sections 5.11(b) through (e) and Section 5.11(g).

 

21

“Permitted Sublease” means a sublease of a portion of the Property (which is subordinate to the applicable Mortgage pursuant to a subordination agreement in form and content satisfactory to the Administrative Agent) entered into between TRS Lessee (or the Mortgaged Property Owner), as sublessor and a Person that is not an Affiliate of any Borrower for the operation of a restaurant or other amenity with a term no longer than 20 years and comprising less than 10,000 square feet, the rent and other terms of which are then market terms for an arms-length transaction.

“Person” means an individual, a corporation, a limited liability company, a partnership (including without limitation, a joint venture), an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof.

“Plan” means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions.

“Pledged Equity Interests” shall have the same meaning as the term “Collateral” set forth in the Equity Pledge Agreement.

“Pledgors” means the pledgor(s) under the Equity Pledge Agreement, either collectively or individually, as the context shall require (such term shall include without limitation each Pledgor Owner (as defined in Section 5.25(b)).

“Preferred Dividends” means all Restricted Payments made by the Company and its Consolidated Subsidiaries in respect of any preferred stock or similar Capital Securities (including, without limitation, limited liability company membership interests and limited partnership interests).

“Prime Rate” refers to that interest rate so denominated and set by BB&T from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by BB&T. BB&T lends at interest rates above and below the Prime Rate.

“Properties” means, as to any Loan Party or Subsidiary of a Loan Party, any interest in any kind of property or asset, whether real, personal or mixed and whether tangible or intangible. “Property” means any one of such Properties.

“Property Improvement Plan” shall mean with respect to any Eligible Property, the current outstanding property improvement plan or similar documentation required by the applicable Franchisor for such Eligible Property.

“Property Release” has the meaning set forth in Section 2.15.

 

22

“Pro Rata Share” of any amount means, with respect to any Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender’s Revolver Commitment at such time and the denominator of which is the aggregate amount of the Revolver Commitments of all of the Lenders at such time.

“Quality Assurance Inspection Report” means any quality assurance reports or similar reports of inspection or compliance from a Franchisor under any Franchise Agreement.

“Quarterly Payment Date” means March 31, June 30, September 30 and December 31 of each year.

“Rate Determination Date” has the meaning set forth in Section 2.06(a).

“Real Estate Acquisition and Underwriting Policy” means the Real Estate Acquisition and Underwriting Policy, a copy of which is attached hereto as Exhibit I, as the same may be amended from time to time to the extent such amendments are permitted pursuant to Section 5.30.

“Redeemable Preferred Securities” of any Person means any preferred stock or similar Capital Securities (including, without limitation, limited liability company membership interests and limited partnership interests) issued by such Person which is at any time prior to the Termination Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof.

“REIT” means a Person qualifying for treatment as a “real estate investment trust” under the Code.

“Release Amount” means with respect to each Borrowing Base Asset an amount determined at the time of the release of the Administrative Agent’s Lien on such Borrowing Base Asset equal to the aggregate outstanding principal amount of all Revolver Advances, Swing Line Advances, Letter of Credit Advances and Undrawn Amounts less the Borrowing Base after taking into account the release of such Borrowing Base Asset.

“Required Lenders” means at any time Lenders having at least 66-2/3% of the aggregate amount of the Revolver Commitments or, if the Revolver Commitments are no longer in effect, Lenders holding at least 66-2/3% (directly or through participations pursuant to Sections 2.03(c) and 2.18(e))of the aggregate outstanding principal amount of the Notes, Letter of Credit Advances and Undrawn Amounts.

“Restricted Payment” means as to any Person (i) any dividend or other distribution on any Capital Securities of such Person (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any Capital Securities of such Person (except shares acquired upon the conversion thereof into other shares of its capital stock) or (b) any option, warrant or other right to acquire Capital Securities of such Person.

 

23

“Revolver Advance” shall mean an advance made to any Borrower under this Agreement pursuant to Section 2.01(a). A Revolver Advance is a “Base Rate Advance” if such Revolver Advance is part of a Base Rate Borrowing or a “Euro-Dollar Advance” if such Revolver Advance is part of a Euro-Dollar Borrowing.

“Revolver Commitment” means, with respect to each Lender, (i) the amount set forth opposite the name of such Lender on the signature pages hereof, or (ii) as to any Lender which enters into an Assignment and Acceptance (whether as transferor Lender or as Assignee thereunder), the amount of such Lender’s Revolver Commitment after giving effect to such Assignment and Acceptance, or (iii) as to any Lender which agrees to increase its Revolver Commitment pursuant to Section 2.01(b), the amount of such Lender’s Revolver Commitment after giving effect to such increase, in each case as such amount may be reduced from time to time pursuant to Sections 2.08 and 2.09.

“Revolver Notes” means the promissory notes of the Borrowers, substantially in the form of Exhibit B hereto, evidencing the obligation of the Borrowers to repay the Revolver Advances, together with all amendments, consolidations, modifications, renewals, substitutions and supplements thereto or replacements thereof and “Revolver Note” means any one of such Revolver Notes.

“Sale/Leaseback Transaction” means any arrangement with any Person providing, directly or indirectly, for the leasing by any Loan Party or any of its Subsidiaries of real or personal property which has been or is to be sold or transferred by any Loan Party or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of any Loan Party or such Subsidiary.

“Secured Parties” shall mean collectively: (1) the Administrative Agent in its capacity as such under this Agreement, the Collateral Documents and the other Loan Documents; (2) the Lenders, (3) the Issuing Bank, in its capacity as such under the Letter of Credit Agreement and this Agreement; (4) the Hedge Counterparty, in its capacity as such under the Hedging Agreements and this Agreement, and (5) the successors and assigns of the foregoing.

“Security Agreement” means (i) a Security Agreement among the Borrowers, the Guarantors and the Administrative Agent for the benefit of the Secured Parties to be executed and delivered on or prior to the date of the first Borrowing hereunder and in form and content satisfactory to the Administrative Agent and (ii) any joinders thereto or any additional Security Agreements delivered to the Administrative Agent pursuant to Section 5.25.

