Exhibit 10.1
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of November 25, 1997
Between
DS HOTEL LLC,
as Borrower
and
GMAC COMMERCIAL MORTGAGE CORPORATION,
as Lender
Secured by:
Marriott's Desert Springs Resort and Spa
74855 Country Club Drive
Palm Desert, California
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
SCHEDULES V
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION............................... 1
Section 1.1 Definitions............................................ 1
Section 1.2 Principles of Construction............................. 30
II. GENERAL.............................................................. 31
Section 2.1 The Loan............................................... 31
2.1.1 Commitment............................................. 31
2.1.2 Disbursement to Borrower............................... 31
2.1.3 The Note............................................... 31
2.1.4 Use of Proceeds of Loan................................ 31
Section 2.2 Principal and Interest................................. 32
2.2.1 Principal and Interest................................. 32
2.2.2 Default Rate........................................... 33
Section 2.3 Loan Repayment and Defeasance.......................... 34
2.3.1 Repayment.............................................. 34
2.3.2 Voluntary Defeasance of the Note....................... 34
2.3.3 Repayment After Anticipated Repayment Date............. 38
2.3.4 Repayment Upon Default................................. 38
Section 2.4 Release of the Mortgaged Property...................... 38
Section 2.5 Payments and Computations.............................. 39
2.5.1 Making of Payments..................................... 39
2.5.2 Computations........................................... 39
Section 2.6 Maximum Rate of Interest............................... 39
III. CONDITIONS PRECEDENT................................................ 40
Section 3.1 Conditions Precedent to the Loan....................... 40
IV. REPRESENTATIONS AND WARRANTIES........................................ 44
Section 4.1 Borrower Representations............................... 44
Section 4.2 Survival of Representations............................ 44
-ii-
V. AFFIRMATIVE COVENANTS................................................. 45
Section 5.1 Borrower Covenants..................................... 45
VI. NEGATIVE COVENANTS.................................................... 57
Section 6.1 Borrower's Negative Covenants.......................... 57
VII. ALTERATIONS; LEASING................................................ 65
Section 7.1 Alterations............................................ 65
VIII. CASUALTY AND CONDEMNATION........................................... 69
Section 8.1 Insurance; Casualty and Condemnation................... 69
8.1.1 Insurance.............................................. 69
8.1.2 Casualty; Application of Proceeds...................... 76
8.1.3 Condemnation........................................... 79
IX. ACCOUNTS AND RESERVES................................................ 81
Section 9.1 Establishment and Maintenance of Reserve Accounts...... 81
Section 9.2 Maintenance Reserve Accounts........................... 81
9.2.1 Establishment.......................................... 81
9.2.2 Disbursements from the Chiller Work Reserve............ 81
9.2.3 Reserved............................................... 82
9.2.4 Reserved............................................... 82
9.2.5 Obligations Unaffected................................. 82
Section 9.3 Reserved............................................... 82
Section 9.4 Reserved............................................... 82
Section 9.5 Reserved............................................... 82
Section 9.6 Grant of Security Interest; Rights upon Default........ 82
Section 9.7 Lender Not Responsible................................. 83
Section 9.8 Inspections; Undertaking of Work....................... 83
X. DEFAULTS.............................................................. 84
Section 10.1 Event of Default....................................... 84
Section 10.2 Remedies............................................... 87
Section 10.3 Remedies Cumulative.................................... 88
Section 10.4 Cure Right of Agent.................................... 88
-iii-
XI. INTENTIONALLY OMITTED................................................ 88
XII. MANAGEMENT........................................................... 88
Section 12.1 Termination of Manager................................. 88
XIII. MISCELLANEOUS....................................................... 89
Section 13.1 Survival.............................................. 89
Section 13.2 Permitted Investments; Eligible Accounts; Eligible
Institutions.......................................... 89
Section 13.3 Governing Law; Consent to Jurisdiction................ 91
Section 13.4 Modification, Waiver in Writing....................... 92
Section 13.5 Delay Not a Waiver.................................... 92
Section 13.6 Notices............................................... 93
Section 13.7 Trial by Jury......................................... 94
Section 13.8 Headings.............................................. 95
Section 13.9 Severability.......................................... 95
Section 13.10 Preferences........................................... 95
Section 13.11 Waiver of Notice...................................... 95
Section 13.12 Remedies of Borrower.................................. 95
Section 13.13 Expenses; Indemnity................................... 96
Section 13.14 Exhibits and Schedules Incorporated................... 97
Section 13.15 Offsets, Counterclaims and Defenses................... 97
Section 13.16 No Joint Venture or Partnership....................... 97
Section 13.17 Lender's Statement.................................... 97
Section 13.18 Waiver of Marshalling of Assets....................... 97
Section 13.19 Waiver of Counterclaim................................ 98
Section 13.20 Conflict; Construction of Documents................... 98
Section 13.21 Brokers and Financial Advisors........................ 98
Section 13.22 No Third Party Beneficiaries.......................... 99
Section 13.23 Prior Agreements...................................... 99
Section 13.24 Exculpation........................................... 99
Section 13.25 Loan Assignability by Lender.......................... 101
Section 13.26 Disclosure............................................ 101
-iv-
SCHEDULES
Schedule 1 - [Intentionally Omitted]
Schedule 2 - Deferred Maintenance Conditions
Schedule 4A - Representations and Warranties of Borrower
Schedule 4A-6 - Rent Roll
Schedule 4A-8 - Engineering Reports
Schedule 4B - Representations and Warranties of
Borrower's Single Purpose
Schedule 4(C) - Exceptions to Representations and Warranties
Schedule 6.3 - Permitted Reorganization
EXHIBITS
Exhibit A - [Intentionally Omitted]
Exhibit B - Cash Management Procedures
Exhibit C - Ground Leased Property
Exhibit D - Operating Budget
Exhibit E - Capital Budget
Exhibit F - Periodic Financial Statements
-v-
INDEX OF SCHEDULES
Schedule 1..................................................iii,.1
Schedule 2............................................iv, 8, 93,.2
Schedule 4......................................................iv
Schedule 4(C)...................................................iv
Schedule 6.3.....................................................v
-vi-
THIS LOAN AGREEMENT, dated as of November 25, 1997 (as amended,
restated, replaced, supplemented or otherwise modified from time to time, this
"Agreement"), is made between DS HOTEL LLC, a Delaware limited liability
- ----------
company, and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation.
All capitalized terms used herein shall have the respective meanings
set forth in Section 1.1 hereof.
W I T N E S S E T H:
-------------------
WHEREAS, Borrower desires to obtain the Loan from Lender and secure
the same by, among other things, Borrower's interest in the real property
commonly known as "Marriott's Desert Springs Resort and Spa", at 74855 Country
Club Drive, Palm Desert, California; and
WHEREAS, Lender is willing to make the Loan to Borrower, subject to
and in accordance with the terms of this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, represen tations and warranties set forth in
this Agreement, the parties hereto hereby covenant, agree, represent and warrant
as follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
Section 1.1 Definitions.
-----------
For all purposes of this Agreement, except as otherwise expressly
provided herein:
"Acceptable Manager" shall mean (i) MII or a wholly-owned subsidiary
-------------------
of MII, or (ii) a nationally recognized hotel operator acceptable to Lender, in
the exercise of its reasonable discretion, which is engaged by Borrower to
operate the Hotel as part of a comparable nationally recognized hotel system
acceptable to Lender pursuant to a replacement management agreement, and as to
which Borrower shall have obtained a Rating Confirmation.
"Accounting Period" shall mean, initially, each accounting period of
-----------------
four consecutive weeks having the same
-1-
beginning and ending dates as the Manager's corresponding four week accounting
periods, except that the last Accounting Period in a Fiscal Year may be longer
than four consecutive weeks when and to the extent necessary to conform the
accounting system to the calendar, or if the accounting year on the basis of
which the Mortgaged Property is operated is changed to a calendar year or a
conventional 365-day fiscal year, "Accounting Period" shall mean each calendar
month in such fiscal year.
"Accounting Quarter" shall mean, initially, three (or in the case of
------------------
the last Accounting Quarter in any Fiscal Year, four) consecutive Accounting
Periods, ending on the last day of the third, sixth, ninth and last Accounting
Period in each Fiscal Year, or, if the accounting year on the basis of which the
Mortgaged Property is operated is changed to a calendar year or a conventional
365-day fiscal year, "Accounting Quarter" shall mean each of the fiscal quarters
in such fiscal year (i.e., there shall be four consecutive Accounting Quarters
----
of three months each).
"Additional Interest" shall mean the excess of the amount payable as
-------------------
interest under the Note at the Revised Interest Rate over the amount that would
have been payable as interest under the Note at the Initial Interest Rate.
"Affiliate" shall mean a Person or Persons directly or indirectly,
---------
through one or more intermediaries, controlling, controlled by or under common
control with the Person or Persons in question. The term "control", as used in
the immediately preceding sentence, shall mean, with respect to a Person that is
a corporation, the right to exercise, directly or indirectly, more than 10% of
the voting rights attributable to the shares of the controlled corporation and,
with respect to a Person that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled Person. Notwithstanding the foregoing, MII and its
Affiliates shall not be deemed to be Affiliates of the Borrower or any of its
members.
"ALTA" shall mean American Land Title Association, or any successor
----
thereto.
"Alteration" shall have the meaning set forth in Section 7.1.
----------
-2-
"Anticipated Repayment Date" shall mean the Payment Date occurring on
--------------------------
June 11, 2010 (or, if such date is not a Business Day, the immediately preceding
Business Day).
"Approved Banks" shall mean banks or other finan cial institutions
--------------
which have a minimum long-term unsecured debt rating from the applicable Rating
Agencies at least equivalent to the Required Rating.
"Basic Carrying Costs" shall mean the sum of the
--------------------
following obligations of Borrower associated with the Mortgaged Property: (i)
real property taxes, (ii) insurance premiums and (iii) ground rent.
"Borrower" shall mean DS Hotel LLC, a Delaware limited liability
--------
company, together with its successors and assigns as permitted hereunder.
"Business Day" shall mean any day other than a Saturday, Sunday or any
------------
other day on which national banks in New York or the corporate trust office of
Lender or comparable office of Servicer are not open for business.
"Cash" shall mean coin or currency of the United States of America or
----
immediately available federal funds, including such funds delivered by wire
transfer.
"Cash and Cash Equivalents" shall mean (i) Cash, (ii) U.S. Government
-------------------------
Securities, (iii) interest bearing or discounted obligations of federal agencies
and government sponsored entities or pools of such instruments offered by
Approved Banks and dealers, including, without limitation, Federal Home Loan
Mortgage Corporation participation sale certificates, Government National
Mortgage Association modified pass-through certificates, Federal National
Mortgage Association bonds and notes, Federal Farm Credit System securities
(provided all of the obligations described in this clause (iii) shall be rated
"AAA" or backed by the full faith and credit of the United States government for
full and timely payment), (iv) time deposits, domestic and Eurodollar
certificates of deposit, bankers acceptances or commercial paper rated at least
A-l+ (or its equivalent, as determined by the applicable Rating Agencies) by the
applicable Rating Agencies, and/or guaranteed by an entity having a long-term
rating at least equal to the Required Rating, floating rate notes, other money
market instruments and letters of credit each issued by Approved Banks
-3-
(provided that if the scheduled maturity of any such note, instrument or letter
of credit is more than six (6) months after the date of purchase of such
obligation by Borrower or Lender, the note, instrument or letter of credit must
be issued by a bank having a long-term unsecured debt rating from the applicable
Rating Agencies at least equal to the Required Rating), (v) obligations issued
by state and local governments or their agencies, carrying a rating at least
equal to the Required Rating and/or guaranteed by an irrevocable letter of
credit of an Approved Bank (provided that if the scheduled maturity of any such
obligation is more than six (6) months after the date of purchase by Borrower or
Lender and such obligation is guaranteed by a letter of credit, the letter of
credit guaranteeing such obligation must be issued by an Approved Bank), (vi)
repurchase agreements with major banks and primary government securities dealers
fully secured by U.S. govern ment or agency collateral with a value equal to or
exceeding the principal amount on a daily basis and held in safekeep ing
(provided that at the time of purchase the counterparty to such repurchase
agreement must have a long-term unsecured debt rating at least equal to the
Required Rating), (vii) investments in money market funds and money market
mutual funds all the assets of which are comprised of investments described in
clauses (i) through (vi) above, and (viii) any other investment which each of
the applicable Rating Agencies confirm in writing will not in and of itself
result in a downgrading or withdrawal of any of the ratings then assigned to any
Certificates. Except as otherwise provided in this definition, Cash and Cash
Equivalents shall not include any investments commonly known as "derivatives",
any investments requiring a payment above par for an obligation, and under no
circumstances shall Cash and Cash Equivalents include interest-only strips. Any
investment in Cash and Cash Equivalents shall have a maturity date not later
than one Business Day prior to the date that the proceeds therefrom are required
hereunder.
"Cash Collateral Account" shall mean the account established and held
-----------------------
by Servicer pursuant to Section 4.1 of the Cash Management Procedures.
"Cash Management Procedures" shall mean the provisions of Exhibit B.
--------------------------
"Casualty" shall have the meaning specified in Section 8.1.2(a).
--------
-4-
"Certificates" shall have the meaning specified in the Cooperation
------------
Agreement.
"Chiller Work" means the work described in Schedule 3 attached hereto.
------------
"Chiller Work Reserve" shall mean that certain reserve account
--------------------
established at closing to provide funds toward the installation of a back-up
chilled water system in accordance with the Claris Services Corporation report,
updated November 5, 1997.
"Closing Date" shall mean the date of the funding of the Loan.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
as it may be further amended from time to time, any successor statutes thereto,
and applicable U.S. Department of Treasury regulations issued pursuant thereto
in temporary or final form.
"Commitment Fee" shall have the meaning given such term in that
--------------
certain letter agreement, dated as of December 23, 1996 between DSMLP and
Goldman Sachs Mortgage Company ("GSMC"), as amended by that certain letter
----
agreement, dated as of September 2, 1997, between DSMLP and GSMC, as further
amended by that certain letter agreement, dated as of October 30, 1997, between
DSMLP and GSMC.
"Condemnation" shall have the meaning set forth in Section 8.1.3.
------------
"Consent of Manager" shall mean that Collateral Assignment of
------------------
Management Agreement and Subordination Agreement, dated as of the date hereof,
by and among Borrower, Manager and Lender.
"Cooperation Agreement" shall mean that certain Mortgage Loan
---------------------
Cooperation Agreement, dated as of the date hereof, by and among Borrower,
DSMLP, Host Marriott, Lender and GSMC.
"CPI Percentage" shall mean the percentage by which the "Consumer
--------------
Price Index for all urban consumers (CPI-U; U.S. City Average 1982-84 = 100, All
Items" (or appropriate substitute index if such index is no longer
-5-
published) (the "CPI") for December of the preceding Fiscal Year exceeds the CPI
---
for December 1997.
"Debt" shall mean the outstanding principal amount evidenced by the
----
Note, together with all interest accrued and unpaid thereon and all other sums
due to Lender in respect of the Loan, including the Yield Maintenance Payments,
if any, and any sums due under the Note, this Agreement, the Mortgage or in any
other Loan Document.
"Debt Securities" shall mean debt obligations, other than U.S.
---------------
Government Securities, of any Person, whether evidenced by bonds, notes,
debentures, certificates, book entry deposits, certificates of deposit,
commercial paper, bankers acceptances, reinvestment letters, funding agreements
or other instruments, which (x) are not subject to prepayment or redemption
prior to maturity and (y) are rated not less than the then Required Rating; or
any combination of the foregoing.
"Debt Service" shall mean, with respect to any specified date or a
------------
particular period of time, scheduled principal and interest payments under the
Note due as of such date or payable during such period (including the last day
thereof), as applicable.
"Debt Service Reserve Account" shall have the meaning set forth in
----------------------------
Section 5.1.1 of the Cash Management Procedures.
"Default" shall mean the occurrence of any event hereunder or under
-------
any other Loan Document which, but for the giving of notice or passage of time,
or both, would be an Event of Default.
"Default Rate" shall mean a rate per annum equal to two percent (2%)
------------
in excess of the applicable Interest Rate, but in no event less than the "Prime
Rate" as published from time to time in The Wall Street Journal.
"Defeasance" shall have the meaning set forth in Section 2.3.2(a)
----------
hereof.
"Defeasance Date" shall have the meaning set forth in Section
---------------
2.3.2(a)(i) hereof.
-6-
"Defeasance Deposit" shall mean an amount in cash equal to the sum of
------------------
(i) all costs and expenses (including, without limitation, the purchase price)
incurred or to be incurred in the purchase of U.S. Government Securities
necessary to meet the Scheduled Defeasance Payments, and (ii) any revenue,
documentary stamp or intangible taxes in connection with the transfer of the
Note.
"Deferred Maintenance Conditions" shall mean the conditions at the
-------------------------------
Mortgaged Property described on SCHEDULE 2 hereto.
"DSMLP" shall mean Desert Springs Marriott Limited Partnership, a
-----
Delaware limited partnership.
"Eligible Account" shall have the meaning given such term in Section
----------------
13.2.
"Eligible Collateral" shall mean U.S. Government Securities, Debt
-------------------
Securities, or Cash and Cash Equivalents, or any combination thereof.
"Eligible Institution" shall have the meaning given such term in
--------------------
Section 13.2.
"Employee Benefit Plan" shall have the meaning specified in Section
---------------------
6.1(j)(ii)(B).
"Environmental Indemnity" shall mean that certain Environmental
-----------------------
Indemnity Agreement, dated as of the date hereof, executed by Borrower, in
connection with the Loan, for the benefit of Lender.
"Equipment" shall have the meaning given such term in the Mortgage.
---------
"Event of Default" shall have the meaning set forth in Section 10.1(a)
----------------
hereof.
"FF&E" shall mean furniture; furnishings; fixtures; all fabric,
----
textile and flexible plastic products (not including items which are classified
as "Fixed Asset Supplies" under the Uniform System of Accounts) which are used
in furnishing the Hotel, including, without limitation, carpeting, drapes,
bedspreads, wall and floor coverings, mats, shower curtains and similar items;
furniture and furnishings used in the Hotel, including, without
-7-
limitation, chairs, beds, chests, headboards, desks, lamps, tables, television
sets, mirrors, pictures, wall decorations and similar items; signage; and
equipment at the Hotel (including, without limitation, facsimile machines,
communication systems, audio-visual equipment, and all computer and other
equipment needed for the reservation system and the property management system,
and all other electronic systems needed for the Hotel, from time to time, as
well as any other similar systems based on other technologies which may be
developed in the future).
"FF&E Expenditures" shall have the meaning given such term in the Cash
-----------------
Management Procedures.
"FF&E Loan" shall mean a loan or loan(s) from MII or an affiliate
---------
thereof or an affiliate of Borrower to Borrower for purposes of upgrading FF&E
at the Hotel, and subject to the restrictions set forth in Permitted
Indebtedness, below.
"FF&E Reserve Account" shall mean the account established pursuant to
--------------------
Section 6 of the Cash Management Procedures.
"Final Completion" shall mean, with respect to any specified work, the
----------------
final completion of all such work, including the performance of all "punch list"
items, as confirmed by an Officer's Certificate or, with respect to any Material
Alteration, a certificate of the Independent Architect or Engineer.
"Fiscal Year" shall mean the period commencing on Closing Date and
-----------
ending on and including the final day of the thirteenth Accounting Period
occurring in the calendar year in which the Closing occurs and thereafter, each
thirteen Accounting Periods, until the Debt is repaid in full.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America as of the relevant date in question.
"Governmental Authority" shall mean any court, board, agency,
----------------------
commission, office or authority of any nature whatsoever of or for any
governmental unit (federal, state, county, district, municipal, city or
otherwise), whether now or hereafter in existence.
-8-
"Gross Revenues" shall mean, for any period, all revenues and receipts
--------------
of every kind derived from or otherwise relating to the Mortgaged Property and
all departments and parts thereof during such period, including, but not limited
to: income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, stores, offices,
exhibit or sales space of every kind; license, lease and concession fees and
rentals (not including gross receipts of licensees, lessees and
concessionaires); golf course membership and greens fees and all other revenues
from the operation of the golf courses owned or leased by Borrower and
facilities related thereto; income from vending machines; health club membership
fees; food and beverage sales; sales of merchandise (other than proceeds from
the sale of FF&E no longer necessary to the operation of the Hotel, which shall
be deposited into the FF&E Reserve in accordance with the Management Agreement
or Cash Management Procedures, as applicable), service charges, to the extent
not distributed to the employees at the Hotel as, or in lieu of, gratuities to
the extent not included in Management Expenses; and proceeds, if any, from
business interruption or other loss of income insurance; provided, however, that
all refunds, rebates, discounts and credits of a similar nature, given, paid or
returned by Borrower or Manager in the course of obtaining all such revenue and
income and not otherwise included in Management Expenses shall be excluded; and
provided further, that Gross Revenues shall not include the following: (i)
gratuities to employees of the Hotel; (ii) federal, state or municipal excise,
sales, use or similar taxes collected directly from patrons or guests or
included as part of the sales price of any goods or services (but only to the
extent such taxes and gratuities are not included in Management Expenses); (iii)
Insurance Proceeds (other than proceeds from business interruption or other loss
of income insurance); (iv) net Condemnation Proceeds (other than for a temporary
taking); (v) any proceeds from the sale or refinancing of the Mortgaged
Property, (vi) proceeds from the disposition of FF&E no longer necessary for the
operation of the Hotel (which shall be deposited into the FF&E Reserve in
accordance with the terms of the Management Agreement); or (vii) interest which
accrues on amounts deposited in either the FF&E Reserve or any escrow accounts
which are established in accordance with Section 13.01C of the Management
Agreement.
-9-
"Ground Lease" shall mean the lease, dated April 24, 1987 between
------------
Ground Lessor as lessor and DSMLP as lessee, as amended from time to time, as
assigned by DSMLP to Mezzanine Borrower, and further assigned by the Mezzanine
Borrower to Borrower.
"Ground Leased Property" shall mean the land legally described in
----------------------
Exhibit C hereto.
"Ground Lessor" means Marriott's Desert Springs Development
-------------
Corporation, a Delaware corporation, and its successors and assigns.
"Ground Rent" shall mean the rental payments payable under the Ground
-----------
Lease.
"Host Marriott" shall mean Host Marriott Corporation, a Delaware
-------------
corporation, and its successors and assigns.
"Hotel" shall mean the hotel and the hotel operations located at the
-----
Mortgaged Property.
"Improvements" shall have the meaning set forth in the Mortgage.
------------
"Independent Architect or Engineer" shall mean any reputable
---------------------------------
architecture, engineering or construction management firm that is licensed or
registered in the state where the Mortgaged Property is located, if required by
the laws of such state, and not an Affiliate of Borrower (provided that a
licensed or registered professional described above who is employed by the
architecture and construction department of MII may serve as an Independent
Architect or Engineer).
"Independent Person/Independent Manager" shall have the meaning set
--------------------------------------
forth in Schedule 4B hereto.
"Initial Interest Rate" means a rate per annum equal to 7.8%.
---------------------
"Insurance Premiums" shall have the meaning set forth in Section
------------------
8.1.1(d) hereof.
"Insurance Requirements" shall mean all terms of any insurance policy
----------------------
required hereunder covering or
-10-
applicable to the Mortgaged Property or any part thereof, all requirements of
the issuer of any such policy, and all orders, rules, regulations and other
requirements of the National Board of Fire Underwriters (or any other body
exercising similar functions) applicable to or affecting the Mortgaged Property
or any part thereof or any use of the Mortgaged Property or any part thereof.
"Interest Accrual Period", with respect to a Payment Date, shall mean
-----------------------
the period beginning (and including) the eleventh (11th) day of the month
preceding such Payment Date (or with respect to the first Interest Accrual
Period, from the Closing Date) to (but excluding) the eleventh (llth) day of the
month in which such Payment Date occurs.
"Interest Rate" shall mean (i) the Initial Interest Rate, with respect
-------------
to the period from and including the Closing Date to but excluding the
Anticipated Repayment Date, and (ii) the Revised Interest Rate, with respect to
the period from and including the Anticipated Repayment Date to but excluding
the Maturity Date.
"Investment Grade" shall mean having a long term unsecured debt rating
----------------
not lower than BBB (or the equivalent) by the applicable Rating Agencies.
"Junior Lender" shall mean MDSM Finance LLC, a Delaware limited
-------------
liability company.
"Lease" shall mean any lease, sublease, sub sublease, license,
-----
letting, concession, occupancy agreement or other similar agreement (whether
written or oral and whether now or hereafter in effect), existing as of the date
hereof or hereafter entered into by Borrower, pursuant to which any Person is
granted a possessory interest in, or right to use or occupy all or any portion
of any space in the Mortgaged Property, and every modification, amendment or
other agreement relating to such lease, sublease, sub-sublease or other similar
agreement entered into in connection with such lease, sublease, sub-sublease or
other similar agreement, and all agreements related thereto, and every guarantee
of the performance and observance of the covenants, conditions and agreements to
be performed and observed by the other party thereto.
-11-
"Legal Requirements" shall mean all federal, state, county, municipal
------------------
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of Governmental Authorities binding upon
Borrower or the Mortgaged Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof, and having the force of
law whether now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments binding upon Borrower
or to which the Mortgaged Property or any part thereof is subject, at any time
in force, including any which may (i) require repairs, modifications or
alterations in or to the Mortgaged Property or any part thereof, or (ii) in any
way limit the use and enjoyment thereof.
"Lender" shall mean GMAC Commercial Mortgage Corporation, a California
------
corporation, its successors and assigns.
"Lender Origination Expenses" shall have the meaning given such term
---------------------------
in Section 5.1(g)(ii).
"Lien" shall mean any mortgage, deed of trust, lien, pledge,
----
hypothecation, assignment, security interest, or any other encumbrance, charge
or transfer of, on or affecting the Mortgaged Property or any portion thereof or
Borrower, or any interest therein (excluding pledges in favor of the Mezzanine
Lender), including any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement, and mechanic's, materialmen's
and other similar liens and encumbrances.
"Loan" shall mean the loan made to Borrower by Lender pursuant hereto
----
and the other Loan Documents in the original principal amount of ONE HUNDRED AND
THREE MILLION and NO/100 DOLLARS ($103,000,000.00) and evidenced by the Note,
secured inter alia by the Mortgage and certain other Loan Documents.
"Loan Documents" shall mean, collectively, this Agreement, the Note,
--------------
the Mortgage, the Environmental Indemnity, the Cooperation Agreement, and any
other document executed in connection with the Loan, as well as all other
-12-
documents executed and delivered in connection with the Loan or hereafter
executed and delivered by or on behalf of Borrower pursuant to the requirements
hereof or of any other Loan Document.
"Local Account" shall have the meaning set forth in Section 3 of the
-------------
Cash Management Procedures.
"Lockbox Account" shall have the meaning set forth in Section 7.2.2.
---------------
of the Cash Management Procedures.
"Lockbox Event" shall have the meaning set forth in Section 7 of the
-------------
Cash Management Procedures.
"Lockbox Period" shall have the meaning set forth in Section 7 of the
--------------
Cash Management Procedures.
"Management Agreement" shall mean that certain Management Agreement,
--------------------
dated of even date herewith, between Manager and Borrower, pursuant to which
Manager is to provide property management and other services with respect to the
Mortgaged Property; provided that as used herein with respect to the obligations
of Borrower and Manager under the Management Agreement the same shall be deemed
as modified by the Consent of Manager.
"Management Expenses" shall mean (a) the cost of sales including
-------------------
salaries, wages, employee benefits, Employee Claims (as defined in the
Management Agreement) (except to the extent specifically set forth in Section
14.01 C or D of the Management Agreement), payroll taxes and other costs
related to Hotel employees; (b) departmental expenses, administrative and
general expenses, relocation expenses not otherwise paid as part of Chain
Services (as defined in the Management Agreement), the cost of Hotel advertising
and business promotion expenses; the cost of heat, light, power water and other
utility costs; and the cost of routine repairs, maintenance and minor
alterations treated as Deductions under Section 8.01 of the Management
Agreement; (c) the cost of Inventories and Fixed Asset Supplies (as such terms
are defined in the Management Agreement) consumed in the operation of the Hotel;
(d) a reasonable reserve for uncollectible accounts receivable as determined by
the Manager; (e) all reasonable costs and fees of independent professionals or
other third parties who are retained by Manager to perform services required or
permitted under the Management Agreement; (f) the reasonable cost and expense of
-13-
technical consultants and operational experts who are employees of the Manager
or one of its Affiliates, for specialized services in connection with non-
routine Hotel work (but only to the extent such costs and expenses are
reasonably and competitively priced, as compared to similar work done by outside
consultants or experts); (g) the Base Management Fee (as defined in the
Management Agreement); (h) the Hotel's pro rata share of costs and expenses
incurred by the Manager or its Affiliates) in providing Chain Services (as
defined in the Management Agreement); (i) the Hotel's pro rata share of costs
and expenses incurred in connection with sales, advertising, and/or promotional
programs developed for or within the Marriott Hotel System, such as (without
limitation) the Marriott Rewards Program, where such costs and expenses are not
deducted as either departmental expenses under (b) above or as Chain Services
under (h) above; (j) insurance costs and expenses under Sections 12.04 B of the
Management Agreement; (k) any amounts transferred into the FF&E Reserve Account
in accordance with Section 8.02 of the Management Agreement; (l) license fees or
taxes, if any, payable by or assessed against the Manager related to the Hotel,
the Management Agreement or to Manager's operation of the Hotel (exclusive of
the Manager's income taxes or franchise taxes) including any Impositions
assessed against the Hotel; (m) lease payments pursuant to leases of Telephones
and Miscellaneous Equipment (as defined in the Management Agreement); (n) all
maintenance and operational costs related to the Golf Courses (as defined in the
Management Agreement); (o) rental payments made by or on behalf of Borrower
pursuant to the Ground Lease; and (p) such other costs and expenses as
specifically provided for as Deductions in the Management Agreement or are
otherwise reasonably necessary for the proper and efficient operation of the
Hotel; provided, however, that Management Expenses shall not include the costs
and expenses of providing Central Office Services (as defined in the Management
Agreement).
"Management Incentive Reserve Account" shall mean an account
------------------------------------
established by Servicer on or after the Anticipated Repayment Date, to be funded
as provided for in the Cash Management Procedures.
"Management Termination Event" shall mean any of the following:
----------------------------
-14-
(i) a Foreclosure (as defined in the Consent of Manager), or
(ii) if, for any two of three consecutive Fiscal Years, the annual
Operating Profit of the Mortgaged Property falls below
$15,000,000 and Manager shall have not paid into a subaccount of
the Cash Collateral Account the difference between $15,000,000
and the Operating Profit for each of such two Fiscal Years, which
amount, shall be treated in accordance with Section 5.3.2 shall
be held by Servicer on behalf of Lender as additional cash
collateral for the Loan.
"Manager" shall mean Marriott Hotel Services, Inc. or any replacement
-------
"Acceptable Manager" appointed in accordance with Section 12.1 hereof.
"Manager's Account" shall have the meaning set forth in Section 1.1 of
-----------------
the Cash Management Procedures.
"Material Adverse Effect" shall mean any event or condition that has a
-----------------------
material adverse effect upon (i) the business operations, economic performance,
Mortgaged Property, asset or condition (financial or otherwise) of Borrower,
(ii) the ability of Borrower to perform in all material respects the provisions
of any of the Loan Documents, (iii) the enforceability or validity of any Loan
Document or the perfection or priority of any Lien created under any Loan
Document, (iv) the value of, or cash flow from, the Mortgaged Property or the
operation thereof, or (v) the rights and remedies of Lender under the Loan
Documents.
"Material Agreements" shall mean the Management Agreement and the
-------------------
Ground Lease.
"Material Alteration" shall mean any Alteration or series of
--------------------
related Alterations (i.e., two or more Alterations that would not reasonably be
- -
performed one without the other) to be performed by or on behalf of Borrower at
the Mortgaged Property reasonably estimated by an Independent Architect or
Engineer to exceed the Threshold Amount.
"Material Casualty" shall have the meaning set forth in Section
-----------------
8.1.2(c) hereof.
-15-
"Material Condemnation" shall have the meaning set forth in Section
---------------------
8.1.2(c) hereof.
"Maturity Date" shall mean the date on which the final payment of
-------------
principal of the Note becomes due and payable as therein provided, whether at
the Stated Maturity Date, by declaration of acceleration, or otherwise.
"Maximum Rate" shall have the meaning set forth in Section 2.6.
------------
"Mezzanine Borrower" shall mean Marriott DSM LLC, a Delaware limited
------------------
liability company, together with its permitted successors and assigns pursuant
to the Mezzanine Loan Documents.
"Mezzanine Lender" shall mean GSMC, together with its permitted
----------------
successors and assigns.
"Mezzanine Loan" shall mean that loan arranged pursuant to the
--------------
Mezzanine Loan Agreement.
"Mezzanine Loan Agreement" shall mean that Credit Agreement, dated as
------------------------
of the Closing Date, by and among Mezzanine Borrower, GSMC as Agent for the
lenders thereunder, and Mezzanine Lender.
"Mezzanine Loan Documents" shall mean the Mezzanine Loan Agreement,
------------------------
together with all and any documents and instruments executed and delivered in
connection therewith (including, without limitation, all documents evidencing or
securing the loan made pursuant thereto), as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time.
"Mezzanine Loan Transfer Agreement" shall mean the
---------------------------------
agreement so captioned, dated as of the date hereof, among Borrower, Lender,
Agent and Mezzanine Lender.
"MII" shall mean Marriott International, Inc., a Delaware corporation,
---
or a transferee of or successor to all or substantially all of the lodging
management and franchise business currently conducted by such entity and its
affiliates, or the wholly owned affiliates of such transferee or successor.
-16-
"MII Cash Management Conditions" shall mean the conditions that the
------------------------------
Mortgaged Property is managed by a manager under the Management Agreement and
the Manager is MII or a wholly owned, direct or indirect, subsidiary of MII.
"Monthly Debt Service Payment Amount" shall have the meaning set forth
-----------------------------------
in Section 2.2.1(b) hereof.
"Mortgage" shall mean that certain first priority Fee and Leasehold
--------
Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture
Filing, dated as of the date hereof, executed and delivered by Borrower as
security for the Loan and encumbering, among other things, the real property
commonly known as, "Marriott's Desert Springs Resort and Spa", 74855 Country
Club Drive, Palm Desert, California, as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time.
"Mortgaged Property" shall have the meaning given such term in the
------------------
Mortgage.
"Note" shall mean that certain Promissory Note of even date herewith,
----
made by Borrower in favor of Lender, as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time.
"Officer's Certificate" shall mean a certificate made by an individual
---------------------
authorized to act on behalf of Borrower or the Manager (acting as Borrower's
agent) or to the extent applicable, any constituent Person with respect to
Borrower. Without limiting the foregoing, if the individual signing the
certificate is doing so on behalf of a corporation, then such individual shall
hold the office of President, Vice President or Chief Accounting Officer (or the
equivalent) with respect to such corporation. Any such certificate may be
based, insofar as it relates to legal, accounting, architectural or engineering
matters or matters customarily dealt with by experts, upon the written advice of
counsel, an accountant, architect, engineer or such expert, as applicable,
provided the individual signing the certificate believes in good faith that such
- --------
reliance is justified.
"Operating Account" shall have the meaning set forth in Section 7.9 of
-----------------
the Cash Management Procedures.
-17-
"Operating Budget" shall mean Borrower's annual budget setting forth,
----------------
in reasonable detail, good faith estimates of the anticipated results of
operations of the Mortgaged Property, including revenues from all sources, all
Management Expenses, management fees and capital expenditures.
"Operating Profit" shall mean the excess of Gross Revenues over
----------------
Management Expenses.
"Operating Profit Payment Date" shall have the meaning described in
-----------------------------
the Cash Management Procedures.
"Optional Defeasance Date" shall mean the earlier of (a) the Payment
------------------------
Date following the fourth anniversary of the Closing Date and (b) two (2) years
from the "start-up day" (within the meaning of Section 860G(a)(9) of the Code)
of the REMIC Trust, as determined by the Lender named herein.
"Other Charges" shall mean all ground rents, maintenance charges,
-------------
impositions other than Taxes, and any other charges, including vault charges and
license fees for the use of vaults, chutes and similar areas adjoining the
Mortgaged Property, now or hereafter levied or assessed or imposed against the
Mortgaged Property or any part thereof and payable by Borrower.
"Payment Date" shall mean the eleventh (11th) day of each calendar
------------
month or, if in any month the eleventh (11th) day is not a Business Day, then
the Payment Date for such month shall be the immediately preceding Business Day.
"Permits" shall have the meaning set forth in Schedule 4A(10) hereof.
-------
"Permitted Encumbrances" shall mean, collectively, (a) the Liens and
----------------------
security interests created by the Loan Documents, (b) all Liens, encumbrances
and other matters disclosed in the Qualified Title Policy, (c) Liens, if any,
for Taxes or Other Charges not yet delinquent or which are being diligently
contested in good faith in accordance with Section 5.1(b)(ii) hereof, (d) Liens
in respect of property or assets imposed by law such as carriers',
warehousemen's, landlord's, mechanic's, materialmen's repairmen's and other
similar Liens arising in the ordinary course of business, and Liens for workers'
compensation, unemployment insurance and similar programs, which are being
diligently contested
-18-
in good faith in accordance with Section 5.1(b)(ii) hereof, (e) Leases, (f)
easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances (including any of such matters
incurred or entered into by Borrower following the date of this Agreement) which
in each case do not diminish in any material respect the value of the Mortgaged
Property or affect in any material respect the validity, enforceability or
priority of the Liens created by the Loan Documents, and (g) such other title
and survey exceptions as Lender has approved or may approve in writing in
Lender's sole discretion.
