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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24097
CNL HOSPITALITY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $0.01 par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes X No --
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares") on Form S-11 under the Securities Act of 1933, as amended. As of
February 22, 2001, 53,913,501 shares were beneficially owned by non-affiliates.
Since no established market for such Shares exists, there is no market value for
such Shares. Each Share was originally sold at $10 per Share.
The number of Shares of common stock outstanding as of February 22,
2001, was 53,913,501.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference portions of the CNL Hospitality
Properties, Inc. Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than
April 30, 2001.
CONTENTS
Page
Part I
Item 1. Business 2
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 45
Part III.
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 45
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 45
Signatures. 51
Schedule III - Real Estate and Accumulated Depreciation 53
Exhibits 56
PART I
Item 1. Business
CNL Hospitality Properties, Inc. was organized pursuant to the laws of
the state of Maryland on June 12, 1996. CNL Hospitality GP Corp. and CNL
Hospitality LP Corp. are wholly owned subsidiaries of CNL Hospitality
Properties, Inc., each of which was organized in Delaware in June 1998. CNL
Hospitality Partners, LP is a Delaware limited partnership (the "Partnership")
formed in June 1998. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are
the general and limited partner, respectively, of CNL Hospitality Partners, LP.
Properties acquired are generally expected to be held by the Partnership and, as
a result, are owned by CNL Hospitality Properties, Inc. through the Partnership.
Various other wholly-owned subsidiaries have been formed for purposes of
acquiring or developing hotel properties. The terms "Company" or "Registrant"
include, unless the context otherwise requires, CNL Hospitality Properties,
Inc., CNL Hospitality Partners, LP, CNL Hospitality GP Corp., CNL Hospitality LP
Corp., CNL Hotel Investors, Inc. ("Hotel Investors"), CNL DRR Investors, LP, CNL
Philadelphia Annex, LLC (formerly known as Courtyard Annex L.L.C.), CNL LLB LP
Holding, Ltd., and each of their subsidiaries. The Company operates for federal
income tax purposes as a real estate investment trust (a "REIT").
The Company was formed primarily to acquire properties (the "Properties")
located across the United States to be leased on a long-term (generally, 5 to 20
years, plus renewal options generally for up to an additional 20 years),
"triple-net" basis, which means that the tenants generally are responsible for
repairs, maintenance, property taxes, utilities and insurance. The Properties
are leased either (i) to operators of selected national and regional limited
service, extended stay and full service hotel chains (the "Hotel Chains"), or
(ii) to indirect, wholly-owned subsidiaries of the Company with management of
the Properties to be performed by third-party Hotel Chain operators, as
permitted by the Work Incentives Act of 1999, also known as the REIT
Modernization Act of 1999 ("RMA"). In November 1999, Congress passed the RMA,
effective January 1, 2001, which, among other things, allows REITs to own a
taxable REIT subsidiary ("TRS"). A TRS may lease lodging facilities from its
affiliated REIT. The Company, consistent with the requirements of the RMA,
formed two subsidiaries (one owned directly and one indirectly through a joint
venture) which made elections to be treated as TRS's, to act as tenants.
The Company structures the leases of its Properties to provide for
payment of base rent with (i) automatic increases in base rent and /or (ii)
percentage rent based on a percentage of gross sales above a specified level.
The Company may also provide Mortgage Loans (the "Mortgage Loans") in the
aggregate principal amount of approximately 5 percent to 10 percent of the gross
offering proceeds. The Company also may offer furniture, fixture and equipment
financing ("Secured Equipment Leases") to operators of Hotel Chains. Secured
Equipment Leases will be funded from the proceeds of financing to be obtained by
the Company. The aggregate outstanding principal amount of Secured Equipment
Leases will not exceed 10 percent of gross proceeds from the Company's offerings
of Shares of common stock.
On July 9, 1997, the Company commenced an offering to the public of up
to 16,500,000 shares of common stock (the "Shares") ($165,000,000) (the "Initial
Offering") pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended. Of the 16,500,000 Shares of common stock
offered, 1,500,000 ($15,000,000) were available only to stockholders who elected
to participate in the Company's reinvestment plan (the "Reinvestment Plan").
Upon completion of the Initial Offering on June 17, 1999, the Company had
received aggregate subscription proceeds of $150,072,637 (15,007,264 Shares),
including $72,637 (7,264 Shares) through the Company's Reinvestment Plan.
Following the completion of its Initial Offering, the Company commenced a second
offering (the "1999 Offering") of up to 27,500,000 Shares of common stock
($275,000,000). Upon completion of the 1999 Offering, on September 14, 2000, the
Company had received aggregate subscription proceeds of $274,998,988 (27,499,899
Shares) from its 1999 Offering, including $965,194 (96,520 Shares) issued
pursuant to the Reinvestment Plan. Following the completion of the 1999
Offering, the Company commenced a third offering (the "2000 Offering") of up to
45,000,000 Shares of common stock ($450,000,000). Of the 45,000,000 Shares of
common stock offered, up to 5,000,000 will be available to stockholders
purchasing Shares through the Reinvestment Plan. The price per Share and the
other terms of the 2000 Offering, including the percentage of gross proceeds
payable (i) to the managing dealer for selling commissions and expenses in
connection with the offering and (ii) to CNL Hospitality Corp. (the "Advisor")
for acquisition fees, are substantially the same as those for the Initial
Offering and 1999 Offering. As of December 31, 2000, the Company had received
subscription proceeds of $67,570,406 (6,757,040 Shares) from its 2000 Offering,
including $702,339 (70,233 Shares) issued pursuant to the Reinvestment Plan.
As of December 31, 2000, net proceeds to the Company from its Initial
Offering, 1999 Offering and 2000 Offering of Shares, loan proceeds and capital
contributions from the Advisor, after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and
organizational and offering expenses, totaled approximately $615,052,000. The
Company has used approximately $332,202,000 of net offering proceeds and
$179,952,000 of loan proceeds to invest in 28 hotel Properties, including two on
which hotel Properties are being constructed, approximately $8,800,000 to invest
in a joint venture, approximately $26,300,000 to acquire an additional 22
percent ownership in Hotel Investors, approximately $2,622,000 to redeem 282,161
Shares of common stock and approximately $29,300,000 to pay acquisition fees
and expenses, leaving approximately $35,900,000 available for investment in
Properties and Mortgage Loans.
During the period January 1, 2001 through February 22, 2001, the
Company received additional net offering proceeds of approximately $46,300,000
and had approximately $57,100,000 available for investment in Properties and
Mortgage Loans. The Company expects to use the uninvested net proceeds, plus any
additional net proceeds from the sale of Shares from the 2000 Offering to
purchase additional Properties and, to a lesser extent, invest in Mortgage
Loans. In addition, the Company intends to borrow money to acquire additional
Properties, to invest in Mortgage Loans and Secured Equipment Leases and to pay
certain related fees. The Company intends to encumber assets in connection with
such borrowings. The Company currently has a $30,000,000 line of credit
available, as described below. Borrowings on the line of credit may be repaid
with offering proceeds, working capital or permanent financing. The maximum
amount the Company may borrow, absent a satisfactory showing that a higher level
of borrowing is appropriate as approved by a majority of the independent
directors, is 300 percent of the Company's net assets. The Company believes that
the net proceeds received from the 2000 Offering will enable the Company to
continue to grow and take advantage of acquisition opportunities until such
time, if any, that the Company lists it Shares on a national securities exchange
or over-the-counter market, although there is no assurance that such a listing
("Listing") will occur. If Listing does not occur by December 31, 2007, the
Company will commence the orderly sale of its assets and the distribution of the
proceeds. Listing does not assure liquidity.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making quarterly distributions; (ii)
obtaining fixed income through the receipt of base rent, and increasing the
Company's income (and distributions) and providing protection against inflation
through automatic increases in base rent and/or receipt of percentage rent, and
obtaining fixed income through the receipt of payments from Mortgage Loans and
Secured Equipment Leases; (iii) continuing to qualify as a REIT for federal
income tax purposes; and (iv) providing stockholders of the Company with
liquidity of their investment within two to seven years, either in whole or in
part, through (a) Listing or (b) the commencement of orderly sales of the
Company's assets and distribution of the proceeds thereof (outside the ordinary
course of business and consistent with its objectives of qualifying as a REIT).
There can be no assurance that these investment objectives will be met.
In November 1999, Congress passed the RMA, which allows a REIT to
own 100 percent of the stock of a TRS. A TRS can provide services to REIT
tenants and others without disqualifying the rents that a REIT receives from its
tenants from being "rents from real property" under federal tax law. A TRS may
not operate or manage lodging facilities, but it may lease lodging facilities
from its affiliated REIT, at market rates, as long as an independent contractor
operates and manages the lodging facilities. The provisions of the RMA are
effective January 1, 2001. The Company, consistent with the provisions of the
RMA, formed two subsidiaries, which made elections to be treated as TRS's(one
directly owned and one indirectly owned through a joint venture), to act as
tenants.
For the next two to seven years, the Company intends, to the extent
consistent with the Company's objective of qualifying as a REIT, to reinvest in
additional Properties or Mortgage Loans any proceeds of the sale of a Property
or Mortgage Loan that are not required to be distributed to stockholders in
order to preserve the Company's REIT status for federal income tax purposes.
Similarly, and to the extent consistent with REIT qualification, the Company
plans to use the proceeds of the sale of Secured Equipment Leases to fund
additional Secured Equipment Leases, or to reduce its outstanding indebtedness
on the line of credit. The Company will not sell any assets if such sale would
not be consistent with the Company's objective of qualifying as a REIT. The
Company intends to provide stockholders of the Company with liquidity of their
investment, either in whole or in part, through Listing of the Shares of the
Company (although liquidity cannot be assured thereby) or by commencing orderly
sales of the Company's assets. If Listing occurs, the Company intends to invest
in additional Properties, Mortgage Loans and Secured Equipment Leases. The
Company's Articles of Incorporation provide, however, that if Listing does not
occur, the Company thereafter will undertake the orderly liquidation of the
Company and the sale of the Company's assets and will distribute any net sales
proceeds to stockholders.