“Stabilization Period” means for each Eligible Property or Hotel Property, as the case may be, the period of time commencing on the date such Eligible Property or Hotel Property, as the case may be, is acquired by a Loan Party or Affiliate of a Loan Party and ending on the earlier of: (1) the date twelve (12) months after the date the renovation of such Eligible Property or Hotel Property, as the case may be, is substantially complete; and (2) the date thirty (30) months after the date such Eligible Property or Hotel Property, as the case may be, is acquired by a Loan Party or an Affiliate of a Loan Party.

 

24

“Stabilized Eligible Property” means an Eligible Property after the Stabilization Period for such Eligible Property.

“Stabilized Hotel Property” means a Hotel Property after the Stabilization Period for such Hotel Property.

“Stockholders’ Equity” means, at any time, (a) the shareholders’ and other interest owners’ equity of the Company and its Consolidated Subsidiaries, as set forth or reflected on the most recent consolidated balance sheet of the Company and its Consolidated Subsidiaries prepared in accordance with GAAP, plus (b) the unit holders’ and other interest owners’ equity of the Operating Partnership and its Consolidated Subsidiaries, if any, as set forth or reflected on the most recent audited consolidated balance sheet of the Company and its Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable Preferred Securities of the Company or any of its Consolidated Subsidiaries (other than Redeemable Preferred Securities of the Operating Partnership to the extent that such Redeemable Preferred Securities are redeemable at the option of the limited partner of the Operating Partnership in accordance with Section 8.04(a) of the Operating Partnership’s Amended and Restated Agreement of Limited Partnership dated December 21, 2004 as in effect on the Closing Date). Shareholders’ and other interest owners’ equity generally would include, but not be limited to (i) the par or stated value of all outstanding Capital Securities, (ii) capital surplus, (iii) retained earnings, and (iv) various deductions such as (A) purchases of treasury stock, (B) valuation allowances, (C) receivables due from an employee stock ownership plan, (D) employee stock ownership plan debt guarantees, and (E) translation adjustments for foreign currency transactions.

“Subsidiary” means, as to any Loan Party, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Loan Party.

“Swing Line Advance” means an advance made by the Swing Line Lender pursuant to Section 2.18 hereof. The Swing Line Advances shall at all times be Base Rate Advances.

“Swing Line Exposure” shall mean, with respect to any Lender at any time, such Lender’s Pro Rata Share of the aggregate amount of all Swing Line Advances outstanding at such time.

“Swing Line Lender” means BB&T.

“Swing Line Note” means the promissory note of the Borrowers, substantially in the form of Exhibit K hereto, evidencing the obligation of the Borrowers to repay the Swing Line Advances, together with all amendments, consolidations, modifications, renewals, substitutions and supplements thereto or replacements thereof.

“Taxes” has the meaning set forth in Section 2.12(c).

 

25

“Termination Date” means May 8, 2010.

“Third Party” means any lessee, sublessee, licensee or other user of any Property.

“Title Policy” means with respect to each Mortgaged Property, the mortgagee title insurance policy (together with such endorsements as the Administrative Agent may reasonably require) issued to the Administrative Agent in respect of such Mortgaged Property by an insurer selected by the Administrative Agent, insuring (in an amount satisfactory to the Administrative Agent) the Lien of the Administrative Agent for the benefit of the Secured Parties on such Mortgaged Property to be duly perfected and first priority, subject only to such exceptions as shall be acceptable to the Administrative Agent.

“Total Leverage Ratio” means at any time the ratio of (i) Total Liabilities to (ii) Total Value.

“Total Liabilities” means at any time, the total liabilities of the Borrowers and their respective Consolidated Subsidiaries (including, without limitation, current and long-term liabilities and all redemption obligations with respect to Redeemable Preferred Securities), determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrowers and their respective Consolidated Subsidiaries prepared in accordance with GAAP; provided that Total Liabilities shall not include: (1) any preferred stock that is not Redeemable Preferred Stock; or (2) trade accounts payable less than 90 days past due.

“Total Unused Revolver Commitments” means at any date, an amount equal to: (A) the aggregate amount of the Revolver Commitments of all of the Lenders at such time, less (B) the sum of: (i) the aggregate outstanding principal amount of the Revolver Advances, Letter of Credit Advances and Swing Line Advances of all of the Lenders at such time; and (ii) the aggregate Undrawn Amounts.

“Total Value” shall be determined as of the end of each Fiscal Quarter and shall mean the sum of (a) cash and cash equivalents (including funds restricted for property capital improvements) of the Borrowers and their Subsidiaries, determined on a consolidated basis, (b) the Asset Values of the Stabilized Hotel Properties; (c) the Asset Values of Newly Acquired Hotel Properties and (d) the Non-Core Investment Value.

“Transferee” has the meaning set forth in Section 9.07(d).

“TRS” means MHI Hospitality TRS Holding, Inc., a Maryland corporation.

“TRS Lessee” means MHI Hospitality TRS LLC, a Delaware limited liability company.

“Undrawn Amount” means, with respect to any Letter of Credit, at any time, the maximum amount available to be drawn under such Letter of Credit at such time and “Undrawn Amounts” means, at any time, the sum of all Undrawn Amounts at such time.

 

26

“Unused Revolver Commitment” means at any date, with respect to any Lender, an amount equal to its Revolver Commitment less the sum of: (i) the aggregate outstanding principal amount of its Revolver Advances (excluding Swing Line Advances); (ii) such Lender’s Pro Rata Share of the aggregate outstanding principal amount of all Letter of Credit Advances; and (iii) such Lender’s Pro Rata Share of the Undrawn Amounts.

“Wholly Owned Property” means an Eligible Property which is wholly owned in fee simple by an Eligible Property Owner.

“Wholly Owned Subsidiary” means any Subsidiary all of the Capital Securities of which are at the time directly or indirectly owned by a Borrower.

SECTION 1.02. Accounting Terms and Determinations . Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrowers’ independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrowers and their respective Consolidated Subsidiaries delivered to the Administrative Agent for distribution to the Lenders, unless with respect to any such change concurred in by the Borrowers’ independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Loan Documents: (i) the Borrowers shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Lenders shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01 hereof, shall mean the financial statements referred to in Section 4.04).

SECTION 1.03. Use of Defined Terms . All terms defined in this Agreement shall have the same meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall otherwise require.