"Permitted Indebtedness" shall mean, with respect to Borrower, (a) the
----------------------
Debt, (b) non-capital equipment leases entered into in the ordinary course of
Borrower's business, not to exceed required annual payments of $1.1 million in
the aggregate during any calendar year, of which payments of no more than
$600,000 in the aggregate during any calendar year may come from a source other
than the FF&E Reserve, and Account and (c) FF&E Loans not exceeding $5.0
million, provided that (i) the lender thereunder shall agree not to assert any
remedies with respect to the non-payment thereof so long as the Loan is
outstanding, (ii) no amounts shall be paid or payable in respect such debt if
there shall exist any default under this Loan or the Mezzanine Loan, (iii) the
FF&E Loan shall be payable only from the FF&E Reserve Account, and to the extent
that revenues from the Mortgaged Property are insufficient to pay amounts owed
to third parties that are payable from the FF&E Reserve Account, amounts payable
on the FF&E Loan shall not be payable currently and shall accrue, and (d)
unsecured Trade Payables incurred in the ordinary course of Borrower's business,
customarily paid by Borrower's predecessor in interest within sixty (60) days of
incurrence and in fact not more than sixty (60) days outstanding. "Permitted
Indebtedness", with respect to Mezzanine Borrower, shall mean, (a) the Mezzanine
Debt, and (b) unsecured debt incurred in the ordinary course of business not
exceeding $2.0 million for purposes related to the Mortgaged Property, provided
that (i) such debt shall be fully subordinated to the Debt and the Mezzanine
Debt, (ii) no amounts shall be paid or payable on such debt until all payments
and deposits to be made pursuant to Section 4.3, 4.4, 7.9.4, or 7.9.5 of the
Cash Management Procedures, as applicable, and payments on account of the
Incentive Management Fee shall have been paid or fully provided for and (iii) if
such debt is provided by Host Marriott or MII or any affiliate thereof, the
payee
-19-
thereof shall agree not to assert any remedies with respect to the non-payment
thereof so long as the Debt and the Mezzanine Debt are outstanding.
"Permitted Investments" shall mean the following, subject to
---------------------
qualifications hereinafter set forth:
1. Obligations of, or obligations guaranteed as to principal and interest
by, the U.S. government or any agency or instrumentality thereof, when
such obligations are backed by the full faith and credit of the U.S.
These obligations include, but are not limited to:
. U.S. Treasury obligations
All direct or fully guaranteed obligations
. Farmers Home Administration
Certificates of beneficial ownership
. General Services Administration
Participation certificates
. U.S. Maritime Administration
Guaranteed Title XI financing
. Small Business Administration
Guaranteed participation certificates
Guaranteed pool certificates
. U.S. Department of Housing and Urban Development
Local authority bonds
. Washington Metropolitan Area Transit Authority
Guaranteed transit bonds
2. Federal Housing Administration debentures.
3. Obligations of government-sponsored agencies that are not backed by the
full faith and credit of the U.S., where the obligation is limited to
those instruments that have a predetermined fixed dollar amount of
principal due at maturity that cannot vary or change. These obligations
are limited to:
. Federal Home Loan Mortgage Corp. (FHLMC)
Debt obligations
. Farm Credit System (formerly: Federal land Banks, Federal
Intermediate Credit Banks, and Banks for Cooperatives)
Consolidated system wide bonds and notes
. Federal Home Loan Banks (FHL Banks)
-20-
Consolidated debt obligations
. Federal National Mortgage Association (FNMA)
Debt obligations
. Student Loan Marketing Association (SLMA)
Debt obligations
. Financing Corp. (FICO)
Debt obligations
. Resolution Funding Corp. (REFCORP)
Debt obligations.
4. Federal funds, unsecured certificates of deposit, time deposits,
banker's acceptances, and repurchase agreements having maturities of
not more than 365 days of any bank, the short-term debt obligations of
which are rated "A-l+" (or the equivalent) by the applicable Rating
Agencies.
5. Deposits that are fully insured by the Federal Deposit Insurance Corp.
(FDIC).
6. Debt obligations maturing in 365 days or less that are rated "AAA" or
higher (or the equivalent) by the applicable Rating Agencies.
7. Commercial paper rated "A-l+" (or the equivalent) by the applicable
Rating Agencies and maturing in 365 days or less.
8. Investments in certain short-term debt of issuers rated "A-1+" (or the
equivalent) by the applicable Rating Agencies may be permitted with
certain restrictions. The total amount of debt from "A-1+" issuers must
be limited to the investment of an amount equal to Monthly Debt Service
Payment Amount. The total amount of "A-1+" investments should not
represent more than 20% of the rated issue's outstanding principal
amount and each investment should not mature beyond 30 days. Investment
in "A-1+" (or the equivalent) rated securities are not eligible for
reserve accounts, cash collateral accounts, or other forms of credit
enhancement. Short-term debt for purposes of this definition includes:
commercial paper, federal funds, repurchase agreements, unsecured
certificates of deposit, time deposits, and banker's acceptances.
-21-
9. Investment in money market funds rated "AAA" (or the equivalent) by the
applicable Rating Agencies.
10. Such other investments as shall be approved in writing by means of a
Rating Confirmation.
Notwithstanding the foregoing, "Permitted Investments": (i) shall exclude any
security with the Standard & Poor's "r" symbol (or any other Rating Agency's
corresponding symbol) attached to the rating (indicating high volatility or
dramatic fluctuations in their expected returns because of market risk), as well
as any mortgage-backed securities; (ii) shall not have maturities in excess of
one year; (iii) as to the investments described in (1), (3), (4), (5), (6), (7)
and (8): the obligations shall be limited to those instruments that have a
predetermined fixed dollar of principal due at maturity that cannot vary or
change; interest may either be fixed or variable; and any variable interest
should be tied to a single interest rate index plus a single fixed spread (if
any), and move proportionately with that index; and (iv) shall exclude any
investment where the right to receive principal and interest derived from the
underlying investment provide a yield to maturity in excess of 120 percent of
the yield to maturity at par of such underlying investment. No investment shall
be made which requires a payment above par for an obligation if the obligation
may be prepaid at the option of the issuer thereof prior to its maturity. All
investments shall mature or be redeemable upon the option of the holder thereof
on or prior to the earlier of (x) three (3) months from the date of their
purchase or (y) the Business Day preceding the day before the date such amounts
are required to be applied hereunder.
"Permitted Owners" shall have the meaning set forth in Section
----------------
6.1(j)(iii) hereof.
"Person" shall mean any individual, sole proprietorship, corporation,
------
general partnership, limited partnership, limited liability company or
partnership, joint venture, association, joint stock company, insurance company
separate account, bank, trust, estate, unincorporated organization, any federal,
state, county or municipal government (or any agency or political subdivision
thereof), endowment fund or any other form of entity or investment vehicle.
-22-
"Policies" shall have the meaning specified in Section 8.1.1(c).
--------
"Proceeds" shall mean amounts, awards or payments payable to Borrower
--------
or Lender in respect of all or any part of the Mortgaged Property in connection
with a Casualty or Condemnation thereof (after the deduction therefrom and
payment to Borrower and Lender, respectively, of any and all reasonable expenses
incurred by Borrower and Lender in the recovery thereof, including all
reasonable attorneys' fees and expenses, the fees of insurance experts and
adjusters and the costs incurred in any litigation or arbitration with respect
to such Casualty or Condemnation).
"Qualified Survey" shall mean a current ALTA survey of the Mortgaged
----------------
Property, certified to the title company and Lender and their successors and
assigns, that (A) is in form and content reasonably satisfactory to Lender, (B)
is prepared by a professional and properly licensed land surveyor satisfactory
to Lender in accordance with the 1992 Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys, (C) meets the classification of an "Urban Survey",
and the following additional items from the list of "Optional Survey
Responsibilities and Specifications" (Table A) should be added to each survey:
2, 3, 4, 6, 7, 8, 9, 10, 11 and 13, (D) reflects the same legal description
contained in the Qualified Title Policy relating to the Mortgaged Property, and
(E) contains a certification in form and substance reasonably acceptable to
Lender.
"Qualified Title Policy" shall mean a policy (with endorsements)
----------------------
comparable to an ALTA title insurance policy (1970 unmodified form, where
issuable) issued by a title company reasonably acceptable to Lender, with
reinsurance and direct access agreements reasonably acceptable to Lender, which
title insurance policy shall (A) provide coverage in the amount of the Loan, (B)
insure Lender that the Mortgage creates a valid first deed of trust lien on the
Mortgaged Property, free and clear of all exceptions from coverage other than
Permitted Encumbrances and such standard exceptions and exclusions from coverage
as Lender shall approve, (C) contain such endorsements and affirmative coverages
as Lender may reasonably request, (D) name Lender as the insured and (E) be
assignable by its terms with a transfer of the Loan.
-23-
"Rating Agency" shall mean each of the following who rate the
-------------
Certificates: Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch
Investors Service, L.P.
"Rating Confirmation," with respect to the matter in question, shall
-------------------
mean that as a condition thereto the Rating Agencies shall have confirmed in
writing that (i) such investment, replacement or action shall not result, in and
of itself, in a reduction, withdrawal or qualification of any rating then
assigned to any outstanding Certificates (if the Securitization has occurred),
or (ii) such investment, replacement or action would not result, in and of
itself, in a reduction, withdrawal or qualification of any rating for proposed
Certificates then under consideration by the Rating Agencies (if the
Securitization has not yet occurred); provided that if the Securitization has
not taken (and as certified by Lender, will not take) the form of a transaction
rated by the Rating Agencies, then "Rating Confirmation" shall instead mean that
the matter in question shall be subject to the prior approval of the Lender
(which shall not be withheld or conditioned unreasonably).
"REMIC" shall mean a "real estate mortgage investment conduit" within
-----
the meaning of Section 860D of the Code.
"REMIC Trust" shall mean a REMIC which holds the Note.
-----------
"Rents" shall mean all rents, rent equivalents, moneys payable as
-----
damages or in lieu of rent or rent equivalents, royalties (including all oil and
gas or other mineral royalties and bonuses), income, receivables, receipts,
revenues, deposits (including security, utility and other deposits), accounts,
cash, issues, profits, charges for services rendered, and other consideration of
whatever form or nature received by or paid to or for the account of or benefit
of Borrower or its agents or employees from any or all sources arising from or
attributable to the Mortgaged Property, including all room rents related to the
overnight occupancy of guests at the Mortgaged Property, all banquet, conference
or other room rentals, fees or consideration of any sort, credit card
receivables, and all deposits of money as advance rent, for security or as
-24-
earnest money or as a down payment or deposit for the reservation of rooms or
other facilities in the Mortgaged Property and any obligations now existing or
hereafter arising or created out of the sale, Lease or other grant of the right
of the use and occupancy of property or rendering of services by the Borrower
and proceeds, if any, from business interruption or other loss of income
insurance. Without limitation of the foregoing, "Rents" shall include "Gross
-----
Revenues."
"Required Rating" shall mean the higher of (i) the highest rating then
---------------
assigned by the applicable Rating Agencies to any of the Certificates, and (ii)
"A" (or its equivalent) by S&P and Moody's.
"Required Records" shall have the meaning set forth in Section
----------------
5.1(j)(x) hereof.
"Reserve Account" shall have the meaning set forth in Section 9.1
---------------
hereof.
"Restoration" shall have the meaning set forth in Section 8.1.2(b).
-----------
"Revised Interest Rate" shall mean the per annum rate equal to the sum
---------------------
of (a) the greater of (i) the Initial Interest Rate or (ii) the then-current
yield on 12-year United States Treasury obligations, plus (b) two percent
(2.00%).
"Scheduled Defeasance Payments" shall have the meaning set forth in
-----------------------------
Section 2.3.2(b) hereof.
"Secured Obligations" shall have the meaning set forth in the
-------------------
Mortgage.
"Securities Act" shall have the meaning set forth in Section
--------------
5.1(j)(ix) hereof.
"Securitization" shall have the meaning set forth in the Cooperation
--------------
Agreement.
"Security Agreement" shall have the meaning set forth in Section
-------------------
2.3.2(a)(vi) hereof.
"Servicer" shall mean Lender or any other Person appointed by Lender
--------
to service the Loan appointed pursuant to the Servicing Agreement. If at any
time no entity shall
-25-
be so appointed, Servicer shall be deemed to refer to Lender.
"Servicing Agreement" shall mean any trust, pooling and servicing
-------------------
agreement or trust and servicing agreement that may be entered into from time to
time in connection with any Securitization of the Loan.
"Special Purpose" means, with respect to a Person, that such Person:
---------------
(A) at all times since its formation, (i) has been a duly formed and
existing limited partnership, limited liability company or corporation, as
the case may be; (ii) has observed all customary formalities regarding its
partnership, limited liability company, or corporate existence; (iii) has
maintained financial statements, accounting records, and other partnership,
limited liability company, or corporate documents separate from those of
any other Person (provided that nothing shall prohibit such Person from
being included in the consolidated financial statements or tax group of
another Person); (iv) has not commingled its assets with those of any other
Person; (v) has paid its own liabilities out of its own funds, including
funds contributed to its capital by its respective equity holders, and all
such capital contributions have been reflected properly in its books and
records; (vi) has allocated fairly and reasonably any overhead for shared
office expenses; (vii) has identified itself in all dealings with the
public under its own name and as a separate and distinct entity; (viii) has
not identified itself as being a division or part of any other Person; (ix)
has not identified any other Person as being a division or part of such
Person; (x) has corrected any known misunderstandings regarding its
separate identity; (xi) has been adequately capitalized in light of the
nature of its business; and (xii) has not assumed or guaranteed the
obligations of any other Person; and
(B) has and covenants to maintain customary "special purpose" and
"bankruptcy remoteness" provisions in its organizational documents
consistent with the requirements of the Rating Agencies, including:
-26-
(i) if the Person in question is a corporation, it shall have an
Independent Person whose vote shall be required each of the Specified
Special-Purpose Matters; and
(ii) if the Person in question is a limited liability company,
(w) at least one of its managers must be an Independent Person (the
"Independent Manager") whose vote shall be required for all matters
--------------------
or, to the extent permitted by applicable law, the Specified Special-
Purpose Matters, (x) the operating agreement of such limited liability
company shall expressly provide that the bankruptcy, insolvency or
dissolution (or similar event) of one or more of its members (or, if
applicable, its sole member) shall not result in the dissolution of
such limited liability company, (y) such operating agreement shall
expressly provide that the insolvency, bankruptcy, dissolution,
resignation or withdrawal of such single member shall result in the
immediate admission of the Independent Manager as a member (which may
be a non-economic member), and (z) without limiting the foregoing,
such operating agreement and the articles of organization of such
limited liability company shall be substantially the same as those of
the Senior Borrower named herein.
Further, if such Person is a limited partnership, at least one of its
general partners must itself be a Special-Purpose Entity, with a
corporation, limited liability company or limited partnership as its
managing general partner that satisfies the requirements set forth in this
definition of "Special Purpose," including the requirements with respect an
Independent Person as a director or manager, as applicable.
"Specified Special-Purpose Matters" shall mean (i) the dissolution,
---------------------------------
liquidation, consolidation, merger and the sale of all or substantially all of
the assets of the Special-Purpose Entity, (ii) with respect to the Senior
Borrower, the engagement by the Special Purpose Entity in any other business
other than acquiring, owning, developing, mortgaging, encumbering,
hypothecating, leasing, selling, maintaining, improving, altering, expanding,
managing, and otherwise operating and dealing with all or part of the
-27-
Mortgaged Property, (iii) the filing, or consent to the filing, of bankruptcy or
insolvency petitions, any general assignment for the benefit of creditors, or
the institution of any other insolvency proceedings, and (iv) the amendment of
such Special Purpose Entity's organizational documents with respect to any
provision thereof necessary or appropriate for the satisfaction of "special
purpose" and "bankruptcy-remoteness" criteria.
"Special Servicer" shall mean the entity appointed by Lender to
----------------
specially service the Loan or its successor in interest, or if any successor
special servicer is appointed pursuant to the Servicing Agreement. If at any
time no entity shall be so appointed, Special Servicer shall be deemed to refer
to Servicer, or if there is no Servicer, Lender.
"Stated Maturity Date" shall mean December 11, 2022 (or, if such date
--------------------
is not a Business Day, the immediately preceding Business Day).
"Successor Borrower" shall have the meaning set forth in Section
------------------
2.3.2(c)(ii) hereof.
"Tax and Insurance Reserve Account" shall have the meaning set forth
---------------------------------
in Section 4.2 of the Cash Management Procedures.
"Taxes" shall mean all real estate and personal property taxes,
-----
assessments, fees, taxes on rents or rentals, water rates or sewer rents, and
other governmental charges now or hereafter levied or assessed or imposed
against Borrower or the Mortgaged Property or rents therefrom or which may
become Liens.
"Tenant" shall mean any Person liable by contract or otherwise to pay
------
monies (including a percentage of gross income, revenue or profits) pursuant to
a Lease.
"Threshold Amount" shall mean One Million Dollars ($1,000,000).
----------------
"Trade Payables" shall mean amounts payable by or on behalf of
--------------
Borrower for or in respect of the operation of the Mortgaged Property in the
ordinary course and which would under GAAP be regarded as ordinary expenses,
including amounts payable to suppliers, vendors, contractors,
-28-
mechanics, materialmen or other Persons providing property or services to the
Mortgaged Property or Borrower.
"Treasury Constant Yield" shall mean the arithmetic mean of the
-----------------------
rates published as "Treasury Constant Maturities" as of 5:00 p.m., New York
time, for the five Business Days preceding the date on which acceleration has
been declared, as shown on the USD screen of the Telerate service, or if such
service is not available, the Bloomberg service, or if neither the Telerate nor
the Bloomberg service is available, under Section 504 in the weekly statistical
release designated H.15(519) (or any successor publication) published by the
Board of Governors of the Federal Reserve System, for "On the Run" U.S. Treasury
obligations maturing on the Payment Date occurring on the Anticipated Repayment
Date; if no such maturity shall so exactly correspond, yields for the two most
closely corresponding published maturities shall be calculated pursuant to the
foregoing sentence and the Treasury Constant Yield shall be interpolated or
extrapolated (as applicable) from such yields on a straight-line basis
(rounding, in the case of relevant periods, to the nearest month).
"UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial
--- -----------------------
Code as in effect in the state in which
the Mortgaged Property is located.
"U.S. Government Securities" shall mean securities evidencing an
--------------------------
obligation to pay principal and interest in a full and timely manner that are
(x) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (y) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of and guaranteed as
a full faith and credit obligation by the United States of America, which in
either case are not callable or redeemable at the option of the issuer thereof
(including a depository receipt issued by a bank (as defined in Section 3(a)(2)
of the Securities Act) as custodian with respect to any such securities or a
specific payment of principal or interest on any such securities held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the securities or the
specific payment of
-29-
principal of or interest on the securities evidenced by such depository receipt.
"Yield Maintenance Payments" shall have the meaning set forth in
--------------------------
Section 2.3.4 hereof.
Section 1.2 Principles of Construction.
--------------------------
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
words "includes", "including" and similar terms shall be construed as if
followed by the words "without limitation". The term "Mortgaged Property" shall
be construed to be followed with the phrase "or any part or portion thereof".
Unless otherwise specified, all meanings attributed to defined terms herein
shall be equally applicable to both the singular and plural forms of the terms
so defined. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, as may be modified herein. As a matter of
convenience herein, rating categories are generally stated in the Standard &
Poor's nomenclature, it being understood that unless otherwise expressly stated
to the contrary, the category indicated will instead be deemed to be the
equivalent category of the applicable Rating Agencies; provided that if a
specified rating (or its equivalent) from the applicable Rating Agencies is
required hereunder with respect to an issuer or a security (other than the
Certificates), and Fitch Investors Service, L.P., as one of the applicable
Rating Agencies in connection with a Securitization, does not rate the issuer or
security in question, then such requirement hereunder shall nevertheless be
deemed satisfied so long as Standard & Poor's Ratings Group and Moody's
Investors Service, Inc. rate such issuer or security at or greater than the
required rating level.
-30-
II. GENERAL
-------
Section 2.1 The Loan.
--------
2.1.1 Commitment. Subject to and upon the terms and conditions set
----------
forth herein, including the conditions precedent set forth in Section 3.1,
Lender hereby agrees to make the Loan to Borrower on the Closing Date, which
Loan shall mature on the Stated Maturity Date. Borrower hereby agrees to accept
the Loan on the Closing Date, subject to and upon the terms and conditions set
forth herein.
2.1.2 Disbursement to Borrower. Borrower may request and receive
------------------------
only one disbursement hereunder in respect of the Loan. Borrower shall receive
the proceeds of the Loan on the Closing Date, subject to the direction given by
Borrower as to the application of Loan proceeds to pay the Lender Origination
Expenses and the Commitment Fee and to fund (i) the Chiller Work Reserve in the
amount of $1,500,000, (ii) a distribution to the Mezzanine Borrower, for further
distribution to DSMLP, for further distribution to the partners of DSMLP, in the
amount of up to $2,727,272, and (iii) any other escrow or reserve account
contemplated hereunder or under any other Loan Document to be funded at or prior
to the Closing Date, all in accordance with the provisions of this Agreement.
Any amount borrowed and repaid hereunder in respect of the Loan may not be
reborrowed.
2.1.3 The Note. The Loan shall be evidenced by the Note, in the
--------
original principal amount of the Loan. The Note shall bear interest at the
Interest Rate. The Note shall be subject to repayment as provided in Section
2.3, shall be entitled to the benefits of this Agreement and shall be secured by
the Mortgage granting a first deed of trust lien on the Mortgaged Property and
by certain of the other Loan Documents.
2.1.4 Use of Proceeds of Loan. Borrower shall use the proceeds of
-----------------------
the Loan, together with other contributed capital of Borrower, to (i) repay the
existing debt secured by the Mortgaged Property and pay all costs and expenses
incurred in connection therewith, (ii) pay all past-due Basic Carrying Costs, if
any, in respect of the Mortgaged Property, (iii) fund the Chiller Work Reserve
in the amount of $1,500,000, (iv) pay costs and expenses actually incurred in
connection with the Closing of the Loan, (v) pay Lender Origination Expenses,
(vi) pay the
-31-
remaining balance of the Commitment Fee, (vii) pay related costs or expenses in
connection with any of the foregoing, and (viii) a distribution to the Mezzanine
Borrower, for further distribution to DSMLP, for further distribution to the
partners of DSMLP, in the amount of up to $2,727,272.
Section 2.2 Principal and Interest.
----------------------
2.2.1 Principal and Interest.
----------------------
(a) Subject to Section 2.2.2, from the date hereof to but excluding
the Maturity Date, Borrower shall pay interest on the outstanding principal
balance of the Loan at the applicable Interest Rate in accordance with Section
2.5.2 hereof (it being acknowledged that from and after the Anticipated
Repayment Date, interest on the Note shall accrue at the Revised Interest Rate).
On the date hereof, Borrower shall make a payment of interest only on the Loan
at the Initial Interest Rate for the period from the date hereof to but
excluding the Payment Date on December 11, 1997.
(b) Commencing with the initial Payment Date on January 11, 1998 and
on each and every Payment Date thereafter through and including the Maturity
Date, the principal amount of the Loan and interest thereon at the applicable
Interest Rate (subject, with respect to interest, to the terms of Sections
2.2.1(d) and (e)) shall be payable on each Payment Date in monthly installments
(each, a "Monthly Debt Service Payment Amount") of principal and interest in
-----------------------------------
accordance with the amortization schedule set forth in the Note (which assumes
throughout the term of the Loan interest at the Initial Interest Rate).
(c) Commencing with the Anticipated Repayment Date, in addition to the
principal to be repaid pursuant to Section 2.2.1(b), Borrower shall repay on
each Payment Date the principal of the Loan to the extent provided for under
Section 2.2.1(e).
(d) Commencing with the Anticipated Repayment Date, Additional
Interest shall be due and payable in accordance with the terms of Section
2.2.1(e) and, to the extent unpaid by reason of insufficient Gross Revenues less
Management Expenses(after application in accordance with Section 2.2.1(e)),
shall be deferred and added to the Debt and, to the extent permitted by
applicable law, accrue interest at the Revised Interest Rate.
-32-
(e) Commencing on the Anticipated Repayment Date and continuing on
each Payment Date thereafter until the entire Debt has been paid in full, any
and all Gross Revenues, less Management Expenses, whether the same are deposited
into the Cash Collateral Account or otherwise received by Borrower, the Manager
or Lender during the immediately preceding calendar month, shall be applied in
the order set forth in Section 4.4 or Section 7.9.5 of the Cash Management
Procedures, as applicable.
Notwithstanding anything herein to the contrary, the failure of
Borrower from and after the Anticipated Repayment Date to make all of the
payments required under clauses (A) through (C) of Section 4.4 of the Cash
Management Procedures, or Section 7.9.1(A) and (B) and Section 7.9.5(A) of the
Cash Management Procedures, as applicable, in each case in full shall constitute
an Event of Default. However, the failure of Borrower to pay any amounts
required to be paid under Section 4.4(D)through (M) of the Cash Management
Procedures, or any amount under Section 7.9.5(B) through (K) of the Cash
Management Procedures, including Additional Interest on a Payment Date, as a
result of insufficient Gross Revenues for such payment (after application of
Gross Revenues in accordance with the Cash Management Procedures)shall not in
itself constitute a Default or Event of Default hereunder. All accrued and
unpaid Additional Interest shall nonetheless be due and payable on the Maturity
Date.
(f) Unless otherwise expressly provided herein, in the Cash Management
Procedures or elected by Lender, payments made by Borrower in respect of the
principal and interest of the Loan shall be applied first to the payment of
interest then due and payable, with the remainder of such payment being applied
to the reduction of the outstanding principal balance of the Note.
2.2.2 Default Rate. If an Event of Default shall have occurred and
------------
is continuing (including the failure of Borrower to make a payment of principal
or interest on the Payment Date therefor), Borrower shall pay interest at the
Default Rate on the outstanding amount of the Loan and due but unpaid interest
thereon, upon demand from time to time, to the extent permitted by applicable
law. Payment or acceptance of the increased rates provided for in this
subsection is not a permitted alternative to timely payment or full performance
by Borrower and shall not constitute a waiver of any Default or Event of Default
or an amendment to
-33-
this Agreement or any other Loan Document and shall not otherwise prejudice or
limit any rights or remedies of Lender.
Section 2.3 Loan Repayment and Defeasance.
-----------------------------
2.3.1 Repayment. Borrower shall repay any outstanding principal
---------
indebtedness of the Loan in full on the Maturity Date of the Loan, together with
all accrued and unpaid interest thereon to (but excluding) the date of
repayment. Other than as specifically set forth herein, Borrower shall have no
right to prepay all or any portion of Loan.
2.3.2 Voluntary Defeasance of the Note.
--------------------------------
(a) On or after the Optional Defeasance Date and subject to the terms
and conditions set forth in this Section 2.3.2, Borrower may defease all (but
not less than all) of the Loan evidenced by the Note with U.S. Government
Securities (a "Defeasance"). Borrower's right to effect a Defeasance shall be
----------
subject to the satisfaction of the following conditions precedent:
(i) Borrower shall provide not less than thirty (30) days' prior
written notice to Lender specifying the date (the "Defeasance Date") on
---------------
which the Defeasance Deposit is to be made and on which the Defeasance is
to occur, as well as the anticipated outstanding principal balance of the
Note as of Defeasance Date.
(ii) Borrower shall pay to Lender all accrued and unpaid
interest on the principal balance of the Note to but not including the
Defeasance Date (and if the Defeasance Date is not a Payment Date, the
Defeasance Deposit shall take into account the interest that would have
accrued on the Note to but not including the next Payment Date).
(iii) Borrower shall pay to Lender all other sums, not including
scheduled interest or principal payments, then due under the Note, this
Agreement, the Mortgage and the other Loan Documents.
(iv) No Event of Default shall exist on the Defeasance Date or
on the date that the written notice described in clause (i) above is given.
-34-
(v) Borrower shall pay to Lender the required Defeasance Deposit
for the Defeasance.
(vi) Borrower shall execute and deliver a security agreement
(the "Security Agreement"), in form and substance satisfactory to Lender,
------------------
creating a first priority perfected security interest in favor of Lender in
the Defeasance Deposit and the U.S. Government Securities purchased with
the Defeasance Deposit in accordance with the provisions of this Section
2.3.2 (together, the "Defeasance Collateral").
---------------------
(vii) Borrower shall deliver to Lender a release for the
Mortgaged Property from the lien of the Mortgage (for execution by Lender)
in form appropriate for the jurisdiction in which the Mortgaged Property is
located.
(viii) Borrower shall deliver to Lender an opinion of counsel for
Borrower (which may be a customarily "reasoned" opinion in the case of
clauses (i) and (iii)) in form and substance satisfactory to Lender that
(i) the transfer of the Defeasance Collateral in exchange for the release
of the Mortgaged Property will not constitute an avoidable preference under
Section 547 of the United States Bankruptcy Code in the event of a filing
of a petition for relief under the United States Bankruptcy Code for or
against Borrower, (ii) the Defeasance Collateral has been duly and validly
transferred and assigned to (A) Lender, if a Securitization has not yet
occurred, or (B) the trustee for the benefit of the holders of the
securities, if a Securitization has occurred, (iii) (A) Lender holds a
first priority perfected security interest in the Defeasance Collateral, if
a Securitization has not yet occurred, or (B) the trustee holds a first
priority perfected security interest in the Defeasance Collateral for the
benefit of the holders of securities, if a Securitization has occurred, and
(iv) if a Securitization has occurred, (A) such transfer will not result in
a deemed exchange of the Certificates pursuant to Section 1001 of the Code,
(B) such transfer will not, by itself, adversely affect the status of the
Certificates as indebtedness for federal income tax purposes, and (C) such
transfer will not adversely affect the status of the entity holding the
Note as a REMIC (assuming for such purposes that such entity otherwise
qualifies as a REMIC and
-35-
that the Note was transferred to such REMIC not later that two years prior
to the Defeasance Date).
(ix) Borrower shall deliver to Lender an Officer's Certificate
certifying that the requirements set forth in this Section 2.3.2(a) have
been satisfied.
(x) Borrower shall deliver such other certificates, documents or
instruments as Lender may reasonably request.
(xi) Borrower shall pay all reasonable costs and expenses of
Lender incurred in connection with the Defeasance, including, if required
by the applicable Rating Agencies, reasonable legal expenses of Lender's
counsel incurred in connection with the delivery of a non-consolidation
opinion with respect to the Successor Borrower, if any, in form and
substance satisfactory (in light of such opinions then customarily
delivered) to the applicable Rating Agencies and any reasonable costs and
expenses associated with a release of the Mortgage or the lien of the other
Loan Documents as provided in Section 2.4 hereof and reasonable attorneys'
fees and expenses.
(xii) Borrower shall deliver to Lender a confirmation, in form
and substance reasonably satisfactory to Lender, by a "Big Six" independent
certified public accounting firm, that the Defeasance Deposit is sufficient
to pay all Scheduled Defeasance Payments in a timely manner as contemplated
in this Section 2.3.2.
(xiii) If the Securitization has occurred, Borrower shall deliver
to Lender a Rating Confirmation from the applicable Rating Agencies with
respect to the proposed Defeasance.
(b) In connection with the conditions set forth above in Section
2.3.2(a), Lender shall use the Defeasance Deposit in accordance with Borrower's
express instructions to purchase U.S. Government Securities which provide
payments on or prior to, but as close as possible to, all successive Payment
Dates after the Defeasance Date and in amounts equal to the Debt Service due on
such dates under the Note (the "Scheduled Defeasance Payments"), provided that
-----------------------------
for purposes of the foregoing, the principal portion of
-36-
the Scheduled Defeasance Payment on the Anticipated Repayment Date shall be
deemed to include the entire scheduled outstanding principal of the Loan as of
such Payment Date. Borrower, pursuant to the Security Agreement or other
appropriate document, shall irrevocably authorize and direct that the payments
received from the U.S. Government Securities shall be made directly to Lender
and applied to satisfy the obligations of Borrower under the Note. Any portion
of the Defeasance Deposit in excess of the amount necessary to purchase the U.S.
Government Securities required by this Section 2.3.2 and satisfy Borrower's
obligations under Section 2.3 shall be remitted to Borrower promptly following
the purchase of such U.S. Government Securities.
(c) Upon compliance with the requirements of this Section 2.3.2:
(i) the pledged U.S. Government Securities shall be the sole
source of collateral securing the Note and the provisions of Section 2.4
shall apply;
(ii) Lender shall designate a successor entity (the "Successor
---------
Borrower") to which Borrower shall transfer and assign all obligations,
--------
rights and duties under and to the Note and the pledged U.S. Government
Securities (and the obligation of the Lender named herein to designate a
Successor Borrower shall be retained by the Lender named herein
notwithstanding the sale or transfer of the Loan unless such obligation is
specifically assumed by a transferee of the Loan). The Successor Borrower
shall assume the obligations under the Note and the Security Agreement, and
Borrower shall be relieved of all of its obligations thereunder and
released from all of its obligations in respect of the Loan. Borrower
shall pay $1,000 to any such Successor Borrower as consideration for
assuming the obligations under the Note and the Security Agreement, and no
other assumption fee shall be payable to the Successor Borrower in
consideration for its assumption of the Note and the Security Agreement in
accordance with this Section 2.3.2(c). Borrower shall pay all reasonable
out-of-pocket costs and expenses of Lender, including Lender's reasonable
attorneys' fees and expenses, incurred in connection with the assignment of
the Loan to the Successor Borrower.
-37-
2.3.3 Repayment After Anticipated Repayment Date. From and after the
------------------------------------------
Anticipated Repayment Date, Borrower shall have the right, on not less than
thirty (30) days' notice, to prepay the Loan, in whole or in part, on any
Payment Date, without defeasance and without Yield Maintenance Payments or other
penalties or premiums (except no notice shall be required for principal
repayment under Section 2.2.1(c)).
2.3.4 Repayment Upon Default. If all or any part of the principal
----------------------
amount of the Loan is prepaid upon acceleration of the Loan following the
occurrence of an Event of Default at any time prior to the Anticipated Repayment
Date, Borrower shall be required to make such payments (the "Yield Maintenance
-----------------
Payments") in an amount equal to the excess, if any, of (i) the sum of (A) the
- --------
aggregate respective present values of all scheduled interest payments in
respect of the Loan (or the portion of all such interest payments corresponding
to the portion of the principal of the Loan to be prepaid upon acceleration) for
the period from the date of such prepayment upon acceleration to (and including)
the Anticipated Repayment Date, discounted monthly at a rate equal to the
Treasury Constant Yield and based on a 360-day year of twelve 30-day months and
(B) the aggregate respective present values of all scheduled principal payments
in respect of the Loan (or the then unpaid portion thereof to be prepaid upon
acceleration), assuming for these purposes that the entire outstanding scheduled
principal amount of the Loan as of the Anticipated Repayment Date were to be
paid in full on such Payment Date (rather than over the period ending on the
Stated Maturity Date), discounted monthly at a rate equal to the Treasury
Constant Yield and based on a 360-day year of twelve 30-day months over (ii) the
then current outstanding principal amount of the Loan (or the then unpaid
portion thereof to be prepaid upon acceleration). If the Yield Maintenance
Payments as calculated pursuant to this Section 2.3.4 would not be a positive
number, the Yield Maintenance Payments are zero. For purposes of this Section
2.3.4, the amount of the Loan on the date of prepayment shall be determined
after giving effect to any payment of principal scheduled to be made on such
date pursuant to the Note and actually made on such date. The determination of
the Yield Maintenance Premium by Lender shall be conclusive and binding on
Borrower in the absence of manifest error.
Section 2.4 Release of the Mortgaged Property. If Borrower has
---------------------------------
elected Defeasance, and the requirements of
-38-
Section 2.3.2 have been satisfied, or if all of the Debt shall have been paid in
full in accordance with the terms of the Loan Documents, Lender shall promptly
release the Mortgaged Property from the Lien of the Mortgage and other Loan
Documents, and, where Borrower has effected a Defeasance, the U.S. Government
Securities pledged pursuant to the Security Agreement shall be the sole source
of collateral securing the Note.
In connection with the release of the Lien contemplated in this
Section 2.4, Borrower shall submit to Lender a release of Lien (and related Loan
Documents) for the Mortgaged Property (for execution by Lender) in a form
appropriate in the applicable state and otherwise satis factory to Lender in
its reasonable discretion.
Section 2.5 Payments and Computations.
-------------------------
2.5.1 Making of Payments. Each payment by Borrower hereunder or
------------------
under the Note shall be made in funds settled through the New York Clearing
House Interbank Payments System or other funds immediately available to Lender
by 11:00 a.m., New York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice to Borrower.
When ever any payment hereunder or under the Note shall be stated to be due on
a day which is not a Business Day, such payment shall be made on the first
Business Day preceding such date.
2.5.2 Computations. Interest, with respect to each Payment Date,
------------
will be computed based on the actual number of days in the related Interest
Accrual Period and a 360-day year.
Section 2.6 Maximum Rate of Interest. This Agreement, the Note and
------------------------
each of the other Loan Documents are subject to the express condition that at no
time shall Borrower be obligated or required to pay interest on the principal
amount of the Note at a rate that could subject the holder of this Note to
either civil or criminal liability as a result of being in excess of the highest
lawful rate permitted under applicable usury law to be charged to Borrower (the
"Maximum Rate"). If by the terms of the Note, this Loan Agreement or any of the
------------
other Loan Documents, Borrower is at any time required or obligated to pay
interest on the principal amount due under the Note at a
-39-
rate in excess of such Maximum Rate, the rate of interest under the Note and the
other Loan Documents shall be deemed to be immediately reduced to such Maximum
Rate and the interest payable shall be computed at such Maximum Rate and all
prior interest payments in excess of such Maximum Rate shall be deemed to have
been the result of a mistake on the part of both Borrower and Lender, and Lender
shall promptly credit such excess (to the extent only of such interest payments
in excess of the Maximum Rate) against the unpaid principal amount of the Note
to which such excess may lawfully be credited, and any portion of such excess
payments not capable of being so credited shall be refunded to Borrower.
III. CONDITIONS PRECEDENT
--------------------
Section 3.1 Conditions Precedent to the Loan. The obligation of
--------------------------------
Lender to make the Loan is subject to the fulfillment by Borrower or waiver by
Lender of the following conditions precedent no later than the Closing Date:
(a) Representation and Warranties; Compliance with Conditions. The
----------------------------------------- ---------------
representations and warranties of Borrower contained in this Agreement or any
other Loan Document shall be true and correct in all material respects on and as
of the Closing Date with the same effect as if made on and as of such date, and
no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
(b) Loan Agreement and Note. Lender shall have received a copy of
-----------------------
this Agreement and the Note, in each case, duly executed and delivered on behalf
of Borrower.
