CONTRIBUTION AGREEMENT
Exhibit 10.9
Philadelphia
THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made as of the 8th day of September, 2004 (the “Effective Date”) by and among Elpizo Limited Partnership, a Pennsylvania limited partnership (the “Partnership”), Phileo Land Corporation, a Delaware corporation (the “Company”) (each a “Seller” and collectively, the “Sellers”), and MHI Hospitality LP, a Delaware limited partnership (the “Buyer”).
RECITALS
A. The Partnership is the lessee of certain real property consisting of approximately 5.72 acres of land located in Philadelphia, Pennsylvania (the “Property”), and the owner of certain hotel improvements located thereon consisting of a 331 room hotel trading as the Hilton Philadelphia Airport Hotel together with all furniture, fixtures, equipment, durable goods and inventory therein (the “Hotel”);
B. The Company is the owner of the Property;
C. The Sellers desire to contribute the Assets (as defined below) to the Buyer in consideration of the issuance of ownership interests in the Buyer, on the terms and conditions hereinafter set forth; and
D. One of the limited partners of the Partnership, Xxxx X. Xxx (“Tan”) would not agree to the transaction contemplated herein unless her interests in the Partnership were purchased for cash; and
E. In lieu of acquiring the Assets entirely for Units in the Buyer, the Buyer agreed to pay the cash portion of the Purchase Price set forth below to the Sellers in order for Tan’s interest in the Sellers to be purchased; and
F. The Buyer will be the operating partnership of a Maryland corporation to be formed which will seek to qualify as a real estate investment trust for Federal income tax purposes (the “REIT”) and will seek to complete an underwritten public offering of shares of its common stock (the “IPO”). The Sellers intend to sell the Assets to the Buyer concurrently with the closing of the IPO.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
CONTRIBUTION OF ASSETS
1.1 Assets to be Contributed. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Date (as defined below), Sellers shall contribute, convey, assign, transfer and deliver to Buyer, and Buyer shall acquire from Sellers, free and clear of any liens, encumbrances, security interests, prior assignments or conveyances, conditions, restrictions, claims and other matters affecting title thereto, except for Permitted Encumbrances (as defined below), all of Sellers’ right, title and interest in and to all of Sellers’ property and assets, real, personal or mixed, tangible and intangible, of every kind and description, wherever located, including, but not limited to, the following (but excluding the Excluded Assets):
A. The Property as further described in Schedule 1.1A and the Hotel improvements located thereon;
B. To the extent assignable, all of Sellers’ rights, title and interest in the Hilton license agreement relating to the Hotel;
C. All of the personal property and equipment owned by Sellers and located in or at the Hotel and used in connection therewith, including but not limited to, cleaning equipment, furniture, fixtures, carpets, rugs, draperies, mechanical and electrical equipment, office equipment, china, glassware, silver, cooking utensils, flatware, linens, and uniforms (collectively, the “Personal Property”);
D. To the extent owned by Sellers and relating to or located on or in the Hotel and transferable by Sellers, the telephone number for the Hotel, the Hotel directory listings, surveys, plans and specifications, licenses and permits, contractor and maintenance files, service manuals, notices of compliance with state and federal and all governmental agencies and regulations, estoppel certificates or affidavits, and guaranties and warranties as to Personal Property which pertain to the Hotel or are used in connection therewith;
E. All inventory located on the premises of the Hotel or on the Property as of Closing, including without limitation merchandise held for sale and reserve stocks of operating supplies on hand at Closing (“the Inventory”); and
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F. To the extent assignable by Sellers, all leases, lease-purchase agreements, warranties, management agreements, licenses, contracts and purchase agreements (the “Operating Agreements”) relating to the maintenance, use or occupancy of the Hotel.
The assets and property described in paragraphs A through F (the “Assets”) shall be transferred by Sellers to the Buyer free and clear of all liens, claims and encumbrances, except Permitted Encumbrances.
Notwithstanding the foregoing, the transfer of the Assets pursuant to this Agreement shall not include the assumption of any liability accruing prior to the Closing Date related to the Assets unless Buyer expressly assumes that liability pursuant to Section 1.6.
1.2 Excluded Assets. Notwithstanding anything to the contrary contained in Section 1.1 or elsewhere in this Agreement, all cash, cash equivalents, securities, notes, payable, bank accounts, accounts receivable for services performed or goods delivered prior to the Closing, and other payment obligations owed to Sellers that accrued prior to the Closing (collectively, the “Excluded Assets”) are not part of the sale and purchase contemplated hereunder, are excluded from the Assets and shall remain the property of Seller after the Closing.
1.3 Purchase Price. (a) The aggregate consideration to be paid by Buyer to Sellers on the Closing Date for the Assets (the “Purchase Price”) will be One Million Eight Hundred and Forty-Eight Thousand Seven Hundred Dollars ($1,848,700) and 732,254 units of limited partnership interests in the Buyer (the “Units”); provided, however, in the event the price per share of Common Stock offered to investors in the IPO (the “Offering Price”) is less than $9.50 per share, the number of Units shall be increased by that number of Units equal to the quotient realized by dividing (a) the difference between (i) $6,956,413 and (ii) the product of 732,254 and the Offering Price by (b) the Offering Price. The Purchase Price shall be allocated between the Sellers as set forth on Schedule 1.3 attached hereto.
(b) The Partnership agrees that it will dissolve immediately after the Closing and distribute the sum of $1,708,888.50 received as part of the Purchase Price to Tan.
1.4 Issuance of Units. On the Closing Date, the Buyer shall issue to the Sellers certificates reflecting the Units as specified in Schedule 1.3. Such certificates shall bear appropriate legends indicating (i) that the Units have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) that the Buyer’s agreement of limited partnership (the “Partnership Agreement”) will restrict the transfer of the Units. Immediately upon receipt of the Units, each Seller shall accede to the Partnership Agreement as a limited partner of the Buyer.
1.5 Redemption Rights for Units. The Units shall be redeemable at the option of the holders of such Units and in accordance with, but subject to the restrictions contained in, the Partnership Agreement including, without limitation, that such redemption option may not be exercised prior to the first anniversary of the Closing Date.
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1.6 Assumption of Liabilities. Sellers shall assign to Buyer, and Buyer shall assume, all rights and obligations of Sellers under any Operating Agreements accruing from and after the Closing Date. Buyer shall not, as a result of execution of this Agreement and consummation of the transaction contemplated hereby, assume or become liable for any of Seller’s liabilities, accounts payable, obligations, debts, contracts or commitments of any kind accruing or caused by Seller prior to the Closing Date.
1.7 Adjustments. Real estate taxes, personal property taxes, utilities, water and sewer charges, rents, other governmental assessments on the Hotel and the Property, income from the operation of the Hotel, expenses related to the operation of the Hotel, and all other income and expense relating to the Assets, shall be prorated between Buyer and Seller, based upon the fiscal year of the applicable taxing authority with respect to any property taxes, the billing period for any utility service or other expense, and the payment period for any income, as of the date of the Closing. In addition, Buyer shall pay to Seller the value of any inventory and stock in trade included within the Assets as of the Closing Date, calculated based upon Seller’s cost of purchasing same. Seller and Buyer shall cooperate to cause the existing property manager to prepare a statement of income and expense as of the Closing Date based upon the information that is available as of that date, and all pro-rations shall be based as of that date. No pro-ration shall be made for payments that have not been received as of the Closing Date, but such payments shall be pro-rated as they are received. Buyer shall promptly pay to Seller any accounts receivable or other payments that are payable to Seller hereunder that are received after the Closing Date. Within sixty (60) days after the Closing Date, Buyer and Seller shall cause the property manager to prepare a final accounting of all income and expenses relating to the Assets as of the Closing Date, and such amounts shall be re-adjusted. Any amount payable by the Buyer to the Sellers pursuant to this Section 1.7 shall be allocated among the Sellers in the manner designated by Seller. Each party (by its execution hereof) hereby acknowledges and agrees any such adjustments shall be paid in cash to the party entitled thereto. If after the Closing, the parties discover any errors in adjustments and apportionments, same shall be corrected as soon after their discovery as possible. Any payment made after the Closing, if any, shall be made within 15 days after the calculation of such payment. The provisions of this Section 1.7 shall survive the closing of title.
1.8 Tax Consequences to Sellers. (a) Notwithstanding anything to the contrary contained in this Agreement, including without limitation the use of words and phrases such as “sell,” “sale,” purchase,” and “pay,” except as set forth in subsection (b) below, the parties hereto acknowledge and agree that it is their intent that the contribution transaction contemplated hereby with respect to the Assets shall be treated for federal income tax purposes pursuant to Section 721 of the Internal Revenue Code of 1986, as amended (the “Code”), as the contribution of the Assets by the Sellers to the Buyer, in exchange for the Units, to the extent that Seller receives Units for the contribution of the Assets, and not as a transaction in which any Seller is acting other than in its capacity as a prospective partner in the Buyer.
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(b) The Buyer and the Partnership agree that, for federal income tax purposes, each will treat the transactions described in Sections 1.3(a) and (b) hereof as a sale of the interest in the Partnership currently held by Tan to Buyer for $1,708,888.50, as contemplated by Section 1.708-1(c)(4) of the Treasury Regulations.
ARTICLE II
CLOSING AND CLOSING DOCUMENTS
2.1 Closing. The consummation and closing (the “Closing”) of the transactions contemplated under this Agreement shall take place at the offices of the Buyer in Greenbelt, Maryland, or such other place as is mutually agreeable to the parties, on the date of the closing of the IPO (the “Closing Date”), or as otherwise set by agreement of the parties hereto. If at any time the REIT determines in good faith to abandon or discontinue its efforts to engage in an IPO, Buyer shall so advise each Seller in writing and thereupon all parties hereto will be relieved of all obligations under this Agreement.
2.2 Seller’s Deliveries. At the Closing, each Seller shall deliver the following to the Buyer in addition to all other items required to be delivered to the Buyer by the Seller:
(a) a special warranty deed conveying good, in record and in fact, marketable and fee simple title to the Property free and clear of any and all deeds of trust, mortgages or other liens or indebtedness, encumbrances, conditions, easements, rights of way, assessments and restrictions by the Company except Permitted Encumbrances,
(b) an assignment and assumption of the Operating Agreements;
(c) a xxxx of sale conveying to Buyer the Personal Property and Inventory free and clear of all liens, claims and encumbrances, other than equipment financing liens encumbering same identified on Schedule 2.2(c);
(d) Execution of Partnership Agreement. Signature pages of the Partnership Agreement (which Partnership Agreement shall be in substantially the form attached hereto as Exhibit A) duly executed by each Seller, as limited partner.
(e) FIRPTA Certificate. An affidavit from each Seller certifying pursuant to Section 1445 of the Code that the Seller is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder).
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(f) Tax Indemnity. The Partnership shall have executed a tax indemnity and debt maintenance agreement in the form of Exhibit B (the “Tax Indemnity”) and a guaranty in the form of Exhibit C to reflect the allocation to the Partnership of that amount of indebtedness of Buyer or its affiliates to be agreed to by the parties and inserted in such guaranty in an amount not to exceed the Partnership’s aggregate negative balance in the capital account maintained by the Partnership as of the Closing Date.
(g) Other Documents. Any other document or instrument reasonably requested by the Buyer or required hereby.
2.3 Buyer’s Deliveries. At the Closing, the Buyer shall deliver the following to the Sellers:
(a) Certificates for Units. Certificates representing Units duly issued by the Buyer in the name of the Seller as of the Closing Date representing the Units to which the Seller is entitled pursuant to Section 1.3 of this Agreement.
(b) Purchase Price. The Purchase Price by wire transfer to an account specified by the Seller in writing delivered to Buyer at least three business days before the Closing Date.
(c) Executed Partnership Agreement. Signature pages of the Partnership Agreement (which Partnership Agreement shall be in substantially the form attached hereto as Exhibit A) duly executed by its general partner.
(d) Tax Indemnity. Buyer shall have executed a Tax Indemnity with the Partnership.
(e) Assignment. Assignment and assumption of the Operating Agreements.
(f) Third Party Consents. Any third party consents required in connection with the assignment and assumption of any Operating Agreements.
(g) Other Documents. Any other document or instrument reasonably requested by a Seller or required hereby.
2.4 Fees and Expenses; Closing Costs. The Buyer shall pay all fees, expenses and closing costs relating to the transactions contemplated by this Agreement, including transfer taxes, recordation expenses, all reasonable costs relating to the payoff of the mortgage held by Midland Loan Servicing, reasonable costs of Hilton Inns, Inc. consenting to the assignment and assumption of the Hilton license agreement, reasonable costs of third party and governmental consents, the costs of a survey of, and title insurance for, the Property, and all other reasonable
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search and documentary costs, but nothing herein shall require Sellers to pay any such costs if Buyer deems them to be unreasonable. Transfer taxes shall include the county and state transfer taxes and state stamp taxes; provided however, that each Seller shall pay its own attorneys’ and consultants’ fees and expenses. In the event the Closing does not occur as a result of a failure to conclude an IPO, the Partnership agrees to pay to Buyer 19.2% of the actual out-of-pocket costs incurred by Buyer and its affiliates in connection with the proposed IPO of the REIT, which the Partnership agrees represents the pro rata share of the expected transaction costs of the Sellers. Each Seller acknowledges and agrees, by executing this Agreement, that it will benefit from such an IPO and, as a consequence, the Partnership will bear a portion of its costs if such transaction is not completed for the foregoing reasons. In addition, if the Closing does not occur as a result of the failure to conclude an IPO, then Buyer shall reimburse Seller for Seller’s costs and expenses incurred in connection with the negotiating and entry of this Agreement and pursuing this transaction, including without limitation due diligence costs and counsel fees (it being understood that such costs and expenses shall be included in the Buyer’s costs for which Seller is obligated to reimburse Buyer for Seller’s pro-rata share, so that the net reimbursement to Seller shall be 80.8% of Seller’s costs).