SECTION 1.04. Terminology . All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement.

SECTION 1.05. References . Unless otherwise indicated, references in this Agreement to “Articles”, “Exhibits”, “Schedules”, and “Sections” are references to articles, exhibits, schedules and sections hereof.

 

27

ARTICLE II

THE CREDITS

SECTION 2.01. Commitments to Make Advances .

(a) Each Lender severally agrees, on the terms and conditions set forth herein, to make Revolver Advances to the Borrowers from time to time before the Termination Date; provided that: (1) immediately after each such Revolver Advance is made, the aggregate outstanding principal amount of Revolver Advances by such Lender together with such Lender’s Pro Rata Share of the aggregate outstanding principal amount of all Swing Line Advances, Letter of Credit Advances and Undrawn Amounts shall not exceed the amount of the Revolver Commitment of such Lender at such time; (2) the aggregate outstanding principal amount of Revolver Advances and Swing Line Advances advanced for purposes of funding working capital shall not exceed $10,000,000, it being understood that Revolver Advances used to purchase and make capital improvements to Non-Core Investments shall not be deemed working capital and shall not count toward such $10,000,000 limitation; (3) the aggregate amount of all Revolver Advances which have been used in connection with any one Property (including without limitation any and all Investments funded with the proceeds of Revolver Advances in any such Property) shall not exceed $25,000,000; and (4) the aggregate principal amount of all Revolver Advances, Swing Line Advances, Letter of Credit Advances and Undrawn Amounts shall not exceed the lesser of: (i) the aggregate amount of the Revolver Commitments of all of the Lenders at such time, and (ii) the Borrowing Base. Each Borrowing under this Section 2.01(a)(1) shall be in an aggregate principal amount of $500,000 or any larger multiple of $100,000 (except that any such Borrowing may be in the aggregate amount of the Total Unused Revolver Commitments) and shall be made from the several Lenders ratably in proportion to their respective Revolver Commitments. Within the foregoing limits, the Borrowers may borrow under this Section, repay or, to the extent permitted by Section 2.10, prepay Revolver Advances and to the extent permitted by this Agreement, reborrow under this Section 2.01(a)(1) at any time before the Termination Date.

(b) Subject to the terms and conditions set forth herein, the Borrowers shall have the right, at any time from the Closing Date until the Termination Date, to increase the total Revolver Commitments by an amount up to $15,000,000 (for a total Revolver Commitment, assuming no reductions, of $75,000,000) in the aggregate. The following terms and conditions shall apply to any such increase: (i) any such increase shall be obtained from existing Lenders or from other lenders or other financial institutions, in each case in accordance with the terms set forth below, (ii) the Revolver Commitment of any Lender may not be increased without the prior written consent of such Lender, (iii) the initial increase in the aggregate Revolver Commitments shall be in a minimum principal amount of $5,000,000 and any subsequent increase in the aggregate Revolver Commitments shall be in a minimum principal amount of $100,000, (iv) the Loan Parties, Pledgors and Lenders shall execute an acknowledgement (or in the case of the addition of a lender or other financial institution not then a party to this Agreement, a joinder agreement) in form and content satisfactory to the Administrative Agent to reflect the revised Revolver Commitments, (the Lenders do hereby agree to execute such

 

28

acknowledgement (or joinder agreement) unless the acknowledgement purports to increase the Revolver Commitment of a Lender without such Lender’s consent), (v) the Borrowers shall execute such Notes as are necessary to reflect the increase in the Revolver Commitments and such amendments to the Collateral Documents and other Loan Documents as Administrative Agent may reasonably request to implement the terms of the Loan Documents, (vi) if any Revolver Advances are outstanding at the time of any such increase, the Borrowers shall make such payments and adjustments on the Revolver Advances as necessary to give effect to the revised commitment percentages and outstandings of the Lenders, (vii) the Borrowers may solicit commitments from lenders and other financial institutions that are not then a party to this Agreement so long as such lenders and other financial institutions are reasonably acceptable to the Administrative Agent and execute a joinder agreement in form and content satisfactory to the Administrative Agent, and (viii) the conditions set forth in Section 3.02 shall be satisfied. The amount of any increase in the Revolver Commitments hereunder shall be offered first to the existing Lenders, and in the event the additional commitments which existing Lenders are willing to take shall exceed the amount requested by the Borrowers, such excess shall be allocated in proportion to the commitments of such existing Lenders willing to take additional commitments. If the amount of the additional commitments requested by the Borrowers shall exceed the additional commitments which the existing Lenders are willing to take, then the Borrowers may invite other lenders and financial institutions reasonably acceptable to the Administrative Agent to join this Agreement as Lenders hereunder for the portion of commitments not taken by existing Lenders, provided that such other lenders and financial institutions shall enter into such joinder agreements to give effect thereto as the Administrative Agent and the Borrowers may reasonably request. Unless otherwise agreed by the Administrative Agent and the Lenders, the terms of any increase in the total Revolver Commitments shall be the same as those in effect prior to any increase; provided , however , that should the terms of the increase agreed to be other than those in effect prior to the increase, then the Loan Documents shall be amended to the extent necessary to incorporate any such different terms.

SECTION 2.02. Method of Borrowing Advances .

(a) The Borrowers shall give the Administrative Agent notice in the form attached hereto as Exhibit A (a “Notice of Borrowing”) prior to 11:00 A.M. (Winston-Salem, North Carolina time) at least three (3) Euro-Dollar Business Days before each Borrowing of a Euro-Dollar Advance and at least one (1) Domestic Business Day before such Borrowing of a Base Rate Advance, together with a Borrowing Base Certification Report dated as of the date of such Borrowing, (A) specifying:

(i) the date of such Borrowing;

(ii) whether the Advances constituting such Borrowing are to be Base Rate Advances or Euro-Dollar Advances; provided that in the event of a failure to so specify such Advances shall be Euro-Dollar Advances; and

 

29

(iii) the aggregate amount of such Borrowing; and (B) certifying that the aggregate amount of all Revolver Advances which have been used in connection with any one Property (including without limitation any and all Investments funded with the proceeds of Revolver Advances in any such Property) shall not exceed $25,000,000.

(b) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender’s ratable share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrowers.