(c) Delivery of Loan Documents; Title Insurance; Reports; Leases.
-------------------------------------------- ---------------
(i) Mortgage. Lender shall have received from Borrower a fully
--------
executed and acknowledged counterpart of the Mortgage and evidence that
such counterpart has been delivered to the title company for recording, in
the reasonable judgment of Lender, so as to effectively create upon such
recording a valid and enforceable Lien upon the Mortgaged Property, of
first lien priority, in favor of Lender (or a deed trustee if required or
desired under local law), subject only to
-40-
the Permitted Encumbrances and such other Liens as are permitted pursuant
to the Loan Documents. Lender shall have also received from Borrower fully
executed counterparts of the Environmental Indemnity, the other Loan
Documents and appropriate UCC-1 financing statements.
(ii) Title Insurance. Lender shall have received a Qualified
---------------
Title Policy and evidence that all premiums in respect thereof have been
paid.
(iii) Survey. Lender shall have received a Qualified Survey.
------
(iv) Insurance. Lender shall have received valid certificates
---------
of insurance evidencing the insurance coverages, amounts and other
requirements set forth in this Agreement, which name Lender as an
additional insured, satisfactory to Lender in its reasonable discretion,
and evidence of the payment of all premiums payable for the current policy
period.
(v) Environmental Reports. Lender shall have received an
---------------------
environmental report (or an update of an environmental report) in respect
of the Mortgaged Property that is satisfactory to Lender.
(vi) Zoning. Lender shall have received a zoning endorsement to
------
the Qualified Title Policy reasonably acceptable to Lender.
(vii) Encumbrances. Borrower shall have taken or caused to be
------------
taken such actions in such a manner so that Lender has a valid and
perfected Lien of the requisite priority as of the Closing Date with
respect to the Mortgage on the Mortgaged Property, subject only to the
Permitted Encumbrances and such other Liens as are permitted pursuant to
the Loan Documents, and Lender shall have received satisfactory evidence
thereof.
(viii) Engineering Reports. Lender shall have received an
-------------------
engineering report (or an update of an existing engineering report) in
respect of the Mortgaged Property satisfactory to Lender.
(ix) Ground Lease. Lender shall have received a true and
------------
complete copy of the Ground Lease.
-41-
(d) Intentionally Omitted.
---------------------
(e) Delivery of Organizational Documents and Qualifications. On or
---------------------------------------- --------------
before the Closing Date, Borrower shall deliver or cause to be delivered to
Lender copies certified by an officer of Borrower of all organizational
documentation related to Borrower and/or the formation, structure, existence,
good standing and/or qualification to do business as Lender may request in its
sole discretion, including good standing certificates, qualifications to do
business in the appropriate jurisdictions, resolutions authorizing the entering
into of the Loan and incumbency certificates as may be requested by Lender.
(f) Opinions of Borrower's Counsel. Lender shall have received legal
------------------------------
opinions of Borrower's counsel (which shall be a law firm or firms reasonably
satisfactory to Lender or, in the case of certain of the opinions described in
clause (ii) below, from the in-house counsel office of Host Marriott) (i) with
respect to the non-consolidation of each of Borrower and its member (as well as
such member (a limited liability company) and its sole member) in the event of
an insolvency proceeding being brought against, or the bankruptcy of such member
(or its member and certain affiliates); and (ii) with respect to due execution,
delivery, authority, enforceability of the Loan Documents and such other matters
as Lender may reasonably require, all such opinions in form, scope and substance
satisfactory to Lender and Lender's counsel in their sole discretion.
(g) Budgets. Borrower shall have delivered, and Lender shall have
-------
approved (to the extent Borrower may approve such Operating Budget under the
Management Agreement, the Operating Budget for the Mortgaged Property for the
balance of the current Fiscal Year and the preliminary Operating Budget for
Fiscal Year 1998, as well as the budget for administrative expenses of Borrower,
Mezzanine Borrower and DSMLP.
(h) Debt Service Reserve Account. The Debt Service Reserve Account
----------------------------
shall contain an amount not less than six months' Monthly Debt Service
Payments(disregarding for this purpose any such payments being made for a
portion of an Interest Accrual Period).
(i) Completion of Proceedings. All corporate and
-------------------------
other proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and other
-42-
Loan Documents and all documents incidental thereto shall be satisfactory in
form and substance to Lender, and Lender shall have received all such
counterpart originals or certified copies of such documents as Lender may
reasonably request.
(j) Intentionally Omitted.
---------------------
(k) Ground Lessor Estoppel. Lender shall have received an executed
----------------------
estoppel letter from the lessor of the Ground Leased Property, which shall be in
form and substance satisfactory to Lender.
(l) Cooperation Agreement. Lender shall have received the Cooperation
---------------------
Agreement, duly executed by Borrower, DSMLP, Host Marriott, Lender and GSMC.
(m) Appraisal. Lender shall have received an appraisal for the
---------
Mortgaged Property satisfactory to Lender evidencing that the Loan Amount is not
more than 49 percent of the value of the Mortgaged Property as of the date
hereof.
(n) Financial Statements. Borrower shall have provided Lender with
--------------------
audited financial statements of the prior owner of the Mortgaged Property for
the three Fiscal Years 1996, 1995 and 1994, certified by Arthur Andersen LLP or
another nationally recognized accounting firm acceptable to Lender. Borrower
shall also deliver to Lender an unaudited quarterly report for each completed
Accounting Quarter since January 1, 1997 through September 12, 1997, certified
to by an officer of Borrower.
(o) Reliance Letters. The Persons providing the reports and studies
----------------
described in Sections 3.1(c)(v), 3.1(c)(viii), and 3.1(m) shall have delivered
to Lender letters permitting Lender and other parties with interests in the Loan
to rely on the reports described in said sections and to publish the results of
such reports in offering materials in connection with the Securitization, such
letters to be in form and substance satisfactory to Lender.
(p) Seismic Information. Lender shall have received such information
-------------------
and reports regarding seismic conditions at the Property as it shall have
requested and shall find the same to be satisfactory in form and substance.
-43-
(q) Photographs; Property Descriptions and Loan Descriptions. Lender
--------------------------------------------------------
shall have received photographs of the interior and exterior of the Mortgaged
Property, and Borrower shall have approved complete narrative descriptions of
the Mortgaged Property and its environs, and a summary of the Loan Documents, in
each case, in form and substance appropriate for inclusion in offering materials
for a Securitization and reasonably satisfactory to Lender.
(r) Assignment of Operating Lease; Termination of Operating Lease.
-------------------------------------------------------------
Lender shall have received documentation in recordable form evidencing the
assignments of the owner's interest under the operating lease previously
governing the operation of the Hotel from DSMLP to Mezzanine Borrower and from
Mezzanine Borrower to Borrower, executed by Manager, DSMLP, Mezzanine Borrower
and Borrower and documentation in recordable form evidencing the termination of
the operating lease previously governing the operation of the Hotel, executed by
Manager and Borrower.
(s) Management Agreement; Consent of Manager. Lender shall have
----------------------------------------
received from Borrower a true and correct copy of the Management Agreement, in
form and substance satisfactory to the Lender, together with the Consent of
Manager, executed by Manager and Borrower.
(t) Assignment of Ground Lease; Deeds. Lender shall have received
---------------------------------
documentation in recordable form evidencing the assignments of DSMLP's interest
under the Ground Lease from DSMLP to Mezzanine Borrower and from Mezzanine
Borrower to Borrower, executed by Ground Lessor, DSMLP, Mezzanine Borrower and
Borrower and deeds in recordable form evidencing the transfer of DSMLP's
interest in the Mortgaged Property (other than the Ground Leased Property) from
DSMLP to Mezzanine Borrower and from Mezzanine Borrower to Borrower.
IV. REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Borrower Representations. Borrower hereby represents,
------------------------
warrants and covenants as to the matters set forth in SCHEDULE 4A and SCHEDULE
4B.
Section 4.2 Survival of Representations. Borrower agrees that all of
---------------------------
the representations and warran ties of Borrower set forth in SCHEDULE 4A and
SCHEDULE 4B and elsewhere in this Agreement and in the other Loan
-44-
Documents shall survive for so long as any portion of the Debt is outstanding
(it being acknowledged by Lender that such representations and warranties have
been made as of the Closing Date). All representations, warranties, covenants
and agreements made in this Agreement or in the other Loan Documents by Borrower
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
---------------------
Section 5.1 Borrower Covenants. Borrower hereby covenants and
------------------
agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance.
--------------------------------------------------------
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its existence. Borrower shall comply in all
material respects with all Legal Requirements applicable to it and the Mortgaged
Property. Borrower shall at all times maintain and preserve the Mortgaged
Property and shall keep the Mortgaged Property in first-class, good working
order and repair, reasonable wear and tear excepted, and from time to time make,
or cause to be made, all reasonably necessary repairs, renewals, replacements,
betterments and improvements thereto. Borrower will operate, maintain, repair
and improve the Mortgaged Property in compliance in all material respects with
all Legal Requirements, and will not commit or permit waste.
(b) Taxes and Other Charges; Contest for Taxes and Other Charges,
-------------------------------------------------------------
Legal Requirements and Liens.
- ----------------------------
(i) Subject to the provisions of Section 5.1(b)(ii), Borrower
shall pay all Taxes and Other Charges now or hereafter levied or assessed
or imposed against the Mortgaged Property or any part thereof prior to
delinquency thereof. Borrower will deliver to Lender, upon request,
receipts for payment or other evidence reasonably satisfactory to Lender
that the Taxes and Other Charges have been so paid (provided, however,
-------- -------
Borrower is not required to furnish such receipts for payment of Taxes in
the event that such Taxes have been paid by Lender pursuant to Section
4.3(A), 4.4(A), 7.9.1(A) of the Cash Management Procedures). Borrower
shall not suffer and shall promptly cause to be paid and discharged (or
bonded)
-45-
any lien or charge whatsoever which may be or become a lien or charge
against the Mortgaged Property, and shall promptly pay for all utility
services provided to the Mortgaged Property. Subject to Section 5.1(b)(ii),
Borrower shall pay, bond or otherwise discharge, from time to time when the
same shall become due, all claims and demands of mechanics, materialmen,
laborers and others that, if unpaid, might result in, or permit the
creation of, a lien or encumbrance on the Mortgaged Property (as defined in
the Mortgage), or on the Rents or Gross Revenues arising therefrom.
(ii) After prior written notice to Lender, Borrower, at its own
expense, may contest by appropriate legal, administrative or other
proceeding, timely initiated and conducted in good faith and with due
diligence, the amount or validity or application in whole or in part of any
Taxes or Other Charges or Lien therefor or any Legal Requirement or
Insurance Requirement or the application of any instrument of record
affecting the Mortgaged Property or any part thereof (other than the Loan
Documents) or any claims or judgments of mechanics, materialmen, suppliers,
vendors or other Persons or any Lien therefor, and may withhold payment of
the same pending such proceedings if permitted by law; provided that (A) no
Event of Default has occurred and remains uncured, (B) such proceeding
shall suspend any collection of the contested Taxes, Other Charges or Liens
from the Mortgaged Property, Borrower or Lender, or adequate time shall at
all times remain prior to such collection, (C) such proceeding shall be
permitted under and be conducted in accordance with the provisions of any
other instrument to which Borrower is subject and shall not constitute a
default thereunder, (D) neither the Mortgaged Property nor any part thereof
or interest therein will be in imminent danger of being sold, forfeited,
terminated, canceled or lost, (E) Borrower shall have furnished Lender with
security (which may include amounts contained in the Tax and Insurance
Reserve Account and FF&E Reserve Account to the extent the amounts therein
have been specifically earmarked for the matter in question), (in an amount
reasonably satisfactory to Lender), to insure the payment of any such Taxes
or Other Charges, or the cost of compliance with the contested Legal
Requirement or Insurance Requirement or the cost of the removal of the
-46-
Lien, in each case together with all reasonably anticipated interest and
penalties thereon, provided no such security shall be required to the
extent that the amount that would otherwise be required to be escrowed
under this clause (E) shall be less than $1,000,000 in the aggregate, (F)
in the case of an Insurance Requirement, the failure of Borrower to comply
therewith shall not impair the validity of any insurance required to be
maintained by Borrower hereunder or the right to full payment of any claims
thereunder, (G) in the case of any essential or significant service with
respect to the Mortgaged Property, any contest or failure to pay will not
result in a discontinuance of any such service, unless the services will be
provided by a comparable service provider, (H) in the case of any
instrument of record affecting the Mortgaged Property or any part thereof,
the contest or failure to perform under any such instrument shall not
result in the placing of any Lien on the Mortgaged Property or any part
thereof (except if such Lien would be removed upon completion of such
proceedings and the compliance by the parties with the terms of the
resulting order, decision or determination and the removal costs for such
Lien have been escrowed with Lender or in the proceeding), (I) except to
the extent Borrower has provided sufficient Eligible Collateral therefor in
accordance with clause (E) in this Section 5.1(b)(ii), neither the failure
to pay or perform any obligation which Borrower is permitted to contest
under this Section nor an adverse determination of any such contest shall
result in a Material Adverse Effect, and (J) Borrower shall promptly upon
final determination thereof pay the amount of any such Taxes, Other Charges
or Liens, together with all costs, interest and penalties which may be
payable in connection therewith. Lender may pay over any such cash deposit
or part thereof held by Lender to the claimant entitled thereto at any time
when the entitlement of such claimant is finally established judicially or
by settlement, and Lender shall otherwise remit any such amounts to
Borrower. Subject to the foregoing, at Borrower's timely request, Lender
shall not pay from the Tax and Insurance Reserve Account, if such Tax and
Insurance Reserve Account has been established, the contested Taxes or
Other Charges being contested.
-47-
(c) Litigation. Borrower shall give prompt written notice to Lender
----------
of any litigation or governmental proceedings pending or threatened in writing
against Borrower or against or affecting the Mortgaged Property which, if
determined adversely to Borrower or the Mortgaged Property, would reasonably be
expected to have a Material Adverse Effect.
(d) Inspection. Borrower shall permit agents, representatives and
----------
employees of Lender (including Servicer and Special Servicer) to inspect the
Mortgaged Property on any Business Day at reasonable hours upon reasonable
advance notice.
(e) Perform Loan Documents. Borrower shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions of, and shall pay
when due all costs, fees and expenses to the extent required under the Loan
Documents.
(f) Insurance Benefits. Borrower shall cooperate with Lender in
------------------
obtaining for Lender the benefits of any insurance proceeds payable in
connection with the Mortgaged Property, and Lender shall be reimbursed for any
reasonable out-of-pocket expenses reasonably incurred in connection therewith
(including reasonable attorneys' fees and disbursements, and, if reasonably
necessary to collect such proceeds, the expense of an appraisal on behalf of
Lender in case of a fire or other casualty affecting the Mortgaged Property or
any part thereof) out of such insurance proceeds.
(g) Further Assurances; Lender Costs. Borrower shall, at Borrower's
--------------------------------
sole cost and expense:
(i) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary or desirable, to evidence, preserve and/or protect the Lien of
the Lender at any time securing or intended pursuant to the provisions
hereof to secure the obligations of Borrower under the Loan Documents, as
Lender may reasonably require;
(ii) be responsible for, and shall pay on demand, all reasonable
third-party costs and expenses incurred by Lender in connection with the
origination of the Loan, including reasonable fees and costs for
-48-
income and expense audits, travel, environmental and engineering
consultants and reports, and appraisals, reasonable attorney's fees and
expenses in documenting and negotiating the Loan and performing due
diligence, other reasonable out-of-pocket expenses relating to credit and
collateral evaluations, recording and filing fees (collectively, "Lender
------
Origination Expenses"); and
--------------------
(iii) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying
out of the expressed intents and purposes of this Agreement and the other
Loan Documents, as Lender shall reasonably require from time to time.
(h) Reserved.
(i) Reserved.
(j) Financial Reporting and Other Information.
-----------------------------------------
(i) Generally. Borrower will keep and maintain or will cause to
be kept and maintained on a Fiscal Year basis, in accordance with GAAP,
proper and accurate books, records and accounts reflecting all of the
financial affairs of Borrower. Lender shall have the right from time to
time at all times during normal business hours upon reasonable prior
written notice to examine such books, records and accounts at the office of
Borrower or other Person maintaining such books, records and accounts and
to make such copies or extracts thereof as Lender shall desire. Provided
no Event of Default is then continuing, Lender shall pay its own expenses
in connection with such examination; if an Event of Default shall then be
continuing, Borrower shall pay any reasonable out-of-pocket costs and
expenses incurred by Lender in any such examination and copying (or
extraction).
(ii) Annual Reports. Borrower will furnish to Lender within
eighty-five (85) days following the end of each Fiscal Year of Borrower, a
complete copy of Borrower's annual financial statements, audited by Arthur
Andersen LLP. or another nationally recognized accounting firm reasonably
satisfactory to Lender, in accordance with GAAP, covering the Mortgaged
Property, for such Fiscal Year and containing balance sheets for
-49-
Borrower and statements of profit and loss for Borrower and the Mortgaged
Property in such detail as Lender may reasonably request. Such statements
shall set forth the financial condition and the income and expenses for the
Mortgaged Property for the immediately preceding calendar year, including
(in the footnote to such statement or elsewhere) statements of annual
Operating Profit. Borrower's annual financial statements shall be
accompanied by a Officer's Certificate certifying that such annual
financial statement presents fairly the financial condition of the
Mortgaged Property and has been prepared in accordance with GAAP. Together
with Borrower's annual financial statements, Borrower shall furnish to
Lender an Officer's Certificate certifying as of the date thereof whether,
to Borrower's knowledge, there exists a Default or Event of Default, and if
such Default or Event of Default exists, the nature thereof, the period of
time it has existed and the action then being taken to remedy the same.
(iii) Periodic Reports. Borrower will furnish, or cause to be
furnished, to Lender on or before the twenty-seventh (27th) day after the
end of each Accounting Period, unaudited financial statements substantially
in the form of Exhibit F attached hereto (Format 90 and Rent Letter)
covering such Accounting Period and the annual period to date, accompanied
by an Officer's Certificate, certifying that such items are true, correct,
accurate, and complete and fairly present the financial condition and
results of the operations of Borrower and the Mortgaged Property. Such
statements shall show in detail, among other things:
(A) a breakdown of sales revenues and operating expenses and the
calculation of house profit, average daily room and average occupancy
rates, each of the foregoing with a comparison to budget and prior
year;
(B) an unaudited profit and loss statement and escrow analysis;
and
(C) unaudited periodic and year-to-date reports detailing the
calculation of Operating Profit.
-50-
(iv) Accounting Quarter Reports. Borrower will furnish, or cause
to be furnished, to Lender on or before the thirty-fifth (35th) day after
the end of each Accounting Quarter, drafts of the following items, and on
or before the forty-third (43rd) day after the end of each Accounting
Quarter, the final version of the following items, accompanied by an
Officer's Certificate, certifying that such items are true, correct,
accurate and complete and fairly present the financial condition and
results of the operations of Borrower and the Mortgaged Property in a
manner consistent with GAAP (subject to normal year-end adjustments) as
applicable:
(A) quarterly and year-to-date unaudited financial statements
(including, without limitation, Borrower's balance sheets, income
statements, statements of cash flows and such other financial
information as was provided by Borrower's predecessor in interest to
its limited partners.
(v) Supplemental Information. Borrower shall furnish to Lender
within ten (10) Business Days after request, such further detailed
information with respect to the operation of the Mortgaged Property and the
financial affairs of Borrower as may be reasonably requested by Lender
(including any of the foregoing requesting by a Rating Agency), provided
the same may be provided without material expense or material burden to
Borrower.
(vi) Governmental Notices. Borrower shall furnish to Lender,
promptly after receipt, a copy of any material notice received by or on
behalf of Borrower from any Governmental Authority having jurisdiction of
the Mortgaged Property with respect to an adverse condition existing or
alleged to exist or emanate therefrom or thereat.
(vii) Auditor's Consent. In connection with Lender's disclosure
requirements under the Securities Act in connection with a Securitization,
Borrower will, from time to time, within a reasonable time after written
request by Lender, and at Lender's expense (to the extent there are any
incremental costs actually charged in connection with such consent letter),
-51-
provide a consent letter of Arthur Andersen LLP or another nationally
recognized accounting firm satisfactory to Lender which audits Borrower's
annual financial statement, consenting to the filing of such auditor's
report as part of the registration statement filed in connection with a
Securitization and/or as part of Lender's periodic reporting under the
Securities Exchange Act of 1934, as amended.
(viii) Manager's Reports. Borrower shall furnish to Lender
copies of all rent letters, Format 90s and other periodic reports received
from the Manager relating to the Mortgaged Property promptly upon receipt
thereof.
(ix) 144A Reporting. Borrower will, at any and all times,
within a reasonable time after written request by Lender, furnish or cause
to be furnished to Lender, in such manner and in such detail as may be
reasonably requested by Lender, such information as may be necessary to
permit Lender to comply with any request for information made by an
investor or prospective investor in the Certificates and to be furnished
under Rule 144A(d) under the Securities Act of 1933, as amended (the
"Securities Act")
---------------
(x) Failure to Report. If Borrower fails to provide to Lender
or its designee any of the financial statements, certificates, reports or
information (the "Required Records") required by this Section 5.1(j) within
----------------
thirty (30) days after the date upon which such Required Record is due, the
same shall be an Event of Default; provided that Lender shall have given to
--------
Borrower at least ten (10) days' prior written notice of such failure by
Borrower to timely submit the applicable Required Record.
(k) Business and Operations. Borrower will qualify to do business and
-----------------------
will remain in good standing under the laws of each jurisdiction as and to the
extent the same are required for the ownership, maintenance, management and
operation of the Mortgaged Property.
(l) Title to the Mortgaged Property. Borrower will warrant and defend
-------------------------------
against the claims of all Persons whomsoever (i) the title to the Mortgaged
Property and every part thereof and (ii) the validity and priority of the Lien
-52-
of the Mortgage, subject only in each case to Liens permitted under the Loan
Documents (including Permitted Encumbrances).
(m) Costs of Enforcement. In the event (i) that the Mortgage is
--------------------
foreclosed in whole or in part or the Note, any Loan Document, including the
Mortgage, is put into the hands of an attorney for collection, suit, action or
foreclosure, (ii) of the foreclosure of any Lien or mortgage prior to or
subsequent to the Mortgage in which proceeding Lender is made a party, (iii) of
the bankruptcy, insolvency, rehabilitation or other similar proceeding in
respect of Borrower or an assignment by Borrower for the benefit of its
creditors, or (iv) Lender shall attempt to remedy any Event of Default
hereunder, Borrower, its successors or assigns, shall be chargeable with and
agrees to pay all reasonable costs incurred by Lender as a result thereof,
including reasonable costs of collection and defense, including reasonable
attorneys' fees (and experts', consultants' and witnesses' fees) in connection
therewith and in connection with any appellate proceeding or post-judgment
action involved therein, which shall be due and payable together with all
required service or use taxes.
(n) Estoppel Statement. After written request by Lender, Borrower
------------------
shall within twenty (20) days furnish Lender with a statement, duly acknowledged
and certified, setting forth (A) the unpaid principal amount of the Note, (B)
the applicable Interest Rate, (C) the date installments of interest and/or
principal were last paid, (D) any offsets or defenses to the payment of the
Debt, (E) that the Note, this Agreement, the Mortgage and the other Loan
Documents are in full force and effect and have not been modified or if
modified, are in full force and effect as so modified and giving particulars of
such modification, and (F) such other matters as Lender may reasonably request.
Any prospective purchaser or assignee of any interest in the Loan shall be
permitted to rely on such certificate.
(o) Loan Proceeds. Borrower shall use the proceeds of the Loan
-------------
received by it on the Closing Date only for the purposes set forth in Section
2.1.4.
(p) Reserved.
(q) Operating Budget. Borrower shall furnish to the Lender on or
----------------
before January 20 of each year commencing
-53-
on January 20, 1998, an annual plan (the "Annual Plan") for such year for the
-----------
Mortgaged Property which Annual Plan shall include a detailed operating budget
(an "Operating Budget") and a detailed capital expenditure budget (a "Capital
---------------- -------
Budget"), reflecting Manager's best good faith estimate of its anticipated
- ------
results of operations, including revenues from all sources, all operating
expenses, management fees, Management Expenses, and capital and FF&E
Expenditures. The Annual Plan shall contain provisions for deposit into the FF&E
Reserve Account of an aggregate amount equal to at least 5.5% of projected Gross
Revenues for each year, the specific percentage to be determined by the
requirements for such purpose of the Management Agreement; provided, however,
that for the remainder of Fiscal Year 1997, the Annual Plan shall contain
provisions for deposit into the FF&E Reserve Account of an aggregate amount
equal to at least 4.5% of projected Gross Revenues for the remainder of Fiscal
Year 1997.
In addition to the foregoing, Borrower shall submit to Lender, for
Lender's approval (which approval shall not be unreasonably withheld or
delayed), a proposed annual budget of administrative expenses (which may include
reasonable allocations of internal costs of Borrower's affiliates) of Borrower,
Mezzanine Borrower and DSMLP. Such budget shall be approved or disapproved by
Lender within ten (10) Business Days after Borrower's submission thereof. Upon
approval of such budget, the disbursements to be made on each Payment Date under
the Cash Management Procedures in respect of such administrative expenses for
each of Borrower, Mezzanine Borrower and DSMLP shall equal one-twelfth (1/12th)
of the approved amount for each such Person.
(r) No Joint Assessment. Borrower shall not suffer, permit or
-------------------
initiate the joint assessment of the Mortgaged Property (i) with any other real
property constituting a tax lot separate from the Mortgaged Property, and (ii)
unless required by applicable law, with any portion of the Mortgaged Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Mortgaged Property.
(s) Leasing Matters. In addition and subject to the terms of Section
---------------
7.2:
-54-
(i) Borrower shall furnish Lender with an executed copy of each
Lease within thirty (30) days after execution thereof.
(ii) All Leases entered into from and after the date hereof
shall be the result of arms'-length negotiations, shall provide for
commercially reasonable rental rates and other terms and shall not contain
any terms which would materially adversely affect Lender's rights under the
Loan Documents.
(iii) All Leases shall provide that they are or as a matter of
law, shall be, subordinate to the Mortgage.
(iv) Borrower shall observe and perform in all material respects
the obligations imposed upon the lessor under the Leases in a commercially
reasonably manner.
(v) Borrower shall not enter into any lease in excess of 10,000
rentable square feet or, and at no one time shall there be under lease more
than 30,000 rentable square feet, without in each case Lender's prior
written consent (which consent shall not be unreasonably withheld,
conditioned or delayed).
(t) Reserved.
(u) Material Agreements. Subject to any express provisions hereof to
-------------------
the contrary, Borrower shall:
(i) timely perform and/or observe all of the material covenants
and agreements required to be performed and observed by it under any
Material Agreement, and do all things necessary to preserve and to keep
unimpaired its material rights thereunder;
(ii) promptly notify Lender of the giving of any notice of any
material default by any party under any Material Agreement of which it is
aware or, with respect to the Management Agreement, the giving of any
notice by Manager altering in any material respect the rules, standards and
requirements of the Manager; and
(iii) promptly enforce the performance and observance of all of
the material covenants and
-55-
agreements required to be performed and/or observed by the other party
under the Management Agreement and each other Material Agreement.
(v) Budget Approvals. Borrower shall, (i) if Borrower has the right
----------------
under the Management Agreement to approve any aspect of each Operating Budget or
the FF&E Estimate (as such terms are defined in the Management Agreement) or any
other budget, submit each of the foregoing to Lender for its approval; and (ii)
submit to the Lender for its approval the Building Estimate (as such term is
defined in the Management Agreement); provided that the Lender's review and
approval of each of the foregoing shall not be unreasonably withheld or delayed,
and Lender shall issue its approval or disapproval within ten (10) Business Days
after Lender's receipt thereof.
(w) Reserved.
(x) Payment of Operating Expenses, etc. Borrower shall pay or cause
----------------------------------
to be paid all operating expenses and all other costs and expenses associated
with the operation and maintenance of the Mortgaged Property in accordance with
the provisions of the Management Agreement.
(y) Completion of Work. Borrower shall diligently perform, and
------------------
complete on or before the dates specified on Schedule 2 and 3, the items of work
specified in said Schedule.
(z) Standard for Hotel. Borrower shall perform such work that shall
------------------
be necessary to maintain standards at least as high as those standards that
apply generally to first class full service resort hotels, in compliance with
the Marriott standards and the Management Agreement.
(aa) Hotel Open for Business. Borrower shall operate (or cause the
-----------------------
Manager to operate) the Mortgaged Property as a hotel open for business under
the Management Agreement.
(ab) Accounts Statement. Borrower shall, promptly upon Lender's
------------------
written request, from time to time, deliver to the Lender a statement setting
forth all of the accounts Borrower or the Manager maintains with respect to the
Hotel and the Mortgaged Property, the purposes of such accounts and the balances
thereof.
-56-
(ac) Reserved.
(ad) Liquor Licenses; Permits. Borrower shall maintain or cause to be
------------------------
maintained each of the liquor licenses and all other Permits in connection with
the Hotel in full force and effect (and replace any thereof that may be canceled
or otherwise lapsed), and observe and perform or cause to be observed and
performed all of Borrower's obligations thereunder.
(ae) Payment of Trade Payables. Borrower shall pay (or ensure that
-------------------------
the Manager pays) all Trade Payables within 60 days of the date incurred except
for such trade indebtedness that is subject to a bona fide dispute.
VI. NEGATIVE COVENANTS
------------------
Section 6.1 Borrower's Negative Covenants. Borrower covenants and
-----------------------------
agrees with Lender that it will not do, directly or indirectly, any of the
following:
(a) Operation of Mortgaged Property; Material Agreements.
----------------------------------------------------
(i) Material Agreements. Borrower shall not, without Lender's prior
consent (except as elsewhere herein expressly provided): (1) surrender or
terminate any Material Agreement other than the Management Agreement (which is
covered in Section 6.1(a)(iii) hereof), unless the other party thereto is in
material default and the termination of such agreement would be commercially
reasonable, (2) increase or consent to the increase in any material respect of
the amount of any charges payable by Borrower under any Material Agreement,
except as currently expressly provided therein; (3) reduce or consent to the
reduction of any amounts payable by the other party to the Material Agreement,
except as currently expressly provided therein; or (4) otherwise modify, change,
supplement, alter or amend, or waive or release any of its rights and remedies
under any Material Agreement in any manner which would have a Material Adverse
Effect.
(ii) Event of Default. Upon the occurrence and during the
continuance of an Event of Default, Borrower shall not terminate, surrender,
amend or modify, or make any election, exercise any voting or approval powers or
grant
-57-
any waivers with respect to, any Material Agreement, without in each case the
prior written consent of Lender.
(iii) Management Agreement. Borrower shall not, without Lender's
prior written consent, (1) cancel, release, terminate or surrender the
Management Agreement or permit any cancellation, release, termination or
surrender thereof, (2) amend, modify or alter the terms of the Management
Agreement in any material respect or (3) permit or suffer any significant
delegation or contracting of the Manager's duties; provided, however, that
Borrower may cancel, release, terminate, surrender, amend, modify or alter the
Management Agreement in connection with the replacement of the Manager if,
before the date on which the Manager ceases to be the Manager of the Hotel, it
causes the Hotel to come under management by an Acceptable Manager pursuant to a
management agreement in form and substance reasonably satisfactory to Lender,
with terms as favorable to Borrower as the Management Agreement in effect on the
date hereof, and as to which Borrower has received a Rating Confirmation from
the applicable Rating Agencies.
(b) Liens. Subject to Section 5.1(b)(ii), Borrower shall not, without
-----
the prior written consent of Lender, create, incur, assume, permit or suffer to
exist any Lien on any portion of the Mortgaged Property or Borrower or any
interest therein, except (i) Permitted Encumbrances, (ii) Liens created by or
expressly permitted pursuant to the Loan Documents, (iii) Liens for Taxes or
Other Charges not yet delinquent, (iv) Liens securing the Mezzanine Debt
pursuant to the Mezzanine Loan Documents, and (v) Liens created under non-
capital equipment leases described in clause (b) of the paragraph captioned
"Permitted Indebtedness" which relates to the equipment described therein.
(c) Dissolution. Except as permitted in Schedule 6.3, Borrower shall
-----------
not dissolve, terminate, liquidate, merge with or consolidate into another
Person.
(d) Change in Business. Borrower shall not enter into any line of
------------------
business other than the ownership, maintenance, financing, refinancing and
operation of the Mortgaged Property (subject to the terms hereof), or make any
material change in the scope or nature of its business objectives or purposes,
or undertake or participate in
-58-
activities other than the continuance of its present business.
(e) Debt Cancellation. Borrower shall not cancel or otherwise forgive
-----------------
or release any material claim or debt owed to Borrower by any Person except for
adequate consideration in the ordinary course of Borrower's business and on
commercially reasonable terms, subject to other restrictions contained herein or
in any other Loan Document.
(f) Affiliate Transactions. Borrower shall not enter into, or be a
----------------------
party to, any transaction with an Affiliate of Borrower except (i) other than in
respect of the Leases, in the ordinary course of business and (ii) in all cases,
on market terms no less favorable to Borrower or such Affiliate than would be
obtained in a comparable arms'-length transaction with an unrelated third party.
(g) Zoning and Uses. Borrower shall not (i) initiate or support any
---------------
limiting change in the permitted uses of the Mortgaged Property (or to the
extent applicable, zoning reclassification of the Mortgaged Property) or any
portion thereof, seek any variance under existing land use restrictions, laws,
rules or regulations (or, to the extent applicable, zoning ordinances)
applicable to the Mortgaged Property or use or permit the use of the Mortgaged
Property in a manner that would result in such use becoming a non-conforming use
under applicable land-use restrictions (and, if any, zoning ordinances) or that
would violate the terms of the Ground Lease, the Management Agreement, Insurance
Requirement, Legal Requirement, Permitted Encumbrance or other agreement binding
on Borrower or the Mortgaged Property, (ii) modify, amend or supplement any of
the terms of the Ground Lease or any other Permitted Encumbrance in a manner
adverse in any material respect to the interests of Borrower or Lender, (iii)
impose or permit or suffer the imposition of any restrictive covenants,
easements or encumbrances upon the Mortgaged Property in any manner that
adversely affects in any material respect the value or utility of the Mortgaged
Property, (iv) execute or file any subdivision plat affecting the Mortgaged
Property, institute, or permit the institution of, proceedings to alter any tax
lot comprising the Mortgaged Property, or (v) permit or suffer the Mortgaged
Property to be used by the public or any Person in such manner as might make
possible a claim of adverse usage or possession or of any implied dedication or
easement.
-59-
(h) Debt. Borrower shall not create, incur or assume any debt
----
(secured or unsecured) other than the Debt and Permitted Indebtedness. Borrower
shall, however, be permitted to have indebtedness in the form of Trade Payables
not more than sixty (60) days outstanding, in an amount appropriate for
properties such as the Mortgaged Property and reflective of the level at which
Trade Payables have been historically carried for the Mortgaged Property.
(i) Reserved.
--------
(j) Transfers.
---------
(i) General Limitation. Unless such action is permitted by the
------------------
subsequent provisions of this Section 6.1(j) or any other express provision
hereof, Borrower will not, without Lender's consent (which shall not be
unreasonably withheld or delayed) and a Rating Confirmation with respect to
the transfer or other matter in question, (A) sell, assign, convey,
transfer or otherwise dispose of or encumber legal, beneficial or equitable
interests in all or any part of the Mortgaged Property, (B) permit or
suffer any owner, directly or indirectly, of a beneficial interest in the
Mortgaged Property to transfer such interest, whether by transfer of stock
or other beneficial interest in any entity or otherwise, (C) mortgage,
hypothecate or otherwise encumber or grant a security interest in all or
any part of the Mortgaged Property or (D) file a declaration of condominium
with respect to the Mortgaged Property; provided, however, that transfers
of limited partnership interests in DSMLP in accordance with the provisions
of the partnership agreement of DSMLP shall not be prohibited by clause (B)
of this Section 6.1(j)(i).
(ii) Sale of the Mortgaged Property. Except as may be set forth
------------------------------
in the last sentence of this clause (ii) or elsewhere in this Section 6.1,
Borrower may only sell, assign, convey, transfer or otherwise dispose of
legal or equitable title to or any interest in the Mortgaged Property from
time to time and at any time if:
(A) after giving effect to the proposed
transaction:
-60-
(1) the Mortgaged Property will be owned by a Special
Purpose Entity which will be in compliance with the representations,
warranties and covenants contained in SCHEDULE 4B hereof (as if
Borrower shall have remade all of such representations, warranties and
covenants as of, and after giving effect to, the proposed
transaction), and which shall have assumed (subject to the terms of
Section 13.24 hereof) and agreed in writing to comply with all the
terms, covenants and conditions set forth in this Agreement and the
other Loan Documents,
(2) Borrower will be owned and controlled by a
Permitted Owner,
(3) an Acceptable Manager shall act as Manager, and
(4) no Event of Default shall have occurred and be
continuing, and
(B) prior to any such transaction, the proposed transferee shall
deliver to Lender an Officer's Certificate stating that either (x) such
transferee is an employee pension plan or other retirement arrangement or
account ("Employee Benefit Plan") that is subject to Title I of ERISA or is
---------------------
a "Plan" within the meaning of Section 4975 of the Code, and the
obligations under this Agreement are not, and the exercise of rights under
this Agreement will not, constitute a nonexempt prohibited transaction; or
(y) the transferee is a "governmental plan" (as defined in section 3(32) of
ERISA), and the obligations under this Agreement, and the exercise of
rights under this Agreement, do not and will not violate any applicable
state statutes regulating investments by or fiduciary obligations with
respect to governmental plans; or (z) the proposed transferee is neither an
Employee Benefit Plan nor a "governmental plan" or a "Plan" within the
meaning of Section 4975 of the Code, and (i) such proposed transferee is
not subject to state statutes regulating investments by or fiduciary
obligations with respect to "governmental plans" and (ii) the underlying
assets of the proposed transferee do not, for purposes of ERISA, constitute
assets of the Employee Benefit
-61-
Plans holding an equity interest in such proposed transferee.