2.5 Default Remedies. If the Closing fails to occur due to a default by the Buyer, the Sellers shall be entitled to receive as liquidated damages Seller’s costs and expenses incurred in connection with the negotiating and entry of this Agreement and pursuing this transaction, including without limitation due diligence costs and counsel fees, as Seller’s sole and exclusive remedy for such default, in addition to those remedies specified in Article IX, and the Seller hereby waives any right it may have to other damages (compensatory, consequential or otherwise) from the Buyer as a result of such default. If a Seller defaults in performing any of the Seller’s obligations under this Agreement, the Buyer’s sole and exclusive remedies in addition to those remedies specified in Article IX shall be to either (a) terminate this Agreement, or (b) enforce this Agreement by specific performance. The parties acknowledge and agree that the failure of a condition precedent to occur, notwithstanding the good faith and commercially reasonable efforts of the applicable party, shall not be a default hereunder. No such limitation on any party’s damages shall limit the effect of any indemnification provisions set forth herein.
2.6 Permitted Encumbrances. (a) Subject to the provisions of subsection (b), for purposes of this Agreement the term “Permitted Encumbrances” shall refer to the following:
(i) General real estate taxes for the year in which Closing occurs and subsequent tax years;
(ii) All easements, restrictions, covenant, rights-of-way, encroachments, reservations, agreements, conditions, and other matters of record affecting all or any portion of the Property, which do not prevent Buyer from operating a first-class hotel;
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(iii) All building restrictions and zoning regulations now or hereafter in effect, to the extent adopted by any municipal or other public authority and related to all or any portion of the Property; and
(iv) Any lien, mortgage, charge, restriction or encumbrance which Buyer agrees to assume or pay off pursuant to this Agreement.
(b) Buyer shall have the right within thirty (30) days after the date hereof, to deliver to Seller a copy of a title commitment with respect to the Property prepared by a title company selected by Buyer (the “Title Insurance Commitment”), (ii) copies of all recorded documents noted in Schedule B of the Title Insurance Commitment, (iii) a survey for the Property, and (iv) a statement specifying any objections to title or the survey which are not Permitted Encumbrances (“Buyer’s Statement”). Seller shall remove encumbrances which are voluntarily created by Seller after the date of this Agreement or which are judgment liens, tax liens, mechanics liens or other monetary liens other than those that Buyer is obligated to assume or pay off pursuant to this Agreement (“Seller Encumbrances”). If Seller does not, within five (5) business days after receipt of Buyer’s Statement, advise Buyer in writing that it will remove all of the defects listed in Buyer’s Statement (“Seller Defects), then Buyer’s sole right shall be to either (a) waive such remaining defects and close title without abatement, in which case such objections shall be deemed Permitted Encumbrances, or (b) terminate this Agreement, in either case upon notice to Seller given within five (5) business days following Seller’s response or failure to timely respond. If Buyer does not timely deliver to Seller Buyer’s Statement, or notify Seller of its election to terminate this Agreement, within the time period set forth in this Section 2.6(b), Buyer shall conclusively be deemed to have waived its right of termination, and any damages or indemnity that Buyer may claim on account of any title defects other than Seller Encumbrances and Seller Defects. This covenant shall survive the Closing.
2.7 Environmental Matters. Buyer shall have the right within thirty (30) days after the date hereof, to conduct a Phase I environmental study and inspection of the Property and the Hotel for purposes of testing, among others, groundwater, land surface water and other aspects of the Property and the Hotel to determine the presence of any hazardous condition, substance or materials (a “Phase I Study”). Within 5 days of receipt, Buyer shall provide Seller with a copy of the Phase I Study and advise Buyer as to whether such report identifies an environmental condition relating to the Property or the Hotel which if uncured would cause Buyer to terminate this Agreement (a “Termination Election”) or that Buyer wishes to conduct further testing (a “Phase II Study”) to obtain additional data regarding the condition of the Property and Hotel (a “Phase II Election”). In the event Buyer makes a Termination Election, Seller shall have 5 days to notify Buyer that it will assume all responsibility for remediating such environmental condition to the satisfaction of Buyer and indemnify Buyer against any costs or liabilities arising from or relating to such condition or the remediation thereof. In the event Seller does not provide such notice within such 5 day period, this Agreement will
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terminate and neither Seller nor Buyer shall have any further obligation hereunder. In the event Buyer makes a Phase II Election, Buyer shall have 10 days to cause such a study to be conducted. Buyer shall provide Seller with a copy of such study within 5 days of receipt and advise Buyer as to whether such report identifies an environmental condition relating to the Property or Hotel which if uncured would cause Buyer to terminate this Agreement (“Phase II Termination Election”). In the event Buyer makes a Phase II Termination Election, Seller shall have 5 days to notify Buyer that it will assume all responsibility for remediating such environmental condition to the satisfaction of Buyer and indemnify Buyer against any costs or liabilities raising from or relating to such condition or the remediation thereof. In the event Seller does not provide such notice within such period this Agreement will terminate and neither Seller nor Buyer shall have any further obligation to the other. In the event Buyer fails to provide Seller a Termination Election or a Phase II Election within the specified period following Buyer’s receipt of the Phase I Study or fails to provide Seller a Phase II Termination Election with the specified period following receipt of the Phase II Report, Buyer shall be deemed to have waived any termination right it may have in respect of such report and to have accepted the environmental condition of the Property and Hotel and waived any right it may have to seek damages in respect of the environmental condition of the Property and Hotel. This covenant shall survive the Closing.
ARTICLE III
REPRESENTATIONS AND COVENANTS
3.1 Representations by Buyer. The Buyer hereby represents and warrants unto each Seller that the following statements are true, correct, and complete as of the date of this Agreement and will be true, correct, and complete as of the Closing Date:
(a) Organization and Power. The Buyer is duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has full right, power, and authority to enter into this Agreement and to assume and perform all of its obligations under this Agreement; and, the execution and delivery of this Agreement and the performance by the Buyer of its obligations hereunder have been duly authorized by all requisite action of the Buyer and require no further action or approval of the Buyer’s partners or of any other individuals or entities in order to constitute this Agreement as a binding and enforceable obligation of the Buyer. This Agreement constitutes the legal, valid and binding obligation of Buyer and is enforceable in accordance with its terms.
(b) Noncontravention. Neither the entry into nor the performance of, or compliance with, this Agreement by the Buyer has resulted, or will result, in any violation of, or default under, or result in the acceleration of, any obligation under any existing certificate of limited partnership, partnership agreement, mortgage, indenture, lien agreement, note, contract, permit, judgment, decree, order, restrictive covenant, statute, rule, or regulation applicable to the Buyer or the REIT.
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(c) Litigation. There is no action, suit, or proceeding, pending or known to be threatened, against or affecting the Buyer or the REIT in any court or before any arbitrator or before any federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality which (i) in any manner raises any question affecting the validity or enforceability of this Agreement, (ii) could materially and adversely affect the business, financial position, or results of operations of the Buyer or the REIT, (iii) could materially and adversely affect the ability of the Buyer to perform its obligations hereunder, or under any document to be delivered pursuant hereto.
(d) Units Validly Issued. The Units, when issued, will have been duly and validly authorized and issued, free of any preemptive or similar rights, and will be fully paid and nonassessable, without any obligation to restore capital except as required by the Delaware Revised Uniform Limited Partnership Act (the “Limited Partnership Act”). Each Seller shall be admitted as a limited partner of the Buyer as of the Closing Date and shall be entitled to all of the rights and protections of a limited partner under the Limited Partnership Act and the provisions of the Partnership Agreement, with the same rights, preferences, and privileges as all other limited partners on a pari passu basis.
(e) Consents. Each consent, approval, authorization, order, license, certificate, permit, registration, designation, or filing by or with any governmental agency or body necessary for the execution, delivery, and performance of this Agreement or the transactions contemplated hereby by the Buyer which is Buyer’s responsibility hereunder has been obtained or will be obtained on or before the Closing Date.
(f) Brokerage Commission. The Buyer has not engaged the services of any real estate agent, broker, finder or any other person or entity for any brokerage or finder’s fee, commission or other amount with respect to the transactions described herein on account of any action by the Buyer. The Buyer hereby agrees to indemnify and hold the Sellers and each of their employees, directors, members, partners, affiliates and agents harmless against any claims, liabilities, damages or expenses arising out of a breach of the foregoing. This indemnification shall survive Closing or any termination of this Agreement.
(g) Buyer and REIT. Attached hereto as Exhibit A is a true and complete copy of the Partnership Agreement of the Buyer. Attached hereto as Exhibit C is a true and complete copy of the filed certificate of limited partnership of the Buyer. Attached hereto as Exhibit D is a true and complete copy of the filed Certificate of Incorporation and the By-Laws of the REIT. All such documents remain in full force and effect and have not been amended or modified. Buyer has no knowledge of any default or alleged default thereunder. The REIT is a corporation, validly existing and in good standing under the laws of its state of incorporation
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and in any other state where its qualification is required by applicable law. The REIT has or will have as of the Closing full power and authority to enter into the IPO and to issue any interests in the REIT to Buyer upon redemption of the Units, and no further authorizations or consents are required in connection therewith. Upon the Closing Date, the Buyer’s participation in the IPO shall have been conducted in compliance with all applicable laws, rules, regulations and ordinances. Sellers shall be entitled to rely upon any disclosures set forth in the prospectus issued in connection with the IPO (other than those disclosures or financial data relating to the Property or the Hotel) as if they were set forth herein at length.
(h) Non-Dilution. Schedule 1.3 sets forth the number of Units that will be issued by the Buyer to the initial partners of Buyer in exchange for the contribution of such partners’ properties to Buyer in connection with the IPO transaction. Except as otherwise provided herein, Buyer shall not alter the aggregate number of Units to be issued from that shown on Schedule 1.3 as part of the IPO transaction.
3.2 Representations by Sellers. Each Seller hereby represents and warrants unto the Buyer, jointly and severally, that each and every one of the following statements is true, correct, and complete as of the date of this Agreement and will be true, correct, and complete as of the Closing Date.
(a) Organization and Power. Such Seller is duly organized, validly existing, and in good standing under the laws of the state of its organization. Such Seller has full right, power, and authority to enter into this Agreement and to assume and perform all of its obligations under this Agreement; and the execution and delivery of this Agreement and the performance by such Seller of its obligations hereunder have been duly authorized by all requisite action of such Seller and require no further action or approval of such Seller’s members or managers or directors or shareholders or partners, as the case may be, or of any other individuals or entities in order to constitute this Agreement as a binding and enforceable obligation of such Seller. This Agreement has been duly executed by such Seller and constitutes the legal, valid and binding obligation of such Seller and is enforceable in accordance with its terms.
(b) Noncontravention. Neither the entry into nor the performance of, or compliance with, this Agreement by such Seller has resulted, or will result, in any violation of, or default under, or result in the acceleration of, any obligation under such Seller’s organizational documents, or any, mortgage, indenture, lien or security agreement, note, contract, permit, judgment, decree, order, restrictive covenant, statute, rule, or regulation applicable to such Seller or to the Assets.
(c) Litigation. There is no action, suit, or proceeding, pending or known to be threatened, against or affecting such Seller or the Hotel or the Property in any court or before any arbitrator or before any federal, state, municipal, or other governmental department,
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commission, board, bureau, agency or instrumentality which (A) in any manner raises any question affecting the validity or enforceability of this Agreement, (B) could materially and adversely affect the business, financial position, or results of operations of the Hotel, (C) could materially and adversely affect the ability of the Seller to perform its obligations hereunder, or under any document to be delivered pursuant hereto, (D) could create a lien on the Assets, any part thereof, or any interest therein, or (E) could materially adversely affect the Assets, any part thereof, or any interest therein.
(d) Good Title. (A) The Company is the sole owner beneficially and of record of the Property specified in Schedule 1.1(A) (B) the Partnership owns beneficially and of record the Hotel and all of the other Assets other than the Property, (C) except as set forth on Schedule 3.2(d) and the title search delivered by Buyer to Sellers, the Sellers have no knowledge of any liens, pledges, mortgages, deeds of trust, voting agreements, security interests, encumbrances, or other similar rights of any nature of any third party whatsoever encumbering the Assets, (D) neither Seller has granted any other person or entity an option to purchase or a right of first refusal upon any of the Assets nor are there any agreements or understandings between such Seller and any other person or entity with respect to the disposition of the Seller’s Assets other than this Agreement, (E) each Seller has full power and authority to convey the Assets it owns free and clear of any liens, claims and encumbrances except as set forth above, and (F) upon delivery of the deed and xxxx of sale to Buyer, Buyer will acquire good and marketable title in record and in fact thereto, free and clear of any liens, claims and encumbrances except as set forth above.
(e) No Consents. Except for those which are Buyer’s responsibility under this Agreement, to the knowledge of each Seller, such Seller has obtained or filed or will obtain or file before the Closing Date each consent, approval, authorization, order, license, certificate, permit, registration, designation, or filing by or with any governmental agency or body necessary for the execution, delivery, and performance of this Agreement by such Seller or the transactions contemplated hereby. Except for those which are Buyer’s responsibility under this Agreement to obtain, to Seller’s knowledge, no person has any right or approval to consent to the execution, delivery or performance of this Agreement by such Seller, or the transactions contemplated hereby which has not been obtained or which will not be obtained prior to the Closing.
(f) Securities Law Matters. (A) In acquiring the Units and engaging in this transaction, except as otherwise set forth in Section 3.1 of this Agreement, neither Seller nor any shareholder of the Company or partner of the Partnership is relying upon any representations, written or oral, made to it by the Buyer, or any of its partners, officers, employees, or agents that are not contained herein. Sellers are aware of the risks involved in investing in the Units and in the shares of common stock (“Common Stock”) of the REIT, issuable upon redemption of such Units. Sellers have had an opportunity to ask questions of, and to receive answers from, the Buyer or a person or persons authorized to act on its behalf,
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concerning the terms and conditions of this investment and the financial condition, affairs, and business of the Buyer and the REIT. Sellers confirm that all documents, records, and information pertaining to its investment in the Buyer and the REIT that have been requested by them, including a complete copy of the form of the Partnership Agreement, have been made available or delivered to them prior to the date hereof. Sellers have reviewed and approved the form of the Partnership Agreement attached hereto as Exhibit A.