(c) Not later than 1:00 P.M. (Winston-Salem, North Carolina time) on the date of each Borrowing, each Lender shall (except as provided in subsection (d) of this Section) make available its ratable share of such Borrowing, in Federal or other funds immediately available in Winston-Salem, North Carolina, to the Administrative Agent at its address referred to in or specified pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article III has not been satisfied, the Administrative Agent will make the funds so received from the Lenders available to the requesting Borrower at the Administrative Agent’s address in Winston-Salem, North Carolina not later than 2:00 p.m. (Winston-Salem, North Carolina time). Unless the Administrative Agent receives notice from a Lender, at the Administrative Agent’s address referred to in Section 9.01, no later than 4:00 P.M. (local time at such address) on the Domestic Business Day before the date of a Borrowing stating that such Lender will not make an Advance in connection with such Borrowing, the Administrative Agent shall be entitled to assume that such Lender will make a Revolver Advance in connection with such Borrowing and, in reliance on such assumption, the Administrative Agent may (but shall not be obligated to) make available such Lender’s ratable share of such Borrowing to the requesting Borrower for the account of such Lender. If the Administrative Agent makes such Lender’s ratable share available to the requesting Borrower and such Lender does not in fact make its ratable share of such Borrowing available on such date, the Administrative Agent shall be entitled to recover such Lender’s ratable share from such Lender or such Borrower (and for such purpose shall be entitled to charge such amount to any account of the Borrowers maintained with the Administrative Agent), together with interest thereon for each day during the period from the date of such Borrowing until such sum shall be paid in full at a rate per annum equal to the rate set forth in Section 2.06 for each such day during such period, provided that any such payment by any Borrower of such Lender’s ratable share and interest thereon shall be without prejudice to any rights that such Borrower may have against such Lender at law or in equity. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender’s Revolver Advance included in such Borrowing for purposes of this Agreement.

 

30

SECTION 2.03. Letters of Credit .

(a) The Issuing Bank may, from time to time upon request of any Borrower, in its sole discretion issue Letters of Credit for the account of such Borrower, subject to satisfaction of the conditions referenced in Section 3.03.

(b) Each Letter of Credit shall be subject to the provisions of this Agreement and to the provisions set forth in the Letter of Credit Agreement executed by the Borrower for whose account it is issued in connection with the issuance of such Letter of Credit. The Borrowers agree to promptly perform and comply with the terms and conditions of each Letter of Credit Agreement.

(c) The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement a Letter of Credit Advance in the amount of such draft. Upon written demand by the Issuing Bank, with a copy to the Administrative Agent, each Lender shall purchase from the Issuing Bank, and the Issuing Bank shall sell to each Lender, a participation interest in such Letter of Credit Advance equal to such Lender’s Pro Rata Share of such Letter of Credit Advance as of the date of such purchase, by making available to the Administrative Agent for the account of the Issuing Bank, in Federal or other funds immediately available an amount equal to such Lender’s Pro Rata Share of the outstanding principal amount of such Letter of Credit Advance. Promptly after receipt thereof, the Administrative Agent shall transfer such funds to the Issuing Bank. The Borrowers hereby agree to each such sale and purchase of participation interests in Letter of Credit Advances outstanding from time to time. Each Lender agrees to purchase its participation interest in an outstanding Letter of Credit Advance on (i) the Domestic Business Day on which demand therefor is made by the Issuing Bank, provided notice of such demand is given not later than 1:00 P.M. (Winston-Salem, North Carolina time) on such Domestic Business Day or (ii) the first Domestic Business Day next succeeding the date of such demand if notice of such demand is given after 1:00 P.M. (Winston-Salem, North Carolina time) on any Domestic Business Day. The Issuing Bank makes no representation or warranty and assumes no responsibility with respect to any sale and purchase of a participation interest in any Letter of Credit Advance. If and to the extent that any Lender shall not have so made the amount available to the Administrative Agent in connection with its purchase of a participation interest in any Letter of Credit Advance, such Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Issuing Bank, until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for the account of the Issuing Bank.

(d) The obligation of each Lender to purchase a participation interest in any Letter of Credit Advance pursuant to Section 2.03(c) shall be unconditional and shall not be affected by the existence of any Default, the failure to satisfy any condition set forth in Section 3.1, 3.2 or 3.3 or the termination of any of the Revolver Commitments (whether by the Borrowers pursuant to Section 2.8 or by the Administrative Agent pursuant to Section 6.1 or otherwise).

 

31

(e) The Issuing Bank shall furnish (A) to the Administrative Agent and each Lender on the tenth Domestic Business Day of each April, July, October and January, a written report summarizing the issuance and expiration dates of Letters of Credit issued during the preceding calendar quarter and (B) to the Administrative Agent and each Lender upon request a written report setting forth the aggregate Undrawn Amounts.

(f) The failure of any Lender to purchase a participation interest in any Letter of Credit Advance shall not relieve any other Lender of its obligation hereunder to purchase its participation interest in any Letter of Credit Advance on such date, but no Lender shall be responsible for the failure of any other Lender to so purchase a participation interest on such date.

(g) The Borrower for whom any Letter of Credit is issued shall pay to the Administrative Agent for the account of each Lender that has purchased a participation interest in a Letter of Credit Advance on the earlier of demand and the Termination Date the outstanding principal amount of such Letter of Credit Advance. The Administrative Agent will promptly distribute to each Lender its ratable share of any payment of principal of or interest on any Letter of Credit Advance received by the Administrative Agent; provided, however, that in the event that such payment received by the Administrative Agent is required to be returned, such Lender will return to the Administrative Agent any portion thereof previously distributed by the Administrative Agent to it; provided the Borrowers may use the proceeds of a Revolver Advance to repay a Letter of Credit Advance so long as such Revolver Advance is made in accordance with (and subject to) the terms and conditions of this Agreement.

(h) The Issuing Bank will notify the Borrower for whom any Letter of Credit is issued and the Administrative Agent promptly of the presentment for payment of any Letter of Credit, together with notice of the date such payment shall be made, and the Administrative Agent promptly will notify the Lenders of such matters.