(iii) "Permitted Owners" means one or more of the following (the
----------------
figures used below in this Section 6.1(j)(iii)(B) and (C) are to be
calculated exclusive of the Mortgaged Property):
(A) a Person that is controlled by DSMLP where the sole general
partner of DSMLP is an entity wholly owned (directly or indirectly) and
controlled by Host Marriott, or
(B) an insurance company with total hotel assets of $500 million
or more, or
(C) a Person that is a pension fund, pension trust or pension
account, or investment vehicle established by such an entity, that has
total assets of $500 million or more, and that is managed by a Person that
controls at least $1 billion in hotel assets, or
(D) a Person in which one or more of the Persons, together with
their wholly-owned Affiliates, described in (1), (2) or (3) above,
collectively own and control (directly and indirectly) at least a 51%
interest, or
(E) any Person as to which Borrower shall have received a Rating
Confirmation.
(iv) Transfers of Interests in Borrower. Except for transfers of
----------------------------------
limited partners in DSMLP, who may transfer limited partnership interests
in DSMLP in accordance with the terms of the partnership agreement of
DSMLP, the holder of any direct or indirect interest in Borrower may
transfer such interest to any Person if after giving effect to such
transfer:
(A) Borrower will be a Special Purpose Entity in compliance
with the representations, warranties and covenants in SCHEDULE 4B
(as if Borrower shall have remade all of such representations,
warranties and covenants as of, and after giving effect to, the
transfer),
-62-
(B) Borrower will either be a Permitted Owner or be owned,
and will be controlled (directly or indirectly), by a Permitted
Owner,
(C) if there has been a transfer of 25% or more of the
membership interests, stock or other direct equity ownership
interests in Borrower or a transfer or issuance of a membership
interest in Borrower, Borrower shall have first delivered to
Lender the Officer's Certificate and legal opinion described in
clause 6.1(j)(v) below, and
(D) if there has been a transfer of any interest in the
member of Borrower (or in DSMLP) where, as a result of any
transfer, any member or other Person shall own (directly or
indirectly) a 49 percent or more economic or controlling interest
in Borrower or a direct or indirect owner thereof, Borrower shall
have first delivered the Officer's Certificate and legal opinion
described in clause 6.1(j)(v) below.
(v) Notice Required. Not less than five (5) Business Days prior
---------------
to the closing of any transaction permitted under the provisions of this
Section 6.1(j), Borrower shall deliver or cause to be delivered to Lender
(A) an Officer's Certificate describing the proposed transaction and
stating that such transaction is permitted hereunder and under the other
Loan Documents, together with any documents upon which such Officer's
Certificate is based, and (B) a legal opinion of counsel to Borrower or the
transferee selected by either of them (unless reasonably disapproved by
Lender or the Rating Agencies), in form and substance consistent with
similar opinions then being required by the Rating Agencies, confirming,
among other things, that the assets and liabilities of Borrower, and of its
managing general partner or managing member, as applicable, will not be
substantively consolidated with the assets of such owners or controlling
Persons of Borrower or such managing member or general partner as Lender or
the Rating Agencies may reasonably specify (including any member or other
Person owning (directly or indirectly)
-63-
49 percent or more of Borrower), in the event of a bankruptcy or similar
proceeding involving such owners or controlling Persons (or such member or
other Person).
(vi) Sale of Equipment. Notwithstanding the above provisions of
-----------------
this Section 6.1(j), Borrower may transfer or dispose of Equipment that is
either being replaced or that is no longer necessary in connection with the
operation of the Mortgaged Property free from the interest of Lender under
this Agreement or any other Loan Document, provided such transfer or
--------
disposal (when compared to the non-transfer or non-disposal of such
Equipment) will not materially adversely affect the value of the Mortgaged
Property, will not materially impair the utility thereof and will not
violate any Material Agreement, Permitted Encumbrance or Legal Requirement
and will not result in a reduction or abatement of, or right of offset
against, the rentals or other amounts payable under any Lease as a result
thereof, provided that any new Equipment acquired by Borrower (and not so
--------
disposed of) shall be subject to the interest of Lender under this
Agreement and the other Loan Documents unless leased to Borrower (in which
event, Lender shall be made a collateral assignee of Borrower's interest in
such lease (but, unless expressly subsequently assumed by Lender, Lender
shall have no obligations under Borrower's interest therein)).
(vii) Pledges to Mezzanine Lender. Notwithstanding the foregoing
---------------------------
terms of this Section 6.1(j), the pledge of ownership interests by the
member of Borrower to the Mezzanine Lender, and any transfer upon or in
lieu of foreclosure in respect of such pledge, and any transfer by such
pledgee after either foreclosure or transfer in lieu of foreclosure, shall
not be a default hereunder, provided such pledgee or transferee, as
applicable, shall have complied with the terms of the Mezzanine Loan
Transfer Agreement.
(k) Nonexempt ERISA Transactions. Borrower shall not engage in a
----------------------------
nonexempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code, as such sections relate to Borrower, or in any transaction
that would cause any obligation or action taken or to be taken hereunder (or the
exercise by Lender of any of its rights
-64-
under the Note, this Agreement, the Mortgage or any other Loan Document) to be a
non-exempt prohibited transaction under ERISA.
(l) No Distributions. Except in accordance with the Cash Management
----------------
Procedures, Borrower shall not, without the prior written consent of the Lender,
make any distributions of cash to its members.
VII. ALTERATIONS; LEASING.
--------------------
Section 7.1 Alterations. Borrower will not make or permit any
-----------
demolition, alteration, installation, improvement, expansion or reduction of or
to the Mortgaged Property or any part thereof, (each, an "Alteration") except in
----------
accordance with the following terms and conditions:
(a) The Alteration shall be undertaken in accordance with the
applicable provisions of this Agreement, the other Loan Documents, the Material
Agreements and all Legal Requirements.
(b) No Event of Default shall have occurred and be continuing or shall
occur as a result of such action.
(c) The Alteration will not, either during the Alteration or upon
completion, result in a Material Adverse Effect.
(d) Lender's approval (not to be unreasonably withheld) shall be
required for any Material Alteration.
(e) A Material Alteration shall be conducted under the supervision of
an Independent Architect or Engineer and shall not be undertaken until ten (10)
Business Days after there shall have been filed with Lender, detailed plans and
specifications and cost estimates therefor, prepared and approved in writing by
such Independent Architect or Engineer. Such plans and specifications may be
revised at any time and from time to time, provided that material revisions of
such plans and specifications shall be filed with Lender.
(f) Reserved.
(g) All work done in connection with any Alteration shall be performed
with due diligence in a good
-65-
and workman-like manner, all materials used in connection with any Alteration
shall be not less than the standard of quality of the materials generally used
at the Mortgaged Property as of the date hereof (or, if greater, the then-
current customary quality for full-service resort hotels) and all work shall be
performed and all materials used in accordance with all applicable Legal
Requirements and Insurance Requirements.
(h) With respect to a Material Alteration, no payment made prior to
the Final Completion of a Material Alteration to any contractor, subcontractor,
materialman, supplier, engineer, architect, project manager or other Person who
renders services or furnishes materials in connection with such Material
Alteration shall exceed ninety five percent (95%) of the value of the work
performed from time to time and materials furnished and incorporated into the
Improvements.
(i) Reserved.
(j) For any Material Alteration (other than tenant improvements),
Borrower shall be obligated to either (x) deliver to Lender Eligible Collateral
to be held in escrow in the amount of such Material Alteration, which Eligible
Collateral shall be held by Lender as security for the Debt and released to
Borrower as such work progresses in accordance with Section 7.1(k) or (y)
establish to Lender's reasonable satisfaction that there will be sufficient
funds maintained in the FF&E Reserve Account or the Excess Cash Flow Escrow
Account with Manager that are or will be available for such Alterations.
(k) With respect to any Material Alteration as to which Borrower shall
have delivered Eligible Collateral to be held in escrow, or established to
Lender's reasonable satisfaction that there are sufficient funds therefor in one
or more accounts held with Lender, in each case in accordance with Section
7.1(j):
(i) Borrower shall deliver to Lender a schedule (which shall be
concurred in by the Independent Architect or Engineer, if applicable)
setting forth the projected stages of completion of such Alteration(s) and
the corresponding amounts expected to be due and payable by or on behalf of
Borrower in connection with such completion, such
-66-
schedule to be updated quarterly by Borrower (and concurred with by an
Independent Architect or Engineer) during the performance of such
Alteration(s).
(ii) Any Eligible Collateral that Borrower delivers to Lender
pursuant hereto (and the proceeds of any such Eligible Collateral) shall be
invested by Lender in Permitted Investments for a period of time consistent
with the date on which Borrower notifies Lender that Borrower expects to
request a release of such Eligible Collateral in accordance with the next
succeeding sentence. From time to time (but in no event more often than
monthly) as the Alteration progresses, the amount of any Eligible
Collateral so therefore furnished may, upon the written request of Borrower
to Lender, be withdrawn by Borrower and paid or otherwise applied by or
returned to Borrower in an amount equal to the amount Borrower would be
entitled to so withdraw if Section 8.1.2(e) hereof were applicable. In
connection with the above-described quarterly update of the projected
stages of completion of the Material Alteration (as concurred with by an
Independent Architect or Engineer), Borrower shall increase (or be
permitted to decrease, as applicable) the Eligible Collateral then
deposited with Lender as necessary to comply with Section 7.1(j) hereof or
shall establish to Lender's reasonable satisfaction in accordance with
Section 7.1(j) the sufficiency of available funds in the reserve accounts
specified in Section 7.1(j)(y).
(iii) At any time after Final Completion of such Alterations,
the whole balance of any Cash or other security deposited with Lender
pursuant to Section 7.1(j) then remaining on deposit may be withdrawn by
Borrower and shall be paid promptly by Lender to Borrower, and any Eligible
Collateral so deposited shall, to the extent it has not been called upon,
reduced or theretofore released, be released by Lender to Borrower, within
ten (10) days after receipt by Lender of an application for such withdrawal
and/or release together with an Officer's Certificate, and as to the
following clauses (A) and (B) of this clause also a certificate of the
Independent Architect or Engineer, setting forth in substance as follows:
(A) that, except for to minor punch-list items, such
Alteration(s) has been completed
-67-
in accordance with any plans and specifications therefor previously
filed with Lender under Section 7.1(e) hereof and otherwise in
accordance with the terms of this Agreement;
(B) that to the knowledge of the certifying Person, (x) such
Alteration(s) has been completed in compliance with all Legal
Requirements and Insurance Requirements, and (y) to the extent
required for the legal use or occupancy of the portion of the
Mortgaged Property affected by such Alteration(s), Borrower has
obtained a temporary or permanent certificate of occupancy (or similar
certificate) or, if no such certificate is required, a statement to
that effect;
(C) that to the knowledge of the certifying Person, all
amounts that Borrower is or may become liable to pay in respect of
such Alteration(s) through the date of the certification have been
paid in full or adequately provided for and, to the extent that such
are customary and reasonably obtainable by prudent property owners in
the area where the Mortgaged Property is located, that Lien waivers
have been obtained from the general contractor and major
subcontractors performing such Alteration or, at Borrower's option, at
its sole cost and expense, Borrower shall cause a nationally
recognized title insurance company to deliver to Lender an endorsement
to the Qualified Title Policy, updating such policy and insuring over
such Liens without further exceptions to such policy other than
Permitted Encumbrances, or shall, at its sole cost and expense, cause
a reputable title insurance company to deliver a lender's title
insurance policy, in such form, in such amounts and with such
endorsements as the Qualified Title Policy, which policy shall be
dated the date of completion of the Material Alteration and shall
contain no exceptions other than Permitted Encumbrances; provided,
--------
however, that if, for any reason, Borrower is unable to deliver the
certification required by this clause (C) with respect to any costs or
expenses relating to the Alteration, then, assuming Borrower is able
to satisfy each of the other requirements set forth
-68-
in clauses (A) and (B) above, Borrower shall be entitled to the
release of the difference between the whole balance of such Eligible
Collateral and the total of all costs and expenses to which Borrower
is unable to certify; and
(D) that to the knowledge of the certifying Person, no Event
of Default has occurred and is continuing.
VIII. INSURANCE; CASUALTY AND CONDEMNATION
------------------------------------
Section 8.1 Insurance; Casualty and Condemnation.
------------------------------------
8.1.1 Insurance. (a) Borrower, at its sole cost and expense, for the
---------
mutual benefit of Borrower and Lender, shall keep the Mortgaged Property insured
and obtain and maintain policies of insurance insuring against loss or damage by
standard perils included within the classification "All Risks of Physical Loss".
Such insurance (i) shall be in an aggregate amount equal to the then full
replacement cost of the Mortgaged Property and the Equipment (without deduction
for physical depreciation) and (ii) shall have deductibles for the Mortgaged
Property no greater than those existing on the date hereof (provided, to the
extent higher deductibles are commercially reasonable, Borrower shall have the
right to such higher deductibles, but in no event in excess of $100,000 without
Rating Confirmation, except with respect to earthquake insurance). The policies
of insurance carried in accordance with this paragraph shall be paid annually in
advance and shall contain a "Replacement Cost Endorsement" with a waiver of
depreciation (with current replacement cost being $165,216,000, to be adjusted
annually). In addition, Borrower shall maintain earthquake coverages at the
same levels as in effect as of the date hereof (namely, coverages in the maximum
probable loss amount (less the insurer required deductible) for the Mortgaged
Property and other hotel properties insured under the blanket insurance
program), with a deductible of not greater than 5% of the replacement value of
the Mortgaged Property (as set forth in such insurance policy) unless a Rating
Confirmation has been obtained with respect thereto.
(b) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall also obtain and maintain the following policies of
insurance:
-69-
(i) Flood insurance if any part of the Mortgaged Property is
located in an area identified by the Federal Emergency Management Agency as
an area federally designated a "100 year flood plain" and (A) flood
insurance is generally available at reasonable premiums and in such amount
as generally required by institutional lenders for similar properties or
(B) if not so available from a private carrier, from the federal government
at commercially reasonable premiums to the extent available.
(ii) Commercial general liability insurance, including broad
form property damage, blanket contrac tual and personal injuries
(including death resulting therefrom) coverages and containing minimum
limits of $50,000,000 per occurrence (whether from primary or excess and/or
umbrella coverage) for any policy year, including all legal liability
imposed upon Borrower and all related court costs and attorneys' fees (it
being agreed that Borrower shall increase its liability insurance in
accordance with commercially reasonable practices to the extent that claims
are asserted against the liability coverages in amounts in excess of
$50,000,000 in the aggregate except to the extent Borrower or Manager
reasonably determines that such claims are not likely to result in paid
claims in excess of $50,000,000).
(iii) Rental loss and/or business interruption insurance in an
amount sufficient to avoid any coinsurance penalty and equal to the greater
of (A) the estimated Operating Profit and necessary continuing expenses
from the operation of the Mortgaged Property, for a period of up to the
next succeeding twenty-four (24) months, or (B) the projected Management
Expenses, plus debt service on the Loan and the Mezzanine Loan, for the
maintenance and operation of the Mortgaged Property for a period of up to
the next succeeding twenty-four (24) months, as the same may be reduced or
increased from time to time due to changes in such Management Expenses.
The amount of such insurance shall be increased from time to time as and
when the Operating Profit (or the estimate thereof) or Management Expenses
increase.
(iv) Insurance against loss or damage from (A) leakage of
sprinkler systems and (B) explosion of steam boilers, air conditioning
equipment, high
-70-
pressure piping, machinery and equipment, pressure vessels or similar
apparatus now or hereafter installed in any of the Improvements (without
exclusion for explosions) and insurance against loss of occupancy or use
arising from any insurable breakdown, in such amounts as are generally
available at reasonable premiums and are generally required by
institutional lenders for properties comparable to the Mortgaged Property.
(v) Worker's compensation insurance (or be qualified as a self
insurer) with respect to employees (if any) of Borrower or Manager, as and
to the extent required by any Governmental Authority or Legal Requirement.
(vi) During any period of repair or restoration costing in
excess of $100,000, builder's "all risk" insurance in an amount equal to
not less than the full insurable value of the Mortgaged Property against
such risks (including fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may reasonably request, in form
and substance reasonably acceptable to Lender.
(vii) To the extent available at commercially reasonable rates,
coverage to compensate for the cost of demolition and the increased cost of
construction for the Mortgaged Property in an amount satisfactory to
Lender.
(viii) Such other insurance as may from time to time be
reasonably required by Lender in order to protect its interests, provided
the same shall not result in a material additional cost to Borrower.
(c) All policies of insurance (the "Policies") required pursuant to
--------
Section 8.1.1 (other than earthquake and flood insurance policies and, if self-
insured, workers' compensation) shall be issued by companies reasonably
acceptable by Lender and licensed to do business in the state where the
Mortgaged Property is located. Further, unless otherwise approved by Lender and
the applicable Rating Agencies in writing (and Lender and the applicable Rating
Agencies shall be deemed to have approved all of the insurers providing coverage
as of the date hereof to the extent of such coverages, as well as any
replacement insurers to the extent of the replaced insurer's coverages
-71-
if the replacing insurer has at least the same or better rating by Best's and
Standard & Poor's as the insurer being replaced):
(x) the insurer(s) of the Policies required under Section
8.1.1(a) (other than the earthquake coverage required thereunder) shall
have a claims-paying-ability of "A-/X" or better by Best's; and claims-
paying-ability ratings by Standard & Poor's of not less than "AA" (or as
otherwise reasonably approved by Lender and approved by the applicable
Rating Agencies);
(y) the issuer(s) of the earthquake coverage required under
Section 8.1.1(a) shall have a claims-paying-ability rating of "A-/V" or
better by Best's and Standard & Poor's "BBBq" or better and the first
$25,000,000 of such coverage shall be provided by issuers with claims-
paying-ability ratings by Standard & Poor's of "AA" or better (or as
otherwise approved by Lender and the applicable Rating Agencies); and
(z) the issuer(s) of the coverage required under Section
8.1.1(b)(ii) shall have a claims-paying-ability rating of "A-/VIII" or
better by Best's, with the first $10 million of such coverage shall be
provided by issuers with claims-paying-ability ratings by Standard & Poor's
of "AA" and the remaining amount of such coverage shall be provided by
issuers with claims-paying-ability ratings by Standard & Poor's of "BBBq"
or better (or as otherwise reasonably approved by Lender and approved by
the applicable Rating Agencies).
The Policies (original policies of which shall, at Lender's request, be made
available for Lender's review in the offices of Borrower or Manager upon
reasonable prior notice during normal business hours) (i) shall name Lender and
its successors and/or assigns as their interest may appear as an additional
insured or as a loss payee (except that in the case of workers' compensation and
commercial general liability insurance, Lender shall be named an additional
insured and not a loss payee); (ii) shall contain a Non-Contributory Standard
Lender Clause and, except with respect to commercial general liability
insurance, a Lender's Loss Payable Endorsement, or their equivalents, naming
Lender as the person to which all payments made by such insurance company shall
be paid to the extent of Lender's interest in
-72-
such loss; (iii) shall include effective waivers by the insurer of all claims
for insurance premiums against all loss payees, additional insureds and named
insureds (other than Borrower) and all rights of subrogation against any loss
payee, additional insured or named insured; (iv) shall provide that neither
Borrower, Lender nor any other party shall be a co-insurer under said Policies
and that no reduction in amount, or cancellation or termination in coverage, of
any of the Policies shall be effective until at least thirty (30) days after
receipt by each named insured, additional insured and loss payee of written
notice thereof; (v) shall permit Lender to pay the premiums and continue any
insurance upon failure of Borrower to pay premiums when due (it being understood
that Borrower's rights to coverage under such policies may not be assignable
without the consent of the insurer); and (vi) shall provide that any proceeds
(other than from liability insurance or workers' compensation) shall be payable
jointly to Lender and Borrower (to be held, disbursed and applied in accordance
with the terms hereof) and that the insurance shall not be impaired or
invalidated by virtue of (A) any act, failure to act, negligence of, or
violation of declarations, warranties or conditions contained in such policy by
Borrower, Lender or any other named insured, additional insured or loss payee,
except for the willful misconduct of Lender knowingly in violation of the
conditions of such policy, (B) the occupation, use, operation or maintenance of
the Mortgaged Property for purposes more hazardous than permitted by the terms
of the Policy, (C) any foreclosure or other proceeding or notice of sale
relating to the Mortgaged Property or (D) any change in the possession of the
Mortgaged Property without a change in the identity of the holder of actual
title to the Mortgaged Property (provided that with respect to items (C) and
-------- ----
(D), any notice requirements of the applicable Policies are satisfied).
(d) Insurance Premiums; Certificates of Insurance.
---------------------------------------------
(i) Borrower shall pay the premiums for such Policies (the
"Insurance Premiums") as the same become due and payable and shall furnish
-------------------
to Lender evidence of such payment reasonably satisfactory to Lender
(provided, however, that Borrower is not required to furnish such evidence
--------- -------
of payment to Lender if such Insurance Premiums are to be paid by Lender
pursuant to the terms of this Agreement). In the event Borrower satisfies
the requirements under this Section 8.1.1
-73-
through the use of a Policy covering properties in addition to the
Mortgaged Property, then Borrower shall provide evidence reasonably
satisfactory to Lender (which may be in the form of a letter from the risk
management department of MII, reasonably satisfactory to Lender) that the
Insurance Premiums for the Mortgaged Property are separately allocated
under such Policy to the Mortgaged Property. If no such allocation is
available, Lender shall have the right to increase the Tax and Insurance
Reserve Account in an amount sufficient to purchase a non-blanket Policy
covering the Mortgaged Property covered by such Policy from insurance
companies which qualify under this Agreement.
(ii) Borrower shall deliver to Lender on or prior to the Closing
Date certificates setting forth in reasonable detail the material terms
(including any applicable notice requirements) of all Policies from the
respective insurance companies (or their authorized agents) that issued the
Policies, including that such Policies may not be canceled or reduced
without thirty (30) days' prior notice to Lender. Borrower shall deliver
to Lender, concurrently with each material change in any Policy, a
certificate with respect to such changed Policy certified by the insurance
company issuing that Policy, in substantially the same form and containing
substantially the same information as the certificates required to be
delivered by Borrower pursuant to the first sentence of this clause (d)(ii)
and stating that all premiums then due thereon have been paid to the
applicable insurers and that the same are in full force and effect (or if
such certificate and report shall not be obtainable by Borrower, Borrower
may deliver an Officer's Certificate to such effect in lieu thereof).
(e) Renewal and Replacement of Policies.
-----------------------------------
(i) Not less than five (5) Business Days prior to the expiration,
termination or cancellation of any Policy, Borrower shall renew such policy
or obtain a replacement policy or policies (or a binding commitment for
such replacement policy or policies), which shall be effective no later
than the date of the expiration, termination or cancellation of the
previous policy, and shall deliver to Lender (A) a certificate in respect
of such policy or policies containing the
-74-
same information as the certificates required to be delivered by Borrower
pursuant to clause (d)(ii) above, or a copy of the binding commitment for
such policy or policies (B) an Officer's Certificate confirming that such
policy complies with all requirements hereof.
(ii) If Borrower does not furnish to Lender the certificates or
binding commitment as required under clause (e)(i), then on two (2)
Business Day's prior written notice to Borrower, Lender may procure, but
shall not be obligated to procure, such replacement policy or policies and
pay the Insurance Premiums therefor, and Borrower agrees to reimburse
Lender for the cost of such Insurance Premiums promptly on demand.
(iii) Concurrently with the delivery of each replacement policy
or a binding commitment for the same
pursuant to this clause (e) and in any event not less often than once each
Fiscal Year, Borrower shall deliver to Lender either an Officer's
Certificate or a report from a reputable and experienced insurance broker
or from the insurer, setting forth the particulars as to all insurance
obtained by Borrower pursuant to this Section 8.1.1 and then in effect and
stating that all Insurance Premiums then due thereon have been paid in full
to the applicable insurers, that such insurance policies are in full force
and effect and that, in the opinion of such insurance broker or insurer or
the signer of the Officer's Certificate, such insurance otherwise complies
in all material respects with the requirements of this Section 8.1.1.
(f) Separate Insurance. Borrower will not take out separate
------------------
insurance concurrent in form or contributing in the event of loss with that
required to be maintained pursuant to this Article 8.1.1 unless such insurance
complies with clause (c) above.
(g) Securitization. In the event of a Securitization, Borrower shall
--------------
name any trustee, Servicer or Special Servicer designated by Lender as a loss
payee or as additional insureds, with respect to any Policy for which Lender is
to be so named hereunder.
-75-
8.1.2 Casualty; Application of Proceeds.
---------------------------------
(a) Right to Adjust.
---------------
(i) If any portion of the Mortgaged Property is damaged or
destroyed, in whole or in part, by fire or other casualty (a "Casualty") in
--------
excess of $500,000, Borrower shall give prompt written notice thereof to
Lender, generally describing the nature and extent of such Casualty.
Following the occurrence of a Casualty, Borrower, regardless of whether
proceeds are available, shall in a reasonably prompt manner proceed to
restore, repair, replace or rebuild the affected Mortgaged Property to the
extent practicable to be of at least equal value and of substantially the
same character as prior to the Casualty, all in accordance with the terms
hereof applicable to Alterations.
(ii) Subject to clause (v) below, in the event of a Casualty
that does not exceed $1,000,000, Borrower may settle and adjust such claim;
provided that such adjustment is carried out in a reasonably competent and
--------
timely manner. In such case, Borrower is hereby authorized to collect and
receipt for Lender any Proceeds.
(iii) Subject to clause (v) below, in the event a Casualty shall
exceed $1,000,000, Borrower may settle and adjust such claim only with the
consent of Lender (which consent shall not be unreasonably withheld or
delayed) and Lender shall have the opportunity to participate, at
Borrower's cost, in any such adjustments.
(iv) The Proceeds on account of any Casualty or Condemnation
shall be delivered to Lender and held and applied in accordance with the
terms hereof. So long as no Event of Default shall have and occurred and
be continuing, Borrower shall have the right to receive directly casualty
proceeds and condemnation awards in amounts of $1,000,000 or less, provided
--------
all such proceeds and awards shall be held in trust by Borrower and applied
to the restoration of the Mortgaged Property in accordance with the terms
of the Loan Documents.
(v) Notwithstanding the terms of clauses (ii) and (iii) above,
Lender shall have the sole
-76-
authority to adjust any claim with respect to a Casualty and to collect all
Proceeds if an Event of Default shall have occurred and is continuing.
(b) Borrower's Right to Apply to Restoration. In the event of a
----------------------------------------
Casualty that involves a loss of the cost of which to repair is less than 30% of
the replacement cost of the Improvements or a Condemnation that affects less
than 15% of the usable square footage of the Improvements, Lender shall permit
the application of the Proceeds (after reimbursement of any reasonable costs and
expenses incurred by Lender in connection with the collection of such Proceeds)
to pay for the cost of restoring, repairing, replacing or rebuilding the
Mortgaged Property (the "Restoration"), in the manner required hereby, provided
----------- --------
and on the condition that, no Default or Event of Default shall have occurred
and be then continuing (other than a Default or Event of Default caused solely
by such casualty or condemnation) and, in the reasonable judgment of Lender:
(i) the Mortgaged Property can be restored to an economically
viable unit with a resulting Loan to value (as reasonably determined by
Lender, taking into account the original underwriting criteria employed by
Lender),
(ii) Lender shall have received reasonably satisfactory evidence
that the Restoration can be completed by the earliest to occur of:
(A) the 365th day following the later of (x) receipt of the
Proceeds, or, with a Ratings Confirmation, such longer period as may
reasonably be required, or (y) notice of Lender's election under the
provisions set forth below in this Section 8.1.2(b),
(B) the Anticipated Repayment Date, and
(C) with respect to a Casualty, the expiration of the
payment period on the rental loss insurance coverage in respect of
such Casualty, and
(iii) after Lender's receipt of reasonably satisfactory evidence
to such effect, during the period of the Restoration, the sum of (A) income
derived from the Mortgaged Property, plus (B) proceeds of rent loss
insurance or business interruption insurance, if any,
-77-
payable, together with such other monies as Borrower may irrevocably make
available, will equal or exceed the sum of (1) expenses in connection with
the operation of the Mortgaged Property and (2) the Debt Service for the
Mortgaged Property.
(c) Lender's Right to Apply to Repayment. If any of the conditions
------------------------------------
set forth in the proviso above in Section 8.2(b) is not satisfied, or if there
occurs Casualty the cost of which to repair is 30% of the replacement cost of
the Improvements or more or a Condemnation that affects 15% or more of the
usable square footage of the Improvements, then, notwithstanding anything herein
to the contrary, unless Lender shall otherwise elect, at its sole option, the
Proceeds shall be applied to the prepayment of the Loan in accordance with the
terms of Section 8.1.2(d) (and Borrower shall be entitled to receive a release
of the Lien of the Mortgage and the other Loan Documents in accordance with the
terms of Section 2.4.2 hereof if the Debt has been paid in full). Lender shall
notify Borrower of such election regarding the application of Proceeds not later
than the sixtieth (60th) day after it shall have received from Borrower all of
the evidence Lender is entitled to receive under this Section 8.1.2(b) and such
other information it may reasonably require to make such election.
(d) Application of Prepayment. Any application of Proceeds to
-------------------------
the Debt pursuant to Section 8.1.2(c) shall be without any prepayment premium or
penalty or Yield Maintenance Payment except that if an Event of Default has
occurred and is continuing (other than an Event of Default caused solely by the
Casualty or Condemnation in question), then Borrower shall pay to Lender an
additional amount equal to the Yield Maintenance Payments, if any, that would be
required in respect of the principal being prepaid, assuming Section 2.3.4
hereof were applicable. Any such application to the Debt shall be applied to
those payments of principal and interest last due under the Note and shall not
postpone or reduce any payments otherwise required pursuant to the Note other
than such last due payments.
(e) Manner of Restoration and Reimbursement. If Borrower is entitled
---------------------------------------
pursuant to Section 8.1.2(b) to the Proceeds and the conditions specified
therein shall have been satisfied, such Proceeds shall be disbursed from time to
time (but no more often than once monthly) upon Lender being furnished with (i)
such customary architect's
-78-
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, bonds, plats of survey and such other evidences of cost, payment
and performance as Lender may reasonably require and reasonably approve, and
(ii) all plans and specifications for such Restoration, such plans and
specifications to be approved by Lender prior to commencement of any work (such
approval not to be unreasonably withheld or delayed). In addition, no payment
made prior to the Final Completion of the Restoration shall exceed ninety-five
percent (95%) of the value of the work performed from time to time; and at all
times, the undisbursed balance of such Proceeds remaining in the hands of
Lender, together with funds deposited with Lender for the Restoration, shall be
at least sufficient in the reasonable judgment of Lender to pay for the cost of
completion of the Restoration, free and clear of all Liens. As a condition to
any disbursement, Lender shall have received evidence reasonably satisfactory to
it of the estimated cost of completion of the Restoration (such estimate to be
made by Borrower's independent architect or contractor and approved by Lender in
its reasonable discretion), and Borrower shall have deposited with Lender
Eligible Collateral in an amount equal to the excess (if any) of such estimated
cost of completion over the net Proceeds. Any surplus which may remain out of
Proceeds received pursuant to a Casualty shall promptly be paid to Borrower
after payment of such costs of Restoration. Any surplus which may remain out of
Proceeds received pursuant to a Condemnation after payment of such costs of
Restoration shall be paid to Borrower, provided the conditions specified in
Section 8.1.2(b)(i) have in fact been satisfied (regardless of the extent of the
Condemnation) and otherwise shall be escrowed with and pledged to Lender as
security for the Debt.
8.1.3 Condemnation. (a) Borrower shall promptly give Lender written
------------
notice of the actual or threatened commencement of any condemnation or eminent
domain proceed ing affecting the Mortgaged Property (a "Condemnation") and
------------
shall deliver to Lender copies of any and all papers served in connection with
such Condemnation. Following the occurrence of a Condemnation, unless Borrower
shall have repaid the Loan and all accrued interest thereon in full, Borrower,
regardless of whether Proceeds are available, shall promptly proceed to restore,
repair, replace or rebuild the same to the extent practicable to be of at least
equal value and of substantially the same character as prior
-79-
to such Condemnation, all to be effected in accordance with the terms hereof
applicable to Alterations.
(b) Lender is hereby irrevocably appointed as Borrower's attorney-in-
fact, coupled with an interest, with exclusive power to collect, receive and
retain any Proceeds in respect of a Condemnation and to make any compromise or
settlement in connection with such Condemnation, subject to the provisions of
this Section. Provided no Event of Default has occurred and is continuing, (x)
in the event of a Condemnation where the loss does not exceed $1,000,000,
Borrower may settle and compromise such Proceeds, provided that the same is
--------
effected in a reasonably competent and timely manner, and (y) in the event of a
Condemnation where the loss equals or exceeds $1,000,000, Borrower may settle
and compromise the Proceeds only with the consent of Lender (which consent shall
not be unreasonably withheld or delayed) and Lender shall have the opportunity
to participate, at Borrower's cost, in any litigation and settlement discussions
in respect thereof. If Lender shall so elect to participate in such litigation
and settlement discussion, Lender shall cooperate fully with Borrower and
participate in a timely manner, and Lender shall not unreasonably withhold or
delay its consent to any settlement proposal acceptable to Borrower.
Notwithstanding any Condemnation by any public or quasi-public authority
(including any transfer made in lieu of or in anticipation of such a
Condemnation), Borrower shall continue to pay the Debt at the time and in the
manner provided for in the Note, this Agreement and the other Loan Documents,
and the Debt shall not be reduced unless and until any Proceeds shall have been
actually received and applied by Lender to its reasonable costs and expenses in
collecting such Proceeds and to discharge of the Debt. Lender shall not be
limited to the interest paid on the Proceeds by the condemning authority but
shall be entitled to receive out of the Proceeds interest on the Note at the
rate or rates provided therein and herein. Borrower shall cause any Proceeds
that are payable to Borrower to be paid directly to Lender to be held and
applied in accordance with the terms hereof, provided no Event of Default shall
--------
have occurred and be continuing, Borrower shall have the right to receive
directly Proceeds in amounts of $1,000,000 or less, provided all such proceeds
--------
and awards shall be held in trust by Borrower and applied to the restoration of
the Mortgaged Property in accordance with the terms of the Loan Documents.
-80-
IX. ACCOUNTS AND RESERVES
---------------------
Section 9.1 Establishment and Maintenance of Reserve Accounts.
-------------------------------------------------
Borrower shall establish or cause the establishment of the accounts provided for
in the Cash Management Procedures, in accordance with and subject to the terms
and conditions set forth therein. Except as otherwise provided in the Cash
Management Procedures, (a) for each Reserve Account, Borrower shall establish
with one or more depository institutions selected by Lender, a separate account
(each, a "Reserve Account"), and (b) each Reserve Account shall be in the name
---------------
of and under the sole dominion and control of Lender or its Agent, subject to
Lender's obligations hereunder, including without limitation, to advance funds
therefrom in accordance with the Loan Documents and the Cash Management
Procedures, and Borrower shall not have the authority or power to make
withdrawals from any Reserve Account.
Section 9.2 Maintenance Reserve Accounts.
----------------------------
9.2.1 Establishment. Concurrently herewith, Borrower is establishing
-------------
with a depository institution designated by Lender a Chiller Work Reserve in the
amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) for the payment
of the work related to the installation of a backup chilled water system for the
Hotel. Pursuant to and in accordance with the Cash Management Procedures, an
additional amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000) is to be deposited
into the Chiller Work Reserve. All amounts in the Chiller Work Reserve shall be
invested in Permitted Investments.
9.2.2 Disbursements from the Chiller Work Reserve. Borrower shall
-------------------------------------------
have the right to obtain disbursements at any time and from time to time, with
respect to the Chiller Work Reserve, for expenses incurred by Borrower in
performing the Chiller Work in accordance with the terms hereof, in each case on
the following terms and conditions:
(a) disbursements shall be made only to pay or to reimburse Borrower
(or Manager on Borrower's behalf) in respect of the actual costs (including
"soft" costs) of the performing the Chiller Work;
(b) each request for disbursement from the Chiller Work Reserve shall
specify the work for which the
-81-
disbursement is requested and shall include an Officer's Certificate certifying
that such funds will be applied to pay or reimburse for materials or work done
in accordance herewith and copies of invoices for all items or materials
purchased and all contracted labor or services provided.
Upon the substantial completion of the Chiller Work to the reasonable
satisfaction of Lender, Lender shall disburse from the Chiller Work Reserve any
amounts remaining therein.
9.2.3 Reserved.
--------
9.2.4 Reserved.
--------
9.2.5 Obligations Unaffected. The insufficiency of any balance in
----------------------
the Chiller Work Reserve shall not relieve Borrower from its obligation to
fulfill all preservation and maintenance covenants in the Loan Documents.
Section 9.3 Reserved.
---------
Section 9.4 Reserved
--------
Section 9.5 Reserved
--------
Section 9.6 Grant of Security Interest; Rights upon Default. (a)
-----------------------------------------------
Borrower hereby pledges, assigns and grants a security interest to Lender, as
security for payment of all sums due in respect of the Loan and the performance
of all other terms, conditions and covenants of this Agreement and any other
Loan Document on Borrower's part to be paid and performed, all of Borrower's
right, title and interest in and to each Reserve Account, together with the
deposits therein, including all interest earned thereon and Permitted
Investments held therein. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in any Reserve Account, or permit any Lien or encumbrance to attach thereto, or
any levy to be made thereon, or any UCC-1 Financing Statements, except those
naming Lender as the secured party, to be filed with respect thereto.
(b) Subject to any applicable provisions of the Consent of Manager,
upon the occurrence of an Event of Default, Lender may apply amounts in any
Reserve Account for any of the following purposes relating to the Loan or
Borrower's obligations hereunder or under any other Loan
-82-
Document, and in any order, as Lender shall elect in its sole discretion: (i)
Taxes and Other Charges; (ii) Insurance Premiums; (iii) interest on the unpaid
principal balance of the Note; (iv) amortization of the unpaid principal balance
of the Note; (v) completion of all work required to be performed hereunder; (vi)
the cost of any repair or replacement to the Mortgaged Property; (vii) payment
of any amount expended in exercising rights and remedies available to Lender at
law or in equity or under this Agreement or under any of the other Loan
Documents; or (viii) any other portion of the Debt, including the Yield
Maintenance Payments applicable to any full or partial prepayment; provided
Yield Maintenance Payments will not be applied to repayment of the Debt prior to
payment in full of all principal and accrued interest.