(B) Each Seller and each shareholder of the Company and each partner of the Partnership thereof understands that neither the Units nor the shares of Common Stock issuable upon redemption of the Units have been registered under the Securities Act or any state securities acts and are instead being offered and sold in reliance on an exemption from such registration requirements. The Units issuable to Sellers are being acquired solely by them for their own respective accounts, for investment, and are not being acquired with a view to, or for resale in connection with, any distribution, subdivision, or fractionalization thereof, in violation of any securities laws, and neither Seller has any present intention to enter into any contract, undertaking, agreement, or arrangement with respect to any such resale or distribution in violation of any securities laws; provided, however, that, at or following Closing, Seller may distribute the Units to its shareholders or partners, as applicable, that (1) have represented and warranted to the Buyer in writing that, as of the time of such distribution, such shareholder is an accredited investor as that term is defined in Rule 501 of Regulation D under the Securities Act, and (2) have executed the Partnership Agreement as limited partners. Seller understands that any certificates evidencing the Units will contain appropriate legends reflecting the requirement that the Units not be resold by Seller without registration under all applicable securities laws or the availability of an exemption from such registration and that the Partnership Agreement will restrict transfer of the Units.
(g) Accredited Investor. Each Seller is an accredited investor as that term is defined in Rule 501 of Regulation D under the Securities Act.
(h) Tax Matters. Each Seller represents and warrants that it has obtained from its own counsel advice regarding the tax consequences of (i) the transfer of such Seller’s Assets to the Buyer and the receipt of Units as consideration therefor, (ii) such Seller’s admission as a limited partner of the Buyer, and (iii) any other transaction contemplated by this Agreement. Each Seller further represents and warrants that it has not relied on the Buyer or the Buyer’s representatives or counsel for such tax advice.
(i) Bankruptcy with respect to Seller. No Act of Bankruptcy has occurred with respect to the Sellers. As used herein, “Act of Bankruptcy” shall mean if a party hereto or any shareholder or director thereof shall (A) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (B) admit in writing its inability to pay its debts as they become due, (C) make a general assignment for the benefit of its creditors, (D) file a voluntary petition
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or commence a voluntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), (E) be adjudicated bankrupt or insolvent, (F) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, receivership, dissolution, winding-up or composition or adjustment of debts, (G) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), or (H) take any entity action for the purpose of effecting any of the foregoing.
(j) Brokers. The Seller has not engaged the services of, any real estate agent, broker, finder or any other person or entity for any brokerage or finder’s fee, commission or other amount with respect to the transactions described herein on account of any action by the Seller. The Seller hereby agrees to indemnify and hold the Buyer and its employees, directors, members, partners, affiliates and agents harmless against any claims, liabilities, damages or expenses arising out of a breach of the foregoing. This indemnification shall survive Closing or any termination of this Agreement.
(k) Leases. Schedule 3.2(k) attached hereto is a true, correct and complete schedule of all ground leases, restaurant leases, telecommunications leases, subleases and other leases and other rights of occupancy in effect with respect to the Hotel and the Property of which either Seller is a party (collectively, the “Leases”) except hotel guest room licenses. Except as set forth on Schedule 3.2(k), there are no other leases, subleases, tenancies or other rights of occupancy in effect with respect to the Hotel or the Property of which either Seller is a party.
(l) Insurance. The Sellers currently maintain or cause to be maintained all of the public liability, casualty and other insurance coverage with respect to the Hotel and the Property as is currently in effect. All such insurance coverage shall be maintained in full force and effect through the IPO Closing and all premiums due and payable thereunder have been, and shall be, fully paid when due.
(m) Personal Property. The Personal Property consists of all equipment, fixtures and personal property located at the Hotel all of which is owned by the Sellers free and clear of liens, claims and encumbrances, except as otherwise set forth herein.
(n) [Intentionally Omitted.]
(o) Compliance With Laws. To the knowledge of the Seller, Sellers possess such certificates, approvals, licenses, authorities or permits issued by the appropriate local, state or federal agencies or bodies necessary to conduct the business to be conducted by it, and Sellers have not received any written notice of proceedings relating to the revocation or modification of any such certificate, approval, license, authority or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling, or finding, would materially and
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adversely affect the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Property or the Hotel. The Sellers have not received any written or other notice of any violation of any applicable zoning, building, fire, health or safety code, rule, regulation or ordinance, or of any employment, or other regulatory law, order, regulation or other requirement, including without limitation the Americans With Disabilities Act (“ADA”) or any restrictive covenants or other easements, encumbrances or agreements, relating to the Property or the Hotel, which remains uncured.
(p) Condemnation. Sellers have received no notice of a pending or to the Seller’s knowledge threatened condemnation or eminent domain proceedings, or negotiations for purchase in lieu of condemnation, which affect or would affect any portion of or all of the Property or any improvements thereon.
(q) No Contracts. No agreements, undertakings or contracts affecting the Hotel or the Property, written or oral, of which Seller is a party, will be in existence as of the Closing, except as set forth on Schedule 3.2(q) attached hereto, and true and correct copies of such contracts have been delivered or made available to Buyer. With respect to any such contracts set forth on Schedule 3.2(q), each such contract is valid and binding on the Sellers, and is in full force and effect in all material respects. To the knowledge of Seller, no party to any such contract has breached or defaulted under the terms of such contract, except for such breaches or defaults that would not, individually or in the aggregate, have a material adverse effect on the business or operations of the Hotel or the Property.
3.3 Limitations on Representations. (a) If before the Closing either party acquires knowledge of any condition which constitutes a material change in any of the representations and warranties set forth in Section 3.2 (c), (e), (k), (l), (m), (o), (p) and (q) (the “Operational Representations”), such party shall promptly notify the other party of such condition. If Seller is not able to cure any such condition prior to the Closing Date, then, provided that such condition was not the result of Seller’s willful misrepresentation or willful act, Buyer’s exclusive remedy shall be the termination of this Agreement, by delivering written notice of such termination to Seller within ten (10) days after the date that Seller notifies Buyer that Seller is unable to cure such condition. Upon such termination, except as expressly provided herein, this Agreement and all rights and obligations of the respective parties hereunder shall be null and void. If Buyer fails to terminate this Agreement within such ten (10) day period, Buyer shall be deemed to waive its right of termination with respect to any such condition, and such condition shall be incorporated and become part of the applicable representation or warranty as of the Closing Date so as to make same a true statement.
(b) Neither Buyer nor any party claiming through Buyer, including its officers, directors, shareholders, members, employees, agents, lenders or consultants, shall have any recourse, claim, remedy or right against Seller or any members or partners of Seller and their respective officers, directors, employees and agents (collectively, the “Seller’s
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Related Parties”), at law or in equity, to assert or maintain any action for damages, direct, consequential or otherwise, or any other remedy available at law or in equity, as a result of any of the Operational Representations of Seller being untrue, inaccurate or misleading if Buyer had actual knowledge or is deemed to know under the circumstances set forth in the next succeeding sentence that such representation or warranty was untrue, inaccurate or misleading at the time of the Closing, and Buyer closed title to the Assets notwithstanding same provided, however, that Buyer’s actual or deemed knowledge relating to an Operational Representation shall not limit or preclude Buyer’s right to terminate this Agreement or to decline to proceed with Closing in the event that Seller’s representations and warranties contained herein are not accurate as of the Closing Date. Buyer shall conclusively be deemed to have known that such representation or warranty was untrue, inaccurate or misleading if Buyer or its directors, officers or employees had actual knowledge of information, or had in their possession documents, reports, studies or other materials which contain information reasonably discernible by a review thereof that makes such representation or warranty untrue, inaccurate or misleading at the time the representation and warranty was made. The provisions of this Section 3.3(b) shall survive the Closing.
(c) BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER SELLER, NOR ANY AGENT OR REPRESENTATIVE OF SELLER HAS MADE, AND SELLER IS NOT LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY MANNER BY, ANY REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS, OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO THE ASSETS OR ANY PART THEREOF, TITLE TO THE ASSETS, THE PHYSICAL CONDITION THEREOF, THE FITNESS AND QUALITY THEREOF, THE VALUE AND PROFITABILITY THEREOF, OR ANY OTHER MATTER OR THING WHATSOEVER WITH RESPECT THERETO. WITHOUT LIMITING THE FOREGOING, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER SELLER NOR ANY MEMBER, OFFICER, EMPLOYEE, AGENT OR REPRESENTATIVE OF SELLER IS LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY MANNER BY (AND BUYER HAS NOT RELIED UPON) ANY VERBAL OR WRITTEN REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS, OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO THE ASSETS OR ANY PART THEREOF, AND ANY OTHER INFORMATION RESPECTING SAME FURNISHED BY OR OBTAINED FROM SELLER OR ANY AGENT OR REPRESENTATIVE OF SELLER.
(d) Buyer acknowledges that no facts or circumstances known by the current property manager of the Assets shall be deemed to be known by Seller in making any representation or warranty hereunder unless Seller also has actual knowledge of such facts or circumstances.
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ARTICLE IV
COVENANTS OF SELLERS
4.1 Access and Investigation. Between the date of this Agreement and the Closing Date and upon reasonable advance notice from Buyer, Sellers will (a) afford Buyer and its representatives and prospective lenders and their representatives full and free access to the personnel, properties (including subsurface testing), contracts, books and records, and other documents and data of Sellers relating to the Assets, (b) furnish such persons with copies of all such contracts, books and records, and other documents and data relating to the business as Buyer may reasonably request, and (c) furnish such persons with such additional financial, operating and other data and information relating to the business as Buyer may reasonably request. Buyer shall hold and save Seller harmless from and against any and all direct loss, cost, damage, injury or expense arising out of or in any way related to the exercise of this right of entry and caused by Buyer, its agents, employees and consultants. Prior to any entry by Buyer’s consultants, or any entry by Buyer for the purpose of conducting tests or studies, Buyer shall furnish to Seller evidence that Buyer or the consultant entering the Property has procured comprehensive liability insurance from an insurer authorized to do business in the Commonwealth of Pennsylvania which is reasonably acceptable to Seller protecting Seller from claims for bodily injury or death resulting from Buyer’s exercise of its right of entry in single limit amount of not less than $1,000,000. Such insurance shall name Sellers as an additional insured and shall provide that at least thirty (30) days’ notice of termination, cancellation, or lapse of coverage shall be given to Seller. The indemnification provision contained in this Section 4.1 shall survive the termination of this Agreement and/or the Closing.
4.2 Operation of the Business. Between the date of this Agreement and the Closing Date, Sellers will (a) conduct the business of the Hotel only in the ordinary course of business, (b) confer with Buyer or cause its asset manager to confer with Buyer concerning operational matters of a material nature, (c) otherwise report or cause the asset manager to report periodically to Buyer concerning the status, operations and finances of the business and (d) not enter into any agreement affecting the Property without Buyer’s prior written consent.
4.3 Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, the Sellers will not (a) make any modifications to any material contract, (b) enter into any compromise or settlement of any pending or threatened proceeding relating to the business of the Hotel or for which the Sellers have any liability or (c) remove any equipment, except for equipment that becomes obsolete or unusable which may be disposed of or replaced in the ordinary course of business.
4.4 Required Approvals. As promptly as practicable after the date of this Agreement, the Sellers will make all filings that are required by law from Sellers to
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consummate the transactions contemplated by this Agreement, other than those the Buyer has agreed to obtain hereunder. Between the date of this Agreement and the Closing Date, the Sellers will cooperate with Buyer with respect to all filings, consents, approvals, licenses and permits that Buyer makes or seeks to obtain in connection with the contemplated transactions.
4.5 Notification. Between the date of this Agreement and the Closing Date, the Sellers will promptly notify Buyer in writing if any Seller becomes aware of (a) any fact or condition that causes or constitutes a breach of any of Sellers’ representations and warranties as of the date of this Agreement, (b) any material development known to Seller affecting the Hotel or Property and the operations and results of operations related to the Hotel or Property; or (c) any material development known to Seller affecting the ability of such party to consummate the transactions contemplated by this Agreement. No disclosure by any party pursuant to this Section, however, shall be deemed to amend or supplement any Schedule or to prevent or cure any misrepresentation, breach of warranty or breach of covenant, except as otherwise set forth herein.
4.6 No Negotiation. The Sellers will, and will cause each of their representatives to, immediately discontinue any negotiations or discussions with any person (other than Buyer) relating to any business combination transaction involving the Hotel and the Property, including the sale of any of the shares or partnership interests of, any merger or consolidation, or the sale of any of the assets of the Hotel (other than inventory in the ordinary course of business). Until such time, if any, as this Agreement is terminated pursuant to Article VIII, Sellers will not, and will cause each of their representatives not to, directly or indirectly, solicit, initiate, encourage or entertain any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any inquiries or proposals from, any person (other than Buyer) relating to any such transaction involving the Hotel or Property. The Sellers will immediately notify Buyer regarding any contact between the Sellers or their respective representatives and any other person regarding any such transaction or any related inquiry.
4.7 [Intentionally Omitted.]
4.8 Damage or Destruction of Assets. Between the Date of this Agreement and the Closing Date, Sellers shall maintain all insurance coverage presently in effect with regard to the Property and any improvements thereon, including, but not limited to, the Hotel. In the event of destruction or material damage, at or before the moment of Closing, of any of the assets of the Hotel or Property, then at Buyer’s election, Buyer will be entitled to receive the insurance proceeds, if any, payable in respect of such damaged or destroyed property, in lieu of or together with such properties, in which event the Purchase Price shall remain the same, or Buyer may terminate this Agreement. The Closing may be delayed by such time as is reasonably necessary to determine whether such assets, properties and rights are destroyed, materially damaged, or substantially impaired.
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4.9 PIP. Subject to Section 4.9 hereof, Sellers shall use good faith efforts to implement the Product Improvement Plan agreed to with the Hotel’s licensor, but Sellers shall not be obligated to incur any costs and expenses in connection therewith unless such costs and expenses are required for Sellers to maintain the license agreement with Hilton. All costs and expenses incurred by Sellers in connection therewith shall be paid by Buyer to Sellers on the Closing Date, together with any bank fees (if such loan is from a third party bank) and interest thereon from the date that such expenses are incurred until the Closing Date at a rate equal to (i) actual interest rate paid by Sellers in connection with any such sums that are borrowed from third party lenders, or (ii) the rate, not to exceed, in any event LIBOR plus 7% per annum in connection with any sums that are borrowed from affiliates of the Seller.