SECTION 2.04. Notes . (a) The Revolver Advances of each Lender shall be evidenced by a single Revolver Note payable to the order of such Lender for the account of its Lending Office in an amount equal to the original principal amount of such Lender’s Revolver Commitment. Upon receipt of each Lender’s Revolver Note pursuant to Section 3.01, the Administrative Agent shall deliver such Revolver Note to such Lender. Each Lender shall record, and prior to any transfer of its Revolver Note shall endorse on the schedule forming a part thereof appropriate notations to evidence, the date, amount and maturity of, and effective interest rate for, each Revolver Advance made by it, the date and amount of each payment of principal made by the Borrowers with respect thereto and such schedule shall constitute rebuttable presumptive evidence of the principal amount owing and unpaid on such Lender’s Revolver Note; provided that the failure of any Lender to make, or any error in making, any such recordation or endorsement shall not affect the obligation of the Borrowers hereunder or under the Revolver Note or the ability of any Lender to assign its Revolver Note. Each Lender is hereby irrevocably authorized by the Borrowers so to endorse its Revolver Note and to attach to and make a part of any Revolver Note a continuation of any such schedule as and when required.

 

32

(b) The Swing Line Advances shall be evidenced by a single Swing Line Note payable to the order of BB&T for the account of its Lending Office in the original principal amount of $5,000,000. Upon receipt of BB&T’s Swingline Note pursuant to Section 3.01, the Administrative Agent shall deliver such Swingline Note to BB&T. BB&T shall record, and prior to any transfer of the Swingline Note shall endorse on the schedule forming a part thereof appropriate notations to evidence, the date, amount and maturity of, and effective interest rate for, the Swingline Advance made by it, the date and amount of each payment of principal made by the Borrowers with respect thereto and such schedule shall constitute rebuttable presumptive evidence of the principal amount owing and unpaid on the Swingline Note; provided that the failure of BB&T to make, or any error in making, any such recordation or endorsement shall not affect the obligation of the Borrowers hereunder or under the Swingline Note or the ability of BB&T to assign the Swingline Note. BB&T is hereby irrevocably authorized by the Borrowers so to endorse the Swingline Note and to attach to and make a part of the Swingline Note a continuation of any such schedule as and when required.

SECTION 2.05. Maturity of Advances . Each Revolver Advance included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, subject to Section 6.01, on the Termination Date. Each Swing Line Advance shall mature, and the principal amount thereof shall be due and payable, subject to Section 6.01, on the earlier of: (i) the fifth Domestic Business Day after the day such Swing Line Advance is advanced hereunder; and (ii) the Termination Date.

SECTION 2.06. Interest Rates .

(a) “Applicable Margin” shall be determined quarterly based upon the Total Leverage Ratio (calculated as of the last day of each Fiscal Quarter), as follows:

 

The Applicable Margin shall be determined effective as of the date (herein, the “Rate Determination Date”) which is 50 days after the last day of the Fiscal Quarter as of the end of which the foregoing ratio is being determined, based on the quarterly financial statements for such Fiscal Quarter, and the Applicable Margin so determined shall remain effective from such Rate Determination Date until the date which is 50 days after the last day of the Fiscal Quarter in which such Rate Determination Date falls (which latter date shall be a new Rate Determination Date); provided that (i) for the period from and including the Closing Date to but excluding the Rate Determination Date next following the Closing Date, the Applicable Margin shall be (A) 0% for Base Rate

 

33

Advances, and (B) 2.25% for Euro-Dollar Advances and Letter of Credit Advances, (ii) in the case of any Applicable Margin determined for the fourth and final Fiscal Quarter of a Fiscal Year, the Rate Determination Date shall be the date which is 95 days after the last day of such final Fiscal Quarter and such Applicable Margin shall be determined based upon the annual audited financial statements for the Fiscal Year ended on the last day of such final Fiscal Quarter, and (iii) if on any Rate Determination Date the Borrower shall have failed to deliver to the Lenders the financial statements required to be delivered pursuant to Section 5.01(a) or Section 5.01(b) with respect to the Fiscal Year or Fiscal Quarter, as the case may be, most recently ended prior to such Rate Determination Date, then for the period beginning on such Rate Determination Date and ending on the earlier of (A) the date on which the Borrowers shall deliver to the Lenders the financial statements to be delivered pursuant to Section 5.01(b) with respect to such Fiscal Quarter or any subsequent Fiscal Quarter, or (B) the date on which the Borrowers shall deliver to the Lenders annual financial statements required to be delivered pursuant to Section 5.01(a) with respect to the Fiscal Year which includes such Fiscal Quarter or any subsequent Fiscal Year, the Applicable Margin shall be determined as if the Total Leverage Ratio was more than 0.40 at all times during such period; provided that at the election of the Required Lenders, the principal amount of the Advances shall bear interest at the Default Rate. Any change in the Applicable Margin on any Rate Determination Date shall result in a corresponding change, effective on and as of such Rate Determination Date, in the interest rate applicable to each Advance and in the fees applicable to each Letter of Credit on such Rate Determination Date; provided, that no Applicable Margin shall be decreased pursuant to this Section 2.06 if a Default is in existence on the Rate Determination Date.

(b) During each Interest Period in which an Advance is a Base Rate Advance, such Base Rate Advance shall bear interest on the outstanding principal amount thereof, for each day during the applicable Interest Period, at a rate per annum equal to the Base Rate for such day plus the Applicable Margin for Base Rate Advances. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Base Rate Advance shall bear interest, payable on demand, for each day until paid in full at a rate per annum equal to the Default Rate.

(c) During each Interest Period in which an Advance is a Euro-Dollar Advance, such Euro-Dollar Advance shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of: (1) the Applicable Margin for Euro-Dollar Advances, plus (2) the applicable Adjusted Monthly Libor Index for such Interest Period. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Euro-Dollar Advance shall bear interest, payable on demand, for each day until paid in full at a rate per annum equal to the Default Rate.

The “Adjusted Monthly Libor Index” applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.