Section 9.7 Lender Not Responsible. Nothing in this Article IX or
----------------------
elsewhere in the Loan Documents shall make Lender responsible for making or
completing any work in respect of the Mortgaged Property, or obligate Lender to
demand from Borrower additional sums to make or complete any work.
Section 9.8 Inspections; Undertaking of Work.
--------------------------------
Borrower shall permit Lender and Lender's agents and representatives
(including Servicer, Special Servicer, Lender's engineer, architect or
inspector) to enter onto the Mortgaged Property during normal business hours
after reasonable prior written notice (subject to the rights of Tenants under
the Leases) to inspect the progress of the Chiller Work, the work described on
Schedule 2 hereof and any Material Alterations, and all materials being used in
connection therewith, to examine all plans and shop drawings relating thereto
and, during the continuance of an Event of Default, to undertake and complete
any work required to be undertaken in accordance with the terms hereof.
Borrower shall cause all contractors and subcontractors to cooperate with Lender
or Lender's representatives or such other persons described above in connection
with inspections described in this Section 9.8 or the undertaking or completion
of work pursuant to this Section 9.8.
Upon Lender's written request, Borrower shall collaterally assign to
Lender, as additional security for the Loan, all rights and claims Borrower may
have against all Persons supplying labor or materials in connection with any
Alterations; provided, however, Lender may not pursue
-------- -------
-83-
any such right or claim unless an Event of Default has occurred and remains
uncured.
X. DEFAULTS
--------
Section 10.1 Event of Default.
----------------
(a) Each of the following events shall constitute an event of default
hereunder (each, an "Event of Default");
----------------
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not paid within ten
(10) Business Days after the same are due, subject to Borrower's right to
contest Taxes in accordance with Section 5.1(b)(ii) hereof;
(iii) if the Policies are not kept in full force and effect, or
if the certificates therefor are not delivered to Lender upon request and
such nondelivery is not cured within ten (10) days after written notice
thereof from Lender;
(iv) (A) if Borrower voluntarily transfers or encumbers all or
any portion of the Mortgaged Property; or (B) if any direct or indirect
interest in Borrower is voluntarily transferred or assigned, other than, in
each case, for Permitted Encumbrances or as is permitted hereunder;
(v) if any representation or warranty made by Borrower herein or
in any other Loan Document shall be false in any manner which would have a
Material Adverse Effect as of the date the representation or warranty was
made and such Default is not cured within thirty (30) days after written
notice thereof from Lender (if such default is susceptible to cure);
provided, however, that if such Default is susceptible of cure but cannot
-------- -------
reasonably be cured within such 30-day period and provided further that
Borrower shall have commenced to cure such Default within such 30-day
period and thereafter diligently and expeditiously proceeds to cure the
same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to
cure such Default, but the aggregate
-84-
cure period under this subsection (v) shall not exceed one hundred and
twenty (120) days;
(vi) if Borrower shall make an assignment for the benefit of
creditors, or if Borrower shall generally not be paying its debts as they
become due;
(vii) if a receiver, liquidator or trustee shall be appointed
for Borrower or if Borrower shall be adjudicated a bankrupt or insolvent,
or if any petition for bankruptcy, reorganization or arrangement pursuant
to federal bankruptcy law, or any similar federal or state law, shall be
filed by or against, consented to, or acquiesced in by, Borrower, or if any
proceeding for the dissolution or liquidation of Borrower shall be
instituted; provided, however, if such appointment, adjudication, petition
-------- -------
or proceeding was involuntary and not consented to by Borrower, upon the
same not being discharged, stayed or dismissed within 90 days;
(viii) Reserved;
(ix) if Borrower takes any action that breaches in any material
and adverse respect any of its negative covenants contained in Section 6.1
or if Borrower breaches in any material and adverse respect any covenant
contained in SCHEDULE 4B hereof and, if the same is susceptible of cure,
the same is not cured within thirty (30) days after written notice thereof
from Lender; provided, that no such cure of a breach of any covenant
contained in SCHEDULE 4B hereof shall be effective unless Borrower causes
to be delivered to an opinion as to non-consolidation in form and substance
and from counsel satisfactory to Lender, which opinion takes into account
such breach;
(x) if an Event of Default as defined or
described in any of the other Loan Documents occurs;
(xi) if Borrower shall continue to be in default under any of
the other terms, covenants or conditions of this Agreement or any other
Loan Document not otherwise specified in this Section 10.1(a) for ten (10)
days after notice to Borrower from Lender, in the case of any Default which
can be cured by the payment of a sum of money, or for thirty (30) days
after notice from Lender in the case of any other Default; provided,
--------
-85-
however, that if such non-monetary Default is susceptible of cure but
-------
cannot reasonably be cured within such 30-day period and provided further
that Borrower shall have commenced to cure such default within such 30-day
period and thereafter diligently and expeditiously proceeds to cure the
same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to
cure such Default, but the aggregate cure period under this subsection (xi)
shall not exceed one hundred and twenty (120) days;
(xii) unless (a) Borrower, after obtaining any consents or
waivers from the ground lessor under the Ground Lease, causes the Mortgaged
Property then owned by Borrower to come under management by another
Acceptable Manager: (A) the Manager shall commence any action or
proceeding (y) under any federal or state bankruptcy, insolvency,
rehabilitation or liquidation law now or hereafter in effect, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (z) seeking appointment
of a trustee, receiver or custodian under any such law for it or for all or
substantially all of its assets, or the Manager shall make a general
assignment for the benefit or its creditors; or (B) there shall be
commenced against the Manager any action or proceeding of a nature referred
to in clause (A) above which (y) results in the entry of any order for
relief or any such adjudication or appointment and (z) remains undismissed,
undischarged or unbonded for a period of 60 days; or (C) there shall be
commenced against the Manager any action or proceeding seeking issuance of
a warrant of attachment, execution, distraint or similar process against
all or substantially all of its assets which results in the entry of an
order for any such relief that shall not have been vacated, discharged,
stayed satisfied or bonded pending appeal within 60 days from the entry
thereof; or (D) the Manager shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due.
(xiii) If Borrower shall default, beyond any applicable notice
and grace period permitted to
-86-
Borrower under the Ground Lease, in the payment of any rent, additional
rent or other charge made payable by the Ground Lease or in the performance
of any other obligation to be performed by Borrower thereunder; or if the
leasehold estate created by the Ground Lease shall be surrendered or
terminated or cancelled for any reason or under any circumstances
whatsoever.
(b) Upon the occurrence of an Event of Default and at any time
thereafter, Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement or any other Loan Document, or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Borrower and in and to all or any of
the Mortgaged Property, including declaring the Debt to be immediately due and
payable (provided, however, with respect to an Event of Default described in
-------- -------
clauses (vi) or (vii) above, the Debt and all other obligations of Borrower
hereunder and under the other Loan Documents shall immediately and automatically
become due and payable, without notice or demand, and Borrower hereby expressly
waives any such notice or demand, anything contained herein or in any other Loan
Document to the contrary notwithstanding), and Lender may enforce or avail
itself of any or all rights or remedies provided in the Loan Documents against
Borrower and all or any portion of the Mortgaged Property, including all rights
or remedies available at law or in equity.
Section 10.2 Remedies. Upon the occurrence of an Event of Default,
--------
all or any one or more of the rights, powers, privileges and other remedies
available to Lender against Borrower under this Agreement or any of the other
Loan Documents executed and delivered by, or applicable to, Borrower or at law
or in equity may be exercised by Lender at any time and from time to time,
whether or not all or any of the Debt shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to all or any portion of the Mortgaged Property. Any
such actions taken by Lender shall be cumulative and concurrent and may be
pursued independently, singly, successively, together or otherwise, at such time
and in such order as Lender may determine in its sole discretion, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of Lender permitted by law, equity or contract or as set
forth herein or in the
-87-
other Loan Documents. Without limiting the generality of the foregoing, Borrower
agrees that if an Event of Default is continuing all liens and other rights,
remedies or privileges provided to Lender shall remain in full force and effect
until Lender has exhausted all of its remedies against the Mortgaged Property
and the Mortgage has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.
Section 10.3 Remedies Cumulative. The rights, powers and remedies of
-------------------
Lender under this Agreement shall be cumulative and not exclusive of any other
right, power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
Borrower shall not be construed to be a waiver of any subsequent Default or
Event of Default with respect to Borrower or to impair any remedy, right or
power consequent thereon.
Section 10.4 Cure Rights of Agent. For so long as the Mezzanine Loan
--------------------
remains outstanding, Mezzanine Lender shall have certain rights to cure defaults
under the Loan Documents, as set forth in the Mortgage Loan Cure Rights
Agreement, dated as of the date hereof, by and between Lender and GSMC, as Agent
for the Mezzanine Lender. Borrower hereby acknowledges and consents to such cure
rights on the part of Mezzanine Lender.
XI. INTENTIONALLY OMITTED
---------------------
XII. MANAGEMENT
----------
Section 12.1 Termination of Manager. Borrower represents, warrants
----------------------
and covenants that the Mortgaged Property shall at all times, without any
interruption whatsoever, be managed by an Acceptable Manager pursuant to
-88-
a Management Agreement in form and substance satisfactory to Lender in its
reasonable discretion (and collaterally assigned to Lender pursuant to
collateral assignment acceptable to Lender). Without limiting the foregoing,
unless otherwise waived by Lender, any replacement Management Agreement shall
terminate within thirty (30) days after the occurrence of a Management
Termination Event. Borrower and Lender agree that the Management Agreement shall
be terminable by Lender upon and during the continuance of an Event of Default
and an acceleration of the debt (provided the foregoing shall not affect the
--------
agreement of Lender in favor of the Manager in the Consent of Manager).
XIII. MISCELLANEOUS
-------------
Section 13.1 Survival. This Agreement and all covenants, agreements,
--------
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
so long as all or any of the Debt of Borrower is outstanding and unpaid.
Whenever in this Agreement any Person is referred to, such reference shall be
deemed to include the legal representatives, successors and assigns of such
Person (provided that the foregoing shall not be deemed to permit any transfer
of any ownership interest that is otherwise prohibited hereunder). All
covenants, promises and agreements in this Agreement contained, by or on behalf
of Borrower, shall inure to the benefit of the respective legal representatives,
successors and assigns of Lender.
Section 13.2 Permitted Investments; Eligible Accounts; Eligible
------------------------------- ------------------
Institutions. Lender shall invest any amounts to be held by Lender in
- ------------
accordance with the terms of this Agreement or any other Loan Document, pending
the application of such amounts to the purposes herein or therein provided, in
one of the Permitted Investments as directed by Borrower from time to time
(provided no Event of Default has occurred and is continuing) or Lender from
time to time (if any Event of Default has occurred and is continuing). Lender
shall not be responsible for its inability to invest funds received after 1:30
p.m. New York City time, but shall invest such sums on the following Business
Day. After application to the purposes for which any amounts invested pursuant
to this Section 13.2 are held
-89-
and so long as no Event of Default has occurred and is continuing hereunder, any
investment income earned from such investments shall be paid to Borrower. Except
as may otherwise be expressly provided in the Cash Management Procedures,
Reserve Accounts maintained hereunder, shall, at Lender's election, be (1) an
account or account maintained with a federal or state chartered depository
institution or trust company which complies with the definition of Eligible
Institution (as defined below), (2) a segregated trust account or accounts
maintained with the corporate trust department of a federal depository
institution or state chartered depository institution subject to regulations
regarding fiduciary funds on deposit similar to Title 12 of the Code of Federal
Regulations Section 9.10(b) which, in either case, has corporate trust powers,
acting in its fiduciary capacity, or (3) an account naming another insured
depository institution reasonably acceptable to Lender, so long as, prior to the
establishment of an account naming such other depository institution, each of
the Rating Agencies shall have delivered a Rating Confirmation with respect
thereto (such accounts, "Eligible Accounts"). "Eligible Institutions" are
----------------- ---------------------
institutions whose (1) commercial paper, short-term debt obligations or other
short-term deposits are rated at least "A-l+" by the applicable Rating Agencies,
if the deposits are to be held in the account for up to 30 days, or (2) long-
term unsecured debt obligations are rated at least "AA", if the deposits are to
be held in the account for more than 30 days. Following a rating downgrade,
withdrawal, qualification or suspension of such institution's rating, each
account must promptly (and in any case within not more than 30 calendar days) be
moved to a qualifying institution or to one or more segregated trust accounts in
the trust department of such institution, if permitted. No Eligible Account
shall be evidenced by a certificate of deposit, passbook or other instrument.
Each Eligible Account (A) shall be a separate and identifiable account from all
other funds held by the holding institution, (B) shall be established and
maintained in the name of the Lender (and subsequent to any Securitization,
shall bear a designation clearly indicating that the funds deposited therein are
held for the benefit of the holders of the Certificates), (C) shall be under the
sole dominion and control of Lender, and should contain only funds held for its
benefit. The out-of-pocket costs reasonably incurred in establishing and
maintaining any account or reserve held by Lender pursuant to this Agreement or
any other Loan Document shall be borne by Borrower and, at Lender's election,
such costs may be taken by Lender from
-90-
amounts then on deposit in any account or reserve. Lender shall notify Borrower
promptly after any such deduction. PNC Bank, N.A., so long as it maintains a
long-term unsecured debt rating of "A" or higher (or the equivalent) by each
Rating Agency, shall be deemed an Eligible Institution for purposes of
maintaining all accounts hereunder and any such accounts so maintained shall be
Eligible Accounts.
Section 13.3 Governing Law; Consent to Jurisdiction. (a) THIS
------------------------- ------------
AGREEMENT WAS NEGOTIATED AND MADE IN THE STATE OF NEW YORK, AND THE PROCEEDS OF
THE NOTES DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND
TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA,
EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND
PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED, IT
BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE,
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE AND ALL OF THE INDEBTEDNESS OR
OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY
LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT
THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND
THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO (S) 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER
ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE INSTITUTED IN ANY FEDERAL OR
STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO (S) 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW, AND BORROWER AND LENDER EACH WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
-91-
PROCEEDING, AND BORROWER AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CORPORATION SERVICE COMPANY, WITH AN ADDRESS AT 80
STATE STREET, ALBANY, NEW YORK 12207-2543, AS ITS AUTHORIZED AGENT TO ACCEPT AND
ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN
ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK,
NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED
ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO
TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW
YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS),
AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT
CEASES TO MAINTAIN THE ABOVE-REFERENCED OFFICE (OR ANY SUCCESSOR OFFICE SO
DESIGNATED) OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
Section 13.4 Modification, Waiver in Writing. No modification,
-------------------------------
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, or of the Note, or of any other Loan Document, nor consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in a writing signed by the party against whom enforcement is sought,
and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to, or demand on Borrower, shall entitle Borrower to
any other or future notice or demand in the same, similar or other circum
stances.
Section 13.5 Delay Not a Waiver. Neither any failure nor any delay
------------------
on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note or under any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Note or any
-92-
other Loan Document, Lender shall not be deemed to have waived any right either
to require prompt payment when due of all other amounts due under this
Agreement, the Note or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.
Section 13.6 Notices. All notices, consents, approvals and requests
-------
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, or (c) by facsimile (with telephonic
confirmation), addressed as follows (or at such other address and person as
shall be designated from time to time by any party hereto, as the case may be,
in a written notice to the other parties hereto in the manner provided for in
this Section):
If to Lender:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Executive Vice President,
Loan Servicing
Facsimile: (215) 328-3478
with copies to:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Chief Financial Officer
Facsimile: (215) 328-1530
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Diane Citron, Esq.
Facsimile: (312) 701-7711
Goldman Sachs Mortgage Company
85 Broad Street
-93-
New York, New York 10004
Attention: P. Sheridan Schechner
Facsimilie: (212) 357-5505
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Arthur S. Adler, Esq.
Facsimile: (212) 558-3588
If to Borrower:
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 923
Bethesda, Maryland 20817-1109
Attention: Assistant General Counsel,
Asset Management
Facsimile: (301) 380-6332
with a copy to:
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 908
Bethesda, Maryland 20817-1109
Attention: Director, Asset Management
Department
Facsimile: (301) 380-8260
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered or
the first attempted delivery on a Business Day; or in the case of expedited
prepaid delivery, upon the first attempted delivery on a Business Day; or in the
case of facsimile, upon receipt with telephonic confirmation thereof.
Section 13.7 Trial by Jury. LENDER AND BORROWER HEREBY AGREE NOT TO
-------------
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT
TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS GIVEN KNOWINGLY AND VOLUNTARILY BY LENDER AND BORROWER AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD
-94-
OTHERWISE ACCRUE. EACH OF LENDER AND BORROWER IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER
BY THE OTHER PARTY.
Section 13.8 Headings. The Article and/or Section headings and the
--------
Table of Contents in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
Section 13.9 Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 13.10 Preferences. Except as explicitly provided in the Cash
-----------
Management Procedures or herein, Lender shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments by Borrower to any
portion of the obligations of Borrower hereunder. To the extent Borrower makes
a payment or payments to Lender, which payment or proceeds or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then,
to the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 13.11 Waiver of Notice. Borrower shall not be entitled to
----------------
any notices of any nature whatsoever from Lender except with respect to matters
for which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice.
Section 13.12 Remedies of Borrower. In the event that a claim or
--------------------
adjudication is made that Lender or its
-95-
agents, including Servicer or Special Servicer, have acted unreasonably or
unreasonably delayed (or refrained from), acting in any case where by law or
under this Agreement or the other Loan Documents, Lender or such agent, as the
case may be, has an obligation to act reasonably or promptly, Borrower agrees
that neither Lender nor its agents, including Servicer and Special Servicer,
shall be liable for any monetary damages, and Borrower's sole remedies shall be
limited to commencing an action seeking injunctive relief or declaratory
judgment, except in any instance in which it has been finally determined that
such action, delay, or inaction by Lender or its agents has constituted gross
negligence, fraud, willful misconduct or an illegal act. The parties hereto
agree that any action or proceeding to determine whether Lender or its agents
have acted reasonably shall be determined by an action seeking declaratory
judgment.
Section 13.13 Expenses; Indemnity. Borrower covenants and agrees to
-------------------
reimburse Lender promptly following receipt of written notice from Lender for
all reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by or on behalf of Lender (together with reasonable and
customary detail therefor) in connection with (i) filing and recording fees and
expenses, title insurance premiums and other similar expenses incurred in
creating and perfecting the Liens in favor of Lender pursuant to this Agreement
and the other Loan Documents; (ii) enforcing or preserving any rights in
response to third party claims against, under or affecting Borrower, this
Agreement, the other Loan Documents or any security given for the Loan;(iii)
enforcing any obligations of or collecting any payments past due from Borrower
under this Agreement, the other Loan Documents or with respect to the Mortgaged
Property or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or of
any insolvency or bankruptcy proceedings; and (iv) any reasonable costs and
expenses incurred in connection with seeking or obtaining a Rating Confirmation
required by this Agreement or the other Loan Documents; provided, Borrower shall
--------
not be liable for the payment of any such costs and expenses to the extent the
same are not reasonably incurred or arise by reason of the gross negligence,
illegal acts, fraud or willful misconduct of Lender. Any costs and expenses due
and payable to Lender hereunder which are not paid by Borrower within ten (10)
Business Days after demand may be paid from any amounts in the Cash Collateral
Account, with notice thereof to Borrower.
-96-
Section 13.14 Exhibits and Schedules Incorporated. The Exhibits and
-----------------------------------
Schedules annexed hereto are hereby incorporated herein as a part of this
Agreement with the same effect as if set forth in the body hereof.
Section 13.15 Offsets, Counterclaims and Defenses. Any assignee of
-----------------------------------
Lender's interest in and to this Agreement, the Notes and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims, or
defenses which are unrelated to such documents which Borrower may otherwise have
against any assignor of such documents, and no such unrelated counterclaim or
defense shall be interposed or asserted by Borrower in any action or proceeding
brought by any such assignee upon such documents and any right to interpose or
assert any such unrelated offset, counterclaim or defense in any such action or
proceeding is hereby expressly waived by Borrower.
Section 13.16 No Joint Venture or Partnership. Borrower and Lender
-------------------------------
intend that the relationships created hereunder and under the other Loan
Documents be solely that of borrower and lender. Nothing herein or therein is
intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between Borrower and Lender nor to grant Lender any
interest in the Mortgaged Property other than that of mortgagee or lender.
Section 13.17 Lender's Statement. After written request by Borrower,
------------------
Lender shall, within twenty (20) days, furnish Borrower with a statement, duly
acknowledged and certified, setting forth (A) the unpaid principal amount of the
Note, (B) the applicable Interest Rate, (C) the date installments of interest
and/or principal were last paid, (D) that the Note, this Agreement, the Mortgage
and the other Loan Documents are in full force and effect and have not been
modified or if modified, are in full force and effect as so modified and giving
particulars of such modifi cation, and (E) such other matters as Borrower may
reasonably request. Any prospective permitted purchaser or assignee of any
interest in Borrower or the Mortgaged Property (as well as any lender to any
such owner) shall be permitted to rely on such certificate.
Section 13.18 Waiver of Marshalling of Assets. To the fullest extent
-------------------------------
Borrower may legally do so, Borrower waives all rights to a marshalling of the
assets of Borrower, Borrower's partners, if any, and others with interests in
Borrower, and of the Mortgaged Property, or to
-97-
a sale in inverse order of alienation in the event of foreclosure of the
interests hereby created, and agrees not to assert any right under any laws
pertaining to the marshalling of assets, the sale in inverse order of
alienation, homestead exemption, the administration of estates of decedents, or
any other matters whatsoever to defeat, reduce or affect the right of Lender
under the Loan Documents to a sale of the Mortgaged Property for the collection
of the related Debt without any prior or different resort for collection, of the
right of Lender or any deed of trust trustee to the payment of the related Debt
out of the net proceeds of the Mortgaged Property in preference to every other
claimant whatsoever. In addition, Borrower, for itself and its successors and
assigns, waives in the event of foreclosure of any or all of the Mortgage, any
equitable right otherwise available to Borrower which would require the separate
sale of portions of the Mortgaged Property.
Section 13.19 Waiver of Counterclaim. Borrower hereby waives the
----------------------
right to assert a counterclaim, other than a compulsory counterclaim, in any
action or proceeding brought against it by Lender or its agents, including
Servicer or Special Servicer.
Section 13.20 Conflict; Construction of Documents. In the event of
-----------------------------------
any conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that such Loan Documents
shall not be subject to the principle of construing their meaning against the
party which drafted same.
Section 13.21 Brokers and Financial Advisors. Borrower and Lender each
------------------------------
hereby represents that it has dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement. Each of Borrower and Lender hereby
agrees to indemnify the other and holds the other harmless from and against any
and all claims, liabilities, costs and expenses of any kind in any way relating
to or arising from a claim by any Person that such Person acted on behalf of
Borrower or Lender, as the case may be, in connection with the transactions
contemplated herein. The provisions of this Section 13.21
-98-
shall survive the expiration and termination of this Agreement and the repayment
of the Debt.
Section 13.22 No Third Party Beneficiaries. Except as specifically set
----------------------------
forth herein, this Agreement and the other Loan Documents are solely for the
benefit of Lender and Borrower, and nothing contained in this Agreement or the
other Loan Documents shall be deemed to confer upon anyone other than Lender and
Borrower any right to insist upon or to enforce the performance or observance of
any of the obligations contained herein or therein. All conditions to the
obligations of Lender to make the Loan hereunder are imposed solely and
exclusively for the benefit of Lender, and no other Person shall have standing
to require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make the Loan in the absence of
strict compliance with any or all thereof and no other Person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender if, in Lender's sole
discretion, Lender deems it advisable or desirable to do so. Borrower and
Lender hereby expressly acknowledge and agree that Mezzanine Lender is a third
party beneficiary of those provisions of the Cash Management Procedures that
provide for the payment of debt service on the Mezzanine Loan and the funding of
the debt service reserve account relating to the Mezzanine Loan from certain
accounts. Borrower and Lender hereby expressly acknowledge and agree that
Junior Lender is a third party beneficiary of those provisions of the Cash
Management Procedures that provide for the payment of debt service on the Junior
Loan.
Section 13.23 Prior Agreements. This Agreement and the other Loan
----------------
Documents contain the entire agreement of the parties hereto and thereto in
respect of the transactions contemplated hereby and thereby, and all prior
agreements among or between such parties, whether oral or written, between
Borrower and Lender are superseded by the terms of this Agreement and the other
Loan Documents.
Section 13.24 Exculpation. Subject to the qualifications below,
-----------
Lender shall not seek to enforce or enforce the liability and obligation of
Borrower to perform and observe the obligations contained in the Note, this
Agreement, the Mortgage or the other Loan Documents by any action or proceeding
wherein a money judgment shall be sought against Borrower (or any member,
shareholder, partner
-99-
or other owner of Borrower, or any separate account contract holder, beneficial
owner, advisor, consultant, manager, fiduciary, director, officer or employee of
any of the foregoing), except that Lender may bring a foreclosure action, an
action for specific performance or any other appropriate action or proceeding to
enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Mortgage and the other Loan Documents, or in the Mortgaged
Property, the Rents, or any other collateral given to Lender pursuant to the
Loan Documents; provided, however, except as specifically provided herein, any
judgment in any such action or proceeding shall be enforceable against Borrower
only to the extent of Borrower's interest in the Mortgaged Property, the Rents
and any other collateral given to Lender, and Lender, by accepting the Note,
this Agreement, the Mortgage and the other Loan Documents, agrees that it shall
not sue for, seek or demand any deficiency judgment against Borrower in any such
action or proceeding under or by reason of or under or in connection with the
Note, this Agreement, the Mortgage or the other Loan Documents. The provisions
of this Section shall not, however, (a) constitute a waiver, release or
impairment of any obligation evidenced or secured by any of the Loan Documents;
(b) impair the right of Lender to name Borrower as a party defendant in any
action or suit for foreclosure and sale under any of the Mortgage; (c) affect
the validity or enforceability of or any guaranty or indemnity of Borrower made
in connection with the Loan or any of the rights and remedies of Lender
thereunder; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of the assignment of leases set forth in
the Mortgage; or (f) constitute a waiver of the right of Lender to enforce the
liability and obligation of Borrower, by money judgment or otherwise, to the
extent of any loss, damage, cost, expense, liability or other obligation
incurred by Lender (including attorneys' fees and costs reasonably incurred)
arising out of or in connection with (but only to the extent of) the following:
(i) waste with respect to the Mortgaged Property;
(ii) fraud, misrepresentation or misapplication of funds by Borrower
in connection with the Loan;
(iii) any liability under the Environmental
Indemnity;
-100-
(iv) the removal or disposal by Borrower of any portion of the
Mortgaged Property in violation of the Loan Documents after an Event of Default;
(v) the application by Borrower of any Proceeds other than in
accordance with the terms of this Agreement, or the application of any Rents or
other revenues from the Mortgaged Property, following an Event of Default,
except to the Management Expenses of the Mortgaged Property or to repay the Debt
or other amounts due hereunder or under the other Loan Documents or as otherwise
permitted by the terms of the Loan Documents; and
(vi) any security deposits or advance booking deposits collected with
respect to the Mortgaged Property which are not delivered to Lender upon a
foreclosure of the Mortgaged Property or sale or deed in lieu thereof.
Notwithstanding anything to the contrary in this Agreement or any of the Loan
Documents, Lender shall not be deemed to have waived any right which Lender may
have under Section 506(a), 506(b) or 1111(b) or any other provisions of the U.S.
Bankruptcy Code to file a claim for the full amount of the Debt secured by the
Mortgage or to require that all collateral shall continue to secure all of the
Debt owing to Lender in accordance with the Loan Documents.
Section 13.25 Loan Assignability by Lender. The Loan, and all of
----------------------------
Lender's rights, remedies and privileges hereunder and the other Loan Documents,
shall be assignable by Lender at any time and from time to time. Lender shall
provide Borrower with written notice of any such assignment in accordance with
Section 13.6 hereof; provided, however, that failure to provide such notice
shall in no way impair the rights, remedies and privileges of Lender or its
assignee hereunder and under the other Loan Documents.
Section 13.26 Disclosure. Notwithstanding anything in the Management
----------
Agreement, Borrower, the Lender, the Servicer and the Special Servicer may
disclose information regarding such agreement and the operation of the Hotel,
and provide copies of such agreement and any financial statements or reports
delivered by the Manager pursuant to such agreement, to holders of the Loan or
the Certificates, and any counsel to or agents, officers, employees and
representatives of any such holder, and may disclose and describe the terms
hereof and thereof in any
-101-
offering memorandum, prospectus, or registration statement or other filing
required under applicable law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-102-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
DS HOTEL LLC
By: /s/ Patricia K. Brady
------------------------------
Name: Patricia K. Brady
Title: Vice President
GMAC COMMERCIAL MORTGAGE CORPORATION
By: /s/ James C. Poff
------------------------------
Name: James C. Poff
Title: Vice President
Schedule 1
----------
Intentionally Omitted
Schedule 2
----------
DEFERRED MAINTENANCE CONDITIONS
-------------------------------
Deferred Maintenance Items
All items to be completed by December 31, 1998
CORRECTION ESTIMATE STATUS REPORT Page 1 Date: October 11, 1996
==================================================================================================================================
Marriott's Desert Springs Resort and Spa Revision Date: November 5, 1997
74855 Country Club Drive, Palm Desert, CA 92260
COST TO CORRECT
DEFICIENCY DESCRIPTION (Lump Sum)
SITE Immediate Photo
- ---- ----------------------------
HOTEL GROUNDS:
Replace concrete sidewalk section at Mikado boat dock adjacent to fountain $1,350 50
- -------------------------------------------------------------------------------------------------------------------------------
** Repair or replace cracked concrete cracking at the Springs Pool area $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Repair bent and replace missing rods and anodized aluminum fencing at oasis pool area $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Provide additional sand and soil at sidewalk transition behind spring pool snack building $ 0
- -------------------------------------------------------------------------------------------------------------------------------
(8" minimum step)
- -------------------------------------------------------------------------------------------------------------------------------
* Clean out soil and debris from dry well trench drains at parking areas $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Repair bent center rail post at exterior ballroom pre-function steps $ 750 49
- -------------------------------------------------------------------------------------------------------------------------------
* Drive in exposed nail heads at Mikado's wooden bridge $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Repair and replace sidewalk lights bollards $1,400 55
- -------------------------------------------------------------------------------------------------------------------------------
* Repair or repaint cracked and loose slate tile at the Mikado stairway $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Replace cracked and partial wheel stops at northwest parking lot $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Hotel Grounds $3,500
===========================
PARKING GARAGE:
* Remove existing expansion joint material, install new caulking, and secure aluminum covers $ 0
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Parking Garage $ 0
===========================
GOLF COURSE:
* Replace dead trees and shrubs at selected areas $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Clean out dry well area adjacent to head walls $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Golf Course $ 0
===========================
ROOFING
- -------
HOTEL:
** Repair or replace damaged roof membrane at all hotel, spa, and outbuilding areas $ 0 57 & 58
- -------------------------------------------------------------------------------------------------------------------------------
** Install and replace damaged vent caps and roof drains $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Hotel Roofing $ 0
===========================
SPA:
*** Remove and replace roofing system at spa building (except weight room addition) $ 0
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Spa Roofing $ 0
===========================
SUBTOTAL - Page 1 $3,500
======
* Work Completed
** Work in Progress
*** Work Scheduled for Years 1 through 10 - Reference Replacement Reserve
Analysis
CORRECTION ESTIMATE STATUS REPORT Page 2 Date: October 11, 1996
================================================================================
Marriott's Desert Springs Resort and Spa Revision Date: November 5, 1997
74855 Country Club Drive, Palm Desert, CA 92260 COST TO CORRECT
DEFICIENCY DESCRIPTION (Lump Sum)
EXTERIOR Immediate Photo
- ---------------------- ----------- ---------
HOTEL:
* Repair and repaint scratched exterior anodized
aluminum doors and frames at Building B $0
- --------------------------------------------------------------------------------
* Replace cracked and chipped marble veneer at porte
cochere entry $0
- --------------------------------------------------------------------------------
Replace cracked ceramic tile at exterior guest
corridor for Buildings D and G $1,750 53
- --------------------------------------------------------------------------------
** Repair minor damaged stucco finishes at selected
areas Warranty Work
- --------------------------------------------------------------------------------
* Pressure wash stains from planter boxes at selected
areas $0
- --------------------------------------------------------------------------------
Subtotal - Hotel Exterior $1,750
=====================
SPA:
** Repair cracked and chipped stucco finish at selected
areas Warranty Work
- --------------------------------------------------------------------------------
* Replace hollow metal doors and frames at mechanical
area $0
- --------------------------------------------------------------------------------
* Replace insulated glazed window at men's breathing
room $0
- --------------------------------------------------------------------------------
Clean, prep, and paint mechanical doors and frames $1,200 56
- --------------------------------------------------------------------------------
Subtotal - Spa Exterior $1,200
=====================
OUT BUILDINGS:
** Repair stucco finish at spring pool snack building Warranty Work
- --------------------------------------------------------------------------------
* Clean, prep, and paint metal doors and frames at
spring pool $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subtotal - Out Buildings Exterior $0
=====================
INTERIOR
- ----------------------
* Replace softgoods and casegoods at lobby $0
- --------------------------------------------------------------------------------
* Repair walls, floor and ceiling finishes at Main
and Banquet Kitchens $0
- --------------------------------------------------------------------------------
* Replace meeting room carpet $0
- --------------------------------------------------------------------------------
Subtotal - Interior $0
=====================
PLUMBING
- ----------------------
* Repair or replace hot water insulation $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subtotal - Plumbing $0
=====================
ELECTRICAL
- ----------------------
* Provide miscellaneous "J" box covers at mechanical
areas $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subtotal - Electrical $0
=====================
* Work Completed
** Work in Progress SUBTOTAL - Page 2 $2,950
=============
CORRECTION ESTIMATE STATUS REPORT Page 3 Date: October 11, 1996
==========================================================================================================================
Marriott's Desert Spring Resort and Spa Revision Date: November 5, 1997
74855 Country Club Drive, Palm Desert, CA 92260
COST TO CORRECT
DEFICIENCY DESCRIPTION
(Lump Sum)
Immediate Photo
------------------------------
MECHANICAL
- ------------------
Clean calcium and mineral build-up and service cooling tower $4,500 52
- --------------------------------------------------------------------------------------------------------------------------
* Remove plastic elbow insulation cover and replace with aluminum
and new insulation at rooftop piping $0
- --------------------------------------------------------------------------------------------------------------------------
Replace laundry steam hot water boiler (in 1998 CapEx Budget) $75,000 51
- --------------------------------------------------------------------------------------------------------------------------
* Replace laundry expansion tank insulation and related piping $0
- --------------------------------------------------------------------------------------------------------------------------
* Replace hot and chilled water piping insulation at selected areas $0
- --------------------------------------------------------------------------------------------------------------------------
* Replace filter and clean and service rooftop evaporative and package units $0
- --------------------------------------------------------------------------------------------------------------------------
* Provide an in-depth engineering report to study hydraulic piping deficiencies
and options for a back-up/redundant chilled water system $0
- --------------------------------------------------------------------------------------------------------------------------
Subtotal - Mechanical $79,500
==============================
FIRE & LIFE SAFETY
- ------------------
* Install new lamps at "Exit" signs for Buildings C-1 and C-2 $0
- --------------------------------------------------------------------------------------------------------------------------
Subtotal - Fire & Life Safety $0
==============================
ADA "READILY ACHIEVABLE"
- -----------------------
** Provide ADA compliant signage at public areas (cost amount to complete) $10,000
- --------------------------------------------------------------------------------------------------------------------------
** Provide resort accessibility plan for handicap guests $0
- --------------------------------------------------------------------------------------------------------------------------
Provide six handicap signs for Exhibit Hall and Tennis Club parking spaces $900 54
- --------------------------------------------------------------------------------------------------------------------------
Subtotal - ADA "Readily Achievable" $10,900
-----------
SUBTOTAL - PAGE 3 $90,400
===========
TOTAL - PAGES 1-3 $96,850
===========
ENVIRONMENTAL DEFERRED MAINTENANCE ITEMS
The following items are to be completed by December 31, 1998 in a manner
consistent with the letter dated April 26, 1996 from Petro-Analytical, Inc. to
Scott Carlson of Marriott Desert Springs Resort.
1) Upgrading or removal of four USTs on golf course.
2) Upgrading of Main Generator UST.
CHILLER WORK
TO BE COMPLETED BY DECEMBER 31, 1999
Mechanical - Potential Option Based on P2S Engineering Report:
Provide redundant chilled water system
(one 1,000 ton chiller and cooling tower) 2,000,000
Schedule 4A
-----------
REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Except as may be set forth on Schedule 4C:
1. Authority; Binding on Borrower; Enforceability. Borrower is a
----------------------------------------------
limited liability company, duly formed, validly existing and in good standing
under the laws of the State of Delaware. Borrower has taken all company action
required to make the provisions of the Loan Documents the valid and enforceable
obligations they purport to be. Borrower is duly qualified and in good standing
as a foreign limited liability company in California and all other jurisdictions
where it is required to so be qualified, except for failures to be so qualified
that do not in the aggregate have any Material Adverse Effect. Borrower has the
full right, authority and power to own the Mortgaged Property and to conduct its
business. Each of the Loan Documents has been duly authorized, executed and
delivered by Borrower and constitutes the valid and legally binding obligation
of Borrower, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors rights and to general
equity principles.
2. Conflict with Existing Laws or Contracts; Consents. The
----------------------------------------- --------
execution and delivery of the Loan Documents and all related documents and the
performance of its obligations hereunder and thereunder by Borrower do not
conflict with any provision of any applicable law or regulation to which
Borrower is subject, or conflict with or result in a breach of or constitute a
default under any of the terms, conditions or provisions of any agreement or
instrument to which Borrower is a party or by which Borrower is bound or any
order or decree applicable to Borrower, or result in the creation or imposition
of any lien on any of its assets or property. Borrower has obtained all
consents, approvals, authorizations or orders of any court, governmental agency
or body and of all third parties, if any, required for the execution, delivery
and making by Borrower of the Loan Documents and the consummation of the
transactions contemplated thereby.