4.10 Hilton License. The Sellers shall maintain the effectiveness of the Hilton License Agreement (and, upon request of Buyer, execute an extension or new ten year license agreement with Hilton Inns prior to the expiration of the existing Hilton license agreement) and refrain from taking action which could, with the passage of time or otherwise, materially and adversely affect Sellers’ rights under said license agreement and their ability to assign same to Buyer. Notwithstanding the foregoing, Sellers shall have the right to negotiate a license agreement with another hotel chain to replace the license from Hilton, provided that Sellers shall not enter into a license with another chain without the prior written consent of Buyer, which shall not be unreasonably withheld.
ARTICLE V
COVENANTS OF BUYER
5.1 Required Approvals. As promptly as practicable after the date of this Agreement, Buyer will make all filings and pursue all consents, approvals, permits and licenses required by law or from third parties or governmental authorities to make to consummate the contemplated transactions. Between the date of this Agreement and the Closing Date, Buyer will cooperate with Sellers with respect to all filings, licenses, consents, approvals and permits that Sellers make in connection with the contemplated transactions.
5.2 Best Efforts. Buyer will use its best efforts to cause the conditions in Article VII to be satisfied; provided, however, that Buyer will not be required to make any material change to its business, dispose of any material asset, expend material funds (except as otherwise set forth in this Agreement), incur any material burden or take actions that would result in a material adverse change in the benefits to Buyer of this Agreement and the contemplated transactions.
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5.3 Notification. Between the date of this Agreement and the Closing Date, the Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a breach of any of Buyer’s representations and warranties as of the date of this Agreement. No disclosure by any party pursuant to this Section, however, shall be deemed to amend or supplement any Schedule or to prevent or cure any misrepresentation, breach of warranty or breach of covenant.
5.4. Sponsorship. Buyer agrees that Sellers shall not be named a “sponsor” on any document, whether internal or external, issued by Buyer in connection with the issuance of the Units or any shares in the REIT, and Buyer shall revise any documents that currently exist to remove any reference to Sellers as “sponsor” thereunder. The provisions of this Paragraph 5.4 shall survive the Closing.
5.5 Covenant Not to Xxx Seller. Buyer, by paying the Purchase Price on the Closing Date, agrees that it will not commence any proceeding against Seller or the Seller’s Related Parties for any claims of liability against Seller or any of the Seller’s Related Parties attributable to the condition of the Property, including, without limitation, claims or causes of action under any federal, state, county or local law, statute, judgment, order, regulation or requirement, or any common law, relating to environmental contamination of the Property, it being understood that Buyer is relying on its own knowledge and investigations with respect to the Property. The foregoing limitation on Buyer’s remedies shall not be applicable to any action brought by Buyer (a) with respect to a Seller Encumbrance or a Seller Defect; (b) to enforce any obligation by Seller to indemnify Buyer pursuant to Section 2.7; or (c) to enforce a misrepresentation by Seller pursuant to Section 3.2 brought during the period that such representation survives the Closing, subject to Section 3.3. The provisions of this Section 5.5 shall survive the Closing.
ARTICLE VI
CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE
Buyer’s obligation to purchase the Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):
6.1 Accuracy of Representations. (a) All the Sellers’ representations and warranties in this Agreement (considered both collectively and individually) must have been accurate as of the date of this Agreement, and must be accurate as of the Closing Date as if then made.
6.2 Performance. (a) All of the covenants and obligations that any Seller is required to perform or to comply with under this Agreement on or before the Closing Date (considered both collectively and individually) must have been duly performed and complied with in all material respects.
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6.3 Consents. Each of the governmental authorizations, licenses, certificates and consents that is required to be obtained as a condition to the Closing must have been obtained and must be in full force and effect.
6.4 Additional Documents. Seller shall have caused the documents and instruments required by Section 2.2 and the following documents to be delivered to Buyer:
(a) if requested by Buyer, any Consents or other instruments that may be required to permit Buyer’s qualification under the Hotel’s name in each jurisdiction in which such entity is licensed or qualified to do business as a foreign corporation; and
6.5 No Proceedings. Since the date of this Agreement, there must not have been commenced or threatened against Buyer, or against any related person of Buyer, any proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the contemplated transactions, or (b) that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the contemplated transactions.
6.6 No Prohibition. Neither the consummation nor the performance of any of the contemplated transactions will, directly or indirectly (with or without notice or lapse of time), contravene, or cause Buyer or any related person of Buyer to suffer any Adverse Consequence (as defined below) under (a) any applicable law, order or governmental authorization, or (b) any law or order that has been published, introduced or otherwise proposed by or before any governmental body.
6.7. Material Adverse Change. There shall have been no material adverse change (or changes which in the aggregate are materially adverse) since the date hereof in the financial position, results of operations, properties, business, or prospects of the Hotel, taken as a whole, whether by reason of change in government regulation or action or otherwise including, but not limited to any change in law, ordinance, zoning, or regulation or any decision of any governmental authority which would materially and adversely affect Buyer’s operation or development of the Hotel.
6.8 Bankruptcy. The Sellers shall have not been the subject of a petition for reorganization or liquidation under the Federal bankruptcy laws, or under state or foreign insolvency laws, nor shall an assignment for the benefit of any of the Seller’s creditors or any similar protective proceeding or act or event of bankruptcy have occurred.
6.9 Third Party Consents. All third party consents required to consummate the transaction have been obtained.
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6.10 Completion of IPO. The IPO shall have been completed.
6.11 Consent of Franchisor. Buyer shall have obtained from the Franchisor of the Hotel consent to the transaction contemplated herein and the assignment and assumption of the Hilton License Agreement on terms and conditions that are acceptable to Buyer in its sole discretion.
6.12 Survey. Provided that Buyer has used all reasonable diligence to obtain such survey, Buyer shall have obtained, at its own cost and expense, a current survey of the Property to be certified to Buyer and its title insurer and which shall be acceptable to both, completed in accordance with ALTA standards and which shall set forth at least:
(a) the legal description of the parcels comprising the Property, covenants, restrictions of record, all recorded easements and rights of way by endorsement on the Survey by the recording date of the instruments creating same and the dimensions and total area of the Property;
(b) interior lot lines, if any, dimensions and locations of the improvements, access to public roads and the location of adjoining streets; and
(c) building and setback lines, proximity of abutting streets (reflecting no gaps, gores or strips) and width thereof.
6.13 Affidavit. Sellers shall have completed, executed and delivered a non-foreign status affidavit under §1445 of the Individual Revenue Code.
ARTICLE VII
CONDITIONS PRECEDENT TO SELLERS’ OBLIGATION TO CLOSE
The Sellers’ obligation to sell the Assets and to take the other actions required to be taken by them at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by any Seller), in whole or in part):
7.1 Accuracy Of Representations. All of Buyer’s representations and warranties in this Agreement (considered both collectively and individually) must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if then made.
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7.2. Buyer’s Performance. All of the covenants and obligations that Buyer is required to perform or to comply with under this Agreement on or before the Closing Date (considered both collectively and individually) must have been performed and complied with in all material respects.
7.3. Consents. Each of the governmental authorizations and consents that is required to be obtained as a condition to the Closing must have been obtained and must be in full force and effect.
7.4. No Prohibition. There must not be in effect any law or order that prohibits the consummation of the contemplated transactions.
7.5 Completion of IPO. The IPO shall have been completed.
7.6 Loan Repayment. Buyer shall have further paid off the mortgage loan in favor of Midland Loan Services and shall have assumed any equipment leases.
7.7 Consent of Franchisor. Buyer shall have obtained from the Franchisor of the Hotel consent to the transaction contemplated herein, the assignment and assumption of the Hilton License Agreement and the release of Sellers from any obligations thereunder on terms and conditions that are acceptable to Seller in their sole discretion.
7.8 Third Party Consents. All third party consents required to consummate the transaction have been obtained.
7.9 REIT. Buyer shall have delivered to Seller an opinion of counsel reasonably acceptable to Seller which confirms that upon completion of the IPO and the transactions contemplated by this Agreement and based on certain assumptions, the REIT shall qualify for treatment as a real estate investment trust for Federal income tax purposes.
ARTICLE VIII
TERMINATION
8.1 Termination Events. Subject to Section 8.2, this Agreement may, by notice given before or at the Closing, be terminated:
(a) by Buyer at any time if the REIT does not go forward with the IPO;
(b) by the Sellers if Buyer has committed a material breach of any provision of this Agreement and Sellers have not waived such breach;
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(c) by the Buyer if any Seller has committed a material breach of any provision of this Agreement and Buyer has not waived such breach;
(d) by the Sellers if the satisfaction of any condition to Seller’s obligation to close title in Article VII is or becomes impossible (other than through the failure of any Seller to comply with its obligations under this Agreement) and the Seller has not waived such condition;
(e) by the Buyer if the satisfaction of any condition to Buyer’s obligation to close title in Article VII is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition; and
(f) by Sellers if the Closing has not occurred (other than through the default by Seller under this Agreement) on or before March 31, 2005.
8.2. Effect Of Termination. Each Party’s right of termination under Section 8.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies. If this Agreement is terminated by any party because of the breach of the Agreement by the other party, such party’s right to pursue its remedies under this Agreement will survive such termination unimpaired.
ARTICLE IX
POST CLOSING REMEDIES
9.1 Survival; Knowledge; Waiver. All representations and warranties and those covenants and obligations in this Agreement that expressly survive the Closing pursuant to their terms will survive the Closing and the consummation of the contemplated transactions for a period of five years, subject to the limitations set forth in this Article.
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9.2 Indemnification By Sellers. The Sellers, jointly and severally, hereby indemnify and agree to hold harmless Buyer and its representatives, equity owners, controlling persons and affiliates (collectively, the “Buyer Indemnitees”) against, and will pay to the Buyer Indemnitees the monetary value of, any liability, loss, damage (including incidental and consequential damages), claim, cost, deficiency, diminution of value, or expense (including costs of investigation and defense, penalties and reasonable legal fees and costs), whether or not involving a third-party claim (“Adverse Consequences”), arising, directly or indirectly, from or in connection with:
(a) subject to Section 3.3, any breach of any representation or warranty made by any Seller in this Agreement; and
(b) any liabilities of Seller relating to the Operating Agreements that accrued prior to the Closing Date other than those expressly assumed by Buyer.
(c) any liabilities of Sellers not expressly assumed by Buyer pursuant to this Agreement;
(d) any Seller Encumbrances or Seller Defects pursuant to Section 2.6;
(e) any indemnification obligation on the part of Seller arising under Section 2.7; and
(f) any breach by Seller of a covenant or obligation that survives the Closing.
For purposes of this Section, any Seller, as the case may be, will be deemed to have breached its representations and warranties in this Agreement if any third party alleges facts that, if true, would mean such Seller has breached any such representation or warranty.
9.3 Indemnification By Buyer. Buyer will indemnify and hold harmless the Sellers, and will pay to the Sellers the monetary value of any Adverse Consequences arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Buyer in this Agreement; and
(b) any liability or obligation arising from or in connection with the operation of the Hotel or the Property after the Closing or otherwise assumed by Buyer hereunder;
(c) any indemnification obligation on the part of Buyer arising under Section 4.1;
(d) any breach by Buyer of a covenant or obligation that survives the Closing.
For purposes of this Section, Buyer will be deemed to have breached its representations and warranties in this Agreement if any third party alleges facts that, if true, would mean Buyer has breached any such representation or warranty.
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9.4 Time Limitations. (a) If the Closing occurs, the Sellers will have no liability (for indemnification or otherwise) for breach of (i) a covenant or obligation to be performed or complied with before the Closing Date or (ii) an Operational Representation unless on or before the first anniversary of the Closing Date, Buyer notifies the Seller of a claim specifying the factual basis of that claim in reasonable detail if then known by Buyer. A claim based upon any covenant that survives the Closing Date or any representation or warranty other than an Operational Representation may be made at any time.
(b) If the Closing occurs, Buyer will have no liability (for indemnification or otherwise) for breach of a covenant or obligation to be performed or complied with before the Closing Date unless on or before the first anniversary of the Closing Date, the Seller notifies Buyer of a claim specifying the factual basis of that claim in reasonable detail if then known by them. A claim based upon any covenant that survives the Closing Date or a any representation or warranty may be made at any time.
9.5 Limitations On Amount – The Company And Sellers. The Sellers will have no liability (for indemnification or otherwise) with respect to the matters governed by Section 9.2(a), or, to the extent relating to any failure to perform or comply before the Closing Date, Section 9.2(f), until the total monetary value of all Adverse Consequences with respect to such matters exceeds Fifty Thousand Dollars ($50,000.00) in which event Buyer may assert its right to indemnification hereunder for the full amount of Adverse Consequences. Notwithstanding the foregoing, this Section will not apply to (a) material breach of any of the Sellers’ representations and warranties of which breach any Seller had knowledge before the date on which such representation and warranty was made, or (b) any intentional breach by any Seller of any covenant or obligation; Sellers will be jointly and severally liable for all Adverse Consequences with respect to such breaches.
9.6 Limitations On Amount—Buyer. Buyer will have no liability (for indemnification or otherwise) with respect to the matters governed by Section 9.3(a), or to the extent relating to any failure to perform or comply before the Closing Date, Section 9.3(b) until the total monetary value of all Adverse Consequences with respect to such matters exceeds Fifty Thousand Dollars ($50,000.00) in which event the Sellers may assert their right to indemnification hereunder for the full amount of Adverse Consequences. Notwithstanding the foregoing, this Section will not apply to (a) Buyer’s material breach of any of its representations and warranties of which breach Buyer had knowledge before the date on which it made such representation and warranty, or (b) Buyer’s intentional breach of any covenant or obligation; Buyer will be liable for all Adverse Consequences with respect to such breaches.
9.7 Procedure For Indemnification—Defense Of Third-Party Claims. (a) Promptly after receipt by a person entitled to indemnity under Section 9.2 or 9.3 (an “Indemnified Person”) of notice of the assertion of a third-party claim against it, the Indemnified Person will, if a claim is to be made against a Person obligated to indemnify under such Section (an
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“Indemnifying Person”), give notice to the Indemnifying Person of the assertion of such claim. An Indemnified Person’s failure to notify an Indemnifying Person will not relieve the Indemnifying Person of any liability that it may have to the Indemnified Person, except to the extent that the Indemnifying Person demonstrates that the resolution of such claim is prejudiced by the Indemnified Person’s failure to give such notice.
