ALLOCATION AND RELEASE AGREEMENT
THIS ALLOCATION AND RELEASE AGREEMENT (this "Agree-
ment") is made and entered into as of November 1, 1996 by
and between CAPITAL GROWTH MORTGAGE INVESTORS, L.P., a
Delaware limited partnership ("Lender") and UNION SQUARE
HOTEL PARTNERS, L.P., a Delaware limited partnership
(formerly known as Shearson Union Square Associates
Limited Partnership, a Delaware limited partnership)
("Borrower").
R E C I T A L S
WHEREAS, Borrower is the owner of that certain
property located in San Francisco, California, as more
particularly described on Exhibit A attached hereto,
commonly known as the Grand Hyatt San Francisco hotel
(the "Hotel");
WHEREAS, Lender is the holder of the following
promissory notes made by Borrower (collectively, the
"Promissory Notes"): (i) the Zero Coupon Mortgage Note
due January 2, 1997, dated as of August 20, 1986, as
amended and restated as of June 30, 1992, in the original
principal amount of $13,325,000 and the face amount of
$42,207,708.58 (the "Secured Note"), (ii) the Promissory
Note, dated May 1, 1989, in the original principal amount
of $1,000,000 (the "May 1 Note"), and (iii) the Note,
dated as of July 12, 1991, in the original principal
amount of $1,611,952.35 (the "July 12 Note" and, collec-
tively with the May 1 Note, the "Unsecured Notes");
WHEREAS, the Secured Note is a non-recourse
note which is secured by: (i) that certain second prior-
ity Deed of Trust, Assignment of Rents, Security Agree-
ment and Fixture Filing, dated as of August 29, 1986,
encumbering the Hotel, as amended (as so amended, the
"Deed of Trust") by that certain First Agreement Xxxxxx-
xxxxxxx Capital Growth Deed of Trust and Capital Growth
Assignment of Lessor's Interest in Leases, Security
Agreement and Fixture Filing, dated as of June 30, 1992
(the "First Supplement") and (ii) that certain second
priority Assignment of Lessor's Interest in Leases, dated
as of August 29, 1986, as amended by the First Supplement
(as so amended, the "Assignment of Leases");
WHEREAS, both the first priority mortgage debt
encumbering the Hotel (the "First Mortgage Debt") and the
Secured Note are scheduled to mature and become due and
payable on January 2, 1997;
WHEREAS, in order to generate funds to apply
toward, among other things, the repayment of the First
Mortgage Debt and the Secured Note, Borrower anticipates
entering into a purchase and sale agreement (the "Pur-
chase Agreement") with an affiliate ("Buyer") of Hyatt
Corporation for the sale (the "Sale") of the Hotel in
consideration for (a) a cash purchase price (the "Gross
Purchase Price") of $126,900,000, (b) Buyer's assumption
of mortgage debt subordinate to the Secured Note, and (c)
the covenants, representations, warranties and indemni-
ties made by Buyer and contained in the Purchase Agree-
ment and in the property transfer documents executed in
connection therewith, with no other consideration of any
kind being paid by Buyer to Borrower;
WHEREAS, the Unsecured Notes will mature and
become due and payable (to the extent of sufficient sales
proceeds) upon the consummation of the Sale;
WHEREAS, the net proceeds that Borrower expects
to receive from the payment of the Gross Purchase Price
in connection with the Sale, after the payment of transac-
tion costs, the making of closing adjustments and the
repayment of the First Mortgage Debt (the "Net Sales Pro-
ceeds"), would not be sufficient to repay in full the
obligations of the Borrower under the Promissory Notes
(the "Obligations");
WHEREAS, in consideration of Borrower's efforts
and expense in connection with the sale of the Hotel,
Borrower will be entitled to retain a portion of the Net
Sales Proceeds for distribution to its constituent part-
ners;
WHEREAS, Lender and Borrower have each deter-
mined that, taking into account a number of factors (in-
cluding, without limitation, the terms of the agreement
and lease pursuant to which the Hotel is managed by
California Hyatt Corporation), an orderly sale of the
Hotel by Borrower (and not by Lender or any other third
party) is the means most likely to result in the maximum
amount of Net Sales Proceeds;
WHEREAS, Lender, in order to maximize such Net
Sales Proceeds, to avoid costly and time-consuming fore-
closure proceedings and/or litigation, which could result
if Borrower failed to sell the Hotel on or before the
maturity of the Secured Note, and in consideration of
Borrower's undertakings and efforts with respect to the sale
of the Hotel, is willing to accept the "Pay-Off Amount"
(as hereinafter defined) and allow Borrower to retain