In deciding the precise timing and terms of Property sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. The Company will have no
obligation to sell all or any portion of a Property at any particular time,
except as may be required under property or joint venture purchase options
granted to certain tenants. In connection with sales of Properties by the
Company, purchase money obligations may be taken by the Company as partial
payment of the sales price. The terms of payment will be affected by custom in
the area in which the Property is located and prevailing economic conditions.
When a purchase money obligation is accepted in lieu of cash upon the sale of a
Property, the Company will continue to have a mortgage on the Property and the
proceeds of the sale will be realized over a period of years rather than at
closing of the sale.
The Company currently does not anticipate selling any Secured Equipment
Leases prior to expiration of the lease term, except in the event that the
Company undertakes orderly liquidation of its assets. In addition, the Company
currently does not anticipate selling any Mortgage Loans prior to the expiration
of the loan term, except in the event (i) the Company owns the Property (land
only) underlying the building improvements which secure the Mortgage Loan and
the sale of the Property occurs, or (ii) the Company undertakes an orderly sale
of its assets.
Leases
As of December 31, 2000, the Company had acquired directly or through
its subsidiaries 29 Properties, including two Properties on which hotels are
being constructed, and one Property through a joint venture, on which a resort
is being constructed, which are subject to long-term, "triple-net" leases.
Although there are variations in the specific terms of the leases, the following
is a summarized description of the general structure of the Company's leases.
The leases of the Properties generally provide for initial terms of 5 to 20
years and expire between 2014 and 2021. The leases are on a "triple-net" basis,
and in most cases the tenants are required to pay all repairs, maintenance,
property taxes, utilities, and insurance. The tenants also are required to pay
for special assessments, sales and use taxes, and the cost of any renovations
permitted under the leases. The leases of the Properties provide for minimum
base annual rental payments (payable in monthly installments) ranging from
approximately $716,000 to $6,500,000. In addition to minimum rent, the tenant
must generally pay the Company "percentage rent" and/or automatic increases in
the minimum annual rent at predetermined intervals during the term of the lease.
Percentage rent is generally computed as a percentage of the gross sales above a
specified level at a particular Property. The leases of the Properties also
provide for the tenant to fund, in addition to its lease payment, a reserve fund
up to a pre-determined amount. Generally, money in that fund is owned by the
Company and may be used by the tenant to pay for replacement of furniture and
fixtures. The Company may be responsible for capital expenditures or repairs in
excess of the amounts in the reserve fund, and the tenant generally would be
responsible for replenishing the reserve fund and to pay a specified return on
the amount of capital expenditures or repairs paid for by the Company in excess
of amounts in the reserve fund.
Generally, the leases provide for up to four, five to ten-year renewal
options. During the initial term of each lease, the tenant must pay the Company,
as landlord, minimum annual rent equal to a specified percentage of the
Company's cost of purchasing the Property payable in monthly installments. If
the Company is acquiring a Property that is to be constructed or renovated
pursuant to a development agreement, the costs of purchasing the Property will
include the purchase price of the land, including all fees, costs, and expenses
paid by the Company in connection with its purchase of the land, and all fees,
costs, and expenses disbursed by the Company for construction of building
improvements. In addition to the minimum annual rent, the leases generally
provide for percentage rent based on a percentage of the gross sales above a
specified amount to be paid by the tenant.
Major Tenants
Crestline Capital Corporation, City Center Annex Tenant Corporation and
WI Leasing, LLC each contributed more than 10 percent of the Company's total
rental income for the year ended December 31, 2000. In addition, a significant
portion of the Company's rental income was earned from Properties operating as
Marriott(R) brand chains. Although the Company intends to acquire Properties in
various states and regions and to carefully screen its tenants in order to
reduce risks of default, failure of these lessees or the Marriott(R) brand
chains could significantly impact the results of operations of the Company.
However, management believes that the risk of default is reduced due to the
essential or important nature of these Properties for the ongoing operations of
the lessees. It is expected that the percentage of total rental income
contribution by these lessees will decrease as additional Properties are
acquired and leased during 2001 and subsequent years.
Joint Venture Arrangements
Hotel Investors. During 1999, Five Arrows Realty Securities II LLC
("Five Arrows") and the Company invested a total of approximately $86 million in
Hotel Investors, resulting in the Company owning 49 percent and Five Arrows
owning 51 percent of Hotel Investors. Five Arrows owned 48,337 shares of 8
percent Class A cumulative preferred stock ("Class A Preferred Stock") of Hotel
Investors and the Company owned 37,979 shares of 9.76 percent Class B cumulative
preferred stock ("Class B Preferred Stock") of Hotel Investors. The Class A
Preferred Stock was exchangeable upon demand into common stock of the Company,
using an exchange ratio based on the relationship between the Company's
operating results and that of Hotel Investors.
In October 2000, Five Arrows, the Company and Hotel Investors entered
into an agreement ("Initial Transaction") with the following terms:
o Hotel Investors agreed to redeem 2,104 shares of both Class A
Preferred Stock and common stock of Hotel Investors held by Five Arrows
for $2,104,000;
o Hotel Investors agreed to redeem 1,653 shares of Class B Preferred
Stock and an aggregate of 10,115 shares of common stock of Hotel
Investors held by the Company for $1,653,000;
o The Company purchased 7,563 shares of both the Class A Preferred
Stock and common stock of Hotel Investors from Five Arrows for
$11,395,000;
o The Company repurchased 65,285 shares of the Company's common stock
owned by Five Arrows for $620,207;
o The remaining Class A Preferred Stock owned by Five Arrows (38,670
shares) and the Company (7,563 shares) were exchanged for an equivalent
number of shares of Class E Preferred Stock par value $0.01 ("Class E
Preferred Stock") of Hotel Investors;
o Five Arrows granted the following options (1) on or before January 31,
2001, the Company had the option to purchase 7,250 shares of Class E
Preferred Stock and an equal number of shares of common stock of Hotel
Investors held by Five Arrows for $1,000 per pair of Class E Preferred
Stock and common stock of Hotel Investors, and (2) provided that the
Company purchased all of the shares under the first option, the Company
would have the option, until June 30, 2001, to purchase 7,251 shares of
both Class E Preferred Stock and an equal number of shares of common
stock of Hotel Investors for $1,000 for each pair;
o The Company has agreed to pay Five Arrows additional consideration for
agreeing to defer the conversion of its Class A Preferred Stock (prior
to its conversion to Class E Preferred Stock) to common stock of the
Company. These payments are equivalent to the difference between any
distributions received by Five Arrows from Hotel Investors and the
distributions that Five Arrows would have received from the Company if
Five Arrows had converted its Class A Preferred Stock into the
Company's common stock on June 30, 2000;
o Five Arrows has agreed to forfeit its priority cash distributions from
Hotel Investors;
o Cash available for distributions of Hotel Investors is distributed to
100 CNL Holdings, Inc. and affiliates' associates who each own one
share of Class C preferred stock in Hotel Investors, to provide a
quarterly, cumulative, compounded 8 percent return. All remaining cash
available for distributions is distributed pro rata with respect to the
interest in the common shares of Hotel Investors.
On December 29, 2000, the Company exercised its two options to acquire
14,501 shares of Class E Preferred Stock and common stock ("Option Transaction")
owned by Five Arrows. As of December 31, 2000, after the Initial Transaction and
the Option Transaction, the Company owned approximately 71 percent and Five
Arrows owned approximately 29 percent of Hotel Investors. The total amount paid
by the Company for the additional 22 percent interest was approximately $26.3
million. This acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of Hotel Investors have been
included in the Company's consolidated statement of earnings from the date of
acquisition (October 2000). The purchase price approximated the fair value of
the net assets acquired. The resulting purchase price adjustment (fair value
adjustment) of approximately $5.5 million has been reflected in land, buildings
and equipment on operating leases in the accompanying consolidated balance
sheet.
During the nine months ended September 30, 2000, prior to the
consolidation of Hotel Investors, the Company recorded $2,780,063 in dividend
income and $386,627 in equity in loss after deduction of preferred stock
dividends, resulting in net earnings of $2,393,436 attributable to its
investment in Hotel Investors. During the year ended December 31, 1999, the
Company recorded $2,753,506 in dividend income and $778,466 in equity in loss
after deduction of preferred stock dividends, resulting in net earnings of
$1,975,040 attributable to the investment.
Desert Ridge. On December 21, 2000, the Company, through subsidiaries,
acquired a 44 percent interest in Desert Ridge Resort Partners, LLC, a joint
venture (the "Desert Ridge Joint Venture") with an affiliate of Marriott
International, Inc. and a partnership in which an affiliate of the Advisor is
the general partner. The Desert Ridge Joint Venture invested in Desert Ridge
Resort, LLC, a single purpose limited liability company (the "Resort Owner")
that owns the Desert Ridge Marriott Resort & Spa in Phoenix, Arizona (the
"Desert Ridge Property"), which is currently under construction. The Company
made an initial capital contribution of $8.8 million of its anticipated $25
million investment in the Desert Ridge Joint Venture. The total cost of the
Desert Ridge Property (including acquisition of land, development and
construction) is estimated to be $298 million. On December 21, 2000, the Resort
Owner obtained permanent financing from a third party lender for $179 million,
secured by a mortgage on the Desert Ridge Property. The notes have a term of
seven years with interest payable quarterly in arrears commencing on March 2,
2001. Interest with respect to $109 million of the notes is payable at a rate of
7.90 percent per annum, while interest with respect to $70 million of the notes
is payable at a floating rate equal to 185 basis points above the three-month
London Interbank Offered Rate ("LIBOR"). The blended fixed rate of interest
after an interest rate swap is 9.48 percent. All unpaid interest and principal
will be due at maturity. In addition, an affiliate of Marriott International,
Inc. will provide financing for 19 percent of the costs to the Desert Ridge
Joint Venture, secured by pledges of the co-venturers' equity contributions to
the Desert Ridge Joint Venture. This investment is accounted for using the
equity method of accounting.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, the Advisor provides management services relating to the Company, the
Properties, the Mortgage Loans and the Secured Equipment Lease program. Under
this agreement, the Advisor is responsible for assisting the Company in
negotiating leases, Mortgage Loans, the line of credit and Secured Equipment
Leases; collecting rental, Mortgage Loan and Secured Equipment Lease payments;
inspecting the Properties and the tenants' books and records; and responding to
tenants' inquiries and notices. The Advisor also provides information to the
Company about the status of the leases, the Properties, the Mortgage Loans, the
line of credit and the Secured Equipment Leases. In exchange for these services,
the Advisor is entitled to receive certain fees from the Company. For
supervision of the Properties and the Mortgage Loans, the Advisor receives the
asset management fee, which is payable monthly in an amount equal to one-twelfth
of 0.60 percent of the total amount invested in the Properties, exclusive of
acquisition fees and acquisition expenses (the "Real Estate Asset Value") plus
one-twelfth of 0.60 percent of the outstanding principal amount of any Mortgage
Loans, as of the end of the preceding month. For negotiating Secured Equipment
Leases and supervising the Secured Equipment Lease program, the Advisor will
receive, upon entering into each lease, a Secured Equipment Lease servicing fee,
payable out of the proceeds of the line of credit, equal to 2 percent of the
purchase price of the equipment subject to each Secured Equipment Lease. For
identifying the Properties, structuring the terms of the acquisition and leases
of the Properties and structuring the terms of the Mortgage Loans, the Advisor
will receive a fee equal to 4.5 percent of gross proceeds, loan proceeds from
permanent financing and the line of credit that are used to acquire Properties,
but excluding loan proceeds used to finance Secured Equipment Leases.