 

34

The “London Interbank Offered Rate” applicable to any Euro-Dollar Advance means for the Interest Period of such Euro-Dollar Advance the rate per annum determined on the basis of the rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Advance offered for a term comparable to such Interest Period, which rate appears on the display designated as Page ”3750” of the Telerate Service (or such other page as may replace page 3750 of that service or such other service or services as may be nominated by the British Banker’s Association for the purpose of displaying London InterBank Offered Rates for U.S. dollar deposits) determined as of 11:00 a.m. London, England time, on the first day of such Interest Period or on the immediately preceding Euro-Dollar Business Day if the first day of such Interest Period is not a Euro-Dollar Business Day.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on such Euro-Dollar Advance is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). The Adjusted Monthly Libor Index shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

(d) The Swing Line Advances shall at all times be Base Rate Advances. Interest shall be payable on each Interest Payment Date; provided that: (1) all accrued unpaid interest on the Advances shall be paid in full on the Termination Date; and (2) should the Revolver Commitments be terminated at any time prior to the Termination Date for any reason, any and all accrued unpaid interest on the Advances shall be paid on the date of such termination.

(e) Each Letter of Credit Advance shall bear interest on the outstanding principal amount thereof, payable on demand, for each day from the date such Letter of Credit Advance is made until paid in full at a rate per annum equal to the Default Rate.

(f) The Administrative Agent shall determine each interest rate applicable to the Advances hereunder in accordance with the terms of this Agreement. The Administrative Agent shall give prompt notice to the Borrowers and the Lenders by telecopy of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error.

(g) After the occurrence and during the continuance of a Default, the principal amount of the Advances (and, to the extent permitted by applicable law, all accrued interest thereon) may, at the election of the Required Lenders, bear interest at the Default Rate; provided, however, that automatically whether or not the Required Lenders elect to do so, any overdue principal of and, to the extent permitted by law, overdue interest on the Advances shall bear interest payable on demand, for each day until paid at a rate per annum equal to the Default Rate.

 

35

(h) By delivering a notice (a “Notice of Continuation or Conversion”), which shall be substantially in the form of Exhibit Q to the Administrative Agent on or before 11:00 A.M., Winston-Salem, North Carolina time, on a Domestic Business Day (or Euro-Dollar Business Day, in the case of Euro-Dollar Advances outstanding), the Borrowers may from time to time irrevocably elect, by notice at least one (1) Domestic Business Day, in the case of Base Rate Advances or at least three (3) Euro-Dollar Business Days, in the case of Euro-Dollar Advances, that all, or any portion in an aggregate principal amount of $500,000 or any larger integral multiple of $100,000 be, (i) in the case of Base Rate Advances, converted into Euro-Dollar Advances or (ii) in the case of Euro-Dollar Advances, converted into Base Rate Advances or continued as Euro-Dollar Advances (in the absence of delivery of a Notice of Continuation or Conversion with respect to any Euro-Dollar Advances at least three (3) Euro-Dollar Business Days before the last day of the then current Interest Period with respect thereto, such Euro-Dollar Advances shall, on such last day, automatically convert to a Base Rate Advance); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Advances of all Lenders that have made such Advances, (y) no portion of the outstanding principal amount of any Advances may be continued as, or be converted into, any Euro-Dollar Advances when any Default has occurred and is continuing, and (z) each such conversion or continuation shall be effective with respect to such Euro-Dollar Advances on the last day of the then current Interest Period with respect thereto.

SECTION 2.07. Fees .

(a) The Borrowers shall pay to the Administrative Agent for the ratable account of each Lender an unused commitment fee equal to the product of: (i) the aggregate of the daily average amounts of such Lender’s Unused Revolver Commitment, times (ii) a per annum percentage equal to .250%. Such unused commitment fee shall accrue from and including the Closing Date to and including the Termination Date. Unused commitment fees shall be payable quarterly in arrears on each Quarterly Payment Date and on the Termination Date; provided that should the Revolver Commitments be terminated at any time prior to the Termination Date for any reason, the entire accrued and unpaid fee shall be paid on the date of such termination.

(b) The Borrowers shall pay to the Administrative Agent for the ratable account of each Lender, with respect to each Letter of Credit, a per annum letter of credit fee (the “Letter of Credit Fee”) equal to the product of: (i) the aggregate average daily Undrawn Amounts, times (ii) a per annum percentage equal to the Applicable Margin for Letters of Credit (determined in accordance with Section 2.06(a) hereof). Such Letter of Credit Fees shall be payable in arrears for each Letter of Credit on each Quarterly Payment Date during the term of each respective Letter of Credit and on the termination thereof (whether at its stated expiry date or earlier).

(c) The Borrowers shall pay to the Administrative Agent for the account of the Issuing Bank a facing fee (the “Facing Fee”) with respect to each Letter of Credit equal to the product of: (i) the face amount of such Letter of Credit, times (ii) one-eighth (1/8th) of one percent (0.125%). Such Facing Fee shall be due and payable on such date

 

36

as may be agreed upon by the Issuing Bank and the Borrowers. The Borrowers shall pay to the Issuing Bank, for its own account, transfer fees, drawing fees, modification fees, extension fees and such other fees and charges as may be provided for in any Letter of Credit Agreement or otherwise charged by the Issuing Bank. No Lender shall be entitled to any portion of the Facing Fees or any other fees payable by the Borrowers to the Issuing Bank pursuant to this Section 2.07(c).

(d) The Borrowers shall pay to the Administrative Agent, for the account and sole benefit of the Administrative Agent, such fees and other amounts at such times as set forth in the Administrative Agent’s Letter Agreement.

SECTION 2.08. Optional Termination or Reduction of Commitments . The Borrowers may, upon at least 3 Domestic Business Days’ irrevocable notice to the Administrative Agent, terminate at any time, or proportionately reduce from time to time by an aggregate amount of at least $2,000,000 or any larger multiple of $1,000,000, the Revolver Commitments; provided, however: (1) each termination or reduction, as the case may be, shall be permanent and irrevocable; (2) no such termination or reduction shall be in an amount greater than the Total Unused Revolver Commitments on the date of such termination or reduction; and (3) no such reduction pursuant to this Section 2.08 shall result in the aggregate Revolver Commitments of all of the Lenders to be reduced to an amount less than $45,000,000, unless the Revolver Commitments are terminated in their entirety, in which case all accrued fees (as provided under Section 2.07) shall be payable on the effective date of such termination.

SECTION 2.09. Mandatory Reduction and Termination of Commitments . The Revolver Commitments shall terminate on the Termination Date and any Revolver Advances, Swing Line Advances and if demand had not been earlier made Letter of Credit Advances then outstanding (together with accrued interest thereon) shall be due and payable on such date.