3. Bankruptcy or Debt of Borrower; Financial Condition. Borrower
---------------------------------------------------
has not filed and is not contemplating the filing of any petition seeking or
acquiescing in any
4A-1
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any law relating to bankruptcy or insolvency, nor has
any such petition been filed against Borrower. No general assignment of
Borrower's property has been made for the benefit of creditors, and no receiver,
master, liquidator or trustee has been appointed for Borrower or any of its
property. Borrower is not insolvent and the consummation of the transactions
contemplated by the Loan Documents shall not render Borrower insolvent.
4. Litigation; Condemnation. There are no actions, suits or
------------------------
proceedings at law or in equity by or before any Governmental Authority or other
agency now pending, or to the best of Borrower's knowledge, threatened against
or affecting Borrower or the Mortgaged Property, which actions, suits or
proceedings, alone or in the aggregate, if determined against Borrower or the
Mortgaged Property, would have a Material Adverse Effect. There are no pending,
and Borrower has no knowledge of any threatened, condemnation or similar
proceeding affecting the Mortgaged Property.
5. Title. Borrower has good and marketable title in fee to the real
-----
property comprising the Mortgaged Property (other than the parcel described on
Exhibit C), and good and marketable leasehold title to the parcel described on
Exhibit C, and good and marketable title to the balance of the Mortgaged
Property, in each case free and clear of all Liens whatsoever except the
Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan
Documents and the Liens created by the Loan Documents. The Mortgage, when
properly recorded in the appropriate records, together with any Uniform
Commercial Code financing statements required to be filed in connection
therewith, will create (i) a valid, perfected first priority lien on the
Mortgaged Property, subject only to Permitted Encumbrances and the Liens created
by the Loan Documents and (ii) perfected security interests in and to, and
perfected collateral assignments of, all personalty (including the Leases), all
in accordance with the terms thereof, in each case subject only to any Permitted
Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created or permitted by the Loan Documents. The Permitted
Encumbrances do not and will not have a Material Adverse Effect. Except as
insured over by a Qualified Title Insurance Policy, to Borrower's knowledge,
there are no claims for payment for work, labor or materials affecting the
Mortgaged Property which are or may become a lien prior to, or of equal priority
with, the Liens created by the Loan
4A-2
Documents (other than mechanics' or materialmen's liens for work or materials
performed or supplied but the costs for which are not yet past due or which are
being contested in accordance with Section 5.1(b)(ii) of the Loan Agreement).
(Nothing in this paragraph may be relied on by the title insurance company
issuing a policy covering the Mortgaged Property.)
6. Leases; Lease Obligations. SCHEDULE 4A-6 hereto sets forth all
-------------------------
leases, under which any Person leases, any portion of the Mortgaged Property
(each, a "Tenant") and is true and complete. Such leases, have not been amended
------
or modified, except as set forth on said Schedule. Borrower has delivered to
Lender true, correct and complete copies of all such leases, as the same are
currently in effect. Except as may be set forth on SCHEDULE 4A-6 or, with
respect to items (a), (c), (d) and (e), to the extent not covered in said
Schedule, in any tenant estoppel certificate being delivered to Lender
concurrently herewith:
(a) Borrower has received no written notice of any insolvency or
bankruptcy proceeding pending or threatened involving any Tenant;
(b) there are no agreements for the use, occupancy or possession of
the Land or Improvements presently in force;
(c) there are no (and after Closing there will not be any) prepaid
rentals, free rent or rent concessions in connection with any of the Leases;
(d) no default exists in any material respect with respect to either
the landlord's or Tenant's obligations under the Leases, and there are no
pending claims asserted by any Tenant for offsets or abatements against rent or
any other monetary claim;
(e) Borrower is the sole owner of the lessor's interest in all of the
Leases and, except for any collateral assignments of leases and rent given or
made to any existing mortgage holder of the Mortgaged Property and which will be
released and canceled of record at Closing, Borrower has not given or suffered
any other assignment, pledge or encumbrance in respect of any of the Leases or
its interests thereunder, and Borrower has the sole right to collect rents and
other amounts due under the Leases.
4A-3
7. Rights of Offer and Refusal. Except as provided in the
---------------------------
Management Agreement, but subject to the Consent of Manager, no Person has any
option, right to acquire any portion of the Mortgaged Property or any interest
relating thereto, or a right of first offer or right of refusal to do so
(whether exercisable now or upon any subsequent resale of the Mortgaged Property
or any portion thereof).
8. Physical Condition. Except as disclosed in the engineering
------------------
reports or described in the definition of "Chiller Work Reserve", there is no
material structural or other material defect or material damage in or to the
Mortgaged Property, (except as may be included in Deferred Maintenance
Conditions, in respect of which reserves are being established with Lender).
Borrower has no knowledge of any notice from an insurance company or bonding
company of any defects or inadequacies in the Mortgaged Property which would,
alone or in the aggregate, adversely affect in any material respect the
insurability of the same or cause the imposition of extraordinary premiums or
charges thereon or of any termination or threatened termination of any policy of
insurance or bond.
9. Compliance. Borrower and the Mortgaged Property and the use
----------
thereof, comply in all material respects with all applicable Legal Requirements,
including building codes, zoning, subdivision, land use and similar laws,
ordinances, plans and orders having the force of law. Neither the Mortgaged
Property nor the Borrower thereof is in default or violation of any order, writ,
injunction, decree or demand of any Governmental Authority having jurisdiction
over the Mortgaged Property, the violation of which would materially adversely
affect the Mortgaged Property or the financial condition of Borrower. There has
not been committed by Borrower any act affording the federal government or any
state or local government the right of forfeiture as against the Mortgaged
Property or any part thereof or any monies paid in performance of Borrower's
obligations under any of the Loan Documents. Borrower hereby covenants and
agrees not to commit any act or omission affording such right of forfeiture.
10. Licenses. Borrower has all material certifications, permits,
--------
licenses, approvals and other authorizations from governmental political
subdivisions or regulatory authorities (collectively "Permits") as are necessary
for the ownership, use and operation of the Mortgaged Property. Borrower has no
knowledge on the part of any issuing authority which intends to cancel and
suspend or
4A-4
to institute proceedings to cancel and suspend any of the Permits.
11. Outstanding Contracts. To Borrower's knowledge, Borrower has
---------------------
delivered a true and correct copy of each contract, as in effect on the date
hereof, affecting the Mortgaged Property or Borrower in effect as of the date
hereof. Borrower has not delivered to or received from the other party to any
such contract notice of a default thereunder which remains uncured. Except for
the Leases and contracts provided to Lender, there are no material contractual
agreements of any kind with respect to the Mortgaged Property.
12. Employees. Other than union contracts disclosed to Lender, there
---------
are no collective bargaining, employment or other similar agreements relating to
the employees at the Mortgaged Property that are binding on Borrower or the
Mortgaged Property.
13. Environmental Matters. (i) No notice, demand, letter, claim or
---------------------
request for information has been issued to Borrower or DSMLP or otherwise known
to either of Borrower or DSMLP by any Governmental Authority regarding the
presence of Hazardous Substances (as defined in the Environmental Indemnity
Agreement) or liability under any Environmental Law with respect to the
Mortgaged Property; (ii) the Mortgaged Property is not subject to any orders,
decrees, injunctions or any other proceedings or requirements imposed by any
governmental authority or third party relating to any Environmental Law or
Hazardous Substances; and (iii) all underground storage tanks located on, in or
under the Mortgaged Property are properly registered and licensed in accordance
with any applicable Environmental Law.
14. Casualty. No material casualty has occurred with respect to the
--------
Mortgaged Property within the last 12 months which has not been fully restored
or repaired.
15. Assessments. Other than ad valorem taxes for the year of Closing
-----------
which are not yet due and payable, or as disclosed in the Qualified Title Report
or documents referenced therein, the Mortgaged Property is not subject to any
assessment, reassessment, special assessment, user fee, charge, levy, tax or tax
increase of any nature whatsoever (other than reassessment charge, levy tax or
tax increase arising by reason of Borrower's acquisition of the Mortgaged
Property and a transfer tax).
4A-5
16. FIRPTA. Borrower is not a "foreign person" as defined in Section
------
1445 of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
17. Investment Company Act. Borrower is not (i) an "investment
----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended; or (ii) a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended. Borrower's sole
business is the ownership, operation, maintenance, repair, financing,
refinancing and disposition of the Mortgaged Property and such matters as are
incidental to the foregoing.
18. Financial Information. The financial information prepared by or
---------------------
on behalf of Borrower (or its predecessor in interest) in respect of the
Mortgaged Property and delivered to Lender prior to the date hereof, (i) is
true, complete and correct in all material respects, (ii) represents the
financial condition of the Hotel and Mortgaged Property as of the date of such
information, and (iii) has been prepared on a sound basis consistently applied
throughout the periods covered, except as disclosed therein. Borrower does not
have any contingent liabilities, liabilities for taxes, unusual forward or long-
term commitments or unrealized or anticipated losses from any unfavorable
commitments, that are known to Borrower and reasonably likely to have a Material
Adverse Effect, except as disclosed in writing to Lender. Since the date of
such financial information, there has been no materially adverse change in the
financial condition, operations or business of Borrower from that set forth in
said financial information.
19. No Plan Assets. Borrower is not an "employee benefit plan," as
--------------
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), subject to Title I of ERISA. The execution and delivery
-----
of the Loan Documents, and the borrowing of indebtedness hereunder, does not
constitute a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code. Borrower shall not engage in a nonexempt prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code, as
such sections relate to Borrower, or in any transaction that would cause any
obligation or action taken or to be taken hereunder (or the exercise by Lender
of any of its
4A-6
rights under the Loan Documents) to be a non-exempt prohibited transaction under
ERISA.
20. Reserved.
21. Material Agreements. True and complete copies of the Material
-------------------
Agreements relating to the Mortgaged Property (including all amendments,
agreements, side letters and all other material documents relating thereto other
than those effected in the ordinary course of business and which individually or
in the aggregate do not have a Material Adverse Effect) have been made available
to the Lender; each such agreement is unmodified and in full force and effect;
there is no default by any party thereunder and no event has occurred and is
continuing which, with the passage of time and/or the giving of notice, would
constitute a default or an event of default by it thereunder in such
circumstances that such default or event of default might have a Material
Adverse Effect.
22. Operating Budget. The Operating Budget annexed hereto as Exhibit
----------------
D contains all anticipated operating expenses for the Mortgaged Property for the
Fiscal Year ending December 31, 1997. The preliminary Capital Budget annexed
hereto as Exhibit E contains all presently anticipated Capital and FF&E
Expenditures for the Mortgaged Property for the Fiscal Year ending December 31,
1997.
23. Reserved.
24. Adequate Parking. The Mortgaged Property has available to it
----------------
adequate parking to comply with all Legal Requirements and to permit the
operation of the Mortgaged Property as a first class full service resort hotel,
operated in compliance with Marriott standards and the Management Agreement.
25. Reserved.
26. Reserved.
27. Rooms in Service. All of the rooms at the Hotel are in service,
----------------
except for rooms that are temporarily out of service for routine maintenance and
repair.
28. Funds for Capital and FF&E Expenses. Borrower has or anticipates
-----------------------------------
that it will have sufficient funds
4A-7
available to it for implementing its reasonable anticipated capital and FF&E
Expenditures.
29. Ground Lease. With respect to the Ground Lease and an estoppel
------------
letter from the Ground Lessor, Borrower represents and warrants:
A. The Ground Lease or a memorandum thereof has been duly
recorded, the Ground Lease permits the interest of the lessee thereunder to
be encumbered by the Mortgage, does not restrict the use of the Mortgaged
Property, by lessee, its successors and assigns in a manner that would
adversely affect the security provided by the Mortgage, and there has not
been a material change in the terms of the Ground Lease since its
recordation, with the exception of written instruments which have been
delivered to Lender.
B. The Ground Lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Mortgage, other than the Ground
Lessor's fee interest.
C. The Borrower's interest in the Ground Lease is assignable to
the Lender upon notice to, but without the consent of, the Ground Lessor
and, in the event that it is so assigned, it is further assignable by the
Lender to a trustee or servicer and its successors and assigns upon notice
to, but without a need to obtain the consent of, such Ground Lessor.
D. The Ground Lease is in full force and effect and no material
default has occurred under the Ground Lease and there is no existing
condition which, but for the passage of time or the giving of notice, would
result in a default under the terms of the Ground Lease.
E. The Ground Lease requires the Ground Lessor to give notice of
any default by the Borrower to Lender; and the Ground Lease, or an estoppel
letter received by the Lender from the Ground Lessor, further provides that
notice of termination given under the Ground Lease is not effective against
the Lender unless a copy of the notice has been delivered to the Lender in
the
4A-8
manner described in such Ground Lease or estoppel letter.
F. The Lender is permitted a reasonable opportunity (including,
where necessary, sufficient time to gain possession of the interest of the
lessee under the Ground Lease) to cure any default under the Ground Lease,
which is curable after the receipt of notice of any default before the
Ground Lessor may terminate the Ground Lease.
G. The Ground Lease has a term which, when taken together with
the renewal options under the Ground Lease, extends not less than 10 years
beyond the Stated Maturity Date.
H. The Ground Lease or estoppel letter require the Ground Lessor
to enter into a new lease with the Lender upon termination of the Ground
Lease for any reason, including rejection of the Ground Lease in a
bankruptcy proceeding, provided Lender cures the lessee's defaults.
I. Under the terms of the Ground Lease, the Borrower is
permitted to apply all insurance proceeds to the repair or restoration of
all or part of the Mortgaged Property, with the Lender having the right to
hold and disburse the Proceeds as the repair of restoration progresses.
J. The Ground Lease does not impose any material restrictions on
subletting.
K. The Ground Lease contains the lessor's covenant that the
Ground Lease shall not be amended, canceled, or terminated without the
prior written consent of Lender.
L. Either the Ground Lease or an estoppel letter contains a
covenant that the lessor thereunder is not permitted, in the absence of an
uncured default under the Ground Lease, to disturb the possession, interest
or quiet enjoyment of any lessee in the relevant portion of the Mortgaged
Property subject to the Ground Lease for any reason, or in any manner,
which would materially adversely affect the security provided by the
Mortgage.
4A-9
Schedule 4B
-----------
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
BORROWER'S SINGLE PURPOSE
-------------------------
(1) Single-Purpose. Borrower hereby represents and warrants to, and
--------------
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) Borrower has not owned and will not own any property other
than (A) the Mortgaged Property and (B) incidental personal property
relating to the ownership or operation of the Mortgaged Property.
(ii) Borrower has not engaged and will not engage in any
business other than the ownership, management, financing and operation of
the Mortgaged Property.
(iii) Borrower has not entered and will not enter into any
contract or agreement with any Affiliate of Borrower, any constituent party
of Borrower or any Affiliate of any constituent party, other than upon
terms and conditions that are substantially similar to those that would be
available on an arm's length basis with third parties.
(iv) Borrower has not incurred and will not incur any
indebtedness, secured or unsecured, direct or indirect, absolute or
contingent (including guaranteeing any obligation), other than the
Permitted Indebtedness. Except as set forth in the immediately preceding
sentence, no indebtedness other than the Debt may be secured (whether
senior, subordinate or pari passu) by the Mortgaged Property.
---- -----
(v) Borrower has not made and will not make any loans or
advances to any other Person (including any Affiliate or constituent party
or any Affiliate of any constituent party).
(vi) Borrower is and will remain solvent and Borrower will
generally pay its debts and liabilities (including employment and overhead
expenses) from its assets as the same shall become due.
4B-1
(vii) Borrower has done or caused to be done and will do all
things necessary to observe corporate or partnership (or other applicable
organizational) formalities, as the case may be, and preserve its
existence, and Borrower will not, nor will Borrower permit or suffer any
constituent party to amend, modify or otherwise change the partnership
certificate, partnership agreement, articles of incorporation and bylaws,
trust or other organizational documents of Borrower or such constituent
party in a manner which would adversely affect Borrower's existence as a
Special Purpose Entity.
(viii) Borrower will maintain books and records and bank
accounts separate from those of its Affiliates and any constituent party
(provided that nothing shall prohibit Borrower from being included in the
consolidated financial statements or tax group of another Person to the
extent required by GAAP or applicable law, respectively) and Borrower will
file its own tax returns (except to the extent consolidation is required as
a matter of law).
(ix) Borrower will be, and at all times will hold itself out to
the public as, a legal entity separate and distinct from any other entity
(including any Affiliate of Borrower, any constituent party of Borrower or
any Affiliate of any constituent party), shall conduct business in its own
name and shall maintain and utilize separate stationery, invoices and
checks.
(x) Borrower will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations.
(xi) Neither Borrower nor any constituent party will seek the
dissolution or winding up, in whole or in part, of Borrower.
(xii) Borrower will not commingle the funds and other assets of
Borrower with those of any Affiliate or constituent party or any Affiliate
of any constituent party or any other Person (except as specifically
contemplated by the Cash Management Procedures).
(xiii) Borrower has and will maintain its assets in such a
manner that it will not be costly or
4B-2
difficult to segregate, ascertain or identify its individual assets from
those of any Affiliate or constituent party or any Affiliate of any
constituent party or any other Person.
(xiv) Borrower has not held and will not hold itself out to be
responsible for the debts or obligations of any other Person.
(xv) If Borrower is a limited partnership, at least one of
general partners shall be a Special Purpose Entity whose sole asset is its
interest in Borrower, and Borrower shall be deemed hereby to have made each
of the representations, warranties and covenants contained in this SCHEDULE
with respect to such general partner.
(xvi) Borrower shall at all times cause there to be at least one
duly appointed member of the board of directors of the general partner of
Borrower or manager of Borrower (an "Independent Director/Manager")
----------------------------
reasonably satisfactory to Lender who shall be "Independent" at the time of
such individual's appointment. "Independent" shall mean that such Person
is not, and has not within the preceding five years been (i) an officer,
director, employee, partner, member, beneficial interest holder or
stockholder of Borrower or any of its members, (ii) an officer, director,
employee, partner, member, beneficial interest holder or stockholder of any
Affiliate of Borrower or any of its members, (iii) a customer, supplier or
service provider of Borrower or any Affiliate thereof (other than a hotel
guest or a customer, supplier or service provider that does not derive more
than 10% of its revenues from its activities with Borrower or any
Affiliate), or (iv) a spouse, parent, sibling or child of any of any person
described in (i), (ii) or (iii); provided, however, that a person shall not
be deemed to be a director of a member or an Affiliate of Borrower solely
by reason of such person being an Independent Director/Manager of a single-
purpose entity that would otherwise be deemed to be an Affiliate because
they are under common control; provided further, however, that the
Independent Director/Managers of the Senior Borrower, Mezzanine Borrower
and Junior Lender shall at all times be different individuals. As used
herein, the term control means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies
of a Person whether through ownership of voting securities, by
4B-3
contract or otherwise. Upon the conditions specified in Borrower's
Operating Agreement, the Independent Director/Manager shall also be a non-
economic member with authority to continue Borrower's existence upon
bankruptcy or dissolution of any other member.
(xvii) Borrower shall not cause or permit the board of managers
or directors of Borrower (if it is a limited liability company or
corporation, respectively), or take any action which, under applicable law
or the terms of any certificate of incorporation, operating agreement, by-
laws or any voting trust agreement with respect to any common stock,
requires the vote of the board of managers or directors of Borrower or the
consent of its manager, unless at the time of such action there shall be at
least one person who is an Independent Director/Manager; provided, however,
-------- -------
that subject to any applicable Legal Requirement, Borrower may, at its
discretion, limit the first sentence of this clause (xvii) to the following
actions: (A) the dissolution, liquidation, consolidation, merger and the
sale of all or substantially all of the properties and assets of Borrower,
(B) the engagement by Borrower in any business other than the ownership,
maintenance and operation of the Mortgaged Property, (C) the filing, or
consent to the filing, of a bankruptcy or insolvency petition, any general
assignment for the benefit of creditors or the institution of any other
insolvency proceeding, and (D) the amendment or modification of any
provision of Borrower's limited partnership agreement which amendment or
modification materially adversely affects any of the Special Purpose Entity
requirements.
(xviii) The consent of the Independent Director/Manager shall be
required for the taking of any action described in subclauses (A) through
(D) of clause (xvii) (except where such Independent Director/Manager is not
required under this Schedule or the Loan Agreement).
4B-4
Schedule 4C
-----------
Exceptions to Representations and Warranties
--------------------------------------------
NONE
RENT ROLL
- --------------------------------------------------------------------------------------------------------------
Tenant Sq. Ft Lease Lease Rent Sq. Ft. Annual Rent % Rent
Begin end
- --------------------------------------------------------------------------------------------------------------
Arrangements 1000 10/15/94 12/31/00 Years 1/$10.42 $10,420.80 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$11.65 $11,632.60
- --------------------------------------------------------------------------------------------------------------
Year 3/$12.88 $12,881.58
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Classic Touch --- 01/01/93 12/31/00 Year 1/$78.92 $15,628.16 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$81.29 $16,904.57
- --------------------------------------------------------------------------------------------------------------
Year 3/$83.73 $18,011.71
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Excessories 678 04/13/90 12/31/02 Years 1/$67.30 $41,588.40 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$69.32 $42,839.14
- --------------------------------------------------------------------------------------------------------------
Year 3/$71.40 $44,124.31
- --------------------------------------------------------------------------------------------------------------
Year 4/$73.54 $45,440.04
- --------------------------------------------------------------------------------------------------------------
Year 5/$75.75 $45,611.48
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Jose Eber Salon 1192 09/01/86 12/31/03 Year 1/$38.90 $46,384.80 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$40.08 $47,772.14
- --------------------------------------------------------------------------------------------------------------
Year 3/$41.28 $48,206.30
- --------------------------------------------------------------------------------------------------------------
Year 4/$42.52 $50,681.46
- --------------------------------------------------------------------------------------------------------------
Year 5/%43.79 $52,201.90
- --------------------------------------------------------------------------------------------------------------
Year 6/$45.11 $53,767.96
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Lam Tatum's Show 617 10/01/87 12/31/03 Year 1/$67.40 $41,598.40 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$69.42 $42,833.37
- --------------------------------------------------------------------------------------------------------------
Year 3/$71.50 $44,115.27
- --------------------------------------------------------------------------------------------------------------
Year 4/$73.65 $45,447.92
- --------------------------------------------------------------------------------------------------------------
Year 5/$75.86 $48,205.18
- --------------------------------------------------------------------------------------------------------------
Year 6/$78.14 $48,209.34
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Mary Heren's 617 01/01/96 12/31/02 Year 1/$63.21 $39,002.52 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$67.06 $41,375.71
- --------------------------------------------------------------------------------------------------------------
Year 3/$69.07 $42,616.98
- --------------------------------------------------------------------------------------------------------------
Year 4/$71.14 $43,895.49
- --------------------------------------------------------------------------------------------------------------
Year 5/$73.28 $45,212.35
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Sun Optics 317 01/01/93 12/31/02 Year 1/$90.13 $28,571.76 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$92.83 $29,428.35
- --------------------------------------------------------------------------------------------------------------
Year 3/$95.62 $30,311.20
- --------------------------------------------------------------------------------------------------------------
Year 4/$98.49 $31,220.54
- --------------------------------------------------------------------------------------------------------------
Year 5/$101.44 $32,157.16
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Western Contam. 290 01/10/93 12/31/00 Year 1/$77.98 $22,614.60 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$80.32 $23,292.63
- --------------------------------------------------------------------------------------------------------------
Year 3/$82.73 $23,991.41
- --------------------------------------------------------------------------------------------------------------
Schedule 4A-8
ENGINEERING REPORTS
Report Company Date Issued
------ ------- -----------
Structural
Engineering/
Seismic & PML
ALTA Survey
MECHANICAL
AND
ELECTRICAL
ENGINEERING
AND FIRE
PROTECTION
AND LIFE
SAFETY
SYSTEMS
PHASE I
ENVIRONMENTAL
& SOILS
ENGINEERING
4A8-1
Schedule 6-3
PERMITTED REORGANIZATION
NONE.
Exhibit A
---------
Intentionally Omitted
Exhibit A
---------
Intentionally Omitted
EXHIBIT B
CASH MANAGEMENT PROCEDURES
(DESERT SPRINGS)
Capitalized terms used but not defined in this Exhibit shall have the meanings
ascribed to them in the Loan Agreement and if not defined therein, in the
Management Agreement. References to Sections shall mean the Sections of this
Exhibit unless otherwise stated.
1. MANAGER'S ACCOUNT
1.1 The Manager will establish, on or before January 27, 1998, a
segregated account for the Mortgaged Property in its name for which accounting
of deposits and withdrawals shall be maintained (the "Manager's Account"). The
-----------------
Manager may also establish segregated accounts for the Mortgaged Property (a)
from which payments for alcoholic beverages purchased for the Hotel are made,
(b) in which accounts receivable from credit card companies are deposited, (c)
with respect to which charges for returned checks are made and (d) into which
excess funds not currently needed for Management Expenses are deposited for
investment; provided, however, that each such account other than the account
referred to in clause (d) shall be a "zero-balance" account except for de
--
minimis amounts retained therein, i.e., at the end of each day the amounts
- ------- - -
contained therein shall be transferred to the Manager's Account.
2. PAYMENTS OF MANAGEMENT EXPENSES; REMITTANCES
2.1 The Manager shall deposit into the Manager's Account (or during a
Lockbox Period, into the Lockbox Account), within one full Business Day after
the receipt thereof, all Gross Revenues received by the Manager, other than
customary amounts of petty cash and amounts in the "house banks" held at the
Mortgaged Property, and shall direct all third parties from whom Borrower has
accounts receivable, including, without limitation, credit card companies, but
excluding guests who pay by cash or check at the Hotel ("Third Party Payors") to
------------------
send their payments with respect to the Mortgaged Property directly to the
Manager's Account; provided, however, that accounts receivables from credit card
companies may be deposited in the credit card account referred to in Section
1.1(b).
2.2 The Manager's Account shall be controlled by the Manager. Funds
on deposit in the Manager's Account shall not be commingled with funds related
to any other properties owned or managed by the Manager or any other Person.
2.3 From and after the Closing Date, and except during a Lockbox
Period, the Manager shall make disbursements for the Mortgaged Property on
behalf of Borrower from funds
-1-
on deposit in the Manager's Account or from petty cash at the Mortgaged
Property, to pay Management Expenses, including, without limitation, to make
deposits into the FF&E Reserve Account as required by Section 6. Such
disbursements may include disbursements to the accounts referred to in clauses
(a), (c) and (d) of the second sentence of Section 1.1. "Management Expenses"
shall include amounts that may be recouped by Manager pursuant to Section 9.04
of the Management Agreement, to the extent permitted by such Section.
2.4 Not later than the twentieth day (or if such day is not a
Business Day, the immediately succeeding Business Day) after the end of each
Accounting Period (the "Operating Profit Payment Date") commencing with November
-----------------------------
28, 1997 (which relates to the Operating Profit for the Accounting Period that
began on October 11, 1997), the Manager shall transfer from the Manager's
Account to the Cash Collateral Account for application by the Servicer on the
next Payment Date an amount equal to the Operating Profit as of the end of the
immediately preceding Accounting Period, calculated on a cumulative basis
(taking into account previous transfers). Such transfer shall be effected by
federal wire, automated clearing house funds, or other transfer of next-day
available funds, to the Cash Collateral Account; provided, however, that any
such transfer required to be made within five days prior to a Payment Date shall
be made by federal wire of immediately available funds. On or before the last
Business Day of the fourth week in each Accounting Period, Borrower will provide
(or will cause the Manager to provide) to the Lender and the Agent under the
Mezzanine Loan a statement setting forth the calculation of the amount of
Operating Profit transferred to the Cash Collateral Account with respect to the
immediately preceding Accounting Period and certifying that the correct amount
has been transferred.
2.5 If on any Payment Date the amount in the Cash Collateral Account
shall be sufficient to make all of the transfers described in clauses (A)
through (C) of Section 4.3 or 4.4, as applicable, or in clauses (A) and (B) of
Section 7.9.1, and Section 7.9.4(A)(i) and 7.9.5(A)(i), as applicable, Borrower
shall be deemed to have paid the Monthly Debt Service Payment Amount unless
Servicer is legally constrained from transferring such amount in accordance with
said Sections, including by reason of any bankruptcy or insolvency related to
Borrower (but excluding any legal constraint applicable to Lender or Servicer
but not related to Borrower).
3. LOCAL ACCOUNT
The Manager shall be entitled to establish, from time to time, a
segregated bank account in the name of Manager (or the name under which the
Hotel is operated), which is not required to be an Eligible Account, at a
financial institution located in the vicinity of the Mortgaged Property (the
"Local Account"), which shall be maintained solely for the purpose of (i)
- --------------
receiving deposits in the ordinary course of business of certain Gross Revenues
from the Hotel (but in no event payments from credit card companies) and (ii)
paying certain Management Expenses that, in the ordinary course of operating the
Hotel, are customarily paid from the Local Account. Funds on deposit in the
Local Account shall not be commingled with funds related to
-2-
any other properties owned or managed by the Manager or by any person other than
the Borrower. At least twice each week, the Manager shall transfer, by federal
wire, automated clearing house funds, or other transfer of next-day available
funds, into the Manager's Account (or, if the procedures described in Section 7
hereof are then applicable, into the Lockbox Account), all available funds then
on deposit in the Local Account, less amounts that are required to pay
Management Expenses customarily paid out of the Local Account in the ordinary
course of operating the Hotel and an amount to be held for petty cash and the
"house banks" held at the Mortgaged Property; provided, however, that (a) such
amounts shall not exceed $150,000 (subject to adjustment at the end of each
Fiscal Year for increases in the CPI Percentage) and (b) such amount shall be
increased, by agreement of Borrower, the Manager and the Lender, if the
Mortgaged Property shall be expanded to increase the number of rooms contained
therein.
4. CASH COLLATERAL ACCOUNT
4.1 On or before the Closing Date, the Servicer shall establish and
maintain a segregated account in its name on behalf of the Lender (the "Cash
----
Collateral Account"), which must be an Eligible Account, into which all amounts
- ------------------
received by the Servicer from the Manager's Account (and, during a Lockbox
Period from the Lockbox Account and any other account functioning as a lockbox
account), and all other funds of Borrower held as security for the Loan shall be
deposited. The Servicer shall provide to the Manager and Borrower such
information relating to the transactions in the Cash Collateral Account as the
Manager or Borrower, respectively, shall reasonably request, including, without
limitation, the amounts received in and disbursed from the Cash Collateral
Account (including the Sub-Accounts) and the amounts received in and disbursed
from the Lockbox Account.
4.2 From time to time, the Servicer will establish the following
segregated sub-accounts (the "Sub-accounts") of the Cash Collateral Account for
------------
each of the items described in clauses (a) through (h) below, into which the
amounts described in said clauses will be deposited:
(a) Proceeds held by the Lender in accordance with Section 8.1.2
of the Loan Agreement,
(b) the tax and insurance escrows required by Section 6.1 hereof
(the "Tax and Insurance Reserve Account"),
---------------------------------
(c) the FF&E Reserve Account required by Section 6.3 hereof,
(d) the Debt Service Reserve Account required by Section 5.1.1
hereof,
(e) the Excess Cash Flow Escrow Account required by Section 5.3
hereof,
(f) the Management Incentive Reserve Account required by Section
5.4
-3-
hereof,
(g) any security required to be delivered pursuant to a specific
provisions of the Loan Agreement, including Section 5.1(b)(ii)(E) and
Section 7.1(j) thereof (except as elsewhere stated in these clause (a)
through (i)),
(h) the Chiller Work Reserve pursuant to Section 9.2.1 of the
Loan Agreement; provided that after $500,000 shall have been deposited in
such reserve in accordance with Section 4.3(N), Section 5.3.1 and Section
7.9.4(L), and all amounts in such reserve are expended in accordance with
Section 9.2.1 of the Loan Agreement, then such reserve shall be eliminated,
and
(i) the Manager Deficit Contribution Account required by Section
5.3.2 hereof.
Amounts in all Sub-accounts shall be deposited into the appropriate Sub-account
to be disbursed by the Servicer in the manner contemplated hereby or by the Loan
Agreement.
Servicer will also establish the Mezzanine Debt Service Reserve
Account in accordance with Section 5.2.1, provided that such account shall not
be a Sub-account and shall instead be held as security for the benefit of the
Mezzanine Lender for the performance by the Mezzanine Borrower of all of its
obligations under the Mezzanine Loan.
4.3 On each Payment Date up to and including the Anticipated
Repayment Date, except during a Lockbox Period, withdrawals from the Cash
Collateral Account (excluding amounts held in a Sub-account, which shall be
withdrawn and applied solely for the purposes for which such Sub-account is
maintained in accordance with the applicable terms of this Exhibit or the Loan
Documents) shall be made by the Servicer only for the following purposes and in
the following order of priority:
(A) if required under the terms of Section 6, to fund any amounts
to be funded into the Tax and Insurance Reserve Account;
(B) if required under the terms of Section 6, to fund any amounts
to be funded into the FF&E Reserve Account;
(C) (i) if the Securitization has been effected, to transfer
funds to the Servicer or the "Collection Account" established in the
name of Lender or Servicer under a pooling and servicing agreement or
to such other account as the Lender or Servicer may designate (the
"Collection Account"), in which account neither Borrower nor Manager
-------------------
shall have any interest whatsoever, in the amount needed to pay the
fees, costs and expenses (together, the "Servicing Expenses") incurred
------------------
in connection with the operation and maintenance of any of the
accounts
-4-
maintained hereunder by the Servicer and incurred in accordance with
the Loan Documents as a result of an Event of Default (including
Special Servicer fees) to the parties entitled thereto, and then, (a)
first, to the payment of the interest, at the Initial Interest Rate,
then due and payable, and (b) next, to the payment of the principal
amount then due and payable under the Note, and (c) next, to the
payment of any other Debt then due and payable to the Lender
(items (a) and (b), hereinafter, the "Monthly Debt Service Payment");
----------------------------
(ii) if the Securitization has not been effected, to the
payment of Servicing Expenses and then, to the payment of the Monthly
Debt Service Payment, and next, to the payment of any other Debt then
due and payable to the Lender;
(D) to fund any expenditures for capital items that, in the
judgment of Borrower, as concurred in by the Lender, in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(E) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(F) to fund any expenditures for capital items approved by the
Lender, in its reasonable discretion, including Borrower-funded capital
expenditures, of a discretionary nature and not included in clause (D)
above;
(G) to the Mezzanine Lender in accordance with the letter of
direction (the "Mezzanine Loan Direction Letter") given pursuant to Article
-------------------------------
XI of the Credit Agreement, dated as of the date hereof, between the
Mezzanine Borrower and the Mezzanine Lender (the "Credit Agreement"), in an
----------------
amount equal to (a) the scheduled interest due and payable at the "Interest
Rate" (as defined in the Credit Agreement), without regard to any default
rate under or acceleration of the Mezzanine Loan, and (b) the scheduled
principal amount then due and payable under the Note (as defined in the
Credit Agreement), without regard to any acceleration of the Mezzanine Loan
(items (a) and (b) with respect to the Mezzanine Note hereinafter, the
"Mezzanine Monthly Debt Service Payment");
---------------------------------------
(H) to Borrower, in an amount equal to the administrative
expenses of Borrower (including reasonable allocations of internal costs)
to the extent approved by the Lender in accordance with Section 5.1(q) of
the Loan Agreement;
(I) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance
-5-
with Section 5.1(q) of the Loan Agreement;
(J) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in amount equal to the
administrative expenses of DSMLP (including reasonable allocations of
internal costs) to the extent approved by Lender in accordance with Section
5.1(q) of the Loan Agreement;.
(K) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in the amount required to be funded into the Mezzanine
Debt Service Reserve Account in accordance with Section 5.2.3 hereof;
(L) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment;
(M) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in an amount necessary to fund the Mezzanine Debt Service
Reserve Account up to 600 percent of the Mezzanine Monthly Debt Service
Payment; and
(N) to the Chiller Work Reserve, until all amounts deposited into
the Chiller Work Reserve under this clause (N), Section 5.3.1 and Section
7.9.4(L) shall equal in the aggregate $500,000 (but only to the extent
still operative in accordance with Section 4.2(h) hereof and only to the
extent that said $500,000 has not been previously funded from deposits in
accordance with such specified provisions); and
(O) to the Excess Cash Flow Escrow Account, any funds remaining
in the Cash Collateral Account, to be held until after the annual audit of
Borrower to determine Operating Profit in accordance with the Management
Agreement for the applicable Fiscal Year, which shall be completed not
later than April 15th of the year following such Fiscal Year (and at such
time, the amount in such account shall be distributed in accordance with
Section 5.3 hereof).
The following rules ("Supplemental Disbursement Rules") shall be
-------------------------------
applicable to Sections 4.3, 4.4, 7.9.1, 7.9.4 and 7.9.5 in accordance with their
terms:
1. The Servicer may rely conclusively on written instructions that
the Manager shall provide prior to 11:00 a.m. (New York time) at least one
Business Day prior to the Payment Date (with copies to Borrower) as to the
amounts to be deposited into the FF&E Reserve Account specified in clause
(B) above, as well as in Sections 4.4(B) and 7.9.1(B)). The Servicer shall
have no duty to recompute, recalculate, or verify the data contained in
such instructions or information and shall incur no liability to Borrower
or the Manager if the Servicer acts in accordance therewith.
2. If on any Payment Date the application of the funds available in
the Cash
-6-
Collateral Account or the specific Sub-Account are not sufficient
for the payment of the amounts described in clauses (A) and (B) of this
Section 4.3, or Sections 4.4(A) and (B), 7.9.1(A) and (B), as applicable,
then the Servicer shall transfer funds from the Excess Cash Flow Account,
for the payment of such amounts; if following such payment, there remain
insufficient funds to make the payments described in clauses (A) through
(C) of this Section 4.3, or Sections 4.4(A) through (C), 7.9.1(A) and (B),
and 7.9.4(A)(i) and 7.9.5(A)(i), as applicable, the Servicer shall transfer
funds from the Debt Service Reserve Account for the payment of such
amounts.
3. For the benefit of the Mezzanine Lender, if on any Payment Date
the application of funds in the Cash Collateral Account in the manner
provided for herein are not sufficient for the payment of the amount
described in Section 4.3(G) or Section 7.9.4(G), the Servicer shall
transfer funds from the Mezzanine Debt Service Reserve Account for the
payment of such amount.