The Advisory Agreement continues until June 16, 2001, and thereafter
may be extended annually upon mutual consent of the Advisor and the Board of
Directors of the Company unless terminated at an earlier date upon 60 days prior
written notice by each party.
Borrowings
The Company has a line of credit ("Line of Credit") which allows the
Company to receive advances of up to $30,000,000 until July 30, 2003. Interest
on each advance shall be payable monthly, with all unpaid interest and principal
due no later than five years from the date of the advance. Advances under the
line of credit will bear interest at either (i) a rate per annum equal to 318
basis points above the LIBOR or (ii) a rate per annum equal to 30 basis points
above the bank's base rate, whichever the Company selects at the time advances
are made. In addition, a fee of 0.5 percent per advance will be due and payable
to the bank on funds as advanced. Each advance made under the Line of Credit
will be collateralized by an assignment of rents and leases. Advances on the
Line of Credit are subject to absolute discretion of the lender. As of December
31, 2000 and 1999, the Company had no amounts outstanding under the Line of
Credit.
In March 2000, the Company through CNL Philadelphia Annex, LLC ("LLC")
entered into a Tax Incremental Financing Agreement with the Philadelphia
Authority for Industrial Development ("TIF Note") for $10 million, which is
collateralized by the LLC's hotel Property. The principal and interest on the
TIF note are expected to be fully paid by the LLC's hotel Property's incremental
property taxes over a period of 18 years. The payment of the incremental
property taxes is the responsibility of the tenant of the hotel Property.
Implicit interest on the TIF Note is 12.85 percent and payments are due yearly
through 2017. In the event that incremental property taxes are insufficient to
cover the principal and interest due, Marriott International, Inc. is required
to fund such shortfalls pursuant to its guarantee of the TIF Note. As of
December 31, 2000, approximately $9,685,000 was outstanding on the TIF Note.
In November 2000, the Company secured permanent financing for the
Courtyard(R) by Marriott(R) in Philadelphia, Pennsylvania in the amount of $32.5
million. The loan is collateralized by the hotel Property and monthly rents
derived from the tenant of the hotel Property. The loan agreement requires
monthly payments, representing interest only, through November 2001 and then
principal and interest payments of $257,116 to maturity. The loan bears interest
of 8.29 percent and matures in December 2007, at which time any unpaid principal
and interest will become due. As of December 31, 2000, $32.5 million was
outstanding on the loan.
In November 2000, the Company entered into a construction line of
credit ("Construction LOC") totaling $55 million, which is collateralized by
land and building improvements of two of the Properties under construction and
two hotel Properties located in Georgia. Borrowings under the Construction LOC
bear interest at LIBOR plus 275 basis points. Interest only payments are due
monthly through maturity, November 15, 2003, at which time any remaining
principal and interest become due. As of December 31, 2000, approximately
$9,897,000 was outstanding on the Construction LOC.
In December 2000, the Company secured permanent financing for three
hotel Properties located in Orlando, Florida in the amount of $50 million. The
loans are collateralized by the hotel Properties and monthly rents derived from
the tenants of such hotel Properties. The loan agreements require monthly
interest only payments of approximately $347,000 through 2007. The loans bear
interest of 8.335 percent and mature in 2007, at which time the principal and
any unpaid interest will become due. As of December 31, 2000, $50 million was
outstanding on the loans.
As of December 31, 2000, Hotel Investors had notes payable totaling
approximately $87,555,000, which are collateralized by seven hotel Properties
and the monthly rents relating to such Properties. The loan agreements require
monthly principal and interest payments totaling approximately $660,000. The
loans bear interest ranging from 7.50 percent to 7.75 percent and mature July
31, 2009, at which time any unpaid principal and interest will become due.
The Company expects to use net proceeds it receives from the 2000
Offering to purchase additional Properties and, to a lesser extent, to invest in
Mortgage Loans. In addition, the Company intends to borrow money to acquire
additional Properties, to invest in Mortgage Loans and Secured Equipment Leases,
and to pay certain related fees. The Company intends to encumber assets in
connection with such borrowing. The Company currently plans to increase its
borrowing capacity under the Line of Credit from $30 million to $75 million,
and, in addition, obtain additional permanent financing. The Line of Credit may
be repaid with offering proceeds, working capital or permanent financing.
Although the Board of Directors anticipates that the Line of Credit will be $75
million and that the aggregate amount of any permanent financing will not exceed
30 percent of the Company's total assets, the maximum amount the Company may
borrow, absent a satisfactory showing that a higher level of borrowing is
appropriate as approved by a majority of the independent directors, is 300
percent of the Company's net assets.
Competition
The hotel industry is generally characterized as being intensely
competitive. The operators of the hotels located on the Properties do, and are
expected to in the future, compete with independently owned hotels, hotels which
are part of local or regional chains, and hotels in other well-known national
chains, including those offering different types of accommodations.
The Company will be in competition with other persons and entities both
to locate suitable Properties to acquire and to locate purchasers for its
Properties. The Company also will compete with other financing sources such as
banks, mortgage lenders, and sale/leaseback companies for suitable Properties,
tenants, Mortgage Loan borrowers and equipment tenants.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.
Item 2. Properties
As of December 31, 2000, the Company owned directly and through its
subsidiaries 29 hotel Properties, located in 15 states, including two Properties
on which hotels are being constructed, and one Property through a joint venture,
on which a resort is being constructed. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation filed with this report for a listing of
the directly owned Properties and their respective costs, including acquisition
fees and certain acquisition expenses. The Company is currently negotiating to
acquire additional Properties.
Generally, Properties acquired or to be acquired by the Company consist
of both land and building; although in some cases, the Company may acquire the
land underlying the building with the building owned by the tenant or a third
party, or may acquire the building only with the land owned by a third party.
The 29 Properties directly or indirectly owned by the Company as of December 31,
2000, conform generally to the following specifications of size, cost, and type
of land and buildings.
Hotel Properties. The lot sizes generally range up to 10 acres
depending on product, market and design considerations, and are available at a
broad range of pricing. The hotel sites are generally in primary or secondary
urban, suburban, airport, highway or resort markets which have been evaluated
for past and future anticipated lodging demand trends.
The hotel buildings generally are mid-rise construction. The Properties
consist of limited service, extended stay or full service hotel Properties.
Limited service hotels generally minimize non-guest room space and offer limited
food service such as complimentary continental breakfasts and do not have
restaurant or lounge facilities on-site. Extended stay hotels generally contain
guest suites with a kitchen area and living area separate from the bedroom.
Extended stay hotels vary with respect to providing on-site restaurant
facilities. Full service hotels generally have conference or meeting facilities
and on-site food and beverage facilities. The Properties include equipment. In
addition, the Properties held conform to the Hotel Chain's approved design
concepts.
The tenants generally are required by the lease agreements to make such
capital expenditures as may be reasonably necessary to refurbish buildings,
premises, signs, and equipment so as to comply with the tenant's or manager's
obligations under the franchise agreement to reflect the current commercial
image of the Hotel Chain. These capital expenditures generally will be paid by
the tenant during the term of the lease. Some Property leases however, obligate
the tenant to fund, in addition to its lease payment, a reserve fund up to a
pre-determined amount. Generally, money in that fund is owned by the Company and
may be used by the tenant to pay for replacement of furniture and fixtures. The
Company may be responsible for capital expenditures or repairs in excess of the
amounts in the reserve fund, and the tenant generally would be responsible for
replenishing the reserve fund and to pay a specified return on the amount of
capital expenditures paid for by the Company in excess of amounts in the reserve
fund.
As of December 31, 2000, 15 Properties (including three under
construction) were pledged as collateral under the Company's financing
arrangements. For more detailed information relating to these arrangements, see
"Item 1. Business - Borrowings".
The following table lists the number of Properties owned, directly or
indirectly through joint ventures, by the Company as of December 31, 2000, by
state and includes properties under construction. More detailed information
regarding the location of the Properties is contained in the Schedule of Real
Estate and Accumulated Depreciation filed with this report.
State Total Number of Properties
--------------------------------- -------------------------------
Arizona 3*
California 4
Colorado 1
Florida 5**
Georgia 3
Maine 1
Massachusetts 2
Maryland 1
Nevada 1
New Jersey 1
Pennsylvania 1
Texas 3
Utah 1
Virginia 1
Washington 1
--------------------------------- -------------------------------
Total Number of Properties 29
================================= ===============================
* Includes one Property owned by a joint venture currently under
construction.
** Includes two Properties currently under construction.
Leases with Major Tenants. The terms of the leases with the Company's
major tenants as of December 31, 2000 (see Item 1. Business - Major Tenants),
are substantially the same as those described in Item 1. Business - Leases.