certain of the Net Sales Proceeds, upon the terms and
conditions set forth herein;
WHEREAS, Borrower and Lender have each engaged
an independent financial advisor (collectively, the
"Independent Advisors") to negotiate an allocation (the
"Allocation") between Borrower and Lender of the anticipated
Net Sales Proceeds, and the Independent Advisors have
independently negotiated and presented an Allocation to
Borrower and Lender;
WHEREAS, Lender's Independent Advisor has
opined to Lender that the Allocation is fair, from a
financial point of view, to the limited partners of
Lender and that the Allocation is at least as favorable
to Lender as an allocation of proceeds would be if it
were between unaffiliated parties in similar circumstances
and, in reliance thereon, Lender has approved the
Allocation;
WHEREAS, Borrower's Independent Advisor has
opined to Borrower that the Allocation is fair, from a
financial point of view, to the limited partners of
Borrower and that the Allocation is at least as favorable
to Borrower as an allocation of proceeds would be if it
were between unaffiliated parties in similar circumstanc-
es and, in reliance thereon, Borrower has approved the
Allocation;
WHEREAS, Lender and Borrower now desire to set
forth their agreement with respect to the Allocation of
Net Sales Proceeds and the satisfaction of the Obliga-
tions.
NOW, THEREFORE, in consideration of the cove-
nants and conditions herein contained and other good and
valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Sale of Hotel and Acceptance of Pay-Off Amount.
a. Sale of Hotel. Lender shall permit Borrower to
consummate the Sale generally in accordance with the
terms of the Purchase Agreement, as the same may be
amended or otherwise modified from time to time in Borrower's
sole and absolute discretion, provided, however, that no
such modification shall reduce the Gross Purchase Price
to an amount which is not sufficient to yield Net Sales
Proceeds in cash in an amount at least equal to the Pay-
Off Amount, as defined below. Lender acknowledges that,
pursuant to the Purchase Agreement, the Gross Purchase
Price may be increased to a maximum of $132,000,000 under
certain circumstances. Borrower shall deliver to Lender
a fully executed copy of the Purchase Agreement within
three (3) business days following the execution thereof
by Buyer and Borrower. As used herein, the term,
"Effective Date" shall mean the date that the Purchase Agree-
ment becomes effective, as more particularly set forth
therein. Borrower shall notify Lender of the Effective
Date promptly following notification thereof to Borrower.
b. Pay-Off Amount. The term "Pay-Off Amount" as
used herein means the sum of the following amounts in
cash:
(1) the amount of $30,000,000, which amount
includes the amount of $150,000 in reimbursement of costs
and expenses (including reasonable attorneys' fees)
incurred by Lender in connection with the transactions
contemplated hereby (regardless of the actual amount of
such costs and expenses), said $150,000 plus the amounts
referred to in clause (2) below being the only amounts
that Borrower shall be obligated to pay or reimburse to
Lender for such costs and expenses, plus
(2) the cost incurred by Lender in obtaining
Lender's Fairness Opinion, provided that such cost shall
not exceed the sum of $250,000, plus
(3) in the event that the Gross Purchase Price
is increased under the terms of the Purchase Agreement to
an amount above $126,900,000, then one-half (1/2) of the
amount of such excess shall additionally be payable to
Lender, plus
(4) in the event that the First Mortgage Debt
is repaid in full upon the consummation of the Sale for
less than $89,714,536 as a result of (i) the fact that
the Sale is consummated prior to December 31, 1996, or
(ii) the fact that as a result of an arithmetical error,
the amount necessary to repay the First Mortgage Debt on
December 31, 1996 is less than $89,714,536 (or corre-
spondingly less as of some other date), or (iii) the fact
that Borrower negotiates and obtains the agreement of the
holder of the First Mortgage Debt to accept a discounted
payment for the full satisfaction and release of the
First Mortgage Debt, then, and only then, Borrower shall
additionally pay to Lender an amount equal to the product
of: (A) the difference between $89,714,536 and such
lesser repayment amount, multiplied by (B) 0.8559947.
c. Acceptance of Pay-Off Amount. Lender shall
accept the Pay-Off Amount in full satisfaction of all of
the outstanding Obligations.