(b) If any claim referred to in Section 9.7(a) is brought against an Indemnified Person by means of a proceeding and the Indemnified Person gives notice to the Indemnifying Person of the commencement of such proceeding, the Indemnifying Person will be entitled to participate in such proceeding and, to the extent that it wishes, to assume the defense of such proceeding with counsel satisfactory to the Indemnified Person (unless (i) the Indemnifying Person is also a party to such proceeding and the Indemnified Person determines in good faith that joint representation would be inappropriate or (ii) the Indemnifying Person fails to provide reasonable assurance to the Indemnified Person of its financial capacity to defend such proceeding and provide indemnification with respect to such proceeding). After notice from the Indemnifying Person to the Indemnified Person of its election to assume the defense of such proceeding, the Indemnifying Person will not, as long as it diligently conducts such defense, be liable to the Indemnified Person under this Article for any fees of other counsel or any other expenses with respect to the defense of such proceeding, in each case subsequently incurred by the Indemnified Person in connection with the defense of such proceeding, other than reasonable costs of investigation. If the Indemnifying Person assumes the defense of a proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that proceeding are within the scope of and subject to indemnification, (ii) no compromise or settlement of such claims may be effected by the Indemnifying Person without the Indemnified Person’s consent unless (A) there is no finding or admission of any violation of laws or any violation of the rights of any person and no effect on any other claims that may be made against the Indemnified Person, and (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person, and (iii) the Indemnified Person will have no liability with respect to any compromise or settlement of such claims effected without its consent.
(c) If notice is given to an Indemnifying Person of the commencement of any proceeding and the Indemnifying Person does not, within ten days after the Indemnified Person’s notice is given, give notice to the Indemnified Person of its election to assume the defense of such proceeding, the Indemnified Person will be entitled to assume the defense of such proceeding and the Indemnifying Person will be bound by any determination made in such proceeding or any compromise or settlement effected by the Indemnified Person.
(d) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a proceeding may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the
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Indemnifying Person, assume the exclusive right to defend, compromise or settle such proceeding, but the Indemnifying Person will not be bound by any determination of a proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).
(e) The Sellers and Buyer consent to the non-exclusive jurisdiction of any court in which a proceeding is brought against any Buyer Indemnitee or Seller Indemnitee for purposes of any claim that a Buyer Indemnitee or Seller Indemnitee may have under this Agreement with respect to such proceeding or the matters alleged therein. The Sellers and Buyers agree that process may be served on the Sellers or Buyer with respect to such a claim anywhere in the world.
9.8 Procedure For Indemnification—Other Claims. A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party obligated to indemnify and will be paid promptly after such notice.
9.9 Treatment Of Indemnification Payments. Any indemnification payment made pursuant to this Article will be treated by the parties to the extent permitted under applicable law as an adjustment to the Purchase Price for tax, accounting and all other purposes.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notice provided for by this Agreement and any other notice, demand, or communication required hereunder shall be in writing and either delivered in person (including by confirmed facsimile transmission) or sent by hand delivered against receipt or sent by recognized overnight delivery service or by certified or registered mail, postage prepaid, with return receipt requested. All notices shall be addressed as follows:
| If to Buyer: |
Xx. Xxxxxx X. Xxxx | |
| MHI Hotel Services, L.L.C. | ||
| 000 Xxxxxxx Xxxxxxx Xxxx | ||
| Xxxxxxxxxxxx, XX 00000 |
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| With a copy to: |
Xxxxxx X. Xxxx, Xx., Esquire | |
| Xxxxx & XxXxxxxx LLP | ||
| 000 Xxxxxxxxxxx Xxxxxx, XX | ||
| Xxxxxxxxxx, XX 00000 | ||
| Notices to Sellers shall be sent to the addresses specified on Schedule 1.3, with a copy to | ||
| Xxxxxxx X. Urban, Esq. | ||
| Xxxxx Xxxxxx LLP | ||
| 000 Xxxxx Xxxxxx | ||
| Xxxxx 0000 | ||
| Xxxxxx, XX 00000 | ||
Any address or name specified above may be changed by a notice given by the addressee to the other party. Any notice, demand or other communication shall be deemed given and effective as of the date of delivery in person or receipt set forth on the return receipt. The inability to deliver because of changed address of which no notice was given, or rejection or other refusal to accept any notice, demand or other communication, shall be deemed to be receipt of the notice, demand or other communication as of the date of such attempt to deliver or rejection or refusal to accept.
10.2 Entire Agreement; Modifications and Waivers; Cumulative Remedies. This Agreement supersedes any existing letter of intent between the parties hereto, constitutes the entire agreement among the parties hereto and may not be modified or amended except by instrument in writing signed by the parties hereto, and no provisions or conditions may be waived other than by a writing signed by the party waiving such provisions or conditions. No delay or omission in the exercise of any right or remedy accruing to the Seller or the Buyer upon any breach under this Agreement shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by the Seller or the Buyer of any breach of any term, covenant, or condition herein stated shall not be deemed to be a waiver of any other breach, or of a subsequent breach of the same or any other term, covenant, or condition herein contained. All rights, powers, options, or remedies afforded to Seller or the Buyer either hereunder or by law shall be cumulative and not alternative, and the exercise of one right, power, option, or remedy shall not bar other rights, powers, options, or remedies allowed herein or by law, unless expressly provided to the contrary herein.
10.3 Successors and Assigns. Except as set forth in this Article, this Agreement may not be assigned by the Buyer or the Sellers without the prior approval of the other party hereto; provided, however, that the Buyer may assign this entire agreement or a right to acquire all or any portion of the Assets to a direct or indirect subsidiary or affiliate of Buyer including, without limitation, a limited partnership, corporation or limited liability company formed or to
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be formed in connection with the proposed public offering of an entity that intends to qualify as a real estate investment trust without approval of the Sellers, provided, however, that such assignment does not affect the status of this transaction as a contribution pursuant to Section 721 of the Code and Section 1.9 hereof. This Agreement shall be binding upon, and inure to the benefit of the parties and their respective legal representatives, successors, and permitted assigns.
10.4 Article Headings. Article headings and article and section numbers are inserted herein only as a matter of convenience and in no way define, limit, or prescribe the scope or intent of this Agreement or any part hereof and shall not be considered in interpreting or construing this Agreement.
10.5 Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
10.6 Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania, without regard to conflicts of laws principles.
10.7 Counterparts. This Agreement may be executed in any number of counterparts and by any party hereto on a separate counterpart, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument.
10.8 Survival. All representations and warranties contained in this Agreement, and all covenants and agreements contained in the Agreement which contemplate performance after the Closing Date (including, without limitation, those covenants and agreements contained in Section 1.2 hereof) shall survive the Closing.
10.9 Further Acts. In addition to the acts, instruments and agreements recited herein and contemplated to be performed, executed and delivered by the Buyer and the Sellers, each of the Buyer and each Seller shall perform, execute, and deliver or cause to be performed, executed, and delivered at the Closing or after the Closing, any and all further acts, instruments, and agreements and provide such further assurances as the other party hereto may reasonably require to consummate the transaction contemplated hereunder.
10.10 Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.
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10.11 Expenses. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the contemplated transactions, including all fees and expenses of its representatives. Should a party hereto employ an attorney or attorneys to enforce any of the provisions hereof or to protect its interest in any manner arising under this Agreement, or to recover damages for breach of this Agreement, any non-prevailing party in any action pursued in a court of competent jurisdiction (the finality of which is not legally contested) shall pay to the prevailing party all reasonable costs, damages, and expenses, including reasonable attorneys’ fees, expended or incurred in connection therewith.
10.12 Confidentiality. The Seller acknowledges that the matters relating to the REIT, the initial underwritten public offering of the REIT, this Agreement, and the other documents, terms, conditions and information related thereto (collectively, the “Information”) are confidential in nature. Therefore, each Seller covenants and agrees to keep the Information confidential and will not (except as required by applicable law, regulation or legal process, and only after compliance with the provisions of this Section 10.12), without the Buyer’s prior written consent, disclose any Information in any manner whatsoever; provided, however, that the Information may be revealed only to a Seller’s key employees, legal counsel and financial advisors, each of whom shall be informed of the confidential nature of the Information and shall agree to act in accordance with the terms of this Section 10.12. In the event that a Seller or its key employees, legal counsel or financial advisors (collectively, the “Information Group”) are requested pursuant to, or required by, applicable law, regulation or legal process to disclose any of the Information, the applicable member of the Information Group will notify the Buyer promptly so that it may seek a protective order or other appropriate remedy or, in its sole discretion, waive compliance with the terms of this Section 10.12. In the event that no such protective order or other remedy is obtained before such member of the Information Group is obligated to disclose such information, or that the Buyer waives compliance with the terms of this Section 10.12, the applicable member of the Information Group may furnish only that portion of the Information which it is advised by counsel is legally required and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Information. Each Seller acknowledges that remedies at law may be inadequate to protect the Buyer or the REIT against any actual or threatened breach of this Section 10.12, and, without prejudice to any other rights and remedies otherwise available, each Seller agrees to the granting of injunctive relief in favor of the REIT and/or the Buyer without proof of actual damages. Notwithstanding any other express or implied agreement to the contrary, the parties hereto agree and acknowledge that each of them and each of their employees, representatives, and other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to any of them relating to such tax treatment and tax structure, except to the extent that confidentiality is reasonably necessary to comply with U.S. federal or state securities laws. For purposes of this paragraph, the terms “tax treatment” and “tax structure” have the meanings specified in Treasury Regulation section
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1.6011-4(c). Receipt of confidential information of Buyer or any of its affiliates by Sellers constitutes each of Seller’s acknowledgement that it is aware that applicable securities laws may impose restrictions on each of them from purchasing or selling securities of the REIT, and each Seller agrees not to purchase or sell securities of the REIT, or any affiliate of the REIT, in violation of applicable securities laws.
10.13 No Personal Liability. No member, principal, officer, director, employee, attorney, accountant or other agent of Seller or Buyer, including, without limitation, any person who signs this Agreement or any Closing document, shall have any personal liability hereunder. The provisions of this Section 10.13 shall survive the Closing hereunder.
10.14 Venue. Any suit, action, or proceeding between Buyer and Sellers relating to this Agreement, to any document, instrument, or agreement delivered pursuant hereto, referred to herein, or contemplated hereby, or in any other manner arising out of the transaction of which it is a part, shall be commenced and maintained exclusively in a state or federal court of competent subject-matter jurisdiction sitting in the Commonwealth of Pennsylvania. Buyer and Sellers hereby submit themselves unconditionally and irrevocably to the jurisdiction of such courts. Sellers and Buyer further agree that venue shall be in Pennsylvania. Sellers and Buyer irrevocably waive any objection to such jurisdiction or venue including, but not limited to, the objection that any suit, action, or proceeding brought in Pennsylvania has been brought in an inconvenient forum.
[Signatures follow on next page]
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The parties hereto have executed and delivered this Agreement as of the date indicated in the first sentence of this Agreement.
| SELLERS: | ||
| Elpizo Limited Partnership | ||
| By: |
/s/ Xxxxxx Xxx Soon | |
| Name: |
XXXXXX XXX SOON | |
| Its: |
DIRECTOR | |
| Phileo Land Corporation | ||
| By: |
/s/ Xxxxxx Xxx Soon | |
| Name: |
XXXXXX XXX SOON | |
| Its: |
DIRECTOR | |
| BUYER: | ||
| MHI Hospitality LP | ||
| By: |
/s/ Xxxxxx X Xxxx | |
| Name: |
Xxxxxx X Xxxx | |
| Its: |
CEO and President of the G.P. | |
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Philadelphia
Exhibit B
TAX INDEMNITY AND DEBT MAINTENANCE AGREEMENT
This TAX INDEMNITY AND DEBT MAINTENANCE AGREEMENT (this “Agreement”), dated as of , 2004, is entered into by and among MHI Hospitality Corporation (the “REIT”), MHI Hospitality LP (the “Operating Partnership”) and the Persons named on Exhibit A hereto (the “Sellers”).
WHEREAS, in connection with the execution and delivery of the Contribution Agreement, as defined below, the Sellers have agreed to sell certain real property and improvements thereon and all of the assets (the “Assets”) relating to and used in the operation of the Hilton Philadelphia Airport (the “Property”) to the Operating Partnership in exchange for, among other things, Units in the Operating Partnership; and
WHEREAS, the REIT and the Operating Partnership desire to evidence their agreement regarding amounts that may be payable as a result of certain actions being taken by the Operating Partnership regarding its debt and assets.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions.
(a) In this Agreement, the following terms shall have the following meanings:
“Applicable Tax Rate” means, as to any given Taxable Event, the Tax Rate applicable to income or gain having the same character as that arising from such Taxable Event, for example, by way of illustration and not limitation, (i) the Tax Rate applicable to ordinary income if the Taxable Event gave rise to ordinary income, (ii) the Tax Rate applicable to long-term capital gain if the Taxable Event gave rise to long-term capital gain, or (iii) the Tax Rate applicable to unrecaptured section 1250 gain if the Taxable Event gave rise to unrecaptured section 1250 gain.
“Code” means the Internal Revenue Code of 1986, as amended, and any replacement to such provisions.
“Contribution Agreement” means the Contribution Agreement between the Operating Partnership and the Sellers dated as of August , 2004.
“Current Tax Excess” means with respect to each Taxable Period and each Taxable Event, an amount equal to the product of (i) product of (a) the taxable income or gain allocable to or otherwise reportable by a Protected Person during such Taxable Period resulting from the
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occurrence of the Taxable Event and (b) the Sliding Scale Percentage, and (ii) the Applicable Tax Rate. For purposes of the foregoing calculation, the taxable income or gain allocable to or otherwise reportable by a Protected Person will be limited to the amount of any gain or income allocated to a Protected Person pursuant to section 704(c) of the Code (as reduced by any applicable adjustment to the tax basis of the assets of the Operating Partnership with respect to such Protected Person pursuant to section 754 of the Code).