Crestline Capital Corporation leases five Properties owned by the
Company. Properties include a Residence Inn(R) by Marriott(R), three TownePlace
Suites(TM) by Marriott(R) and one Courtyard(R) by Marriott(R). The initial term
of each lease is approximately 19 years (expiring in 2019) and the aggregate
minimum base annual rent is approximately $5,237,000.
City Center Annex Tenant Corporation leases the Courtyard(R) by
Marriott(R) Property in Philadelphia, Pennsylvania. The initial term of the
lease is 15 years (expiring in 2015) and the aggregate minimum base annual rent
is approximately $6,500,000.
WI Leasing, LLC leases seven Properties owned by Hotel Investors.
Properties include three Residence Inns(R) by Marriott(R), three Courtyards(R)
by Marriott(R) and one Marriott Suites(R). The initial term of each lease is
approximately 19 years (expiring in 2018) and the aggregate minimum base annual
rent is approximately $17,500,000.
Management considers the Properties to be well-maintained and
sufficient for the Company's operations.
Item 3. Legal Proceedings
Neither the Company, nor any of its subsidiaries, nor any of their
respective Properties, is a party to, or subject to, any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of February 22, 2001, there were 17,062 stockholders of record of
common stock. There is no public trading market for the Shares, and even though
the Company intends to list the Shares on a national securities exchange or
over-the-counter market within two to seven years, there is no assurance that
one will develop and it is not known at this time if a public market for the
Shares will develop. The Company is not aware of trades in its Shares other than
purchases made in its public offering and redemptions of Shares by the Company.
Prior to such time, if any, as Listing occurs, any stockholder (other than the
Advisor) may present all or any portion equal to at least 25 percent of such
stockholder's Shares to the Company for redemption at any time, in accordance
with the procedures outlined in the Company's prospectus. At such time, the
Company may, at its sole option, redeem such Shares presented for redemption for
cash to the extent it has sufficient funds available. The price to be paid for
any Share transferred other than pursuant to the redemption plan is subject to
negotiation by the purchaser and the selling stockholder. For the years ended
December 31, 2000 and 1999, 269,276 and 12,885 Shares, respectively, were
retired pursuant to the redemption plan.
As of December 31, 2000, the offering price per Share was $10.
The Company expects to make distributions to the stockholders pursuant
to the provisions of the Articles of Incorporation. For the years ended December
31, 2000 and 1999, the Company declared cash distributions of $28,082,275 and
$10,765,881, respectively, to the stockholders. No amounts distributed to
stockholders for the years ended December 31, 2000 and 1999, are required to be
or have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital. The following
table presents total distributions and distributions per Share:
2000 Quarter First Second Third Fourth Year
- ------------ --------- ---------- --------- ---------- -----------
Total distributions declared $5,522,124 $6,414,210 $7,533,536 $8,612,405 $28,082,275
Distributions per Share 0.181 0.181 0.188 0.188 0.738
1999 Quarter First Second Third Fourth Year
- ------------ --------- ---------- --------- ---------- -----------
Total distributions declared $998,652 $2,053,964 $3,278,456 $4,434,809 $10,765,881
Distributions per Share 0.175 0.181 0.181 0.181 0.718
On January 1, 2001 and February 1, 2001, the Company declared
distributions totaling $3,120,827 and $3,217,630, respectively, or $0.06354 per
Share of common stock, payable in March 2001, to stockholders of record on
January 1, 2001 and February 1, 2001, respectively.
The Company intends to continue to declare distributions of cash to
stockholders on a monthly basis during the offering period, and quarterly
thereafter.
Item 6. Selected Financial Data
2000 1999 1998 1997 (1)(4) 1996(1)(2)(4)
---------------- --------------- -------------- -------------- --------------
Year Ended December 31:
Revenues $36,099,219 $10,677,505 $1,955,461 $ 46,071 $ --
Net earnings 20,670,462 7,515,988 958,939 22,852 --
Cash flows from operating activities 43,650,561 12,890,161 2,776,965 22,469 --
Cash flows from investing activities (334,236,686) (130,231,475) (34,510,982) (463,470) --
Cash flows from financing activities 238,811,538 206,084,832 36,093,102 9,308,755 --
Cash distributions declared 28,082,275 10,765,881 1,168,145 29,776 --
Funds from operations (3) 30,316,348 10,478,103 1,343,105 22,852 --
Earning per Share:
Basic 0.53 0.47 0.40 0.03 --
Diluted 0.53 0.45 0.40 0.03 --
Cash distributions declared per Share 0.74 0.72 0.47 0.05 --
Weighted average number of Shares
outstanding:
Basic 38,698,066 15,890,212 2,402,344 686,063 --
Diluted 45,885,742 21,437,859 2,402,344 686,063 --
At December 31:
Total assets $653,962,058 $266,968,274 $48,856,690 $9,443,476 $598,190
Mortgages payable 170,055,326 -- -- -- --
Other notes payable 19,581,950 -- -- -- --
Total stockholders' equity 419,288,998 253,054,839 37,116,491 9,233,917 200,000
(1) No operations commenced until the Company received minimum offering
proceeds and funds were released from escrow on October 15, 1997.
(2) Selected financial data for 1996 represents the period June 12, 1996
(date of inception) through December 31, 1996.
(3) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") in October 1999 and as used herein, means
net earnings determined in accordance with generally accepted
accounting principles ("GAAP"), excluding gains or losses from sales of
property, plus depreciation and amortization of real estate assets and
after adjustments for unconsolidated partnerships and joint ventures.
(Net earnings determined in accordance with GAAP include the noncash
effect of straight-lining rent increases throughout the lease terms.
This straight-lining is a GAAP convention requiring real estate
companies to report rental revenue based on the average rent per year
over the life of the leases. During the years ended December 31, 2000,
1999 and 1998, net earnings included $117,282, $35,238 and $44,160,
respectively, of these amounts. No such amounts were earned during
1997.) FFO was developed by NAREIT as a relative measure of performance
and liquidity of an equity REIT in order to recognize that
income-producing real estate historically has not depreciated on the
basis determined under GAAP. However, FFO (i) does not represent cash
generated from operating activities determined in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions
and other events that enter into the determination of net earnings),
(ii) is not necessarily indicative of cash flow available to fund cash
needs and (iii) should not be considered as an alternative to net
earnings determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from operating
activities determined in accordance with GAAP as a measure of either
liquidity or the Company's ability to make distributions. Accordingly,
the Company believes that in order to facilitate a clear understanding
of the consolidated historical operating results of the Company, FFO
should be considered in conjunction with the Company's net earnings and
cash flows as reported in the accompanying consolidated financial
statements and notes thereto.
(4) The weighted average number of Shares outstanding is based upon
the period the Company was operational.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information that are not historical facts, may be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Act of 1934. These statements
generally are characterized by the use of terms such as "believe," "expect" and
"may." Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: changes in general economic conditions, changes in local
and national real estate conditions, availability of capital from borrowings
under the Company's Line of Credit and security agreement, continued
availability of proceeds from the Company's offering, the ability of the Company
to obtain permanent financing on satisfactory terms, the ability of the Company
to identify suitable investments, the ability of the Company to locate suitable
tenants for its properties and borrowers for its Mortgage Loans and Secured
Equipment Leases, and the ability of such tenants and borrowers to make payments
under their respective leases, Mortgage Loans and Secured Equipment Leases.
Given these uncertainties, readers are cautioned not to place undue reliance on
such statements.
Introduction
The Company
CNL Hospitality Properties, Inc. was organized pursuant to the laws of
the state of Maryland on June 12, 1996. CNL Hospitality GP Corp. and CNL
Hospitality LP Corp. are wholly owned subsidiaries of CNL Hospitality
Properties, Inc., each of which was organized in Delaware in June 1998. CNL
Hospitality Partners, LP is a Delaware limited partnership (the "Partnership")
formed in June 1998. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are
the general and limited partner, respectively, of CNL Hospitality Partners, LP.
Properties acquired are generally expected to be held by the Partnership and, as
a result, are owned by CNL Hospitality Properties, Inc. through the Partnership.
Various other wholly-owned subsidiaries have been formed for purposes of
acquiring or developing hotel Properties. The terms "Company" or "Registrant"
include, unless the context otherwise requires, CNL Hospitality Properties,
Inc., CNL Hospitality Partners, LP, CNL Hospitality GP Corp., CNL Hospitality LP
Corp., CNL Hotel Investors, Inc. ("Hotel Investors"), CNL DRR Investors, LP, CNL
Philadelphia Annex, LLC (formerly known as Courtyard Annex L.L.C.), CNL LLB LP
Holding, Ltd. and each of their subsidiaries. The Company operates for federal
income tax purposes as a real estate investment trust (a "REIT").
The Company may also provide mortgage financing and furniture, fixture
and equipment financing to operators of Hotel Chains. Secured Equipment Leases
will be funded from the proceeds of financing to be obtained by the Company. The
aggregate outstanding principal amount of Secured Equipment Leases will not
exceed 10 percent of gross proceeds from the Company's offerings of Shares of
common stock.
Liquidity and Capital Resources
Common Stock Offerings
The Company was formed in June 1996, at which time it received initial
capital contributions of $200,000 for 20,000 Shares of common stock from CNL
Hospitality Corp. On July 9, 1997, the Company commenced an offering to the
public of up to 16,500,000 Shares of common stock ($165,000,000) pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended. Of the 16,500,000 Shares of common stock offered, 1,500,000
($15,000,000) were available only to stockholders who elected to participate in
the Company's Reinvestment Plan. Upon completion of the Initial Offering on June
17, 1999, the Company had received aggregate subscription proceeds of
$150,072,637 (15,007,264 Shares), including $72,637 (7,264 Shares) through the
Company's Reinvestment Plan. Following the completion of its Initial Offering,
the Company commenced a second offering of up to 27,500,000 Shares of common
stock ($275,000,000). Upon completion of the 1999 Offering, on September 14,
2000, the Company had received aggregate subscription proceeds of $274,998,988
(27,499,899 Shares) from its 1999 Offering, including $965,194 (96,520 Shares)
issued pursuant to the Reinvestment Plan. Following the completion of the 1999
Offering on September 14, 2000, the Company commenced a third offering of up to
45,000,000 Shares of common stock ($450,000,000). Of the 45,000,000 Shares of
common stock offered, up to 5,000,000 will be available to stockholders
purchasing Shares through the Reinvestment Plan. The price per Share and the
other terms of the 2000 Offering, including the percentage of gross proceeds
payable (i) to the managing dealer for selling commissions and expenses in
connection with the offering and (ii) to the Advisor for acquisition fees, are
substantially the same as those for the Initial Offering and 1999 Offering. As
of December 31, 2000, the Company had received subscription proceeds of
$67,570,406 (6,757,040 Shares) from its 2000 Offering, including $702,339
(70,233 Shares) issued pursuant to the Reinvestment Plan.