d. Time Deadline; Extension of Maturity of Secured
Note. Borrower shall use its commercially reasonable
best efforts to consummate the Sale on or before January
2, 1997, provided, however, that Borrower shall have
until March 31, 1997 (the "Outside Closing Date") in
which to obtain the approval of Borrower's limited part-
ners to the Sale and to consummate the Sale. Lender
hereby covenants and agrees that, unless foreclosure pro-
ceedings with respect to the First Mortgage Debt have
been commenced, Lender shall not commence foreclosure
proceedings with respect to the indebtedness evidenced by
the Secured Note, or attempt to have a receiver appointed
for the Hotel, until the first business day following the
Outside Closing Date.
e. Agreement Contingent. This Agreement is contin-
gent upon the consummation of the Sale. In the event the
Sale has not been consummated on or before the Outside
Closing Date, this Agreement shall terminate and be of no
further force or effect and Lender shall not thereafter
be obligated to accept the Pay-Off Amount in satisfaction
of the Obligations.
f. Hotel Operation. From and after the date
hereof, Borrower shall continue to operate the Hotel (to
the extent within Borrower's control) materially in
accordance with Borrower's past practices and the terms of
the Operating Lease.
g. No Other Consideration or Commission. Borrower
represents and warrants to Lender that neither Borrower
nor any affiliate of Borrower will be paid (directly or
indirectly) any commission, fee or other consideration of
any kind from Buyer (or its affiliates) on account of
Buyer's purchase of the Hotel, whether pursuant to the
Purchase Agreement, the property transfer documents exe-
cuted in connection therewith, or otherwise, other than
(a) the Gross Purchase Price, (b) the assumption of xxxx-
xxxx debt subordinate to the Secured Note, and (c) the
covenants (relating to the Hotel and the transfer of the
Hotel), representations, warranties and indemnities more
particularly set forth in the Purchase Agreement and the
property transfer documents executed in connection there-
with (including, without limitation, Buyer's assumption
of the landlord's obligations under the Operating Lease
and with respect to the contracts, personal property and
miscellaneous property assets in connection with Buyer's
purchase of the Hotel). The Purchase Agreement (includ-
ing the property transfer documents attached as exhibits
thereto) is the entire agreement between the parties with
respect to Buyer's purchase of the Hotel.
2. Borrower's Retention of Certain Net Sales Proceeds.
Lender acknowledges and agrees that the Independent
Advisors agreed upon the Allocation based upon the as-
sumption that the Net Sales Proceeds would not only be
sufficient to pay to Lender the Pay-Off Amount, but would
also be sufficient to enable Borrower to retain a portion
of the Net Sales Proceeds. Accordingly, Lender further
acknowledges and agrees that, after payment to Lender of
the Pay-Off Amount as contemplated herein, Borrower shall
have the absolute right to keep and retain any and all
remaining Net Sales Proceeds, free from any claim of
Lender, in consideration of Borrower's undertakings and
efforts regarding the Sale.
3. Closing.
a. Closing Date. The closing (the "Closing") of
the satisfaction of the Obligations and the release of
any and all collateral securing the same (the "Collater-
al") shall occur on the date (the "Closing Date") set
forth in a written notice to Lender delivered by Borrower
one (1) business day prior to the Closing, which Closing
Date shall be no later than the Outside Closing Date.
The Closing shall be conducted concurrently with the
closing of the Sale and shall be made part of the escrow
established by Borrower with First American Title Insur-
ance Company (the "Title Company") with respect to the
Sale.
b. Lender's Closing Deliveries. No later than
thirty days after the Effective Date, the following items
shall be delivered by Lender to the Title Company, to be
held in escrow by the Title Company pending the consumma-
tion of the Sale:
(1) the original executed Promissory Notes;
(2) releases and full reconveyances of the
Collateral, to be prepared by Borrower in form and sub-
stance reasonably satisfactory to the parties (the "Col-
lateral Releases"), all in form for recordation required
in the State of California, together with the original
Deed of Trust and the original Assignment of Leases and
any other instruments reasonably required by the Title
Company for the release and reconveyance of the Collater-
al;
(3) UCC-3 Termination Statements for filing with
the California Secretary of State and the County Recorder
of San Francisco, California, evidencing the termination
of Lender's security interests in the Collateral, to be
prepared by Borrower in form and substance reasonably
satisfactory to the parties;
(4) an unconditional general release of Borrower
and its general partner and affiliates of Borrower's
general partner, duly executed by Lender, to be prepared
by Borrower in form and substance reasonably satisfactory
to the parties (the "General Release of Borrower");
(5) an unconditional general release of each
Additional Unsecured Lender (as hereinafter defined),
duly executed by Lender to be prepared by Borrower in
form and substance reasonably satisfactory to such Addi-
tional Unsecured Lender (each, a "General Release of
Additional Unsecured Lender");
(6) a Form 1099-A prepared by Borrower in form and
substance satisfactory to Lender, to be filed by Lender
with the Internal Revenue Service; and
(7) wire transfer instructions for the payment to
Lender of the Pay-Off Amount.