“Damages” means with respect to each calendar year and each Protected Person, an amount equal to the Current Tax Excess divided by the difference of: one minus the Applicable Tax Rate for ordinary income.
“Disposition” means any sale, assignment, pledge, encumbrance, hypothecation, mortgage, exchange, or any swap agreement or other arrangement that transfers all or a portion of the economic consequences associated with the Units of the Protected Person, provided that the following shall not constitute Dispositions: (i) a pledge of all or a portion of the Units of the Protected Person to secure bona fide indebtedness that does not exceed sixty percent (60%) of the value of the pledged Units of the Protected Person at the time such indebtedness is incurred so long as no foreclosure has occurred; (ii) any pledge of Units to the Operating Partnership; and (iii) a Permitted Disposition.
“Federal Rate” means, with respect to a Taxable Event, the highest marginal federal income tax rate applicable to income or gain having the same character as the income or gain arising from such Taxable Event applicable to the Protected Person in effect for the Taxable Period in issue, taking into account the deductibility of state income taxes payable at the related State Tax Rate by the affected Protected Person, without regard to any limitations on such deduction applicable solely to such Protected Person.
“Guarantee Agreement” means a guarantee, indemnity or contribution agreement (reasonably acceptable to the Operating Partnership) by and among one or more of the Operating Partnership, the REIT, the applicable Guarantor or Guarantee Partner and possibly a lender (or with a lender as a third party beneficiary), pursuant to which a Guarantor or Guarantee Partner, in its sole and absolute discretion, bears the economic risk of loss, within the meaning of Treasury Regulation section 1.752-2, of certain of the Qualifying Debt of the Operating Partnership, including through “bottom dollar” guarantees.
“Guaranteed Debt” means the debt guaranteed by a Protected Person or other Guarantee Partner pursuant to a Guarantee Agreement.
“Guarantee Partner” means a person who guarantees debt of the Operating Partnership in connection with its contribution of property (other than the Property) to the Operating Partnership in exchange for Units.
“Guarantor” means any Protected Person, Person the income of which is taxable to one or more Protected Persons, or Guarantee Partner who executes a Guarantee Agreement.
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“Maximum Guarantee Amount” means the maximum amount of Qualifying Debt that a Seller (or Protected Persons (pro rata if more than one) deriving their status as Protected Persons through such Seller) may guarantee as set forth on Exhibit A hereto.
“Permitted Disposition” means a disposition to (i) a member of the immediate family or an affiliate of the applicable Seller, (ii) a charitable organization a contribution to which would be deductible pursuant to section 170 of the Code, (iii) any partnership, limited liability company or trust, the partners, members or beneficiaries, as applicable, of which are exclusively one or more of the Seller or members of the immediate family or affiliates of the Seller and/or a charitable organization a contribution to which would be deductible pursuant to section 170 of the Code, or (iv) in the case of a Seller that is a trust, partnership, limited liability company or corporation, a beneficiary, partner, member or shareholder of such Seller, provided that any such disposition shall not involve a disposition for value (other than the issuance or redemption of an interest in the transferor or a reduction in the transferor’s share of liabilities of the Operating Partnership).
“Permitted Transferee” means any Person who acquires Units pursuant to a Permitted Disposition.
“Person” means and includes an individual, a general partnership, limited partnership, a joint venture, a corporation (including a business trust), limited liability company, joint stock company, trust, joint venture or other entity, unincorporated association or a governmental authority.
“Protected Period” means, as to each Protected Person, the period commencing on the closing date (or the first closing date, if there is more than one closing date) of the contributions of the Assets pursuant to the Contribution Agreement and ending on the earlier of (i) the tenth anniversary of the closing date (or final closing, if there is more than one closing date) of the contributions pursuant to the Contribution Agreement or (ii) as to such Protected Person, the first date that the Unit Sales Restriction is not satisfied.
“Protected Person” means a Seller, a Permitted Transferee, or in the case of a Seller or Permitted Transferee the income of which is taxable to one or more other Persons for federal income tax purposes, such other Persons; provided, however, that in the case of a Permitted Transferee that is a charitable organization a contribution to which would be deductible pursuant to section 170 of the Code or a partnership, limited liability company or trust, one or more of the partners, members or beneficiaries, as applicable, of which is a charitable organization a contribution to which would be deductible pursuant to section 170 of the Code, such charitable organization shall not be a Protected Person. The REIT and the Operating Partnership acknowledge and agree that all Persons who are taxable on the income of a Seller or Permitted Transferee are third-party beneficiaries of this Agreement.
“Qualifying Debt” means indebtedness of the Operating Partnership that is:
(i) In the case of indebtedness secured by any property or other asset of the Operating Partnership and not recourse to all of the assets of the Operating Partnership, the aggregate amount of all indebtedness secured by such property must not exceed seventy-five percent
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(75%) of the fair market value (as determined by the Board of Directors of the REIT in its reasonable judgment) of such property at the time that the Guarantee Opportunity is first effective. Nonrecourse debt of a subsidiary of the Operating Partnership shall be treated as debt of the Operating Partnership provided the Operating Partnership guarantees such debt and will permit the Protected Person to indemnify the Operating Partnership from certain losses associated with such guarantee on terms which are similar to those set forth in such Protected Person’s Guarantee Agreement and reasonably acceptable to the Operating Partnership and the Protected Person;
(ii) In the case of indebtedness that is recourse to all of the assets of the Operating Partnership, the indebtedness is at all times the most senior indebtedness recourse to all the assets of the Operating Partnership (but there shall not be a prohibition against other indebtedness that is pari passu with such indebtedness) and the amount of the indebtedness outstanding is at all times at least equal to one hundred fifty percent (150%) of the aggregate amount of the guarantees provided with respect to such indebtedness;
(iii) Any debt which satisfies requirement (i) or (ii) above will not be Qualifying Debt if and when either of the following occurs:
(A) There are other guarantees with respect to the same indebtedness that are prior to (i.e., with less economic risk) the Guarantee Opportunity provided to the Protected Persons pursuant hereto; or
(B) There are other guarantees with respect to the same indebtedness that are pari passu with the Guarantee Opportunity provided to the Protected Person pursuant hereto, and the amount of all such guarantees (including the Protected Person’s guarantee) exceed seventy five percent (75%) of the fair market value of the real estate which is security for such indebtedness measured at the time any such guarantee is first effective (as determined by the Board of Directors of the REIT in its reasonable judgment).
Notwithstanding the foregoing, there shall be no prohibition on guarantees of other portions of Qualifying Debt, and the above limitations shall not apply with respect to any guarantee of such debt by the REIT, provided each Protected Person is offered the opportunity to enter into an agreement with the REIT providing that such Protected Person will indemnify the REIT from certain losses associated with such debt on terms which are similar to those set forth in the Guarantor’s Guarantee Agreement with respect to the debt of the Operating Partnership.
“Sliding Scale Percentage” means 100% for each Taxable Period prior to the fifth anniversary of the Closing Date; 50% for each Tax Period following the fifth and prior to the sixth anniversary of the Closing Date; 40% for each Tax Period following the sixth and prior to the seventh anniversary of the Closing Date; 30% for each Tax Period following the seventh and prior to the eighth anniversary of the Closing Date; 20% for each Tax Period following the eighth and prior to the ninth anniversary of the Closing Date; 10% for each Tax Period following the ninth and prior to the tenth anniversary of the Closing Date; 0% for every year thereafter.
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“State Tax Rate” means with respect to each Taxable Event the highest marginal state tax rate applicable to income or gain having the same character as the income or gain arising from such Taxable Event applicable to the Protected Person in effect for the Taxable Period in issue; and shall be determined with respect to the state in which such income is taxable to the Protected Person having the highest marginal state tax rate, whether such state is the one in which the applicable property is located or the state of residence of the Protected Person subject to the provisions of Section 2(g)(iii). Appropriate adjustments shall be made if more than one non-federal income tax applies within a state.
“Taxable Event” means, with respect to each Protected Person, an event described in Section 2(a) giving rise to the requirement of the REIT or the Operating Partnership to pay Damages, subject to the provisions of Section 2(f).
“Taxable Period” means with respect to a Taxable Event the calendar year in which such Taxable Event occurs but if during such calendar year the State Tax Rate or Federal Tax Rate changes, each portion of the calendar year having a different Applicable Tax Rate shall be considered a separate Taxable Period.
“Tax Rate” means with respect to a Taxable Event the sum of the State Tax Rate plus the Federal Rate.
“Units” has the meaning ascribed to it in the Contribution Agreement.
“Units Sale Restriction” means as to any Seller or any of its Permitted Transferees, that the Seller and each of its Permitted Transferees shall have satisfied this requirement with respect to a period if at the end of such period, aggregate Dispositions by the Seller and its Permitted Transferees of Units received pursuant to the Contribution Agreement have not caused the aggregate Units then owned by the Seller and its Permitted Transferees to be less than twenty-five percent (25%) of the aggregate Units issued to the Seller pursuant to the Contribution Agreement.
(b) Additional Definitions. Capitalized terms used in this Agreement and not defined in Section 1(a) or elsewhere in this Agreement shall have the respective meanings ascribed to such terms in the Contribution Agreement.
(c) Section References. The Section headings herein are for reference only and shall not affect the construction hereof.
(d) Interpretation. No provisions of this Agreement shall be interpreted or construed against any person solely because that Person or its legal representative drafted such provision.
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Section 2. Damages.
(a) The REIT and the Operating Partnership, jointly and severally, agree to pay to a Protected Person, in accordance with Section 2(b) below, an amount equal to the Damages incurred by a Protected Person as a result of the occurrence of the following events:
(i) If, during the Protected Period, there occurs a direct or indirect sale, exchange, or disposition of any Property or any interest therein by the Operating Partnership or its subsidiaries resulting in the allocation of income or gain to such Protected Person or a Person the income of which is taxable to such Protected Person under section 704(c) of the Code; and
(ii) If, during the Protected Period, the Operating Partnership fails to satisfy its obligations under Section 3 of this Agreement and such failure causes such Protected Person to recognize taxable income or gain as a result of such failure.
Any transfer of assets of the Operating Partnership or a subsidiary thereof will be deemed a taxable disposition of such assets for their fair market values for purposes of unless (i) such disposition qualifies as a like-kind exchange under section 1031 of the Code, or an involuntary conversion under section 1033 of the Code, or other transaction (including, but not limited to, a contribution of property to any entity that qualifies for the nonrecognition of gain under section 721 or section 351 of the Code, or a merger or consolidation of the Operating Partnership with or into another entity that qualifies for taxation as a “partnership” for federal income tax purposes (a “Successor Partnership”)), in each case that does not result in the recognition of any taxable income or gain to the Protected Person with respect to the Property; provided, however, that: (1) in the event of a disposition of a Property under section 1031 or section 1033 of the Code or pursuant to another tax deferred transaction, any property that is acquired in exchange for or as a replacement for such Property shall thereafter be considered that Property for purposes of this Agreement; (2) if a Property is transferred to another entity in a transaction in which gain or loss is not recognized, the interest of the Operating Partnership in such entity shall thereafter be considered that Property for purposes of this Agreement, and if the acquiring entity’s disposition of such Property would cause the Protected Person to recognize gain or loss as a result thereof, the transferred Property still shall be considered that Property for purposes of this Agreement; and (3) in the event of a merger or consolidation involving the Operating Partnership and a Successor Partnership, the Successor Partnership shall have agreed in writing for the benefit of the Protected Person that all of the restrictions of this Agreement shall apply with respect to each Property, or (ii) with respect to each Protected Person, the adjusted taxable basis of the Property has increased in the hands of the Operating Partnership to fair market value as a result of a taxable disposition of the Units received in the Formation Transactions or otherwise, such that a taxable disposition of such Property by the Operating Partnership would not result in the allocation of taxable gain to the Protected Person pursuant to section 704(c) of the Code.
(b) Within 90 days after the occurrence of any event specified in Section 2(a), the REIT or the Operating Partnership will (i) pay all Damages then due to the Protected Person and (ii) provide sufficient documentation to support the calculation of the amounts paid.
(c) The making of a payment by the REIT or the Operating Partnership under this Section 2 shall be the sole and exclusive remedy of the Protected Person with respect to any tax liability incurred in connection with this Agreement or the transactions contemplated hereby.
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(d) Each Protected Person shall have the right to review or audit (i) records of asset sales and disposition by the Operating Partnership and its subsidiaries, and (ii) the calculation of Damages pursuant to this Agreement.
(e) Nothing contained in this Agreement shall be construed to permit a Protected Person to receive a double benefit or compensation with respect to Damages.
(f) For purposes of determining any Damages under this agreement the following will apply:
(i) Each Taxable Event will be determined solely with respect to a single Taxable Period. If a Taxable Event would otherwise result in taxable income or gain allocable to more than one Taxable Period, the taxable income or gain allocable to each Taxable Period will be treated as arising from a separate Taxable Period and as constituting a separate Taxable Event.
(ii) The use of the term “allocation” in Section 2 shall not be limiting, thus if a Protected Person recognizes taxable income or gain with respect to an event described in Section 2(a), such event will be a Taxable Event notwithstanding that some portion of such taxable income or gain is not subject to the profit and loss allocation provisions of any partnership agreement applicable to the Operating Partnership or is not reported or not required to be reported on any Schedule K-1 to U.S. Form 1065 or any other federal or state tax report or return required to be filed by the Operating Partnership.
(iii) Each Taxable Event will be determined solely with respect to a single character of income or gain. If a Taxable Event would otherwise result in items of taxable income or gain having more than one character, each item of taxable income or gain having the same character shall be treated as a separate Taxable Event.
Section 3. Debt Maintenance Obligation and Guarantee Opportunity.