As of December 31, 2000, net proceeds to the Company from its Initial
Offering, 1999 Offering and 2000 Offering of Shares, loan proceeds and capital
contributions from the Advisor, after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and
organizational and offering expenses, totaled approximately $615,052,000. The
Company has used approximately $332,202,000 of net offering proceeds and
$179,952,000 of loan proceeds to invest in 28 hotel Properties, including two on
which hotel Properties are being constructed, approximately $8,800,000 to invest
in a joint venture, approximately $26,300,000 to acquire an additional 22
percent ownership in Hotel Investors, approximately $2,622,000 to redeem 282,161
Shares of common stock and approximately $29,300,000 to pay acquisition fees
and expenses, leaving approximately $35,900,000 available for investment in
Properties and Mortgage Loans.
During the period January 1, 2001 through February 22, 2001, the
Company received additional net offering proceeds of approximately $46,300,000
and had approximately $57,100,000 available for investment in Properties and
Mortgage Loans. The Company expects to use the uninvested net proceeds, plus any
additional net proceeds from the sale of Shares from the 2000 Offering to
purchase additional Properties and, to a lesser extent, invest in Mortgage
Loans. In addition, the Company intends to borrow money to acquire additional
Properties, to invest in Mortgage Loans and Secured Equipment Leases, and to pay
certain related fees. The Company intends to encumber assets in connection with
such borrowings. The Company currently has a $30,000,000 Line of Credit
available, as described below. Borrowings on the Line of Credit may be repaid
with offering proceeds, working capital or permanent financing. The maximum
amount the Company may borrow, absent a satisfactory showing that a higher level
of borrowing is appropriate as approved by a majority of the independent
directors, is 300 percent of the Company's net assets.
Redemptions
In October 1998, the Board of Directors elected to implement the
Company's redemption plan. Under the redemption plan, the Company elected to
redeem Shares, subject to certain conditions and limitations. During the years
ended December 31, 2000 and 1999, 269,276 Shares and 12,885 Shares,
respectively, were redeemed at $2,503,484 and $118,542, respectively, and
retired from Shares outstanding of common stock. No Shares were redeemed in 1998
or 1997.
Borrowings
The Company has a Line of Credit which allows the Company to receive
advances of up to $30,000,000 until July 30, 2003. Interest on each advance
shall be payable monthly, with all unpaid interest and principal due no later
than five years from the date of the advance. Advances under the line of credit
will bear interest at either (i) a rate per annum equal to 318 basis points
above the LIBOR or (ii) a rate per annum equal to 30 basis points above the
bank's base rate, whichever the Company selects at the time advances are made.
In addition, a fee of 0.5 percent per advance will be due and payable to the
bank on funds as advanced. Each advance made under the Line of Credit will be
collateralized by an assignment of rents and leases. Advances on the Line of
Credit are subject to absolute discretion of the lender. As of December 31, 2000
and 1999, the Company had no amounts outstanding under the line of credit.
In March 2000, the Company, through the LLC, entered into a Tax
Incremental Financing Agreement with the Philadelphia Authority for Industrial
Development for $10 million, which is collateralized by the LLC's hotel
Property. The principal and interest on the TIF note are expected to be fully
paid by the LLC's hotel Property's incremental property taxes over a period of
18 years. The payment of the incremental property taxes is the responsibility of
the tenant of the hotel Property. Implicit interest on the TIF Note is 12.85
percent and payments are due yearly through 2017. In the event that incremental
property taxes are insufficient to cover the principal and interest due,
Marriott International, Inc. is required to fund such shortfalls pursuant to its
guarantee of the TIF Note. As of December 31, 2000, approximately $9,685,000 was
outstanding on the TIF Note.
In November 2000, the Company secured permanent financing for the
Courtyard(R) by Marriott(R) in Philadelphia, Pennsylvania in the amount of $32.5
million. The loan is collateralized by the hotel Property and monthly rents
derived from the tenant of the hotel Property. The loan agreement requires
monthly payments, representing interest only, through November 2001 and then
principal and interest payments of $257,116 to maturity. The loan bears interest
of 8.29 percent and matures in December 2007, at which time any unpaid principal
and interest will become due. As of December 31, 2000, $32.5 million was
outstanding on the loan.
In November 2000, the Company entered into a Construction LOC totaling
$55 million, which is collateralized by land and building improvements of two of
the Properties under construction and two hotel Properties located in Georgia.
Borrowings under the Construction LOC bear interest at LIBOR plus 275 basis
points. Interest only payments are due monthly through maturity, November 15,
2003, at which time any remaining principal and interest become due. As of
December 31, 2000, approximately $9,897,000 was outstanding on the Construction
LOC.
In December 2000, the Company secured permanent financing for three
hotel Properties located in Orlando, Florida in the amount of $50 million. The
loans are collateralized by the hotel Properties and monthly rents derived from
the tenants of such hotel Properties. The loan agreements require monthly
interest only payments of approximately $347,000 through 2007. The loans bear
interest of 8.335 percent and mature in 2007, at which time the principal and
any unpaid interest will become due. As of December 31, 2000, $50 million was
outstanding on the loans.
As of December 31, 2000, Hotel Investors had notes payable totaling
approximately $87,555,000, which are collateralized by seven hotel Properties
and monthly rents relating to such Properties. The loan agreements require
monthly principal and interest payments totaling approximately $666,000. The
loans bear interest ranging from 7.50 percent to 7.75 percent and mature July
31, 2009, at which time any unpaid principal and interest will become due.
The Company expects to use net proceeds it receives from the 2000
Offering to purchase additional Properties and, to a lesser extent, to invest in
Mortgage Loans. In addition, the Company intends to borrow money to acquire
additional Properties, to invest in Mortgage Loans and Secured Equipment Leases
and to pay certain related fees. The Company intends to encumber assets in
connection with such borrowing. The Company currently plans to increase its
borrowing capacity under the Line of Credit from $30 million to $75 million, and
obtain additional permanent financing. The Line of Credit may be repaid with
offering proceeds, working capital or permanent financing. Although the Board of
Directors anticipates that the Line of Credit will be $75 million and that the
aggregate amount of any permanent financing will not exceed 30 percent of the
Company's total assets, the maximum amount the Company may borrow, absent a
satisfactory showing that a higher level of borrowing is appropriate as approved
by a majority of the independent directors, is 300 percent of the Company's net
assets.
Market Risk
The Company may be subject to interest rate risk through any
outstanding balances on its variable rate Line of Credit and Construction LOC.
The Company may mitigate this risk by paying down any outstanding balances on
the Line of Credit from offering proceeds should interest rates rise
substantially. There were no amounts outstanding on its variable Line of Credit
and approximately $9,897,000 outstanding on the Construction LOC at December 31,
2000.
In addition, the Company has issued fixed interest rate mortgages
payable and notes payable to lenders under permanent financing arrangements. The
Company believes that the estimated fair value of the amounts outstanding on
such notes at December 31, 2000 approximated the outstanding principal amount.
The following table presents the expected cash flows of principal that are
sensitive to these changes:
Notes Payable
----------------------------
2001 $ 2,292,415
2002 2,194,877
2003 12,243,846
2004 2,510,389
2005 2,687,520
Thereafter 167,708,229
----------------------------
$ 189,637,276
============================
Property Acquisitions and Investments
During 1999, Five Arrows and the Company invested a total of
approximately $86 million in Hotel Investors, resulting in the Company owning 49
percent and Five Arrows owning 51 percent of Hotel Investors. Five Arrows owned
48,337 shares of 8 percent Class A cumulative preferred stock of Hotel Investors
and the Company owned 37,979 shares of 9.76 percent Class B cumulative preferred
stock of Hotel Investors. The Class A Preferred Stock was exchangeable upon
demand into common stock of the Company, using an exchange ratio based on the
relationship between the Company's operating results and that of Hotel
Investors.
In October 2000, Five Arrows, the Company and Hotel Investors entered
into an agreement ("Initial Transaction") with the following terms:
o Hotel Investors agreed to redeem 2,104 shares of both Class A
Preferred Stock and common stock of Hotel Investors held by Five
Arrows for $2,104,000;
o Hotel Investors agreed to redeem 1,653 shares of Class B Preferred
Stock and an aggregate of 10,115 shares of common stock of Hotel
Investors held by the Company for $1,653,000;
o The Company purchased 7,563 shares of both the Class A Preferred Stock
and common stock of Hotel Investors from Five Arrows for $11,395,000;
o The Company repurchased 65,285 shares of the Company's common stock
owned by Five Arrows for $620,207;
o The remaining Class A Preferred Stock owned by Five Arrows (38,670
shares) and the Company (7,563 shares) were exchanged for an equivalent
number of shares of Class E Preferred Stock par value $0.01 of Hotel
Investors;
o Five Arrows granted the following options (1) on or before January 31,
2001, the Company had the option to purchase 7,250 shares of Class E
Preferred Stock and an equal number of shares of common stock of Hotel
Investors held by Five Arrows for $1,000 per pair of Class E Preferred
Stock and common stock of Hotel Investors, and (2) provided that the
Company purchased all of the shares under the first option, the Company
would have the option, until June 30, 2001, to purchase 7,251 shares of
both Class E Preferred Stock and an equal number of shares of common
stock of Hotel Investors for $1,000 for each pair;
o The Company has agreed to pay Five Arrows additional consideration for
agreeing to defer the conversion of its Class A Preferred Stock (prior
to its conversion to Class E Preferred Stock) to common stock of the
Company. These payments are equivalent to the difference between any
distributions received by Five Arrows from Hotel Investors and the
distributions that Five Arrows would have received from the Company if
Five Arrows had converted its Class A Preferred Stock into the
Company's common stock on June 30, 2000;
o Five Arrows has agreed to forfeit its priority cash distributions from
Hotel Investors;
o Cash available for distributions of Hotel Investors is distributed to
100 CNL Holdings, Inc. and affiliates' associates who each own one
share of Class C preferred stock in Hotel Investors, to provide a
quarterly, cumulative, compounded 8 percent return. All remaining cash
available for distributions is distributed pro rata with respect to the
interest in the common shares of Hotel Investors.