c. Borrower's Closing Deliveries. At the Closing,
the following items shall be delivered by Borrower to the
Title Company to be held in escrow by the Title Company
pending the consummation of the Sale:
(1) instruction to the Title Company to pay the Pay-
Off Amount to Lender out of Net Sales Proceeds;
(2) an unconditional general release of Lender and
its general partner and affiliates of Lender's general
partner, duly executed by Borrower, in form and substance
reasonably satisfactory to the parties (the "Borrower's
General Release of Lender");
(3) a certification made by the general partner of
Borrower for the benefit of Lender setting forth each and
every Additional Unsecured Lender holding unsecured debt
of Borrower and the original and outstanding principal
amount of such unsecured debt; and
(4) evidence of the consent of each Additional
Unsecured Lender to the transactions contemplated hereby,
together with an unconditional general release(s) of
Lender and its general partner and affiliates of Lender's
general partner, duly executed by each Additional Unse-
cured Lender, in form and substance reasonably satisfactory
to Lender (each, a "Release of Lender by Additional
Unsecured Lender" and, collectively with Borrower's
General Release of Lender, the "General Releases of
Lender").
d. Title Company Obligations. At Closing, Borrow-
er shall cause the Title Company to (i) wire transfer the
Pay-Off Amount and deliver the General Releases of Lender
to Lender, (ii) cause the Collateral Releases to be filed
and recorded in the appropriate offices and deliver
conformed copies thereof to Borrower and Lender, (iii)
deliver the Promissory Notes and the General Release of
Borrower to Borrower, and (iv) deliver each General Re-
lease of Additional Unsecured Lender to the applicable
Additional Unsecured Lender.
4. Agreement and Release by Additional Unsecured Lender(s).
It shall be a condition precedent to the obligations
of Lender and Borrower hereunder that Borrower shall have
obtained (or, in the case of clause (iii) of this Section
4, caused to be delivered to the Title Company at the
Closing): (i) the agreement of any and all lender(s) holding
unsecured debt of the Borrower other than the Unsecured
Notes (each, an "Additional Unsecured Lender") to
Borrower's retention of all Net Sales Proceeds in excess
of the Pay-Off Amount as set forth herein, (ii) a general
release of Borrower, its general partner and its affiliates
by such Additional Unsecured Lender(s), and (iii) a
Release of Lender by Additional Unsecured Lender executed
by each Additional Unsecured Lender.
5. Miscellaneous Provisions.
a. Authority. Each party hereto represents and
warrants to the other that it has full power and authori-
ty to enter into this Agreement and to consummate the
transactions contemplated hereby. The person executing
this Agreement on behalf of the general partner of each
party hereto has been duly authorized to sign this Agree-
ment on behalf of such general partner, but signs this
Agreement only in such person's capacity as an officer of
such general partner and shall have no personal liability
with respect to this Agreement or the transactions con-
templated hereby.
b. Severability. If any term or provision of this
Agreement or the application thereof to any persons or
circumstances shall, to any extent, be invalid or unen-
forceable, the remainder of this Agreement or the appli-
cation of such term or provision to persons or circum-
stances other than those as to which it is held invalid
or unenforceable shall not be affected thereby, and each
term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
c. Integration of Agreement. This Agreement,
together with the Exhibits hereto and that certain letter
agreement between Borrower and Lender dated as of Septem-
ber 5, 1996 attached hereto as Exhibit B and incorporated
herein by this reference, constitutes the entire agree-
ment of the parties regarding the subject matter of this
Agreement and all prior or contemporaneous agreements,
understandings, representations and statements, oral or
written, are hereby merged herein.