SECTION 2.10. Optional Prepayments .

(a) The Borrowers may prepay the Revolver Advances in whole at any time, or from time to time in part in amounts aggregating at least $100,000, (or a lesser amount if such amount constitutes the entire outstanding Revolver Advances), by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Prepayments shall not be subject to any penalty or premium. Each such optional prepayment shall be applied to prepay ratably the Revolver Advances of the several Lenders.

(b) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender’s ratable share of such prepayment and such notice shall not thereafter be revocable by the Borrowers.

SECTION 2.11. Mandatory Prepayments .

(a) On each date on which the Revolver Commitments are reduced or terminated pursuant to Section 2.08 or Section 2.09, the Borrowers shall repay or prepay

 

37

such principal amount of the outstanding Revolver Advances, if any (together with interest accrued thereon), as may be necessary so that after such payment the aggregate unpaid principal amount of the Revolver Advances, together with the aggregate principal amount of all Swing Line Advances, Letter of Credit Advances and Undrawn Amounts, does not exceed the aggregate amount of the Revolver Commitments as then reduced. Each such payment or prepayment shall be applied ratably to the Revolver Advances of the several Lenders.

(b) (1) In the event that: (i) the aggregate principal amount of all Revolver Advances, together with the aggregate principal amount of all Swing Line Advances, Letter of Credit Advances, and Undrawn Amounts, at any one time outstanding shall at any time exceed the Borrowing Base; or (ii) the aggregate principal amount of all Revolver Advances, together with the aggregate principal amount of all Swing Line Advances, Letter of Credit Advances, and Undrawn Amounts, at any one time outstanding shall at any time exceed the aggregate amount of the Revolver Commitments of all of the Lenders at such time, the Borrowers shall on or before the third Domestic Business Day after the earlier of: (a) the date on which any Loan Party has knowledge of such event; or (b) the date written notice of such deficiency has been given to the Company by the Administrative Agent, repay so much of the Revolver Advances as is necessary in order that: (1) the aggregate principal amount of the Revolver Advances, together with the aggregate principal amount of all Swing Line Advances, Letter of Credit Advances, and Undrawn Amounts, thereafter outstanding shall not exceed the Revolver Borrowing Base; and (2) the aggregate principal amount of the Revolver Advances, together with the aggregate principal amount of all Swing Line Advances, Letter of Credit Advances, and Undrawn Amounts, thereafter outstanding shall not exceed the aggregate amount of the Revolver Commitments of all of the Lenders at such time.

(c) In the event that, with respect to any Mortgaged Property, any Release Amount is paid to the Administrative Agent in accordance with the terms of this Agreement, then the Release Amount shall be applied first to the repayment of any Swing Line Advances and then to the repayment of the Revolver Advances.

(d) Insurance Proceeds . If all or any part of any Mortgaged Property or any other Collateral shall be damaged or destroyed, in whole or in part, by fire or other casualty, the Borrowers shall give prompt notice thereof to the Administrative Agent in accordance with the applicable Mortgage or other Loan Document and prior to the making of any repairs to such Mortgaged Property or other Collateral. Following the occurrence of fire or other casualty, the Borrowers, regardless of whether insurance proceeds are payable or, if paid, are made available to the Borrowers by Administrative Agent, shall promptly proceed with the repair, alteration, restoration, replacement or rebuilding of the Mortgaged Property or other Collateral as near as possible to its value, utility, condition and character prior to such damage or destruction (such repairs, alterations, restoration, replacement and rebuilding being collectively referred to as the “ Restoration ”). The Restoration shall be performed in accordance with the following provisions:

 

38

(i) The Borrowers shall procure, pay for and furnish to the Administrative Agent true copies of all required governmental permits, certificates and approvals with respect to the Restoration; provided that unless Administrative Agent requests such copies, the Borrowers shall not furnish such copies to Administrative Agent with regard to any Restoration where the costs to complete the Restoration are less than $250,000.

(ii) The Borrowers shall furnish Administrative Agent, within sixty (60) days of the casualty, evidence reasonably satisfactory to Administrative Agent of the estimated cost to complete the Restoration; provided that unless Administrative Agent requests such evidence, the Borrowers shall not furnish such evidence to Administrative Agent with regard to any Restoration where the costs to complete the Restoration are less than $250,000.

(iii) The Restoration shall be prosecuted to completion with all due diligence and in an expeditious and first class workmanlike manner and in compliance with all laws and other governmental requirements, all permits, certificates and approvals, all requirements of fire underwriters and all insurance policies then in force with respect to the Mortgaged Property.

(iv) At all times when any work is in progress, the Borrowers shall maintain all insurance then required by law or customary with respect to such work, and, prior to the commencement of any work, shall furnish to the Administrative Agent duplicate originals or certificates of the policies therefor.

(v) Upon completion of the Restoration, the Borrowers shall obtain (A) any occupancy permit which may be required for the Mortgaged Property and (B) all other governmental permits, certificates and approvals and all permits, certificates and approvals of fire underwriters which are required for or with respect to the Restoration, and shall furnish true copies thereof to the Administrative Agent.

(vii) The Borrowers shall not, after having commenced demolition or construction of any part of the Mortgaged Property, abandon such demolition or the construction work or fail to complete such demolition and construction within a reasonable time after the commencement thereof.