On December 29, 2000, the Company exercised its two options to acquire
14,501 shares of Class E Preferred Stock and common stock owned ("Option
Transaction") by Five Arrows as of December 31, 2000. After the Initial
Transaction and the Option Transaction, the Company owned approximately 71
percent and Five Arrows owned approximately 29 percent of Hotel Investors. The
total amount paid by the Company for the additional 22 percent interest was
approximately $26.3 million. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the operating results of Hotel
Investors have been included in the Company's consolidated statement of earnings
from the date of acquisition (October 2000). The purchase price approximated the
fair value of the net assets acquired. The resulting purchase price adjustment
(fair value adjustment) of approximately $5.5 million has been reflected in
land, buildings and equipment on operating leases in the accompanying
consolidated balance sheet.
During the nine months ended September 30, 2000, prior to the
consolidation of Hotel Investors, the Company recorded $2,780,063 in dividend
income and $386,627 in equity in loss after deduction of preferred stock
dividends, resulting in net earnings of $2,393,436 attributable to its
investment in Hotel Investors. During the year ended December 31, 1999, the
Company recorded $2,753,506 in dividend income and $778,466 in equity in loss
after deduction of preferred stock dividends, resulting in net earnings of
$1,975,040 attributable to the investment.
During 2000, the Company made the following additional acquisitions,
all of which are operated by a tenant as the noted brand affiliation:
Brand Affiliation Property Location Purchase Date
---------------------------------- ----------------------- ------------------
Wyndham(SM) Billerica, MA June 1, 2000
Wyndham(SM) Denver, CO June 1, 2000
Residence Inn(R)by Marriott(R) Palm Desert, CA June 16, 2000
Courtyard(R)by Marriott(R) Palm Desert, CA June 16, 2000
SpringHill Suites(TM) by Marriott(R) Gaithersburg, MD July 28, 2000
Residence Inn(R)by Marriott(R) Merrifield, VA July 28, 2000
TownePlace Suites(R)by Marriott(R) Mt. Laurel, NJ August 22, 2000
TownePlace Suites(R)by Marriott(R) Scarborough, ME August 22, 2000
TownePlace Suites(R)by Marriott(R) Tewksbury, MA August 22, 2000
Courtyard(R)by Marriott(R) Alpharetta, GA August 22, 2000
Residence Inn(R)by Marriott(R) Salt Lake City, UT August 22, 2000
TownePlace Suites(R)by Marriott(R) Newark, CA November 3, 2000
Courtyard(R)by Marriott(R) Orlando, FL November 21, 2000
Fairfield Inn by Marriott(R) Orlando, FL November 21, 2000
Residence Inn(R)by Marriott(R) Orlando, FL December 6, 2000
SpringHill Suites(TM) by Marriott(R) Orlando, FL December 15, 2000
Courtyard(R)by Marriott(R) Weston, FL December 22, 2000
The Company, as lessor, has entered into long-term, "triple-net" leases
with operators of Hotel Chains or wholly-owned subsidiaries of the Company, as
described below in "Liquidity Requirements."
On December 21, 2000, the Company, through subsidiaries, acquired a 44
percent interest in Desert Ridge Resort Partners, LLC, a joint venture with an
affiliate of Marriott International, Inc. and a partnership in which an
affiliate of the Advisor is the general partner. The Desert Ridge Joint Venture
invested in Desert Ridge Resort, LLC, a single purpose limited liability company
that owns the Desert Ridge Marriott Resort & Spa in Phoenix, Arizona, which is
currently under construction. The Company made an initial capital contribution
of $8.8 million of its anticipated $25 million investment in the Desert Ridge
Joint Venture. The total cost of the Desert Ridge Property (including
acquisition of land, development and construction) is estimated to be $298
million. On December 21, 2000, the Resort Owner obtained permanent financing
from a third party lender for $179 million, secured by a mortgage on the Desert
Ridge Property. The notes have a term of seven years with interest payable
quarterly in arrears commencing on March 2, 2001. Interest with respect to $109
million of the notes is payable at a rate of 7.90 percent per annum, while
interest with respect to $70 million of the notes is payable at a floating rate
equal to 185 basis points above the three-month LIBOR. The blended fixed rate of
interest after an interest rate swap is 9.48 percent. All unpaid interest and
principal will be due at maturity. In addition, an affiliate Marriott
International, Inc. will provide financing for 19 percent of the costs to the
Desert Ridge Joint Venture, secured by pledges of the co-venturers' equity
contributions to the Desert Ridge Joint Venture. This investment is accounted
for using the equity method of accounting.
Commitments
As of January 26, 2001, the Company had initial commitments to acquire
four hotel Properties for an anticipated aggregate purchase price of
approximately $45 million. The acquisition of each of these Properties is
subject to the fulfillment of certain conditions. In order to acquire these
Properties, the Company must obtain additional funds through the receipt of
additional offering proceeds and/or advances on the Line of Credit. There can be
no assurance that any or all of the conditions will be satisfied or, if
satisfied, that one or more of these Properties will be acquired by the Company.
The Company is presently negotiating to acquire additional Properties, but as of
January 26, 2001, the Company had not acquired any such Properties or entered
into any Mortgage Loans. In addition, as of January 26, 2001, the Company had
not entered into any other arrangements creating a reasonable probability that a
particular Property, Mortgage Loan or Secured Equipment Lease would be funded.
Cash and Cash Equivalents
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid investments, such as demand deposit
accounts at commercial banks, certificates of deposit and money market accounts.
This investment strategy provides high liquidity in order to facilitate the
Company's use of these funds to acquire Properties at such time as Properties
suitable for acquisition are located or to fund Mortgage Loans. At December 31,
2000, the Company had $50,197,854 invested in such short-term investments as
compared to $101,972,441 at December 31, 1999. The decrease in the amount
invested in short-term investments was primarily attributable to the acquisition
of Properties during 2000 offset by proceeds received from the sale of common
stock in the 1999 Offering and 2000 Offering. These funds will be used to
purchase additional Properties, to make Mortgage Loans, to pay offering and
acquisition expenses, to pay distributions to stockholders and other Company
expenses and, at management's discretion, to create cash reserves.
Liquidity Requirements
The Company expects to meet its short-term liquidity requirements,
other than for offering expenses, for the acquisition and development of
Properties and investment in Mortgage Loans and Secured Equipment Leases,
through cash flow provided by operating activities. The Company believes that
cash flow provided by operating activities will be sufficient to fund normal
recurring operating expenses, regular debt service requirements and
distributions to stockholders. To the extent that the Company's cash flow
provided by operating activities is not sufficient to meet such short-term
liquidity requirements as a result, for example, of unforeseen expenses due to
tenants defaulting under the terms of their lease agreements, the Company will
use borrowings under its Line of Credit. No such borrowings had occurred through
December 31, 2000.
The Company expects to meet its other short-term liquidity
requirements, including payment of offering expenses, Property acquisitions and
development and investment in Mortgage Loans and Secured Equipment Leases, with
additional advances under its Line of Credit and proceeds from its offerings.
The Company expects to meet its long-term liquidity requirements through short
or long-term, unsecured or secured debt financing or equity financing.
Due to the fact that the Company leases its Properties on a
"triple-net" basis, meaning that tenants are generally required to pay all
repairs and maintenance, property taxes, insurance and utilities, Management
does not believe that working capital reserves are necessary at this time.
Management believes that the Properties are adequately covered by insurance. In
addition, the Advisor has obtained contingent liability and property coverage
for the Company. This insurance policy is intended to reduce the Company's
exposure in the unlikely event a tenant's insurance policy lapses or is
insufficient to cover a claim relating to a Property.
Distributions
During the years ended December 31, 2000, 1999 and 1998, the Company
generated cash from operations of $43,650,561, $12,890,161 and $2,776,965,
respectively. The Company declared and paid distributions to its stockholders of
$28,082,275, $10,765,881 and $1,168,145 during the years ended December 31,
2000, 1999 and 1998, respectively. In addition, on January 1, 2001 and February
1, 2001, the Company declared distributions to stockholders of record on January
1, 2001 and February 1, 2001, totaling $3,120,827 and $3,217,630, respectively,
or $0.6354 per Share, payable in March 2001.
For the years ended December 31, 2000, 1999 and 1998, approximately 63
percent, 75 percent and 76 percent, respectively, of the distributions received
by stockholders were considered to be ordinary income and approximately 37
percent, 25 percent and 24 percent were considered a return of capital for
federal income tax purposes. No amounts distributed to the stockholders for the
years ended December 31, 2000, 1999 and 1998 were required to be or have been
treated by the Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital.
Related Party Transactions
During the years ended December 31, 2000, 1999 and 1998, affiliates of
the Company incurred on behalf of the Company $4,363,326, $3,257,822 and
$459,250, respectively, for certain offering expenses, $717,273, $653,231 and
$392,863, respectively, for certain acquisition expenses, and $605,517, $325,622
and $98,212, respectively, for certain operating expenses. As of December 31,
2000 and 1999, the Company owed the Advisor and other related parties $1,359,417
and $995,500, respectively, for expenditures incurred on behalf of the Company
and for acquisition fees. The Advisor has agreed to pay or reimburse to the
Company all offering expenses (excluding commissions and marketing support and
due diligence expense reimbursement fees) in excess of three percent of gross
offering proceeds.