d. Further Assurances. The parties agree to
mutually execute and deliver to each other, at, and from
time to time after, the Closing, such other and further
documents as may be reasonably required by counsel for
the parties to carry into effect the purposes and intents
of this Agreement, provided such documents are customari-
ly delivered in similar transactions, and do not impose
any material obligations upon any party hereunder except
as set forth in this Agreement.
e. Attorneys' Fees. In the event that any party
hereto fails to perform any of its obligations under this
Agreement or in the event a dispute arises concerning the
meaning or interpretation of any provision of this Agree-
ment, the defaulting party or the party not prevailing in
such dispute, as the case may be, shall pay any and all
costs and expenses reasonably incurred by the other
parties in enforcing or establishing its rights hereun-
der, including, without being limited to, court costs and
reasonable attorneys' fees, charges and disbursements.
f. Modifications; Counterparts. This Agreement
may not be modified, amended, altered or supplemented
except by written agreement executed and delivered by the
parties hereto. This Agreement may be executed in any
number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed
shall be deemed to be an original, and all of which when
so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart
of this Agreement. Any delivery of a counterpart signa-
ture by telecopier shall, however, be promptly followed
by delivery of a manually executed counterpart.
g. Governing Law. This Agreement shall be gov-
erned by and construed in accordance with the laws of the
State of New York, as if this Agreement was made and to
be performed wholly within such State.
h. Waiver of Jury Trial. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
i. No Waiver. Except as otherwise expressly
provided herein, the failure of any party hereto to
enforce at any time any of the provisions of this Agree-
ment shall in no way be construed as a waiver of any of
such provisions, or the right of any party thereafter to
enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to be a waiver of
any other or subsequent breach.
j. Headings. The Article and Section headings
used herein are for reference purposes only and do not
control or affect the meaning or interpretation of any
term or provision hereof.
k. Recordation. No party hereto may record this
Agreement. To the extent that any such filing is made in
violation of the Agreement, the party effecting such
filing shall indemnify, defend and hold the other harm-
less from and against any damages incurred by the other
in connection therewith. The provisions of this para-
graph shall survive the termination of this Agreement.
l. No Modifications to Existing Loan Documents.
Except to the extent expressly set forth herein, each of
the loan documents executed and delivered in connection
with the Promissory Notes shall remain unmodified and in
full force and effect. Any material default by Borrower
under this Agreement shall be deemed to constitute a
default under the Secured Note. The parties expressly
agree that this Agreement is contingent and is effective
only upon the closing of the Sale under the terms and
conditions set forth herein. Both Borrower and Lender
agree that this Agreement does not constitute a modifica-
tion of the Obligations within the meaning of Treasury
Regulation section 1.1001-3.
IN WITNESS WHEREOF, the parties hereto have executed
this Allocation and Release Agreement as of the date and
year first above written.
UNION SQUARE HOTEL PARTNERS,
L.P.
By: Union Square/GP Corp., its
general partner
By: s/Xxxxxxx X. Xxxxxx
__________________
Name: Xxxxxxx X. Xxxxxx
Title: President
CAPITAL GROWTH MORTGAGE INVES-
TORS, L.P.
By: CG Realty Funding Inc., its
general partner
By: s/Xxxxxxx X. Xxxxx
___________________
Name: Xxxxxxx X. Xxxxx
Title: President
EXHIBIT A
LEGAL DESCRIPTION
All that certain real property situated in the City and
County of San Francisco, State of California, described
as follows:
BEGINNING at the point of intersection of the northerly
line of Post Street with the westerly line of Stockton
Street; running thence northerly along said line of
Stockton Street 275.00 feet and 10-3/4 inches to the
southerly line of Xxxxxx Street; thence at a right angle
westerly along said line of Xxxxxx Street 117.00 feet and
6 inches; thence at a right angle southerly 100 feet;
thence at a right angle westerly 20 feet; thence at a
right angle southerly 175 feet and 10-3/4 inches to the
northerly line of Post Street; thence at a right angle
easterly along said line of Post Street 137.00 feet and 6
inches to the point of beginning.
BEING a portion of 00 Xxxx Xxxxx Xx. 000, which said
Block is delineated and shown on the record of Survey Map
thereof recorded January 8, 1970 in Book "S" of Maps,
Page 47, in the Office of the Recorder of the City and
County of San Francisco, State of California.
EXHIBIT B
LETTER AGREEMENT