In the event of any insured loss, the payment for such loss shall be made directly to Administrative Agent, and any insurance proceeds, at the option of the Required Lenders, may be used in one or more of the following ways: (x) applied to the Obligations, whether then matured or unmatured, (y) used to replace or restore the Mortgaged Property to a condition satisfactory to the Administrative Agent, or (z) released to the Borrowers. Notwithstanding the foregoing sentence, provided no Event of Default (or event that, with the giving of notice or passage of time, or both, would constitute an Event of Default) has occurred and is continuing, the proceeds of insurance shall be applied as follows:

(i) if the amount of the insurance proceeds is $250,000.00 or less, then the proceeds shall be paid directly to the Borrowers and used for Restoration of the Mortgaged Property; and

 

39

(ii) if the amount of the insurance proceeds is greater than $250,000.00, then, provided that (a) the insurer does not deny liability to any named insured, (b) any tenant whose lease permits termination thereof as a result of such insured loss, agrees in writing to continue its lease, (c) the remaining Mortgaged Property continues at all times to comply with all applicable building, zoning and other land use laws and regulations, (d) in Administrative Agent’s judgment, the Restoration is practicable and can be completed within one (1) year after the damage, destruction or loss and at least one (1) year prior to the Termination Date and (e) rebuilding of the Mortgaged Property to substantially identical size, condition and use as existed prior to the casualty is permitted by all applicable laws and ordinances, then Administrative Agent shall make the insurance proceeds available to the Borrowers to be used for Restoration in accordance with the provisions set forth below. In the event that any of the foregoing conditions are not satisfied, then Administrative Agent may apply the proceeds to the repayment of the Obligations in the manner provided in Section 2.11(c). In the event that all of the above criteria are satisfied or the Required Lenders otherwise elect to allow the use of such proceeds for the Restoration, such proceeds shall be disbursed in accordance with the following provisions:

(i) Each request for an advance of insurance proceeds shall be made on seven (7) days’ prior notice to Administrative Agent and shall be accompanied by a certificate of an executive officer or managing general partner or managing member or manager of the Borrowers, stating (A) that all work completed to date has been performed in compliance with the approved plans and specifications and in accordance with all provisions of law, (B) the sum requested is properly required to reimburse the Borrowers for payments by the Borrowers to, or is properly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Restoration (giving a brief description of such services and materials), and that when added to all sums, if any, previously disbursed by Administrative Agent, does not exceed the value of the work done to the date of such certificate and (C) that the amount of such proceeds remaining in the hands of Administrative Agent will be sufficient on completion of the work to pay the same in full (giving, in such reasonable detail as Administrative Agent may require, an estimate of the cost of such completion).

(ii) Each request for an advance of insurance proceeds shall, to the extent permitted under applicable law, be accompanied by waivers of liens satisfactory to Administrative Agent covering that part of the Restoration previously paid for, if any, and by a search prepared by a title company or by other evidence reasonably satisfactory to Administrative Agent including without limitation a title endorsement satisfactory to Administrative Agent if available in the state where the Mortgaged Property is located, that there has not been filed with respect to the Mortgaged Property any mechanic’s lien or other lien or instrument and that there exist no encumbrances on or affecting the Mortgaged Property other than the Permitted Encumbrances (as defined in the applicable

 

40

Mortgage) or otherwise approved by Administrative Agent. In addition to the foregoing, the request for the final advance shall be accompanied by (A) any final occupancy permit which may be required for the Mortgaged Property, (B) all other governmental permits, certificates and approvals and all other permits necessary for the occupancy and operation of the Mortgaged Property, (C) tenant estoppels from tenants whose space was affected and (D) final lien waivers from all contractors, subcontractors and materialmen.

(iii) No advance of insurance proceeds shall be made if there exists an Event of Default or event which with the passage of time or the giving of notice or both would constitute an Event of Default.

(iv) If the cost of the Restoration (as reasonably estimated by Administrative Agent) at any time shall exceed the amount of the insurance proceeds available therefor, insurance proceeds shall not be advanced until the Borrowers, before commencing the Restoration or continuing the Restoration, as the case may be, shall deposit the full amount of the deficiency (or other assurances reasonably satisfactory to Administrative Agent) with Administrative Agent and the amount so deposited shall first be applied toward the cost of the Restoration before any portion of the insurance proceeds is disbursed for such purpose.

Upon failure on the part of the Borrowers promptly to commence or diligently to continue the Restoration, or at any time upon request by the Borrowers, Administrative Agent may apply the amount of any such proceeds then or thereafter in the hands of Administrative Agent to the payment of the Obligations; provided , however , that nothing herein contained shall prevent Administrative Agent from applying at any time the whole or any part of such proceeds to the curing of any Event of Default. Insurance proceeds and any additional funds deposited by the Borrowers with Administrative Agent shall constitute additional security for the Obligations, and the Borrowers shall execute, deliver, file and/or record, at its expense, such documents and instruments as Administrative Agent deems necessary or advisable to grant to Administrative Agent a perfected, first priority security interest in the insurance proceeds and such additional funds.

(e) Condemnation Proceeds . In the event that, with respect to any Mortgaged Property, any Condemnation Proceeds (as defined in the applicable Mortgage) are paid to Administrative Agent in accordance with the terms of such Mortgage, then the Condemnation Proceeds shall be applied to the repayment of the Revolver Advances.

SECTION 2.12. General Provisions as to Payments .

(a) The Borrowers shall make each payment of principal of, and interest on, the Advances and of fees hereunder, not later than 11:00 A.M. (Winston-Salem, North Carolina time) on the date when due, in Federal or other funds immediately available in Winston-Salem, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders; provided that payments of interest shall be distributed by the Administrative Agent within one Domestic Business Day of the date such payment is received by the Administrative Agent for the account of the Lenders.

 

41

(b) Whenever any payment of principal of, or interest on, the Advances or of fees shall be due on a day which is not a Domestic Business Day (including, without limitation, any payments pursuant to Section 2.02(c), the date for payment thereof shall be extended to the next succeeding Domestic Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(c) All payments of principal, interest and fees and all other amounts to be made by the Borrowers pursuant to this Agreement with respect to any Advance or fee relating thereto shall be paid without deduction for, and free from, any tax, imposts, levies, duties, deductions, or withholdings of any nature now or at anytime hereafter imposed by any governmental authority or by any taxing authority thereof or therein excluding in the case of each Lender, taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender’s applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, imposts, levies, duties, deductions or withholdings of any nature being “Taxes”). In the event that any Borrower is required by applicable law to make any such withholding or deduction of Taxes with respect to any Advance or fee or other amount, such Borrower shall pay such deduction or withholding to the applicable taxing authority, shall promptly furnish to any Lender in respect of which such deduction or withholding is made all receipts and other documents evidencing such payment and shall pay to such Lender additional amounts as may be necessary in order that the amount received by such Lender after the required withholding or other payment shall equal the amount such Lender would have received had no such withholding or other payment been made. If no withholding or deduction of Taxes are payable in respect of any Advance or fee relating thereto, the Borrowe