(a) During the Protected Period, the Operating Partnership shall use commercially reasonable efforts to make available to each Protected Person the opportunity (a “Guarantee Opportunity”) to make, or increase from time to time, a guarantee of Qualifying Debt of the Operating Partnership pursuant to a Guaranty Agreement in an amount not more than such Protected Person’s Maximum Guarantee Amount. During the Protected Period, if Guaranteed Debt is to be repaid and, immediately after such repayment, the outstanding amount of Guaranteed Debt would be less than the Maximum Guarantee Amount with respect to such Guaranteed Debt, the Operating Partnership shall use commercially reasonable efforts to provide to each Protected Person a new Guarantee Opportunity with respect to Qualifying Debt in an amount equal to the Guaranteed Debt being repaid. In the event that the Operating Partnership is required to use commercially reasonable efforts to offer a Guarantee Opportunity pursuant to this Section 3(a), the Operating Partnership will provide the Protected Person notice of the type, amount and other relevant attributes of the Qualifying Debt with respect to which the Guarantee Opportunity is offered at least ten (10) business days, to the extent reasonably practicable, but in no event less than five (5) business days prior to the earlier of the closing of the incurrence of such debt and the scheduled repayment of the existing Guaranteed Debt. In the event that the
7
Operating Partnership or a related party repurchases outstanding Guaranteed Debt, whether or not such debt is retired, the repurchase thereof shall be treated as a repayment of the Guaranteed Debt for purposes of this Section 3.
(b) Each Protected Person acknowledges that Guarantee Partners other than such Protected Person have the right to guarantee debt of the Operating Partnership on terms which are similar to the terms set forth in this Agreement. The Operating Partnership shall use commercially reasonable efforts to offer each Guarantee Opportunity to the Guarantee Partners (including such Protected Persons) on a pro rata basis, based on the proportion of each Guarantee Partner’s Guarantee Amount to the aggregate Guarantee Amounts of all Guarantee Partners, unless the Guarantee Partners agree to accept Guarantee Opportunities on other than a pro rata basis.
(c) The Operating Partnership agrees to file its tax returns taking the position that the Guaranteed Debt is allocable to the Guarantor for purposes of section 752 of the Code, absent a determination to the contrary by the Internal Revenue Service. However, the Operating Partnership makes no representation or warranty to any Guarantor, Seller, or Protected Person that any guarantee entered into pursuant to Section 3(a) shall be respected for federal income tax purposes so as to enable the Guarantor to be considered to bear the “economic risk of loss” with respect to the indebtedness thereby guaranteed by such Guarantor for purposes of either section 752 or section 465 of the Code.
(d) The Operating Partnership shall not be obligated to undertake efforts to maintain any level of indebtedness in excess of the amounts specifically required to meet the obligations set forth above in this Section 3.
Section 4. Conduct of Audits and Litigation. No Protected Person shall have any right to participate in (i) any audit, conference or other proceeding with the Internal Revenue Service or the relevant state or local authorities, or any judicial proceedings concerning the determination of the tax liability of the REIT, the Operating Partnership or any of their subsidiaries, (ii) any administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of any such proceeding or (iii) any compromise or settlement of any adjustment or deficiency proposed, asserted or assessed as a result of any such proceeding.
Section 5. Miscellaneous.
(a) Amendment and Waivers. Any provision of this Agreement may be amended or waived by a Seller, but only as to itself or himself and not any other Seller, if, but only if, such amendment or waiver is in writing and is signed by the REIT, the Operating Partnership and the relevant Seller.
(b) Successors and Assigns. This Agreement shall be binding on the REIT, the Operating Partnership, the Sellers and their respective successors and assigns. If any Seller constituting a partnership under local law distributes one or more Units to one or more of its partners, each such partner shall be a “Seller” for purposes of this Agreement without the necessity of any amendment of this Agreement and no consent or waiver of the REIT, the Operating Partnership or any other Seller shall be required.
8
(c) Severability. Should any clause, sentence, paragraph, subsection or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.
(d) Entire Agreement. This Agreement sets forth all of the covenants, agreements, conditions, understandings, warranties and representations of the REIT, the Operating Partnership and the Sellers relative to the subject matter hereof, and any previous agreement among such parties with respect to the subject matter hereof is superseded by this Agreement.
(e) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland.
[Signatures to follow next page]
9
IN WITNESS WHEREOF, each of the parties hereto has executed this Tax Indemnity and Debt Maintenance Agreement, or caused this Tax Indemnity and Debt Maintenance Agreement to be duly executed on its behalf, as of the date first above written.
| MHI Hospitality Corporation. | ||
| By: |
| |
| Xxxxxx X. Xxxx | ||
| President and Chief Executive Officer | ||
| MHI Hospitality L.P. | ||
| By: |
| |
| MHI Hospitality Corporation | ||
| as general partner | ||
| By: |
| |
| Xxxxxx X. Xxxx | ||
| President and Chief Executive Officer | ||
10
| Wilmington Hotel Associates | ||
| By: |
| |
| Duly Authorized Signatory | ||
| MHI Hotels Services LLC | ||
| By: |
| |
| Name: |
| |
| Title: |
| |
| Elpizo Limited Partnership | ||
| By: |
| |
| Name: |
| |
| Title: |
| |
| Phileo Land Corporation | ||
| By: |
| |
| Name: |
| |
| Title: |
| |
11
EXHIBIT A
SELLERS; MAXIMUM GUARANTEE AMOUNT
| Name |
Maximum Guarantee Amount | |
| Elpizo Limited Partnership | 11,328,339 | |
| Phileo Land Corporation | 0 | |
12
Exhibit C
GUARANTY
This GUARANTY (“Guaranty”) is executed as of August , 2004, by , a (“Guarantor”), in favor of , a (“Lender”), with reference to the following facts:
Lender has made a loan (the “Loan”) to , a , (“Borrower”) evidenced by that certain Promissory Note (the “Note”), dated , in favor of the Lender in the original amount of ($ ). The Note is secured by, among other things, a [Deed of Trust] [Mortgage] (the “Deed of Trust”) [an Assignment of Leases (the “Assignment of Leases”). The Deed of Trust encumbers a fee estate in certain real property located in , and certain personal property defined therein as the “Property.”
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, Guarantor hereby agrees, in favor of Lender, as follows:
1. Definitions and Construction.
(a) Definitions. The following terms, as used in this Guaranty, shall have the following meanings: (i) ”Bankruptcy Code” means the Bankruptcy Reform Act of 1978 (11 U.S.C.), as amended or supplemented from time to time, and any successor statute, and any and all rules issued or promulgated in connection therewith; and (ii) ”Guaranteed Obligations” means any and all obligations, indebtedness, or liabilities of any kind or character owed by Borrower to Lender pursuant to Section 2 below.
(b) Construction. Unless the context of this Guaranty clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, and the term “including” is not limiting. The words “hereof,” “herein,” “hereby,” “hereunder,” and other similar terms refer to this Guaranty as a whole and not to any particular provision of this Guaranty. Any reference herein to any of the Loan Documents (as defined in the Deed of Trust) includes any and all alterations, amendments, extensions, modifications, renewals, or supplements thereto or thereof, as applicable. Neither this Guaranty nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Guarantor, whether under any rule of construction or otherwise. On the contrary, this Guaranty has been reviewed by Guarantor, Lender, and their respective counsel, and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of Lender and Guarantor.
2. Guaranteed Obligations. Guarantor hereby irrevocably and unconditionally guarantees to Lender, as and for Guarantor’s own debt, until final and indefeasible payment thereof has been made, payment of the Secured Indebtedness (as defined in the Deed of Trust), subject to the following limitations: (a) this Guaranty is and shall be construed to be a guaranty of collection only and not of payment and performance and is therefore conditioned and contingent upon Lender taking all prior actions or proceedings of any
- 1 -
kind available to Lender under the Loan Documents to enforce the Loan Documents or any of them, including without limitation, the foreclosure of the security, Lender may at any time hold pursuant to the Loan Documents; and (b) the maximum amount of Guarantor’s liability hereunder shall be an amount equal to ($ ) minus the fair market value of the Property.
3. Performance Under This Guaranty. In the event that Guarantor becomes liable for any Guaranteed Obligations pursuant to Section 2 above, Guarantor immediately shall cause such payment to be made.
4. Primary Obligations. This Guaranty is a primary and original obligation of Guarantor, is not merely the creation of a surety relationship, and shall remain in full force and effect without respect to future changes in conditions, including any change of law or any invalidity or irregularity with respect to the issuance of the Loan Documents. Each person executing this Guaranty as Guarantor agrees that it is directly and severally (but not jointly) with any and all other guarantors of the Guaranteed Obligations, liable to Lender, that the obligations of Guarantor hereunder are independent of the obligations of Borrower or any other guarantor, and that a separate action may be brought against each person signing as Guarantor whether such action is brought against Borrower or any other guarantor or whether Borrower or any such other guarantor is joined in such action. Guarantor agrees that any release which may be given by Lender to Borrower or any other guarantor shall not release Guarantor. Guarantor consents and agrees that Lender shall be under no obligation to marshal any assets of Borrower or any other guarantor in favor of Guarantor, or against or in payment of any or all of the Guaranteed Obligations.
5. Waivers.
(a) Guarantor absolutely, unconditionally, knowingly, and expressly waives:
(i) (A) Notice of acceptance hereof; (B) notice of any loans or other financial accommodations made or extended under the Loan Documents or the creation or existence of any Guaranteed Obligations; (C) notice of any adverse change in the financial condition of Borrower or of any other fact that might increase Guarantor’s risk hereunder; (D) notice of presentment for payment, demand, protest, and notice thereof as to any promissory notes or other instruments among the Loan Documents; (E) notice of any event of default under the Loan Documents; and (F) all other notices (except if such notice is specifically, required to be given to Guarantor hereunder or under any Loan Document to which Guarantor is a party) and demands to which Guarantor might otherwise be entitled.
(ii) Except as provided in Section 2, Guarantor’s right by statute or otherwise to require Lender to institute suit against Borrower or to exhaust any rights and remedies which Lender has or may have against Borrower or any collateral for the Guaranteed Obligations provided by Borrower, Guarantor or any third party. In this regard, Guarantor agrees that it is bound to the payment of all Guaranteed Obligations, whether now existing or hereafter accruing, as fully as if such Guaranteed Obligations were directly owing to Lender by Guarantor. Guarantor further waives any defense arising by reason of any disability
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or other defense (other than the defense that the Guaranteed Obligations shall have been fully and finally performed and indefeasibly paid) of Borrower or by reason of the cessation from any cause whatsoever of the liability of Borrower in respect thereof.
(iii) (A) Any rights to assert against Lender any defense (legal or equitable), set-off, counterclaim, or claim which Guarantor may now or at any time hereafter have against Borrower or any other party liable to Lender; (B) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Guaranteed Obligations or any security therefor; (C) any defense Guarantor has to performance hereunder, and any right Guarantor has to be exonerated, or otherwise, arising by reason of: the impairment or suspension of Lender’s rights or remedies against Borrower; the alteration by Lender of the Guaranteed Obligations; any discharge of the Guaranteed Obligations by operation of law as a result of Lender’s intervention or omission; or the acceptance by Lender of anything in partial satisfaction of the Guaranteed Obligations; (D) the benefit of any statute of limitations affecting Guarantor’s liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Guaranteed Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to Guarantor’s liability hereunder.
(b) Guarantor absolutely, unconditionally, knowingly, and expressly waives any defense arising by reason of or deriving from (i) any claim or defense based upon an election of remedies by Lender; or (ii) any election by Lender under Bankruptcy Code Section 1111(b) to limit the amount of, or any collateral securing, its claim against Borrower:
Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor’s rights of subrogation and reimbursement against Borrower.
Guarantor waives all rights and defenses that Guarantor may have because some of the Guaranteed Obligations are secured by real property. This means, among other things, that if Lender forecloses on any real property collateral pledged by Borrower for the Guaranteed Obligations: (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (B) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral pledged by Borrower for the Guaranteed Obligations, has destroyed any right Guarantor may have to collect from Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because Borrower’s debt is secured by real property.
If any of the Guaranteed Obligations at any time are secured by a mortgage or deed of trust upon real property, Lender may elect, in its sole discretion, upon a default with respect to the Guaranteed Obligations, to foreclose such mortgage or deed of trust judicially or nonjudicially in any manner permitted by law, before or after enforcing the Loan Documents, without diminishing or affecting the liability of Guarantor hereunder except to the extent the Guaranteed Obligations are repaid with the proceeds of such foreclosure. Guarantor
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understands that (a) by virtue of the operation of any antideficiency law applicable to nonjudicial foreclosures, an election by Lender nonjudicially to foreclose such a mortgage or deed of trust probably would have the effect of impairing or destroying rights of subrogation, reimbursement, contribution, or indemnity of Guarantor against Borrower or other guarantors or sureties, and (b) absent the waiver given by Guarantor, such an election would prevent Lender from enforcing the Loan Documents against Guarantor. Understanding the foregoing, and understanding that Guarantor is hereby relinquishing a defense to the enforceability of the Loan Documents, Guarantor hereby waives any right to assert against Lender any defense to the enforcement of the Loan Documents, whether denominated “estoppel” or otherwise, based on or arising from an election by Lender nonjudicially to foreclose any such mortgage or deed of trust. Guarantor understands that the effect of the foregoing waiver may be that Guarantor may have liability hereunder for amounts with respect to which Guarantor may be left without rights of subrogation, reimbursement, contribution, or indemnity against Borrower or other guarantors or sureties.
(c) Guarantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as nonjudicial foreclosure with respect to security for a guaranteed obligation, may have destroyed Guarantor’s rights of subrogation and reimbursement against the principal under any law of the State of . Notwithstanding the foregoing, and in addition thereto and without limiting the generality thereof, Guarantor hereby absolutely and irrevocably waive any and all (a) rights which it may have or may now or hereafter acquire by way of subrogation, reimbursement or indemnity against Borrower by virtue of any payment made under this Guaranty or otherwise (including, without limitation, any payment made by Borrower) in connection with the Guaranteed Obligations.
(d) Guarantor expressly acknowledges that this Guarantee does not replace, supersede, void or affect any other guaranty that Guarantor or any person related to Guarantor may have previously, simultaneously or hereinafter execute in favor of Lender.
6. Releases. Guarantor consents and agrees that, without notice to or by Guarantor and without affecting or impairing the obligations of Guarantor hereunder, Lender may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce this Guaranty, the other Loan Documents, or any part thereof, with respect to Borrower or any other person or entity;
(b) release Borrower or any other person or entity or grant other indulgences to Borrower or any other person or entity in respect thereof;
(c) amend or modify in any manner and at any time (or from time to time) any of the Loan Documents; or
(d) release or substitute any other guarantor, if any, of the Guaranteed Obligations, or enforce, exchange, release, or waive any security for the Guaranteed Obligations or any other guaranty of the Guaranteed Obligations, or any portion thereof.