The Company maintains 13 bank accounts in a bank in which certain
officers and directors of the Company serve as directors, and in which an
affiliate of the Advisor is a stockholder. The amount deposited with this
affiliate was $17,568,909 and $15,275,629 at December 31, 2000 and 1999,
respectively.
Other
As of December 31, 2000, 1999 and 1998, the tenants of the Properties
have established reserve funds which will be used for the replacement and
renewal of furniture, fixtures and equipment relating to the hotel Properties
("the FF&E Reserve"). Funds in the FF&E Reserve have been paid, granted and
assigned to the Company. For the years ended December 31, 2000, 1999 and 1998,
revenues relating to the FF&E Reserve of the Properties owned by the Company
totaled, directly or indirectly, $2,508,949, $320,356 and $98,099, of which
$3,263,712, $275,630 and $82,407, respectively, is classified as restricted
cash. Due to the fact that the Properties are leased on a long-term,
"triple-net" basis, management does not believe that other working capital
reserves are necessary at this time. Management has the right to cause the
Company to maintain additional reserves if, in their discretion, they determine
such reserves are required to meet the Company's working capital needs.
Results of Operations
---------------------
Comparison of year ended December 31, 2000 to year ended December 31, 1999
As of December 31, 2000, the Company directly and indirectly owned 29
Properties, consisting of land, buildings and equipment, including two
Properties on which hotel Properties are being constructed and one Property,
through a joint venture, on which a resort is being constructed and had entered
into long-term, "triple-net" lease agreements relating to these Properties. The
Property leases provide for minimum base annual rental payments ranging from
approximately $716,000 to $6,500,000, which are payable in monthly installments.
In addition, certain of the leases also provide that, commencing in the second
lease year, the annual base rent required under the terms of the leases, will
increase. In addition to annual base rent, the tenant pays contingent rent
computed as a percentage of gross sales of the Property. The Company's leases
also require the establishment of the FF&E Reserves. The FF&E Reserves
established for the Properties have been reported as additional rent for the
years ended December 31, 2000 and 1999.
During the years ended December 31, 2000 and 1999, the Company earned
rental income from operating leases, contingent rental income and FF&E Reserve
revenue of $26,681,838 and $4,230,995, respectively. The increase in rental
income, contingent rental income and FF&E Reserve income is due to the Company
owning 28 Properties during the year ended December 31, 2000, as compared to 11
Properties during the year ended December 31, 1999. In addition, several of the
Properties, which were owned for only a portion of 1999, were owned for a full
year in 2000. Because additional Property acquisitions are expected to occur,
revenues for the year ended December 31, 2000, represent only a portion of
revenues which the Company is expected to earn in future periods.
In October 2000, the Company acquired a majority interest in Hotel
Investors, as described above in "Liquidity and Capital Resources - Property
Acquisitions and Investments." In connection with its investment, the Company
recognized $2,780,063 in dividend income and $386,627 in equity in loss after
deduction of preferred stock dividends, resulting in net earnings of $2,393,436
prior to consolidating Hotel Investors, for the nine months ended September 30,
2000. During the year ended December 31, 1999, the Company recognized $2,753,506
in dividend income and $778,466 in equity in loss after deduction of preferred
stock dividends, resulting in net earnings attributable to this investment of
$1,975,040.
During the years ended December 31, 2000 and 1999, the Company earned
$6,637,318 and $3,693,004, respectively, in interest income from investments in
money market accounts and other short-term highly liquid investments and other
income. The increase in interest income was primarily attributable to an
increase in the dollar amount invested in short-term liquid investments and the
period of time the funds were invested as compared to 1999. As net offering
proceeds from the Company's offering are invested in Properties and used to make
Mortgage Loans, the percentage of the Company's total revenues from interest
income from investments in money market accounts or other short term, highly
liquid investments, is expected to remain constant or decrease.
Crestline Capital Corporation, City Center Annex Tenant Corporation,
and WI Leasing, LLC each contributed more than 10 percent of the Company's total
rental income for the year ended December 31, 2000. In addition, a significant
portion of the Company's rental income was earned from Properties operating as
Marriott(R) brand chains. Although the Company intends to acquire Properties in
various states and regions and to carefully screen its tenants in order to
reduce risks of default, failure of these lessees or the Marriott(R) brand
chains could significantly impact the result of operations of the Company.
However, management believes that the risk of such as default is reduced due to
the essential or important nature of these Properties for the ongoing operations
of the lessees. It is expected that the percentage of total rental income
contributed by these lessees will decrease as additional Properties are acquired
and leased during 2001 and subsequent years.
Operating expenses, including interest expense and depreciation and
amortization expense, were $13,525,893 and $2,318,717 for the years ended
December 31, 2000 and 1999, respectively (37.5 percent and 21.7 percent,
respectively, of total revenues). The increase in operating expenses during the
year ended December 31, 2000, as compared to 1999, was as a result of the
Company owning 11 Properties during 1999 compared to 29 Properties in 2000.
Additionally, general, operating and administrative expenses increased as a
result of Company growth, while interest expense increased from $248,094 for the
year ended December 31, 1999 to $2,383,449 for the year ended December 31, 2000.
The increase in interest expense was a result of the Company securing permanent
financing in 2000.
Pursuant to the Advisory Agreement, the Advisor is required to
reimburse the Company the amount by which the total operating expenses paid or
incurred by the Company exceed in any four consecutive fiscal quarters, the
greater of two percent of average invested assets or 25 percent of net income
(the "Expense Cap"). For the years ended December 31, 2000 and 1999, the
Company's operating expenses did not exceed the Expense Cap.
The dollar amount of operating expenses is expected to increase as the
Company acquires additional Properties and invests in Mortgage Loans. However,
general operating and administrative expenses as a percentage of total revenues
is expected to decrease as the Company acquires additional Properties and
invests in Mortgage Loans.
Comparison of year ended December 31, 1999 to year ended December 31, 1998
As of December 31, 1999, the Company owned 11 Properties, either
directly or indirectly, consisting of land, buildings and equipment and had
entered into long-term, triple-net lease agreements relating to these
Properties. The Property leases provide for minimum base annual rental payments
ranging from approximately $1,204,000 to $6,500,000, which are payable in
monthly installments. In addition, certain of the leases also provide that,
commencing in the second lease year, the annual base rent required under the
terms of the leases, will increase. In addition to annual base rent, the tenant
pays contingent rent computed as a percentage of gross sales of the Property.
The Company's leases also require the establishment of the FF&E Reserves. The
FF&E Reserves established for the Properties, directly or indirectly owned by
the Company, have been reported as additional rent for the years ended December
31, 1999 and 1998.
During the years ended December 31, 1999 and 1998, the Company earned
rental income from operating leases, contingent rental income and FF&E Reserve
revenue of $4,230,995 and $1,316,599, respectively. No contingent rental income
was earned for the year ended December 31, 1998. The increase in rental income,
contingent rental income and FF&E Reserve income was due to the fact that the
Company owned directly four Properties during the year ended December 31, 1999,
as compared to two Properties for approximately six months during the year ended
December 31, 1998. Because the Company had not yet acquired all of its
Properties, revenues for the year ended December 31, 1999, represent only a
portion of revenues which the Company is expected to earn in future periods.
During the year ended December 31, 1999, the Company acquired and
leased seven Properties indirectly through its investment in Hotel Investors, as
described above in "Liquidity and Capital Resources - Property Acquisitions and
Investments." In connection with its investment, the Company recognized
$2,753,506 in dividend income and $778,466 in equity in loss after deduction of
preferred stock dividends, resulting in net earnings attributable to this
investment of $1,975,040.
During the years ended December 31, 1999 and 1998, the Company earned
$3,693,004 and $638,862, respectively, in interest income from investments in
money market accounts and other short-term highly liquid investments and other
income. The increase in interest income was primarily attributable to increased
offering proceeds in 1999 being temporarily invested in money market accounts or
other short-term, highly liquid investments pending investment in Properties or
Mortgage Loans. As net offering proceeds from the Company's offerings are
invested in Properties and used to make Mortgage Loans, the percentage of the
Company's total revenues from interest income from investments in money market
accounts or other short term, highly liquid investments is expected to decrease.
During the year ended December 31, 1999, three lessees, City Center
Annex Tenant Corporation, Crestline Capital Corporation and WI Hotel Leasing,
LLC, each contributed more than 10 percent of the Company's total rental income
(including the Company's share of total rental income from Hotel Investors). In
addition, all of the Company's rental income (including the Company's share of
total rental income from Hotel Investors) was earned from Properties operating
as Marriott(R) brand chains. Although the Company intends to acquire additional
Properties located in various states and regions and to carefully screen its
tenants in order to reduce risks of default, failure of these lessees or the
Marriott(R) chains could significantly impact the results of operations of the
Company. However, management believes that the risk of such a default is reduced
due to the essential or important nature of these Properties for the ongoing
operations of the lessees.
Operating expenses, including interest expense and depreciation and
amortization expense, were $2,318,717 and $996,522 for the years ended December
31, 1999 and 1998, respectively (21.7 percent and 51 percent, respectively, of
total revenues). The increase in operating expenses during the year ended
December 31, 1999, as compared to 1998, was as a result of the Company owning
two Properties for approximately six months during 1998 compared to a full year
during 1999. Additionally, general operating and administrative expenses
increased as a result of Company growth, while interest expense decreased from
$350,322 for the year ended December 31, 1998 to $248,094 for the year ended
December 31, 1999. The decrease in interest expense was a result of the Line of
Credit being outstanding for two months in 1999 as compared to the majority of
1998.
Pursuant to the Advisory Agreement, the Advisor is required to
reimburse the Company the amount by which the total operating expenses paid or
incurred by the Company exceed in any four consecutive fiscal quarters, the
greater of two percent of average invested assets or 25 percent of net income
(the "Expense Cap"). For the year ended December 31, 1999, the Company's
operating expenses did not exceed the Expense Cap. For the year ended December
31, 1998, the Company's operating expenses exceeded the Expense Cap by $92,733;
therefore, the Advisor reimbursed the Company such amount in accordance with the
Advisory Agreement.