4. At such time as each of the Loan and the Mezzanine Loan has been
paid in full, and all obligations under the Loan Agreement and other Loan
Documents and the Mezzanine Loan Documents, respectively, have been
satisfied, the Servicer shall remit (a) to the Manager, for application
consistent with the Management Agreement, any funds remaining in the
Management Incentive Reserve Account, FF&E Reserve Account, and Tax and
Insurance Escrow Account and (b) with respect to all other amounts in the
Operating Account, Lockbox Account and Cash Collateral Account (including
Sub-accounts thereof, other than those referred to in clause (a)), to the
Person entitled to the monies described above in Section 7.9.4(M) or
7.9.5(K), as applicable.
5. Nothing herein shall be construed to modify Manager's obligation
under Section 9.04 of the Management Agreement.
4.4 Until the Note has been paid in full and all obligations under
the Loan Agreement and other Loan Documents have been satisfied, except during a
Lockbox Period, on each Payment Date after the Anticipated Repayment Date,
withdrawals from the Cash Collateral Account (excluding amounts held in escrow,
reserve, or other Sub-accounts, which shall be withdrawn and applied solely for
the purposes for which such Sub-accounts are maintained) shall be made by the
Servicer only for the following purposes and in the following order of priority:
(A) if required under the terms of Section 6, to fund any amounts
to be funded into the Tax and Insurance Reserve Account;
(B) if required under the terms of Section 6, to fund any amounts
to be funded into the FF&E Reserve Account;
(C) (i) if the Securitization has been effected, to transfer
funds to the Servicer (or to the Collection Account) in the amount
needed to pay Servicing
-7-
Expenses and then, (a) first, to the payment of the Monthly Debt
Service Payment, and (b) next, to the payment of any other Debt then
due and payable to the Lender;
(ii) if the Securitization has not been effected, to the
payment of the Servicing Expenses and then, to the payment of the
Monthly Debt Service Payment, and next, to the payment of any other
Debt then due and payable to the Lender;
(D) to fund any expenditures for capital items that, in the
judgment of Borrower, as concurred in by the Lender, in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(E) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(F) to fund expenditures for capital items approved by the
Lender, acting in its reasonable discretion, including Borrower-funded
capital expenditures, of a discretionary nature and not included in clause
(D) above;
(G) to Borrower, in an amount equal to the administrative
expenses of Borrower (including reasonable allocations of internal costs)
to the extent approved by the Lender accordance with Section 5.1(q) of the
Loan Agreement;
(H) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance with Section 5.1(q) of the Loan Agreement;
(I) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in an amount equal to
the administrative expenses (including reasonable allocations of internal
costs) to the extent approved by Lender in accordance with Section 5.1(q)
of the Loan Agreement;
(J) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment;
(K) to the extent provided for under Section 5.4, if Operating
Profit (as defined in the Management Agreement) for such Fiscal Year shall
have exceeded Owner's Priority for such Fiscal Year, to fund the Management
Incentive Reserve Account in accordance with Section 5.4;
(L) to the Servicer, (a) first, to repayment of the principal
amount of
-8-
the Note, until the principal of the Note has been paid in full,
and (b) next, to the payment of the Additional Interest accrued and unpaid
on the Note; and
(M) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter or, if the Mezzanine Loan Direction Letter has been
rescinded by the Mezzanine Lender, to the Junior Lender in accordance with
the Junior Loan Direction Letter.
At such time as the Note has been paid in full, and all obligations
under the Loan Agreement and other Loan Documents have been satisfied, the
Servicer shall remit (a) to the Manager, for application consistent with the
Management Agreement, any funds remaining in the Management Incentive Reserve
Account, FF&E Reserve Account, and Tax and Insurance Reserve Account and (b)
with respect to all other amounts in the Cash Collateral Account (including Sub-
accounts thereof, other than those referred to in clause (a)), to the Person
entitled to the monies described above in Section 4.4(M) hereof.
In addition, the Supplemental Disbursement Rules shall be applicable
to this Section 4.4 in accordance with their terms.
5. DEBT SERVICE RESERVES; EXCESS CASH FLOW; MANAGEMENT INCENTIVE RESERVE
ACCOUNT
5.1 MORTGAGE LOAN DEBT SERVICE RESERVE
5.1.1 The Servicer shall maintain, as a Sub-account of the Cash
Collateral Account, an account (the "Debt Service Reserve Account") to be used
----------------------------
by the Servicer to pay the Monthly Debt Service Payment pursuant to Section
4.3(C), 4.4(C) or 7.9.4(A)(i) or 7.9.5(A)(i), as applicable, if the amounts
available from Operating Profit or, during any Lockbox Period, Gross Revenue are
insufficient for such purpose.
5.1.2 As a condition to the origination of the Loan, Borrower is
depositing as of the date hereof into the Debt Service Reserve Account an amount
equal to 600 percent of the Monthly Debt Service Payment.
5.1.3 On each Payment Date, subject to Section 5.1.4, the Servicer
shall cause to be deposited from the Cash Collateral Account, to the extent
available, into the Debt Service Reserve Account, pursuant to Section 4.3(E),
4.4(E), 7.9.4(C) or 7.9.5(C), as applicable, an amount equal the Monthly Debt
Service Payment plus, if such Payment Date occurs during any of Accounting
----
Periods two through five, inclusive, an additional amount equal to the sum of
(A) one-half of the Monthly Debt Service Payment and (B) such additional amount
as may be required to cause the amount in the Debt Service Reserve Account to be
not less than the following percentages of the Monthly Debt Service Payment as
of the end of each of the following Accounting Periods (applied on a cumulative
basis):
-9-
Accounting Period 2: 150%
Accounting Period 3: 300%
Accounting Period 4: 450%
Accounting Period 5: 600%
5.1.4 The maximum amount to be retained in the Debt Service Reserve
Account shall be 600% of the Monthly Debt Service Payment.
5.2 MEZZANINE LOAN DEBT SERVICE RESERVE
5.2.1 The Servicer shall maintain, as a separate Eligible Account in
the name of and under the dominion and control of the Agent for the benefit of
the Mezzanine Lender, an account (the "Mezzanine Debt Service Reserve Account")
--------------------------------------
to be used by the Servicer to pay the Mezzanine Monthly Debt Service Payment, if
the amounts available from Operating Profit or, during any Lockbox Period, Gross
Revenues pursuant to Section 4.3(G) or Section 7.9.4(E), as applicable, are
insufficient for such purpose. Neither the Lender nor the Borrower shall have
any right, title or interest in, or lien upon, any funds deposited in the
Mezzanine Debt Service Reserve Account. As provided above in Section 4.3, if on
any Payment Date the application of funds in the Cash Collateral Account in the
manner provided for herein are not sufficient for the payment of the amount
described in Section 4.3(G) or Section 7.9.4(E), the Servicer shall transfer
funds from the Mezzanine Debt Service Reserve Account for the payment of such
amount.
5.2.2 Pursuant to the terms of the Mezzanine Loan Agreement, the
Mezzanine Borrower is as of the date hereof depositing into a "Mezzanine Debt
Service Reserve Account" the amount of 600 percent of the Mezzanine Monthly Debt
Service Payment.
5.2.3 On each Payment Date, subject to Section 5.2.4, pursuant to
Mezzanine Loan Direction Letter, the Servicer shall cause to be deposited from
the Cash Collateral Account, pursuant to Section 4.3(K) or 7.9.4(I), as
applicable, an amount equal the Mezzanine Monthly Debt Service Payment.
5.2.4 The maximum amount to be retained in the Mezzanine Debt Service
Reserve Account shall be 600 percent of the Mezzanine Monthly Debt Service
Payment.
5.3 EXCESS CASH FLOW ESCROW ACCOUNT
5.3.1 Prior to the Anticipated Repayment Date, prior to the
determination of audited Operating Profit for each Fiscal Year and the
disbursement of funds from such accounts in accordance with the terms of this
Section 5.3, the Servicer shall maintain, as Sub-accounts of
-10-
the Cash Collateral Account, an account for each Fiscal Year for which funds are
then retained (each, an "Excess Cash Flow Escrow Account"), which will be used
-------------------------------
to hold amounts in the Cash Collateral Account for such Fiscal Year in the
manner described in Section 4.3, 4.4, 7.9.4 and 7.9.5, as applicable. The
amounts deposited in such Excess Cash Flow Escrow Account for such Fiscal Year
shall be held in such account until after the annual audit determines the
Operating Profit for such Fiscal Year. Disbursement of amounts contained in such
Excess Cash Flow Escrow Account in accordance with the provisions of this
Section 5.3.1 below shall be made upon the submission of the following:
(i) a letter executed by Manager (the "Incentive Management Fee
------------------------
Letter") specifying the Incentive Management Fee then due and payable to
------
Manager (but not greater than the amount then contained in such Excess Cash
Flow Escrow Account and the Manager Deficit Contribution Account), and
showing the calculation thereof,
(ii) a letter of Borrower's independent auditors setting forth
the audited Operating Profit for such Fiscal Year (the "Auditors'
----------
Letter"), which supports the Incentive Management Fee claimed by Manager.
Within five (5) Business Days after the delivery to Servicer of the later of the
letters described in clauses (i) through (ii) above, the amounts contained in
such Excess Cash Flow Escrow Account shall be distributed by Servicer in the
following order of priority:
(a) to the Chiller Work Reserve in an amount such that the
amounts deposited therein pursuant to this Section 5.3.1 and Section 4.3(N)
and 7.9.4(L) shall equal in the aggregate $500,000 (but only to the extent
still operative in accordance with Section 4.2(h) hereof and only to the
extent that said $500,000 has not been previously funded from deposits in
accordance with such specified provisions),
(b) to the Manager, for the payment of the Incentive Management
Fee,
(c) to the Senior Lender, if an "Event of Default" exists under
the Senior Loan,
(d) to the Mezzanine Lender, if Mezzanine Lender shall have
delivered to Servicer a notice that there exists an "Event of Default"
under the Mezzanine Loan,
(e) provided that the Junior Lender shall have delivered to
Servicer a letter (the "Junior Loan Direction Letter") specifying the
----------------------------
amount of principal and interest due under the Junior Note and any other
amounts due and owing thereunder, the amount specified in such Junior Loan
Direction Letter, and
(f) the balance shall be given to Borrower.
-11-
The amounts deposited into the Excess Cash Flow Escrow Account for one Fiscal
Year shall not be commingled with, and shall be placed in a separate Sub-account
from, the amounts to be deposited into the Excess Cash Flow Escrow Account for
any other Fiscal Year.
5.3.2 If Manager pays any amounts pursuant to Section 4.03B of the
Management Agreement, such amounts shall be given to Servicer to be deposited
into the Management Deficit Contribution Account. If on any Payment Date, the
application of the funds available in the Cash Collateral Account or the
specific Sub-account are not sufficient for the payment of the items described
in Section 4.3(A) through (N), Section 4.4(A) through (L), Section 7.9.1(A) and
(B), Section 7.9.4(A) through (L) or Section 7.9.5(A) through (J), as
applicable, then Servicer shall transfer funds from the Management Deficit
Contribution Account for the payment of such amounts. At such time as Manager
shall be entitled to its Incentive Management Fee from the Excess Cash Flow
Escrow Account, then any amounts in the Management Deficit Contribution Account
shall also be paid over to Manager in accordance with the Management Agreement.
5.4 MANAGEMENT INCENTIVE RESERVE ACCOUNT
From and after the Anticipated Repayment Date, the Servicer shall
maintain, as a Sub-account of the Cash Collateral Account, an account (the
"Management Incentive Reserve Account") to be used to make payments of the
- -------------------------------------
Incentive Management Fee to Manager. In any Fiscal Year, no funds shall be
deposited into the Management Incentive Reserve Account until Operating Profit
for such Fiscal Year shall have exceeded the Owner's Priority for such Fiscal
Year (as determined based on the periodic financial statements required pursuant
to Section 5.1(j)(iii) of the Loan Agreement). After Operating Profit for such
Fiscal Year shall have exceeded the Owner's Priority for such Fiscal Year, the
Management Incentive Reserve Account shall be funded in accordance with Section
4.4(K) or 7.9.5(I), as applicable, in the amount of the lesser of (i) the excess
of the Operating Profit over the Owner's Priority and (ii) $1,800,000. The
amounts deposited in the Management Incentive Reserve Account shall be held in
such account until after the annual audit determines the Operating Profit for
such Fiscal Year. Disbursement of amounts contained in the Management Incentive
Reserve Account shall be made upon submission of an Incentive Management Fee
Letter specifying the Incentive Management Fee then due and payable to Manager
(but not greater than the amount then contained in the Management Incentive
Reserve Account), attached to which shall be the Auditors' Letter setting forth
the audited Operating Profit for such Fiscal Year. Within five (5) Business
Days of delivery to Servicer of the Incentive Management Fee Letter, the
amounts contained in such Management Incentive Reserve Account shall be
disbursed to the Manager toward payment of the Incentive Management Fee.
6. SINGLE DOWNGRADE PROCEDURES
In addition to the other procedures set forth in this Exhibit, the
procedures set forth in this Section 6 shall apply during each period, if any,
from time to time, (a) beginning with the first
-12-
day of the first full Accounting Period following such time as (i) the long-term
senior unsecured debt of MII, or in the event that another company succeeds to
or is the transferee of all or substantially all of the lodging management and
franchise business currently conducted by MII, the long-term senior unsecured
debt of such successor or transferee (in either such case, the "MII Debt") is
--------
rated BBB+ (or less) by S&P (unless a Lockbox Event has occurred and is
continuing, in which event the procedures in Section 7 shall apply) and (ii) the
Servicer delivers a notice to the Manager and Borrower that such procedures are
in effect and (b) ending on the date set forth in Section 6.7. (The parties
acknowledge that, as of November 25, 1997, such procedures shall be in effect
and that the notice described in clause (a)(ii) above is waived.) Borrower will
notify the Servicer and the Lender promptly after becoming aware of the event
described in subparagraph 6(a)(i) above. Borrower and Manager each acknowledge
that this Section 6 is applicable as of the date of the Loan Agreement.
6.1 The Servicer will maintain the Tax and Insurance Reserve Account,
as a Sub-account of the Cash Collateral Account, for payments of the next
succeeding payments of all insurance premiums (including property, liability,
and other insurance, but not including workers' compensation insurance) and real
estate taxes coming due for the Mortgaged Property. The escrow accounts will be
funded (i) upon commencement of these procedures pursuant to the first paragraph
of this Section 6, by transfers from the Manager's Account to the Cash
Collateral Account of amounts previously deducted by the Manager for payment of
future insurance premiums and real estate taxes, but not expended and (ii)
thereafter, from cash in the Cash Collateral Account on each Payment Date in
accordance with Sections 4.3(A) and 4.4(A), such that the balance in each escrow
account is equal, with respect to each tax payment or insurance premium owing
with respect to the Mortgaged Property, to the product of (x) the amount of such
next payment or premium (or, the most recent payment or premium if the amount of
the next payment or premium is unknown) times (y) a fraction, the numerator of
which is the number of whole Accounting Periods since the date of the last
payment of the applicable tax or premium and the denominator of which is the
number of whole Accounting Periods from the date of the last payment of the
applicable tax or premium to the date of the next payment of such tax or
premium. With regard to any insurance obtained for the Mortgaged Property from
the blanket insurance program of the Manager or its Affiliates, the premiums
shall be the Mortgaged Property's allocable share of insurance premiums and such
premiums shall be paid directly to the Manager when due out of such escrows or
other funds in the Cash Collateral Account or provided by Borrower.
6.2 Provided that the necessary invoices or bills have been provided
to the Servicer by the Manager or Borrower, the Servicer shall pay directly all
real estate taxes and insurance premiums (determined in accordance with the last
sentence of Section 6.1, to the extent said sentence is applicable) with respect
to which escrows have been established from the Tax and Insurance Reserve
Account or, if such amounts are insufficient, from amounts available in the
Excess Cash Flow Account or additional funds provided by Borrower, and the
Manager will be relieved of any such obligation. Borrower and/or the Manager
shall promptly send all such invoices or bills to the Servicer. Upon
acceleration of the maturity of the Note following an
-13-
Event of Default, the Lender shall be entitled to apply the funds held in such
escrows (other than escrows for payment of liability insurance premiums) to
payment of the Note.
6.3 The Servicer will maintain an escrow account, as a Sub-account of
the Cash Collateral Account, for payment of amounts provided for under the FF&E
Reserve Account maintained by Manager pursuant to the Management Agreement. The
escrow account will be funded (i) upon commencement of these procedures, by a
transfer of all funds in the FF&E Reserve Account maintained pursuant to the
Management Agreement to the FF&E Reserve Account to be maintained hereunder as a
Sub-account of the Cash Collateral Account (less amounts required to cover
outstanding checks), and (ii) thereafter, from cash in the Cash Collateral
Account on each Payment Date in accordance with Sections 4.3(B) and 4.4(B), such
that the balance in the escrow account is equal to the amount which otherwise
would be required to be maintained into the FF&E Reserve Account pursuant to
Section 8.02 of the Management Agreement (which amount shall be net of
expenditures made for the replacements and renewals of the Mortgaged Property's
FF&E and repairs to the Mortgaged Property of the nature described in Section
8.02 of the Management Agreement ("FF&E Expenditures") for such Accounting
Period in question.
6.4 During any period when the procedures set forth in this Section 6
apply, the Manager shall be permitted to request disbursements from the FF&E
Reserve Account once each week (or more frequently in the case of an emergency
requiring the immediate expenditure of funds in order to protect the Mortgaged
Property, as certified by Manager to Lender), based on its reasonable estimate
of upcoming, near-term FF&E Expenditures (or with respect to such emergency).
By making a request for funds from the FF&E Reserve Account, or in depositing
funds under Section 6.3 on a net basis, the Manager shall be deemed to have
certified to Lender the (i) the amounts requested are necessary and proper FF&E
Expenditures, (ii) all funds that it previously has withdrawn from the FF&E
Reserve Account (other than amounts being retained for reasonably estimated
near-term, future FF&E Expenditures) have been used to pay FF&E Expenditures,
and (iii) that, to the Best Knowledge of Manager, there are no other accounts
payable of the Mortgaged Property for FF&E Expenditures with an unpaid balance
of more than $25,000 individually, or more than $200,000 in the aggregate, that
are more than 60 days past due (unless payment is being contested in good faith
in accordance with the applicable procedures in the Loan Agreement), except as
otherwise stated with an explanation therefor. The Manager will not be required
to obtain approval of the Lender or any other Person for individual
expenditures, except as otherwise required by the Management Agreement and the
Consent of Manager (as defined in the Loan Agreement). Upon the request of the
Lender in writing, the Borrower or Manager will provide a detailed written
accounting of expenditures for FF&E Expenditures, in a form customarily
maintained by Manager in the ordinary course of business.
6.5 [Intentionally Omitted]
6.6 During any period when the procedures set forth in this Section 6
apply, the amounts of Operating Profit remitted by the Manager to the Cash
Collateral Account
-14-
pursuant to Section 2.4 shall be calculated without deduction for any real
estate taxes or insurance premiums referred to in Section 6.1 or payments
required to be made into the FF&E Reserve Account pursuant to Section 6.3 or any
other expense normally included in Management Expenses but in fact are paid
directly by Borrower.
6.7 Beginning with the first full Accounting Period following such
time as the MII Debt is rated at least A- by S&P, Borrower will no longer be
required to maintain the escrow accounts described in Section 6.1 and Section
6.3, and all amounts then held in such escrow accounts will be transferred, in
the case of Section 6.1, to the Manager's Account, and in the case of Section
6.3, to the FF&E Reserve Account to be maintained by Manager pursuant to the
Management Agreement, pursuant to the Manager's instructions and thereafter the
Manager will be responsible for paying real estate taxes, insurance premiums,
and amounts payable from the FF&E Reserve Account in accordance with the terms
of the Management Agreement.
7. LOCKBOX
A "Lockbox Event" shall occur at any time or times if (a) (i) any of the
-------------
MII Cash Management Conditions are not satisfied or (ii) S&P does not rate the
MII Debt at least BBB+ and (b) the Servicer delivers a notice to the Manager and
Borrower that the procedures described in this Section 7 are in effect. If a
Lockbox Event occurs, such procedures shall apply in lieu of the procedures set
forth in Sections 2, 4.3, 4.4 and 6 during the period, as provided below,
beginning no later than the later of (A) two weeks after the date on which the
Servicer delivers the notice described in subclause (b) above and (B) 120 days
after the Closing Date, and continuing thereafter until the first day of the
first full Accounting Period after (i) each of the MII Cash Management
Conditions is again satisfied and (ii) S&P rates the MII Debt at least BBB+ (any
such period, a "Lockbox Period"). The Servicer shall advise the Manager when
--------------
the procedures set forth in this Section 7 are no longer in effect. Borrower
will notify the Lender and the Servicer promptly after becoming aware that a
Lockbox Event has occurred.
7.1 [Omitted]
7.2 The following transition procedures will apply after a Lockbox
Event:
7.2.1 As soon as possible but, in any event, not later than seven
(7) Business Days after the occurrence of a Lockbox Event, if the Manager's
Account is an Eligible Account, the Manager shall change the name on the
Manager's Account to the Servicer.
7.2.2 Not later than two weeks after the occurrence of a Lockbox
Event (or, if later, two weeks after the Servicer's establishment of the
Operating Account pursuant to Section 7.9), the Manager shall establish a
lockbox account (a "Lockbox Account"), as a segregated account in the name of
---------------
the Servicer on behalf of the Lender, into which the Gross Revenues will be
deposited and, if the Manager's Account does not become a Lockbox Account, funds
from the Local Account established pursuant to Section 3 will be transferred
during the
-15-
Lockbox Period pursuant to Section 3. The Manager may also establish
the accounts described in clauses (a), (c) and (d) of the second sentence of
Section 1.1. The Lockbox Account shall be an Eligible Account and shall be
either the same account as the Manager's Account or a newly established Eligible
Account, subject to the following:
(i) if the Manager's Account is an Eligible Account or if the
Manager's Account is not an Eligible Account and the Manager
determines after consultation with the Lender or if the
Securitization has occurred, with the Rating Agencies, that the
Manager's Account can become the Lockbox Account, then the name
on the Manager's Account shall be changed to the Servicer (if
not already done pursuant to Section 7.2.1) and the Manager's
Account shall become the Lockbox Account. The Servicer on
behalf of the Lender will have sole control over the Lockbox
Account.
(ii) If the Manager's Account is not an Eligible Account and the
Manager is unable to so determine that the Manager's Account
can become the Lockbox Account, then the Servicer shall open a
new Eligible Account to be the Lockbox Account and will convert
the Manager's Account into a lockbox account, in the name of
the Servicer over which the Servicer on behalf of the Lender
will have sole control, and during the Transition Period (as
defined below), the transition procedures outlined in Section
7.3 will apply.
(iii) If the Manager determines, in its good faith reasonable
judgment after due inquiry, that LaSalle National Bank or any
other bank suggested by the Servicer appears capable of putting
in place within the Transition Period the systems required to
service the Manager's cash management needs and LaSalle
National Bank or such other suggested bank then meets the
requirements for establishing an Eligible Account, then the
Manager shall select such bank to hold each Lockbox Account.
7.3 If the Manager's Account does not become a Lockbox Account, the
transition procedures described in this Section 7.3 will apply for a period (the
"Transition Period") of up to 120 days after the beginning of the Lockbox
-----------------
Period:
7.3.1 The Manager will notify Third Party Payors in their billing
statements or otherwise that all payments owing to Borrower thereafter should be
sent to the Lockbox Account. The Manager will work diligently with Third Party
Payors to enable them to send their payments to the Lockbox Account at the
earliest reasonably practicable date and in any event within 120 days after the
occurrence of the Lockbox Event. During the Transition Period, Third Party
Payors may continue to send their payments to the Manager's Account. Any
amounts received into the Manager's Account during the Lockbox Period will be
transferred by Manager within one Business Day of receipt, to the Cash
Collateral Account. Within 60 days after the
-16-
beginning of the Lockbox Period, the Manager shall deliver a report to Borrower,
and shall provide copies thereof to the Lender regarding the status of the
transition to the new cash management procedures, and upon the request of Lender
shall provide up to two additional reports (no more frequently than 30 days
after the prior report) regarding the status thereof.
7.4 [Omitted]
7.5 [Omitted]
7.6 [Omitted]
7.7 Any funds received by Borrower or the Manager during a Lockbox
Period and not yet deposited into a Lockbox Account shall irrevocably be deemed
to be held in trust for the benefit of the Lender and (other than receipts
received at the Mortgaged Property and held as petty cash and the "house banks"
held at the Mortgaged Property) shall immediately upon receipt (and in no event
later than one full Business Day after receipt) be deposited by Borrower or the
Manager, as applicable, into the Lockbox Account. Funds on deposit in the
Lockbox Account shall not be commingled with funds related to any other
properties owned or managed by the Manager or any other Person.
7.8 During a Lockbox Period, the Servicer shall maintain escrow
accounts, as Sub-accounts of the Cash Collateral Account, for prepayments of the
next succeeding payments of all insurance premiums and real estate taxes, and an
FF&E Reserve Account, as described in Section 6. During a Lockbox Period,
provided that the necessary invoices or bills have been provided to the Servicer
by the Manager or Borrower, the Servicer will pay directly all real estate
taxes, insurance premiums and expenses normally paid from the FF&E Reserve
Account maintained by Manager pursuant to the Management Agreement, with respect
to which escrows have been established from the amounts held in such escrows or,
if such amounts are insufficient, from amounts available in the Excess Cash Flow
Reserve or additional funds provided by Borrower, and the Manager will be
relieved of any such obligation. Borrower and/or the Manager shall promptly
send all such invoices or bills to the Servicer. Such payments shall be made
before any fine, penalty, interest or cost may be added for non-payment,
provided that the necessary invoices or bills shall have been provided to
Servicer at least 10 days prior to the due date therefor and sufficient funds
are available from the applicable Sub-account. Upon acceleration of the
maturity of the Note following an Event of Default, the Lender shall be entitled
to apply all of the funds held in such Sub-Accounts (other than escrows for
payment of liability insurance premiums) to payment of the Note.
-17-
7.9 Following a Lockbox Event and prior to commencement of a Lockbox
Period, the Servicer will establish a segregated account (the "Operating
---------
Account"), in its name on behalf of the Lender, which shall be an Eligible
- --------
Account at a bank selected by the Manager and reasonably acceptable to the
Lender. If the Manager determines, in its good faith reasonable judgment after
due inquiry, that LaSalle National Bank or any other bank suggested by the
Servicer appears capable of putting in place the systems required to service the
Manager's cash management needs and LaSalle National Bank or such other
suggested bank then meets the requirements of an Eligible Account, then the
Manager shall select such bank to hold the Operating Account. At the beginning
of the Lockbox Period, the Manager shall transfer, by immediately available
funds, to the Operating Account, all funds of Borrower then held in the
Manager's Account, less amounts required to cover outstanding checks issued by
the Manager, which the Manager shall honor. Provided that the Manager shall at
all times comply with the priority of application of funds in the Operating
Account, as set forth in this Section 7, and so long as the Manager shall not be
in material default under the Management Agreement, the Manager will have the
authority to write checks on, and make other transfers from, the Operating
Account for (i) payment of Management Expenses (excluding real estate taxes and
insurance premiums with respect to which escrows are being maintained by the
Servicer) and (ii) making FF&E Expenditures which will be netted against the
amount that would otherwise be deposited into the FF&E Reserve Account as
required by Section 7.91(B), as well as for the disbursement of funds from the
Operating Account to the segregated accounts provided for in clauses (a), (c)
and (d) of Section 1.1 in accordance with the provisions thereof. Within twenty
(20) days following the end of each Accounting Period ending after funds are
first deposited into the Operating Account, the Manager will be required to
certify (A) that all prior expenditures from the Operating Account have been for
Management Expenses (which shall include actual amounts expended by Manager on
FF&E Expenditures to be netted against the amount to be deposited in the FF&E
Reserves and shall exclude real estate taxes and insurance premiums and deposits
into the FF&E Reserves with respect to which escrows are being maintained) or
for the purposes specified in the immediately preceding sentence, and (B) that,
to the best of the Manager's knowledge, there are no accounts payable, either
singly or in the aggregate, of the Mortgaged Property with any unpaid balance of
more than $200,000 that are more than 60 days past due (except as disclosed to
Servicer where such payment is being contested in accordance with the Loan
Agreement).
7.9.1 TRANSFER OF GROSS REVENUES FROM LOCKBOX TO CASH COLLATERAL
ACCOUNT
During a Lockbox Period, whether prior or subsequent to the
Anticipated Repayment Date, until the Loan and the Mezzanine Loan each has been
paid in full and all obligations in connection therewith have been satisfied,
all Gross Revenues that are received in cash in the Lockbox Account shall be
deposited into the Cash Collateral Account and applied by the Servicer as
follows in the following order of priority:
(A) to fund any amounts to be funded into the Tax and Insurance
Reserve Account; and
-18-
(B) to fund an estimate of any amounts to be funded into the FF&E
Reserve Account (net of an amount equal to the FF&E Expenditures made by
Manager in the prior Accounting Period from Gross Revenues and not from the
FF&E Reserve Account).
7.9.2 TRANSFER OF GROSS REVENUES FROM LOCKBOX TO OPERATING ACCOUNT
After the amounts described in Section 7.9.1(A) through (B) have been
fully funded, on the first day of the first week of the Lockbox Period, and on
the first day of each two-week period thereafter, Servicer shall transfer from
the Lockbox Account to the Operating Account, 50% of the Management Expenses
(other than taxes, insurance and FF&E Expenditures which have been provided for
in Section 7.9.1) budgeted pursuant to the Operating Budget for the then-current
Accounting Period, and Manager shall pay such Management Expenses from the
Operating Account in accordance with the terms of the Management Agreement
(provided that Servicer shall add or deduct to such transfers to the Operating
Account in accordance with Section 7.9.3(i) or (ii)).
7.9.3 SETTLING UP OF MANAGEMENT EXPENSES; TRANSFER OF OPERATING
PROFIT TO CASH COLLATERAL ACCOUNT
Within the third week following the end of each Accounting Period,
Manager will provide Servicer with a statement showing the difference between
Management Expenses for such Accounting Period and amounts disbursed to the
Operating Account from the Lockbox Account with respect to such Accounting
Period in accordance with Section 7.9.2, and
(i) to the extent that such Management Expenses exceed the
amounts so disbursed, then such excess shall be added to the amount next to
be disbursed to the Operating Account in accordance with Section 7.9.2
hereof; and
(ii) to the extent that amounts so disbursed to the Operating
Account exceeded such Management Expenses, then such excess shall be
deducted from the amount next to be disbursed to the Operating Account in
accordance with Section 7.9.2 hereof.
On each Operating Profit Payment Date, the Manager shall notify
Servicer of the Operating Profit as of the end of the immediately preceding
Accounting Period, calculated on a cumulative basis, and the Servicer shall
transfer such amount from the Lockbox Account to the Cash Collateral Account.
The Servicer shall be permitted to rely on the Manager's calculation of
Operating Profit.
-19-
7.9.4 APPLICATION OF CASH COLLATERAL ACCOUNT PRIOR TO ANTICIPATED
REPAYMENT DATE
On and prior to the Anticipated Repayment Date, all Operating Profit
transferred to the Cash Collateral Account in accordance with Section 7.9.3
shall be applied by the Servicer only for the following purposes and in the
following order of priority:
(A) to the payment of (i) Servicing Expenses and the Monthly
Debt Service Payment and then (ii) any other Debt then due and payable to
the Lender;
(B) to fund any capital expenditures that, in the judgment of
Borrower, as concurred in by the Lender, acting in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(C) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(D) to fund any expenditures for capital items approved by the
Lender, acting in its reasonable discretion, including Borrower-funded
capital expenditures, of a discretionary nature and not included in clause
(B) above;
(E) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter in an amount equal to the Mezzanine Monthly Debt Service
Payment;
(F) to Borrower, in an amount equal to the administrative
expenses of Borrower (including reasonable allocations of internal costs)
to the extent approved by Lender in accordance with Section 5.1(q) of the
Loan Agreement;
(G) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance with Section 5.1(q) of the Loan Agreement;
(H) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in amount equal to the
administrative expenses of DSMLP (including reasonable allocations of
internal costs) to the extent approved by Lender in accordance wit Section
5.1(q) of the Loan Agreement;
(I) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in the amount required to be funded into the Mezzanine
Debt Service Reserve Account in accordance with Section 5.2.3 hereof;
-20-
(J) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment Amount;
(K) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in an amount necessary to fund the Mezzanine Debt Service
Account in an amount equal to 600 percent of the Mezzanine Monthly Debt
Service Payment;
(L) to the Chiller Work Reserve, until all amounts deposited into
the Chiller Work Reserve under this Section 7.9.4(L) and Section 4.3(N) and
Section 5.3.1 shall equal in the aggregate $500,000 (but only to the
extent still operative in accordance with Section 4.2(h) hereof and only to
the extent that said $500,000 has not been previously funded from deposits
in accordance with such specified provisions); and
(M) to the Excess Cash Flow Escrow Account, any funds remaining
in the Cash Collateral Account, to be held in until after the annual audit
of Borrower to determine Operating Profit in accordance with the Management
Agreement for the applicable Fiscal Year, which shall be completed not
later than April 15th of the year following such Fiscal Year (and at such
time, the amount in such account shall be distributed in accordance with
Section 5.3 hereof).
In addition, the Supplemental Disbursement Rules shall be applicable
to this Section 7.9.4 in accordance with their terms.
7.9.5 APPLICATION OF CASH COLLATERAL ACCOUNT ON AND SUBSEQUENT TO
ANTICIPATED REPAYMENT DATE
On and after the Anticipated Repayment Date, all Operating Profit
transferred to the Cash Collateral Account in accordance with Section 7.9.3
shall be applied by the Servicer only for the following purposes and in the
following order of priority:
(A) to the payment of (i) Servicing Expenses and the Monthly
Debt Service Payment and then (ii) any other Debt then due and payable to
the Lender;
(B) to fund any capital expenditures, which in the judgment of
Borrower, as concurred in by the Lender, acting in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(C) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(D) to fund any capital items approved by the Lender, in its
reasonable discretion, including Borrower-funded capital expenditures, of a
discretionary nature and
-21-
not included in clause (B) above;
(E) to fund the administrative expenses of Borrower (including
reasonable allocations of internal costs) to the extent approved by Lender
in its reasonable discretion;
(F) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance with Section 5.1(q) of the Loan Agreement;
(G) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in an amount equal to
the administrative expenses (including reasonable allocations of internal
costs) to the extent approved by Lender in accordance with Section 5.1(q)
of the Loan Agreement;
(H) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment;
(I) to the extent provided for under Section 5.4, if Operating
Profit for such Fiscal Year shall have exceeded Owner's Priority for such
Fiscal Year, to the Management Incentive Reserve Account;
(J) to the Servicer, (a) first, to repayment of the principal
amount of the Note, until the principal of the Note has been paid in full,
and (b) next, to the payment of the Additional Interest accrued and unpaid
on the Note; and
(K) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter or, if the Mezzanine Loan Direction Letter has been
rescinded by the Mezzanine Lender, to the Junior Lender in accordance with
the Junior Loan Direction Letter.
In addition, the Supplemental Disbursement Rules shall be applicable
to this Section 7.9.5 in accordance with their terms.
7.10 At such time as the Lockbox Period terminates and until a
further Lockbox Event occurs, the Manager shall have the option of reinstating
the cash management procedures set forth in Sections 2, 4.3, 4.4 and 6 (as
applicable) by notice to the Lender, the Servicer, Borrower, and all funds then
held in the Operating Account shall be transferred to the Lockbox Account and
the Lockbox Account will be changed to a Manager's Account and unless the
provisions of Section 6 apply, all funds held in the Tax and Insurance Reserve
Account shall be transferred to the Manager's Account.
-22-
7.11 If an entity that is an Affiliate of MII or MII itself is not
the manager of an the Mortgaged Property, Borrower shall take such action as may
be required to ensure that the procedures set forth in Section 7, to the maximum
extent possible, are followed by a replacement manager at the Mortgaged
Property. In any event, Borrower shall ensure that credit card companies
continue to send payments directly to the Lockbox Account.
8. [OMITTED]
9. SECURITY FOR LOAN
The funds on deposit in the Lockbox Account, the Operating Account,
and the Cash Collateral Account and each Sub-account thereof, and all Permitted
Investments thereof, are pledged to the Lender as further security for the Loan
pursuant to the Loan Agreement and the Collateral Account Agreement. The
authority of the Manager to pay Management Expenses in the manner set forth in
this Exhibit shall not be terminated, unless the Management Agreement shall have
been terminated and until all Management Expenses incurred or contracted for
prior to or as a result of such termination have been paid or an amount
sufficient to pay such expenses is set aside in a reserve. Unless and until the
Management Agreement is terminated and all expenses relating to FF&E
replacements made or contracted for prior to the termination have been paid in
full (or an amount sufficient to pay such expenses has been set aside as a
reserve), (i) the Servicer shall not freeze or otherwise restrict the ability of
the Manager to obtain disbursements of funds from the FF&E Reserve Account in
accordance with Sections 6 and 7 hereof or apply funds on deposit in the FF&E
Reserve Account to repayment of the Note and (ii) the right of the Manager to
direct the expenditure of funds in the FF&E Reserve Account in accordance with
Sections 6 and 7 hereof shall not be terminated unless otherwise agreed to by
the Servicer, the Borrower and the Manager.
10. INVESTMENT OF FUNDS IN ACCOUNTS
Borrower shall have the right to instruct the Servicer to invest
funds, if any, in the Cash Collateral Account, Lockbox Account, Operating
Account, any Sub-accounts thereof, at the risk of and for the benefit of
Borrower, in Permitted Investments.
11. NOTICE OF NEW ACCOUNTS
The Manager shall notify the Lender in writing of the account name and
account number of the Manager's Account and any Local Account and of each
supplemental or replacement account established by the Manager from time to time
in connection with the Mortgaged Property, and the institution in which each
such account is maintained. The Manager shall not change the Manager's Account
without obtaining the consent of the Lender, which shall not be unreasonably
withheld and shall be granted if a supplemental or replacement account is an
Eligible Account. If the Manager's Account or any Local Account shall be
changed, or any new Manager's Account or Local Account shall be opened, by the
Manager or Borrower, the Manager
-23-
or Borrower, as the case may be, shall send a notice to the Lender, specifying
the new or changed Manager's Account or Local Account and the Manager's Account
or Local Account replaced thereby.