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7. No Election. Lender shall have all of the rights to seek recourse against Guarantor to the fullest extent provided for herein, and no election by Lender to proceed in 6 one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Lender’s right to proceed in any other form of action or proceeding or against other parties unless Lender has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Lender under .any document or instrument evidencing the Guaranteed Obligations shall serve to diminish the liability of Guarantor under this Guaranty except to the extent that Lender finally and unconditionally shall have realized indefeasible payment by such action or proceeding.
8. Indefeasible Payment. The Guaranteed Obligations shall not be considered indefeasibly paid for purposes of this Guaranty unless and until all payments to Lender are no longer subject to any right on the part of any person, including Borrower, Borrower as a debtor in possession, or any trustee (whether appointed under the Bankruptcy Code or otherwise) of any of Borrower’s assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to be fraudulent or preferential. Upon such full and final performance and indefeasible payment of the Guaranteed Obligations whether by Guarantor or Borrower, Lender shall have no obligation whatsoever to transfer or assign its interest in the Loan Documents to Guarantor. In the event that, for any reason, any portion of such payments to Lender is set aside or restored, whether voluntarily or involuntarily, after the making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made, and Guarantor shall be liable to the maximum amount of the Guaranteed Obligations, for the amount Lender is required to repay plus any and all costs and expenses (including attorneys’ fees and expenses and attorneys’ fees and expenses incurred pursuant to proceedings arising under the Bankruptcy Code) paid by Lender in connection therewith.
9. Financial Condition of Borrower. Guarantor represents and warrants to Lender that Guarantor is currently informed of the financial condition of Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Guaranteed Obligations. Guarantor further represents and warrants to Lender that Guarantor has read and understands the terms and conditions of the Loan Documents. Guarantor hereby covenants that Guarantor will continue to keep informed of Borrower’s financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Guaranteed Obligations.
10. Subordination. Guarantor hereby agrees that any and all present and future indebtedness of Borrower owing to Guarantor is postponed in favor of and subordinated to payment, in full, in cash, of the Guaranteed Obligations. In this regard, no payment of any kind whatsoever shall be made with respect to such indebtedness during the continuance of an Event of Default (as defined in the Deed of Trust) until the Guaranteed Obligations have been indefeasibly paid in full.
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11. Payments: Application. All payments to be made hereunder by Guarantor shall be made in lawful money of the United States of America at the time of payment, shall be made in immediately available funds, and shall be made without deduction (whether for taxes or otherwise) or offset. All payments made by Guarantor hereunder shall be applied as follows: first, to all costs and expenses (including reasonable attorneys’ fees and expenses incurred pursuant to proceedings arising under the Bankruptcy Code) incurred by Lender in enforcing this Guaranty or in collecting the Guaranteed Obligations; second, to all accrued and unpaid interest, premium, if any, and fees owing to Lender constituting Guaranteed Obligations; and third, to the balance of the Guaranteed Obligations.
12. Attorneys’ Fees and Costs. Guarantor agrees to pay, on demand, all reasonable attorneys’ fees (including attorneys’ fees incurred pursuant to proceedings arising under the Bankruptcy Code) and all other costs and expenses which may be incurred by Lender in the enforcement of this Guaranty (including those brought relating to proceedings pursuant to 11 U.S.C.) or in any way arising out of, or consequential to, the protection, assertion, or enforcement of the Guaranteed Obligations (or any security therefor), whether or not suit is brought.
13. Notices. All notices or demands by Guarantor or Lender to the other relating to this Guaranty shall be in writing and either personally served or sent by registered or certified mail, postage prepaid, return receipt requested, or by recognized courier service which provides return receipts, and shall be deemed delivered on the date of actual delivery or refusal to accept delivery as evidenced by the return receipt. Unless otherwise specified in a notice sent or delivered in accordance with the provisions of this section, such writing shall be sent, if to Guarantor and Lender as follows:
Guarantor:
___________________
___________________
___________________
___________________
Attention: ___________________
Facsimile number: ___________________
Telephone number:___________________
With a copy to:
___________________
___________________
___________________
Attention: ___________________
Facsimile number: ___________________
Telephone number: ___________________
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Lender:
___________________
___________________
___________________
Attention: ___________________
Facsimile number: ___________________
Telephone number: ___________________
14. Cumulative Remedies. No remedy under this Guaranty or under any Loan Document is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given hereunder or under any Loan Document, and those provided by law or in equity. No delay or omission by Lender to exercise any right under this Guaranty shall impair any such right nor be construed to be a waiver thereof. No failure on the part of Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.
15. Severability of Provisions. If any provision of this Guaranty is for any reason held to be invalid, illegal or unenforceable in any respect, that provision shall not affect the validity, legality or enforceability of any other provision of this Guaranty.
16. Entire Agreement: Amendments. This Guaranty constitutes the entire agreement between Guarantor and Lender pertaining to the subject matter contained herein. This Guaranty may not be altered, amended, or modified, nor may any provision hereof be waived or noncompliance therewith consented to, except by means of a writing executed by both Guarantor and Lender. Any such alteration, amendment, modification, waiver, or consent shall be effective only to the extent specified therein and for the specific purpose for which given. No course of dealing and no delay or waiver of any right or default under this Guaranty shall be deemed a waiver of any other similar or dissimilar right or default or otherwise prejudice the rights and remedies hereunder.
17. Successors and Assigns. The death of Guarantor shall not terminate this Guaranty. This Guaranty shall be binding upon Guarantor’s heirs, executors, administrators, representatives, successors, and assigns and shall inure to the benefit of the successors and assigns of Lender; provided, however, Guarantor shall not assign this Guaranty or delegate any of its duties hereunder without Lender’s prior written consent. Any assignment without the consent of Lender shall be absolutely void. In the event of any assignment or other transfer of rights by Lender, the rights and benefits herein conferred upon Lender shall automatically extend to and be vested in such assignee or other transferee.
18. Choice of Law and Venue. The validity of this Guaranty, its construction, interpretation, and enforcement, and the rights of Guarantor and Lender, shall be determined under, governed by, and construed in accordance with the internal laws of the State of , without regard to principles of conflicts of law. To the maximum extent permitted by law, Guarantor hereby agrees that all actions or proceedings arising in connection
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with this Guaranty shall be tried and determined only in the state and federal courts located in the County of , State of . To the maximum extent permitted by law, Guarantor hereby expressly waives any right it may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section.
19. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR HEREBY ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS GUARANTY, OR IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER WITH RESPECT TO THIS GUARANTY, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR HEREBY AGREES THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT LENDER MAY FILE AN ORIGINAL, COUNTERPART OF THIS SECTION WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
20. Understandings With Respect to Waivers and Consents. Guarantor warrants and agrees that each of the waivers and consents set forth are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to a defense or right may diminish, destroy, or otherwise adversely affect rights which Guarantor otherwise may have against the Borrower, or against any collateral, and that, under the circumstances the waivers and consents herein given are reasonable and not contrary to public policy or law. If any of the waivers or consents are determined to be unenforceable under applicable law, such waivers and consents shall be effective to the maximum extent permitted by law.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date set forth in the first paragraph hereof.
| By: |
| |
| Name: |
| |
| Title: |
| |
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STATE OF DELAWARE
CERTIFICATE OF LIMITED PARTNERSHIP
OF
MHI HOSPITALITY, L.P.
The undersigned, desiring to form a limited partnership pursuant to the Delaware Revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17, does hereby certify as follows:
FIRST: The name of the limited partnership is: MHI Hospitality, L.P. (the “Partnership”).
SECOND: The address of the Partnership’s registered office in the State of Delaware is Corporation Trust Center, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, XX 00000, County of New Castle. The name of the Partnership’s registered agent for service of process in the State of Delaware at such address is The Corporation Trust Company.
THIRD: The name and mailing address of each general partner of the Partnership is as follows:
| Name |
Mailing Address | |
| MHI Hospitality Corporation |
000 Xxxxxxx Xxxxxxx Xxxx | |
| Xxxxxxxxxxxx, XX 00000-0000 |
IN WITNESS WHEREOF, the undersigned, an authorized person, has executed this Certificate of Limited Partnership of MHI Hospitality, L.P. this 19th day of August, 2004.
| MHI HOSPITALITY CORPORATION, | ||
| General Partner | ||
| By: |
/s/ Xxxxxx X. Xxxx | |
| Name: |
Xxxxxx X. Xxxx | |
| Its: |
Chief Executive Officer | |
SCHEDULE 1.1A
THE PROPERTY
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Lawyers Title Insurance Corporation
0000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxxx XX 00000
(000) 000-0000
FAX: (000) 000-0000
Record Owner and Lien Certificate
| Order No: PH118646HS | Effective Date: 7/30/2004 |
| Reference No: | ||
| 0000-00 Xxxxxx Xxxxxx | ||
| Premises: | City of Philadelphia | |
| JP/va | ||
Based upon the examination of evidence in the appropriate public records, Company certifies that the premises endorsed hereon are subject to the liens, encumbrances and exceptions to title hereinafter set forth. This Certificate does not constitute title insurance; liability hereunder is assumed by the Company solely in its capacity as abstractor for its negligence, mistakes or omissions in a sum not exceeding Two Thousand Dollars unless otherwise endorsed hereon.
Description
ALL THAT CERTAIN lot or piece of ground, SITUATE in the 40th Xxxx of the City of Philadelphia, described according to a Survey and Plan of Property made for Marriott Corporation by Xxxxxx Xxxxx, Surveyor and Regulator of the 10th Survey District, dated August 19, 1982 to wit:
BEGINNING at a point on the Southerly side of Xxxxxxx Avenue (170 feet wide) Xxxxx Xxxxxxx Xxxxx #00000 which point is measured South 75 degrees 49 minutes 42 seconds East along the said Southerly side of Xxxxxxx Avenue and Xxxxxxx Avenue produced the distance of 92.287 feet from a point of intersection formed by the said Southern side of Xxxxxxx Avenue and the Northeasterly side of Island Avenue both lines produced; thence extending South 75 degrees 49 minutes 42 seconds East along the said Southerly side of Xxxxxxx Avenue the distance of 137.081 feet to a point of curve; thence Southeastwardly still along the said Southerly side of Xxxxxxx Avenue on the arc of a circle curving to the left having a radius of 1514.825 feet the arc distance of 475.891 feet to a point; thence South 27 degrees 02 minutes 21.52 seconds West crossing a relocated 16 inch pipe line 819.427 feet to a point on the said Northeasterly side of Island Avenue; thence North 19 degrees 04 minutes 48 seconds West along the said Northeasterly side of Island Avenue re-crossing said relocated 16 inch pipe line 361.732 feet to an angle point; thence North 22 degrees 41 minutes 49 seconds West still along the said Northeasterly side of Island Avenue 430.040 feet to a point of curve; thence along the arcs of circles curving to the right connecting the said Northeasterly side of Island Avenue and the Southerly side of Xxxxxxx Avenue the Two following courses and distances (1) Northeastwardly on the arc a circle having a radius of 79.066 feet the arc distance of 45.383 feet to a point of compound curve; (2) Northeastwardly, Eastwardly and Southeastwardly arc of a circle having a radius of 40.000 feet the arc distance of 56.596 feet to a point of tangent on the said Southerly side of Xxxxxxx Avenue, being the first mentioned point and place of beginning.
BEING ASSESSED AS: 0000 Xxxxxx Xxxxxx.
BEING NOS. 4501 to 0000 Xxxxxx Xxxxxx.
SCHEDULE 1.3
CASH TO BE PAID AND PARTNERSHIP UNITS TO BE ISSUED BY BUYER
| Seller |
Units to be Issued |
Cash to be Paid | |||
| Elpizo Limited Partnership 13th Floor Bangunan Pak Peng 00 Xxxxx Xxxxxxxx 00,000, Xxxxx Xxxxxx, Xxxxxxxx |
534,509 | $ | 1,726,150 | ||
| Phileo Land Corporation 13th Floor Bangunan Pak Peng 00 Xxxxx Xxxxxxxx 00,000 Xxxxx Xxxxxx, Xxxxxxxx |
197,745 | $ | 122,550 | ||
| SUBTOTAL ELPIZO & PHILEO |
732,254 | $ | 1,848,700 | ||
| MHI Hotels Services |
|||||
| For Ownership interests as follows: |
|||||
| Ø 80% of Savannah Hotels Assoc. LLC |
|||||
| Ø 50% of Brownestone Partners, LLC |
1,806,826 | $ | 2,000,000 | ||
| Ø 25% of Capitol Hotel Associates |
|||||
| Ø Restructuring Fee for Management Agreements |
|||||
| Xxxxx Xxxx Xx. Irrevocable Trust (aka Xxxx grandchildren) |
75,581 | 0 | |||
| Ø 60% of Capitol Hotel Associates, LLC |
|||||
| Xxxxxx Xxxx, Xxx Xxxx, and Xxxxx Xxxx |
491,274 | 0 | |||
| Ø Each own 13.0% (39.0% Total) of Capitol Hotel Associates L.P., L.L.P. |
|||||
| Krischman Trust (aka Xx Xxxxx) |
333,099 | 0 | |||
| Ø 20% of Savannah Hotel Associates, LLC |
|||||
| Wilmington Hotel Associates (aka Xxxxxxxx Xxxx) |
377,903 | 0 | |||
| Ø 30% of Capitol Hotel Associates L.P., L.L.P. |
|||||
| MAVAS, LLC (aka Xxxx Xxxxx) |
100 | $ | 1,000,000 | ||
| Ø 50% of Brownestone Partners, LLC |
|||||
| MHI Hotels, LLC |
0 | $ | 3,000,000 | ||
| Ø Shell Island Resort common area lease |
|||||
| MHI Hotels Two, Inc. |
0 | $ | 500,000 | ||
| Ø Shell Island Resort restaurant lease |
|||||
| SUBTOTAL OTHER PARTIES |
3,084,783 | $ | 6,500,000 | ||
| Total/TOTALS |
3,817,037 | $ | 8,348,700 | ||