12. GENERAL
12.1 The Servicer shall permit the Manager and Borrower to have
access to information each Business Day regarding activity (including
disbursements) and balances and source of receipts in the Cash Collateral
Account and all Sub-accounts thereof, the Operating Account and the Lockbox
Account and any other accounts maintained by Servicer pursuant to this Exhibit.
12.2 Unless the context specifies otherwise, transfers of funds held
in any account that are required by this Agreement shall require only the
transfer of available funds.
12.3 [Reserved].
12.4 [Reserved].
12.5 Upon the occurrence of an Event of Default or a monetary Default
under the Loan Agreement, Lender shall have the right to apply or direct the
application of Gross Revenues, including any amounts in the Lockbox Account or
any of the Sub-Accounts (unless otherwise provided herein), to such uses and in
such order as Lender, in its sole discretion, shall determine, including, first,
to payment of the Monthly Debt Service Payment Amount; provided, however, that
until such time as Lender shall have foreclosed on the Mortgage and terminated
the Management Agreement, Gross Revenues shall first be applied in the manner
set forth above to Management Expenses to the extent that such amounts do not
exceed 105% of Management Expenses for the comparable period's prior Fiscal
Year, without Lender's prior written consent.
-24-
EXHIBIT C
A leasehold estate disclosed by Memorandum of Lease dated April 23, 1987,
executed by Marriott's Desert Springs Development Corporation, a Delaware
Corporation, hereinafter "Lessor", and by Desert Springs Marriott Limited
Partnership, a Delaware Limited Partnership, hereinafter "Lessee", for a term
and upon the terms, covenants and conditions therein provided, recorded April
24, 1987 as Instrument No. 114104, Official Records of Riverside County,
California ("Official Records") as amended by that certain First Amendment to
Golf Course Lease dated March 31, 1994 between Lessor and Lessee and recorded
May 27, 1994 as Instrument No. 217099, Official Records, and further amended by
that certain Second Amendment to Golf Course Lease dated November 25, 1996
between Lessor and Lessee, recorded December 20, 1996 as Instrument No. 480355,
Official Records.
Exhibit D
---------
Operating Budget
EXHIBIT E
---------
Capital Budget
Marriott Hotels, Resorts, & Suites
1998 Capital Expenditure Budget Summary
Currency Form of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property: TEA/DESERT SPRINGS Opening Dates:
Original 2/2/87
Marriott 2/2/87
Ownership: HOST JOINT VENTURE Expansion
Rooms 0
1997
Forecast 1998 1999 2000 2001 2003
-------- --------- --------- --------- --------- ---------
Sales 106,605.0 109,803.0 113,097.0 116,490.0 119,985.0
Escrow % 5.5 5.5 5.5 5.5 5.5
Escrow Contribution 5,863.3 6,039.2 6,220.3 6,407.0 6,599.2
Beginning Escrow Balance 1,700.0 2,510.9 6,049.1 10,250.4 3,523.3
Other 0.0 0.0 0.0 0.0 0.0
Interest Earned on Escrow Acct. 112.0 221.0 429.0 383.0 277.0
Available Escrow Funds 7,675.3 8,771.0 12,698.4 17,040.3 10,399.5
New Loan 0.0 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Total Available for CEP 7,675.3 8,771.0 12,698.4 17,040.3 10,993.5
========= ========= ========= ========= =========
$0 - 20k 400.0 1,008.4 571.0 588.0 606.0 624.0
$21k - 199k 1,260.0 2,307.0 1,931.0 1,047.0 561.0 642.0
$2000k 1,180.0 1,849.0 220.0 813.0 12,350.0 2,700.0
-------- --------- --------- --------- --------- ---------
Total Budget from Escrow 2,880.0 5,164.0 2,722.0 2,448.0 13,517.0 3,966.0
======== ========= ========= ========= ========= =========
Ending Escrow 1,700.0 2,510.9 6,049.1 10,250.4 3,523.3 6,433.5
======== ========= ========= ========= ========= =========
2,050.0 260.0 270.0 280.0 290.0
Projects Funded Outside
of Escrow Funds:
Schedule Historical Forecast
--------------------------------- ---------------------------------
Year 1992 1996 2001
# of Rooms 895 884 884
Type of Soft Total Soft
Scope N/A
Total Cost 5,170,000 9,100,000 12,349,999
Cost Per Room 3,777 10,294 13,971
Years Since Last Case Redo N/A N/A 5
Years Since Last Soft Redo N/A N/A 5
Annual Set Aside to fund Redo N/A N/A 2,469,999
Property Comments:
RVP Comments:
SVP Comments:
Print Date: 11/12/97 (R)
WARNING One or more columns are
out of balance with budgeted amount!
MARRIOTT HOTELS, RESORTS, & SUITES
1998 CAPITAL EXPENDITURE BUDGET SUMMARY
1998 ESCROW CASHFLOW
(000) Conversion Rate:1:00
Property: 7E4/DESERT SPRINGS
1997 Period Period Period
Forecast 1 2 3
------------ ------------- ------------- -------------
Sales 9,482.1 11,340.9 12,564.0
Escrow % 5.5 5.5 5.5
Escrow Contribution 521.5 623.8 691.0
Beginning Escrow Balance 1,700.0 1,741.3 1,919.9
Interest Earned on Escrow Acct 8.6 8.6 8.6
Other Escrow Activity 0.0 0.0 0.0
Available Escrow Funds 2,230.1 2,373.7 2,619.5
New Loans 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0
------------- ------------- -------------
Total Available for CEP 2,230.1 2,373.7 2,619.5
============= ============= =============
Less Expenditures from Escrow
1997 Expenditures 2,880.0
1997 Carry-Over projects 0.0 0.0 0.0
1998 Approved budget projects 0.0 488.8 453.8 453.0
1999 Early start projects 0.0 0.0 0.0 0.0
------------- ------------- ------------- -------------
Total Expenditures 2,880.0 488.8 453.8 453.8
============= ============= ============= =============
Period Ending Escrow Balance 1,700.0 1,741.3 1,919.9 2,165.7
============= ============= ============= =============
Period Period Period Period
4 5 6 7
------------ ------------- ------------- -------------
Sales 11,169.2 10,925.1 6,878.3 4,040.4
Escrow % 5.5 5.5 5.5 5.5
Escrow Contribution 614.3 600.9 378.3 222.2
Beginning Escrow Balance 2,165.7 2,384.9 2,690.5 2,698.7
Interest Earned on Escrow Acct 8.6 8.6 8.6 8.6
Other Escrow Activity 0.0 0.0 0.0 0.0
Available Escrow Funds 2,788.7 2,994.3 3,077.5 2,919.5
New Loans 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Available for CEP 2,788.7 2,994.3 3,077.5 2,919.5
============ ============= ============= =============
Less Expenditures from Escrow
1997 Expenditures
1997 Carry-Over projects 0.0 0.0 0.0 0.0
1998 Approved budget projects 403.8 303.8 388.8 388.8
1999 Early start projects 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Expenditures 403.8 303.8 388.8 388.8
============ ============= ============= =============
Period Ending Escrow Balance 2,384.9 2,690.5 2,688.7 2,530.7
============ ============= ============= =============
Period Period Period Period
8 9 10 11
------------ ------------- ------------- -------------
Sales 4,087.5 4,529.2 7,396.8 9,098.3
Escrow % 5.5 5.5 5.5 5.5
Escrow Contribution 224.8 249.1 406.8 500.4
Beginning Escrow Balance 2,530.7 2,375.3 2,244.3 2,270.9
Interest Earned on Escrow Acct 8.6 8.6 8.6 8.6
Other Escrow Activity 0.0 0.0 0.0 0.0
Available Escrow Funds 2,764.1 2,633.1 2,659.7 2,779.9
New Loans 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Available for CEP 2,764.1 2,633.1 2,659.7 2,779.9
============ ============= ============= =============
Less Expenditures from Escrow
1997 Expenditures
1997 Carry-Over projects 0.0 0.0 0.0 0.0
1998 Approved budget projects 388.8 388.8 388.8 388.8
1999 Early start projects 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Expenditures 388.8 388.8 388.8 388.8
============ ============= ============= =============
Period Ending Escrow Balance 2,375.3 2,244.3 3,270.9 2,391.1
============ ============= ============= =============
Period Period Period Period Period
12 13 1 1999 2 1999 3 1999
------------ ------------- ------------- ------------- -------------
Sales 9,209.7 5,883.3 9,766.5 11,681.2 12,941.0
Escrow % 5.5 5.5 5.5 5.5 5.5
Escrow Contribution 506.5 333.5 537.2 642.5 711.8
Beginning Escrow Balance 2,391.1 2,517.5 2,465.3 3,019.4 3,678.9
Interest Earned on Escrow Acct 8.6 8.6 17.0 17.0 17.0
Other Escrow Activity 0.0 0.0 0.0 0.0 0.0
Available Escrow Funds 2,906.3 2,849.7 3,019.4 3,678.9 4,407.6
New Loans 0.0 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0 0.0
------------ ------------- ------------- ------------- -------------
Total Available for CEP 2,906.3 2,849.7 3,019.4 3,678.9 4,407.6
============ ============= ============= ============= =============
Less Expenditures from Escrow
1997 Expenditures
1997 Carry-Over projects 0.0 0.0 0.0 0.0 0.0
1998 Approved budget projects 388.8 384.4 0.0 0.0 0.0
1999 Early start projects 0.0 0.0 0.0 0.0 0.0
------------ ------------- ------------- ------------- -------------
Total Expenditures 388.8 384.4 0.0 0.0 0.0
============ ============= ============= ============= =============
Period Ending Escrow Balance 2,517.5 2,465.3 3,019.4 3,678.9 4,407.6
============ ============= ============= ============= =============
Page: 1 Schedule: A-1
Print Date: 11/12/97 (R)
MARRIOTT HOTELS, RESORTS & SUITES
1998 CAPITAL EXPENDITURE BUDGET
ESCROW AND LOAN PROJECTS
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS 1998 Sales: 106,605.0
# of Rooms: 884 1997 Ending Escrow Balance: 1,700.0
Operating Date: 2/2/97
Hotel Age: 11
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- -------- ----- --------------------------------------------------------------- ----------- ----- ---- ---------- -------
2.0 5 LAKEVIEW RESTAURANT REDO MSR No FB 430.0 Escrow
Average softgoods redo that will modify the restaurant's
entrance, replace carpet & padding, window draperies, wall
covering, artwork, lighting re-upholster chairs & booths,
refinish tables & chairs, and painting. 2 server stations will
be added to the back of the restaurant. The cost estimates are
based on a 230 seat, 6500 square foot restaurant. A&C will be
used for procurement and our DOE will be utilized as advisors.
3.0 11 MEETING ROOMS MSR No BQ 500.0 Escrow
Extensive meeting rooms redo to include painting ceiling,
cornices, chair rail and moldings; install new wall vinyl.
Cutting edge dimming and sound systems will replace the
existing systems to accommodate changing needs of guests. Add
permanent AV and technology to the room. This is not an ROI --
just cost of keeping pace with our competitive set (i.e. Ritz
Carlton - Laguna Niguel, Phoenician) and meeting our groups'
expectations. The Resort has two (2) $520
6.0 11 COSTAS LOUNGE/NIGHT CLUB MSR No FB 500.0 Escrow
Extensive and soft & casegoods redo to replace carpet, padding,
painting, wall vinyl, resurface bar areas, hardware on bar
area, and upgrade d.j. booth & props. Cost estimates based on
design specs. done previously. Costas is a huge positioning
factor for our leisure/local market, and this will be its first
redo since the Resort's opening in 1987. In addition our
competitive set continues to upgrade with leading edge
technology (i.e. Pompeii Nightclub). $300,000 in FFE
Contingent on Regional Team review and involvement.
7.0 11 SEAGRILLE BAR REDO NO No FB 30.0 Escrow
Construction of red oak bar with brass trim and corian and
granite courier tops. The construction
Page: 2 Schedule: A-1
Print Date: 11/12/97 (R)
MARRIOTT HOTELS, RESORTS & SUITES
1998 CAPITAL EXPENDITURE BUDGET
ESCROW AND LOAN PROJECTS
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS 1998 Sales: 106,605.0
# of Rooms: 884 1997 Ending Escrow Balance: 1,700.0
Operating Date: 2/2/97
Hotel Age: 11
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- -------- ----- --------------------------------------------------------------- ----------- ----- ---- ---------- -------
will include plumbing, drywall, electrical work and flooring.
8.0 5 HOLIDAY LIGHTING NO No MO 25.0 Escrow
Addition of new holiday decorations as well as the replacement
of damaged lighting to complement the resort's holiday theme.
9.0 5 TECHNOLOGY FUND NO No SY 25.0 Escrow
This is a standard annual budget to replace damaged and
obsolete technology equipment. The strategy is to have funds
available to replace older technology with new leading edge
technology.
10.0 11 GROVE REDO NO No MO 50.0 Escrow
The scope includes additional palm trees, up lighting and white
lighting around trunks. Replace and redo general landscaping.
The modifications will further allow the resort to better
utilize existing space for banquet and catering functions.
11.0 3 OASIS POOL FOUNTAIN NO No GO 50.0 Escrow
A modification that will provide more excitement and appeal to
the main pool area and will keep us in line with our
competitor's pools.
12.0 3 AUDIO VISUAL EQUIPMENT NO Yes RI 75.0 Escrow
This is a standard annual budget to replace lost or damaged
equipment and to add current technology to inventory if
needed. The Audio Visual replacement strategy is based on MVP
and guest feedback. The amount designated for this project
represents 3% of 1998 sales.
1997: $50K/5.1% of sales 1996: $51K/3.8% of sales
1995: $59K/5.2% of sales 1994: $51K/4.9% of sales
Purchase of new items is contingent upon ROI approval
Page: 3 Schedule: A-1
Print Date: 11/12/97 (R)
MARRIOTT HOTELS, RESORTS & SUITES
1998 CAPITAL EXPENDITURE BUDGET
ESCROW AND LOAN PROJECTS
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS 1998 Sales: 106,605.0
# of Rooms: 884 1997 Ending Escrow Balance: 1,700.0
Operating Date: 2/2/97
Hotel Age: 11
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- -------- ----- --------------------------------------------------------------- ----------- ----- ---- ---------- -------
13.0 3 GOLF CART LEASE NO No GO 150.0 Escrow
This is the third year of a four year lease.
14.0 5 SPA EXERCISE EQUIPMENT NO No GO 55.0 Escrow
Replace treadmills, free climbers, rowing machine, shoulder
press machine, ten (10) massage tables and other exercise
machines. This will enable the resort to maintain an inventory
of the latest exercise equipment.
15.0 11 GOLF GROUND IMPROVEMENTS NO No MO 50.0 Escrow
This project consists of repairs to selected tee boxes,
concrete work on cart path and addition of curbing in
selected areas.
16.0 11 OUTDOOR LIGHTING AND NO No EG 21.0 Escrow
Replacement and addition of selective lighting fixtures for
palm tree down lights and walkways.
17.0 11 RESURFACE TENNIS COURTS NO No GO 26.0 Escrow
Resurface courts 11-15, repair "hump" on court 11, add
windscreens and fences to courts 11-15 and clay courts A-C. A
total of eight (8) courts would be resurfaced.
18.0 4 PAINT PERIMETER WALLS NO No EG 25.0 Escrow
Approximately 3 miles of mixed stucco and steel fence is in
need of some replacement steel pieces and a repainting of
the stucco finish. Last done in 1994.
19.0 11 BANQUET CHAIRS (1500) NO No BQ 180.0 Escrow
Replacement of 1500 banquet chairs that are 11 years old have
been refinished and
Page: 4 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resolrts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87
Hotel Age: 11 1998 Sales: 106,605.0
Ownership: HOST JOINT VENTURE 1997 Ending Escrow Balance: 1,700.0
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ----- ----------------------------------------------------------------- ----------- ------ ----- ------ ---------
reupholstered six (6) years ago. The purchase will be done in
two (2) parts in 1998 and 1999. Desert Springs has decided not
to go with the Shelby Williams spec. chair. Instead, we will be
going with an upgraded Shelby chair to address the Resort's
image, meet the expectations of our clients and to remain
competitive with our Destination Resort competitive set. The
cost will be
20.0 11 Bed Replacement NO No RO 210.0 Escrow
Replace 11 year old box springs in guest rooms. This will in-
clude 816 Double/Double box springs at $110 each and 477 Kings
at $154.
21.0 11 Tuscany's Restrooms NO No FB 55.0 Escrow
Remove existing wall covering and stalls, replace with marble
and stone; upgrade existing restroom fixtures. Cost estimates
are based on local contractors designs and bids.
22.0 11 Banquet Restrooms NO No PS 199.0 Escrow
Remove existing wall covering and stalls, replace with marble
and stone; upgrade existing restroom fixtures and flooring. Cost
estimates are based on local contractors designs and bids.
23.0 11 Laundry Boiler Project NO No LA 75.0 Escrow
Replacement of existing boiler which serves the laundry. The
current boiler had unsuccessfully been converted to satisfy
LaNox air quality regulations and is at a point of noncom-
pliance, poor efficiency and regular gasket failures caused by
retrofit burners.
24.0 11 Laundry Contingency NO No LA 21.0 Escrow
Major components of ironers, folders, and dryers are nearing the
end of their useful life and will be receiving rebuilds as
required.
25.0 11 Chiller Redo/Overhaul NO No EG 25.0 Escrow
Page: 5 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87
Hotel Age: 11 1998 Sales: 106,605.0
Ownership: HOST JOINT VENTURE 1997 Ending Escrow Balance: 1,700.0
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ----- ----------------------------------------------------------------- ----------- ------ ----- ------ ---------
Regular Six Year overhaul with a refrigerator conversion. The
machine is due for a major bearing and seal replacement due to
the number of operating hours.
26.0 0 NGS Lease NO No SY 199.0 Escrow
The lease amount is the estimated lease cost for NGS in year
three of a five year lease.
27.0 0 Spa POS-Reservation System NO Yes RI 100.0 Escrow
Purchase of a fully integrated software package consisting of
appointment scheduling, point of sale, client management, inven-
tory control and reporting. ROI Project.
28.0 11 Atrium Lounge Redo NO No FB 60.0 Escrow
Artwork, millwork and signage in Atrium Lobby Lounge to make more
consistent with newly renovated Lobby.
29.0 11 Spa Pool Equipment NO No GO 35.0 Escrow
Add badly needed shade covering, replace existing lounge chairs,
and add cabanas for outdoor treatments. This will allow the
spa to expand its treatment area and generate additional spa
revenue.
30.0 0 Connecting Doors Project NO No RO 21.0 Escrow
Add 20 connecting doors to existing rooms inventory to
accommodate our leisure family market. Currently we have 108
connecting pairs or 216 rooms.
31.0 0 Coffee Pots NO No RO 30.0 Escrow
Corporate Initiative to have coffee makers in every guest room.
32.0 11 Golf Grounds Landscaping/Underground Storage Tank NO No MO 209.0 Escrow
Page: 6 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ----- -------------------------------------------------------------------- ----------- ----- ---- ----- ---------
For Federal EPA and CA regulations, we must replace (2) 1000 gal
UST's, (2) 500 gal and (1) 5000 gal double-wall fiberglass UST used
for diesel fuel, gasoline and waste oil. Moreover, a wash pad and
green waste trash bin will be added to comply with EPA and CA
regulations. This project after review with owner representatives
was deemed appropriate to fund through escrow.
33.0 8 Ground Trucks NO No VE 60.0 Escrow
Replace of 4 utility vehicles with Cushmans that have dump bed and
Power Takeoff (PTO) accessories. The vehicles that are being re-
placed are eight (8) years old.
34.0 6 Tuscany's Chairs NO No FB 40.0 Escrow
Replacement of aged chairs with new Highback Armchairs. 80 chairs
will be replaced in 1997 and 80 chairs will be replaced in 1998.
The cost estimate includes both tax and freight.
35.0 6 Men's Spa Redo NO No GO 100.0 Escrow
Men's Spa Redo includes window covers, drapes, wall covering, re-
finish and replace selective case goods and furniture and lamps.
In addition, three (3) program desks will be modified to address
aesthetic and ergonomic challenges. We would like to schedule the
redo for July/August and use local designers and contractors with
the Resort's D.O.E. as an advisor.
36.0 0 Lobby Corner Shop NO No RI 50.0 Escrow
Convert corner waiting area into a 200 square foot retail shop
near lobby. The retail space is similar to Desert Designs which
generates $400K in sales and $100K in profit annually. ROI will
be provided.
37.0 6 Dish Machines NO No MO 50.0 Escrow
Page: 7 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ---- ----------------------------------------------------------------------- ----------- ----- ---- ------ --------
Provide a separate wash for glassware to improve quality of appear-
ance that is difficult to obtain from our undercapacity dish machine.
Replace dishroom floor.
38.0 0 Banquet Truck NO No VE 30.0 Escrow
Purchase of banquet truck to facilitate off property catering functions.
The Resort currently spends $15K annually to rent trucks for outside
and offsite catering functions. The Resort would recognize cost
savings by purchasing a truck.
39.0 0 Enlarge Golf Shop/Redo NO Yes RJ 125.0 Escrow
Convert Photo Shop and other office space into 1,000 square foot
retail golf equipment shop. In addition, the original golf shop will
be updated and refurbished with wall treatments, merchandise fixtures,
carpet and wall cabinets.
This project contingent on Regional Office review of ROI and scope
of project.
40.0 6 Ice Machines NO No MO 40.0 Escrow
Replacement of existing machines with higher production machine needed
to provide for three restaurants and room service.
41.0 0 Dewater Project NO Yes RJ 150.0 Escrow
ROI project that will allow us to reduce the number and weight of
refuse loads by removing the water. The expected payback is 18 months.
42.0 11 Boats (3) NO No MO 80.0 Escrow
Addition of Duffy Electric Boats that boast the following improve-
ments over our existing boats:
Page: 0
Print Date: 11/12/97 (R) Schedule: A-1
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A & C PAR Work
Priority Age Title/Description Involvement Req.7 Cat Total Cost Funding
- ---------- ----- ------------------------------------- ----------- ----- ---- ---------- ------------
Safer access, flexible surrey frame,
increased stability and balance,
increased maneuverability, cosmetic
damage protection and maintenance
improvements. Current boats are
originals and are 11 years old and
have had major repairs in the past
two years. Desert boats are like
Mickey
-----------
Total Over 20K Projects 4,156.0
===========
50 - 20K Guideline Amount
884 Rooms @ $514.00/Room >> 454.38 Under 20K Projects 1,008.4
------------
Total Escrow and Loan Projects 5,164.4
============
Page: 1
Print Date:11/12/97 (R) Schedule: A-2
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects Funded Under $20K
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work
Priority Age Title/Description Involvement Req. ? Cat Total Cost Funding
- ------------------------------------------------------------------------------------------------------------------------------------
0.0 0 0-20K Projects NO No MO 554.0 Escrow
$0-20K Formula does not fully take 0.0
into account Desert Springs' mix in
revenue and extensive plant. Below
are two resorts of similar volume:
Marco 734 rooms/$58 million total
revenue/$30 million room revenue/
$411K 0-20K Budget. Orlando World
Center 1500 rooms/$124 million
total revenue/$62 million room
revenue/$700K 0-20K budget.
0.0 0 $0-20K Projects No MO 454.4 Escrow
0.0
----------
Total Under 20K Projects 1,008.4
==========
$0-20K Guideline Amount
884 Rooms @ $14.00/Room >> 454.38
Page: 1 Schedule: A-3
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects Funded Outside of Escrow
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- ---------- ----- ---------------------------------------- ----------- ------- ------ -------------- --------------
4.0 0 Chilled Water Flow Study, Phase II NO Yes MO 200.0 Owner
PHASE II. Evaluation of system performance
by use of Pre-Flo computer modeling to
determine flow and pressure within the
system with recommendations for
modifications. Improvements are targeted
for summer of 1997 when building sections
can be isolated for modifications.
5.0 11 Plant Room NO Yes MO 1,500.0 Owner
A study is underway to determine the most
beneficial, cost effective means for
providing redundancy in the cooling plant.
The recommendations are due in May.
43.0 0 Roof Projects A& Yes EG 350.0 Owner
Slurry Seal Roofing to prevent further
deterioration caused by high temperatures
and minimal precipitation. This will be
the first in five years of roof
replacement projects for Desert Springs.
This project will concentrate on replacing
the roof covering the lobby, kitchen and
admin offices.
Total Under 20K $0.0
-----------
Total Outside of Escrow Project $2,050.0
===========
Page: 1
Print Date: 11/12/97 (R) Schedule: A-4
Marriott Hotels, Resorts & Suites
1998/1999 Capital Expenditure Budget
with a project start date before 4/1/99
$200K + Projects
Currency Format of Report in U.S. Dollars
(000)
Inflation Date: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 General Manager: Tim Sullivan
Hotel Age: 11 Phone: (760) 341-2211
Ownership: HOST JOINT VENTURE Fax:
Asset PAR Square # of Scheduling Final
Priority Age Title/Description Req.? Feet Rooms 1st Choice 2nd Choice Project Cost Funding
- -------- ----- ----------------------------------- ------- ------ ----- ----------- ---------- ------------- ------
1998
2.0 5 Lakeview Restaurant Redo No 6,502 n/a 7/1/98 430.0 Escrow
Average softgoods redo that will 9/1/98
modify the restaurant's entrance,
replace carpet & padding, window
draperies, wall covering, artwork,
lighting, re-upholster chairs &
booths, refinish tables & chairs,
and painting. 2 server stations
will be added to the back of the
restaurant.
3.0 11 Meeting Rooms No 51,000 n/a 6/1/98 500.0 Escrow
Extensive meeting rooms redo to 10/19/98
include painting ceiling, cornices,
chair rail and moldings; install
new wall vinyl. Cutting edge
dimming & sound systems will
replace the existing systems to
accommodate changing needs of
guests. Add permanent AV and
technology to the room.
4.0 0 Chilled Water Flow Study, Phase II Yes 1 1 1/1/98 200.0 Owner
Phase II. Evaluation of system 3/1/98
performance by use of Pre-Flo
computer modeling to determine
flow and pressure within the
system with recommendations for
modifications. Improvements are
targeted for summer of 1997 when
building sections can be isolated
for modifications.
5.0 11 Plant Room Yes n/a n/a 1/ 1/98 1,500.0 Owner
A study is underway to determine 3/19/98
the most beneficial, cost effective
means for providing redundancy in
the cooling
Page: 2 Schedule: A-4
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998/1999 Capital Expenditure Budget
with a project start date before 4/1/99
$200K + Projects
Currency format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 General Manager: Tim Sullivan
Hotel Age: 11 Phone: (760) 341-2211
Ownership: HOST JOINT VENTURE Fax:
Asset PAR Square # of Scheduling Final
Priority Age Title/Description Req.? Feet Rooms 1st Choice 2nd Choice Project Cost Funding
- ---------- ----- ------------------------------------- ----- --------- ------- ----------- ---------- ------------ --------
plant. The recommendations are due
in May.
6.0 11 Costas Lounge/Night Club No 4,960 n/a 1/1/98 500.0 Escrow
Extensive soft & casegoods redo to 3/1/98
replace carpet, padding, painting,
wall vinyl, resurface bar areas,
hardware on bar area, and upgrade
d.j. booth & props. Cost estimates
based on design specs. done
previously. Costas is a huge
positioning factor for our leisure/
local market. Contingent on Regional
Team review and involvement.
20.0 11 Bed Replacement No n/a n/a 5/1/98 210.0 Escrow
Replace 11 year old box springs in 3/31/97
guest rooms. This will include 816
Double/Double box springs at $110
each and 477 Kings at $154.
32.0 11 Golf Grounds Landscaping/Underground No 1 n/a 1/198 209.0 Escrow
Storage 2/1/98
For Federal EPA and CA regulations,
we must replace (2) 1000 gal USTs,
(2) 500 gal and (1) 5000 gal double-
wall fiberglass UST used for diesel
fuel, gasoline and waste oil. Moreover,
a wash pad and green waste trash bin
will be added to comply with EPA and CA
regulations.
43.0 0 Roof Projects Yes 2,660 n/a 6/1/98 350.0 Owner
Slurry Seal Roofing to prevent
further deterioration caused 9/1/98
Page: 3 Schedule: A-4
Print Date: 11/12/97 (R)
Marriott Hotels Resorts & Suites
1998/1999 Capital Expenditure Budget
with a project start date before 4/1/99
$200K + Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
PROPERTY #: 7E4/DESERT SPRINGS
# OF ROOMS: 884
OPENING DATE: 2/2/87 GENERAL MANAGER: Tim Sullivan
HOTEL AGE: 11 PHONE: (760) 341-2211
OWNERSHIP: HOST JOINT VENTURE FAX:
Asset Par Square # Of Scheduling Final
Priority Age Title/Description Req.? Feet Rooms 1st Choice 2nd Choice Project Cost Funding
- -------- ------ ----------------------------------- ----- ------ ----- ----------- ---------- ------------- -------
by high temperatures and minimal
precipitation. This will be the
first in five years of roof
replacement projects for Desert
Springs. This project will
concentrate on replacing
the roof covering the lobby,
kitchen and admin offices.
Yearly Total $200K + Projects 3,899.0
=======
1999
1.0 0 ENERGY MANAGEMENT SYSTEM Yes n/a n/a 1/1/99 220.0 Escrow
The Resort's energy management 2/1/99
system will be 13 years old and at
the present time is presenting
challenges. The existing EMS will
be replaced with new hardware and
software. The resort has obtained
cost through Marriott approved
purveyors to be approximately
$720,000.
3.0 12 ROOF PROJECT Yes n/a n/a 1/1/99 260.0 Owner
Slurry Seal Roofing to prevent 3/1/99
further deterioration caused by
high temperatures and minimal
precipitation. This will be the
second in five years of roof Yearly Total $200K + Projects 480.0
replacement projects for Desert =====
Springs.
Page: 1
Print Date: 11/12/97 (R) Schedule: A-5
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects $200k+ In Future Years
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C Work
Priority Age Title/Description Involvement Cat Total Cost Funding
- -------- -------- -------------------------------------- ----------- ---- ---------- -------
1999 PROJECTS
----- --------
1.0 0 ENERGY MANAGEMENT SYSTEM NO EG 220.0 Ecrow
Then Resort's energy management
system will be 13 years old and
at the present time is presenting
challenges. The existing EMS will
be replaced with new hardware and
software. The resort has obtained
cost through Marriott approved
purveyors to be approximately
$220,000. Utility rebates are not
available. Because interruptable
power expires in August 1997, a
"more intelligent" EMS will be
required to make "real time" pricing
decisions. In addition, the increased
3.0 12 ROOF PROJECT NO EG 260.0 Owner
Slurry Seal Roofing to prevent further
deterioration caused by high
temperatures and minimal precipitation.
This will be the second in five years
of roof replacement projects for Desert
Springs.
YEARLY TOTAL: 480.0
==========
- -------------------------------------------------------------------------------------------------------------
2000 PROJECTS
----- --------
1.0 13 ROOF PROJECT NO EG 270.0 Owner
Slurry Seal Roofing to prevent further
deterioration caused by high
temperatures and minimal precipitation.
This will be the third in five years of
roof replacement projects for Desert
Springs.
2.0 4 LOBBY REDO NO PS 500.0 Escrow
The lobby redo project scope will
include refinishing and reupholstering
furniture, replace carpet and padding,
replace draperies and selective
artificasts. The project has taken into
consideration the cost of the most
recent redo, inflationary factors and
modifications from most recent redo.
The carpet and padding area is 2,120
square feet. This project is tentatively
scheduled for early December. Historically,
the Resort has redone the Lobby every four
(4) years. Desert Springs is one of
2.0 5 PREFUNCTION AREA REDO MSR BQ 313.0 Escrow
Page: 2
Print Date: 11/12/97 (R) Schedule: A-5
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects $200k+ In Future Years
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C Work
Priority Age Title/Description Involvement Cat Total Cost Funding
- -------- -------- -------------------------------------- ----------- ---- ---------- -------
Replace aging carpet, artwork,
millwork, vinyl and furniture
in the ballroom foyer area.
North foyer is 2,355 square feet,
southwest foyer is 3,036 square feet
and west foyer is 11,900 square feet.
Total prefunction space is 17,291
square feet. A&C worksheet used.
YEARLY TOTAL: 1,083.0
==========
- -------------------------------------------------------------------------------------------------------------
2001 PROJECTS
----- --------
1.0 5 ROOMS REDO A&C RO 12,350.0 Escrow
An extensive softgoods redo on 833 guest
rooms and 51 suites, consists of normal
scope of rooms, bathrooms, corridors
and suites. Optional items included in
scope are replacement of tub and adding
tile flooring. A&C Worksheet used.
2.0 8 ROOF PROJECT NO EG 210.0 Owners
Slurry Seal Roofing to prevent further
deterioration by high temperatures and
minimal precipitation. This will be the
fourth in five years of roof replacement
projects.
YEARLY TOTAL: 12,630.0
==========
- -------------------------------------------------------------------------------------------------------------
2002 PROJECTS
----- --------
1.0 9 ROOF PROJECTS A&C EG 290.0 Owners
Slurry Seal Roofing to prevent further
deterioration caused by high temperatures
and minimal precipitation. This will be the
first in five years of roof replacement
projects for Desert Springs.
2.0 3 BALLROOM REDO MSR BQ 2,700.0 Escrow
Average ballroom and meeting room redo
that includes operable partitions,
dimming systems and sound systems. In
addition, the partition walls will be
resurfaced. DOE and Chief Engineer to
lead
Page: 3
Print Date: 11/12/97 Schedule: A-5
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects $200k+ In Future Years
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C Work
Priority Age Title/Description Involvement Cat Total Cost Funding
- -------- -------- -------------------------------------- ----------- ---- ---------- -------
this project. A&C Worksheet used.
Yearly Total: 2,990.0
==========
- ---------------------------------------------------------------------------------------------------------------
Exhibit F
---------
Periodic Financial Statements
MARRIOTT DESERT SPRINGS
C.E.P. RESERVE ANALYSIS
PERIOD FISCAL YEAR LIFE
9 TO DATE TO DATE
-------------- -------------- -------
Beginning Escrow Balance $1,300,333.25 $1,045,393.63 $0.00
Contribution
Interest
Loss on Sale of Investments
Disposition Proceeds
Expenditures
Loan
Loan Payment
Ending Escrow Balance
MARRIOTT'S DESERT SPRINGS RESORTS & SPA
PERIOD 9, 1997
FINANCIAL RESULTS PERIOD YEAR
================= 9 TO DATE
------- -------
Precent Occupancy
Average Rate
Gross Revenue
House Profit (Loss)
Deductions:
Central Office Fee (3.0%)
FF & E Escrow Provision (4.5%)
Equipment Rental
Permits & Licenses
Fire Insurance
Real Estate Taxes
Personal Property Taxes
Golf Course Lease
Prior Year Adjustment
Net Operating Profit (Loss)
PARTNERSHIP ANNUAL PRIORITY
===========================
The Greater Of
1) $20,500,000, or
2) YTD Debt Service of $9,138,744
PARTNERSHIP RENT CALCULATION
============================
1) Basic Rent
80% of Operating Profit
2) Additional Rent
20% of Operating Profit
Total Rent Due
DISTRIBUTION OF PROCEEDS
========================
1) Total Rent To Partnership
2) Golf Course Lease
Balance Due Partnership
UNIT 35 7E4 FORMAT 90 PAGE 1,706
PALM DESERT MAR DIVISION 33 DISTRICT 896 RUN DATE 09/19/97
PD 09 YR 97 ------------------P E R I O D-------------------- ------------------Y E A R T O D A T E-------------------
SALES $ACTUAL% $BUDGET% $LAST YEAR% $ACTUAL% $BUDGET% $LAST YEAR%
ROOMS
TELEPHONE
GIFT SHOP
SPECIALTY SHOP
RESTAURANT
LOUNGE
AUDIO VISUAL
BANQUET
SPECIALTY REST
SPECIALTY F & B
ROOM SERVICE
TOT FOOD & BEV
RECREATION CENTER
SPA
GOLF
TENNIS
DESTINATION MGMT
BUSINESS CENTER
OTHER INC, RENTS
TRADEOUT
TOTAL SALES
ROOMS
TIME SHARE
LAUNDRY
VALET
TELEPHONE
GIFT SHOP
SPECIALTY SHOP
RESTAURANT
LOUNGE
AUDIO VISUAL
BANQUET
SPECIALTY REST
SPECIALTY F & B
ROOM SERVICE
TOT FOOD & BEV
RECREATION CENTER
SPA
GOLF
TENNIS
DESTINATION MGMT
CAFETERIA
BUSINESS CENTER
OTHER INC, RENTS
TRADEOUT
TOT DEPT PROFIT
LOCAL G & A
CR CARD DIS. EXP
HEAT, LIGHT POWER
REPAIRS & MAINT
CNTR TRAIN & RELO
ACCIDENTS
UNIT 35 7E4 FORMAT 90 PAGE 1,707
PALM DESERT MAR DIVISION 35 DISTRICT 096 RUN DATE 09/19/97
PD 09 YR 97 ------------------P E R I O D-------------------- ------------------Y E A R T O D A T E-------------------
SALES $ACTUAL% $BUDGET% $LAST YEAR% $ACTUAL% $BUDGET% $LAST YEAR%
SALES PROMOTION
LOCAL ADV & BROCH
NATIONAL ADV ALOC
NATIONAL SLS ALOC
EMPLOYMENT OFFICE
TOTAL DEDUCT
HOUSE PROFIT
BASE MGMT FEE
FF&E ESCROW
PROP/RE TAXES
OTHER DEDUCTIONS
NET HOUSE PROFIT
OWNER PRFT DISTRD
BHF LESS HI EXP
OPERATING PROFIT
NET TOTAL OCCPNCY
NET AVAIL OCCPNCY
NET RM RATE&% CHG
MAN HRS &% CHANGE
SLS/M-M &% CHANGE
F/R TOTAL OCCPNCY
F/R AVAIL OCCPNCY
F/R RM RATE&% CHG
ROOMS SOLD
TOTAL ROOMS