Other
The Company has made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1997. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net earnings. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 2000, 1999 and 1998. In
addition, the Company intends to continue to operate the Company so as to remain
qualified as a REIT for federal income tax purposes.
The Company anticipates that its leases will continue to be
"triple-net" leases and will contain provisions that management believes will
mitigate the effect of inflation. Such provisions will include clauses requiring
the payment of percentage rent based on certain gross sales above a specified
level and/or automatic increases in base rent at specified times during the term
of the lease. Management expects that increases in gross sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Company's Properties. Inflation and changing prices, however, also may have an
adverse impact on the sales of the Properties and on potential capital
appreciation of the Properties.
Management of the Company currently knows of no trends that will have a
material adverse effect on liquidity, capital resources or results of
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk for information related to quantitative
and qualitative disclosure about market risk.
Item 8. Financial Statements and Supplementary Data
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONTENTS
Page
Report of Independent Certified Public Accountants 23
Financial Statements:
Consolidated Balance Sheets 24
Consolidated Statements of Earnings 25
Consolidated Statements of Stockholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 30
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors
CNL Hospitality Properties, Inc.
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 14(a)(1) presents fairly, in all material respects,
the financial position of CNL Hospitality Properties, Inc. (a Maryland
corporation) and its subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 26, 2001
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
--------------- --------------
ASSETS
Land, buildings and equipment on operating leases, less
accumulated depreciation of $9,433,790 and $1,603,334,
respectively $ 581,528,928 $ 112,227,771
Investment in unconsolidated subsidiaries 10,174,209 38,364,157
Cash and cash equivalents 50,197,854 101,972,441
Restricted cash 3,263,712 275,630
Certificate of deposit -- 5,000,000
Dividends receivable -- 1,215,993
Receivables 1,009,421 112,184
Prepaid expenses 28,170 41,165
Loan costs, less accumulated amortization of $152,621 and
$86,627, respectively 1,976,630 51,969
Accrued rental income 597,234 79,399
Other assets 5,185,900 7,627,565
--------------- ---------------
$ 653,962,058 $ 266,968,274
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable and accrued interest $ 170,055,326 $ --
Other notes payable 19,581,950 --
Accounts payable and accrued expenses 2,126,365 405,855
Distributions payable 1,089,394 89,843
Due to related parties 1,359,417 995,500
Security deposits 15,418,626 5,042,054
Rents paid in advance 2,271,836 255,568
--------------- ---------------
Total liabilities 211,902,914 6,788,820
--------------- ---------------
Commitments and contingencies -- --
Minority interest 22,770,146 7,124,615
--------------- ---------------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share.
Authorized and unissued 63,000,000 shares -- --
Common stock, $.01 par value per share. Authorized
150,000,000 and 60,000,000 shares, respectively; issued 49,284,203
and 28,915,799 shares, respectively; outstanding 49,002,042 and
28,902,914 shares, respectively 490,020 289,029
Capital in excess of par value 432,403,246 256,231,833
Accumulated distributions in excess of net earnings (10,877,836) (3,466,023)
Minority interest distributions in excess of contributions
and accumulated earnings (2,726,432) --
--------------- ---------------
Total stockholders' equity 419,288,998 253,054,839
--------------- ---------------
$ 653,962,058 $ 266,968,274
=============== ===============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
2000 1999 1998
------------ ------------ ------------
Revenues:
Rental income from
operating leases $ 24,172,889 $ 3,910,639 $ 1,218,500
FF&E reserve income 2,508,949 320,356 98,099
Dividend income 2,780,063 2,753,506 --
Interest and other income 6,637,318 3,693,004 638,862
------------- ------------- -------------
36,099,219 10,677,505 1,955,461
------------- ------------- -------------
Expenses:
Interest and loan cost amortization 2,383,449 248,094 350,322
General operating and administrative 1,780,472 626,649 167,951
Professional services 196,028 69,318 21,581
Asset management fees to
related parties 1,335,488 106,788 68,114
Depreciation and amortization 7,830,456 1,267,868 388,554
------------- ------------- -------------
13,525,893 2,318,717 996,522
------------- ------------- -------------
Earnings Before Equity in Loss of
Unconsolidated Subsidiaries
After Deduction of Preferred
Stock Dividends and Minority
Interest 22,573,326 8,358,788 958,939
Equity in Loss of Unconsolidated
Subsidiaries After Deduction of
Preferred Stock Dividends (386,627) (778,466) --
Minority Interest (1,516,237) (64,334) --
------------- ------------- -------------
Net Earnings $ 20,670,462 $ 7,515,988 $ 958,939
============= ============= =============
Earnings Per Share of Common Stock:
Basic $ 0.53 $ 0.47 $ 0.40
============= ============= =============
Diluted $ 0.53 $ 0.45 $ 0.40
============= ============= =============
Weighted Average Number of Shares of
Common Stock Outstanding:
Basic 38,698,066 15,890,212 2,402,344
============= ============= =============
Diluted 45,885,742 21,437,859 2,402,344
============= ============= =============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
Years Ended December 31,
2000, 1999 and 1998
Minority interest
Accumulated distributions
Common stock distributions in excess of
-------------------------- Capital in in excess contributions
Number of Par excess of of net and accumulated
Shares value par value earnings Earnings Total
------------- ----------- -------------- ------------- ------------------ --------------
Balance at December 31, 1997 1,152,540 $ 11,525 $ 9,229,316 $ (6,924) $ -- $ 9,233,917
Subscriptions received for
common stock through public
offering and distribution
reinvestment plan 3,169,368 31,694 31,661,984 -- -- 31,693,678
Stock issuance costs -- -- (3,601,898) -- -- (3,601,898)
Net earnings -- -- -- 958,939 -- 958,939
Distributions declared and paid
($.47 per share) -- -- -- (1,168,145) -- (1,168,145)
------------ ----------- -------------- ---------------------------------- --------------
Balance at December 31, 1998 4,321,908 $ 43,219 $ 37,289,402 $ (216,130) $ -- $ 37,116,491
Subscriptions received for
common stock through public
offerings and distribution
reinvestment plan 24,593,891 245,939 245,692,968 -- -- 245,938,907
Retirement of common stock (12,885) (129) (118,413) -- -- (118,542)
Stock issuance costs -- -- (26,632,124) -- -- (26,632,124)
Net earnings -- -- -- 7,515,988 -- 7,515,988
Distributions declared and paid
($.72 per share) -- -- -- (10,765,881) -- (10,765,881)
------------ ----------- -------------- ------------- ------------------ --------------
Balance at December 31, 1999 28,902,914 $ 289,029 $ 256,231,833 $(3,466,023) $ -- $253,054,839
Subscriptions received for
common stock through public
offerings and distribution
reinvestment plan 20,368,404 203,684 203,480,360 -- -- 203,684,044
Retirement of common stock (269,276) (2,693) (2,500,791) -- -- (2,503,484)
Stock issuance costs -- -- (24,808,156) -- -- (24,808,156)
Net earnings -- -- -- 20,670,462 -- 20,670,462
Minority interest
distributions in excess of
contributions and
accumulated earnings -- -- -- -- (2,726,432) (2,726,432)
Distributions declared and paid
($.74 per share) -- -- -- (28,082,275) -- (28,082,275)
------------ ----------- -------------- ------------- ------------------ --------------
Balance at December 31, 2000 49,002,042 $ 490,020 $432,403,246 $(10,877,836) $ (2,726,432) $419,288,998
============ =========== ============== ============= ================== ==============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
------------- ------------ --------------
Cash flows from operating activities:
Net earnings $ 20,670,462 $ 7,515,988 958,939
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 7,830,456 1,230,499 384,166
Amortization 65,994 130,769 17,368
Distribution from investment in
unconsolidated subsidiaries, net
of equity in losses 1,123,687 1,478,111 --
Minority interest 1,516,237 64,334 --
Changes in operating assets and
liabilities:
Dividends receivable 1,215,993 (1,215,993) --
Receivables (812,688) (67,352) (44,832)
Prepaid expenses 19,975 (31,774) 1,788
Accrued rental income (124,329) (35,239) (44,160)
Interest payable -- (66,547) 66,547
Accounts payable and accrued
expenses 860,676 (2,191) 5,322
Due to related parties -
operating expenses 360,696 12,923 10,838
Security deposits 10,376,573 3,624,554 1,417,500
Rents paid in advance 546,829 252,079 3,489
--------------- -------------- ---------------
Net cash provided by
operating activities 43,650,561 12,890,161 2,776,965
--------------- -------------- ---------------
Cash flows from investing activities:
Additions to land, buildings and
equipment on operating leases (310,711,912) (85,089,887) (28,752,549)
Investment in unconsolidated
subsidiaries (10,174,209) (39,879,638) --
Acquisition of additional interest in
Hotel Investors, net of Hotel
Investors' cash (17,872,573) -- --
Increase (decrease) in certificate of deposit 5,000,000 -- (5,000,000)
Increase in restricted cash (2,988,082) (193,223) (82,407)
Increase (decrease) in other assets 2,510,090 (5,068,727) (676,026)
--------------- -------------- ---------------
Net cash used in investing
activities (334,236,686) (130,231,475) (34,510,982)
--------------- -------------- ---------------
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED
Years Ended December 31,
2000 1999 1998
--------------- ------------- -------------
Cash flows from financing activities:
Proceeds from borrowings on line of
credit -- -- 9,600,000
Repayment of borrowings on line of
credit -- (9,600,000) --
Payment of loan costs (1,342,713) (47,334) (91,262)
Proceeds from mortgage loans and
other notes payable 102,081,950 -- --
Contributions from minority interest
of consolidated subsidiaries -- 7,150,000 --
Subscriptions received from
stockholders 203,684,044 245,938,907 31,693,678
Distributions to stockholders (28,082,275) (10,765,881) (1,168,145)
Distributions to minority interest (10,217,828) -- --
Retirement of common stock (2,503,484) (118,542) --
Payment of stock issuance costs (24,808,156) (26,472,318) (3,948,669)
Other -- -- 7,500
--------------- -------------- ---------------
Net cash provided by financing
activities 238,811,538 206,084,832 36,093,102
--------------- -------------- ---------------
Net increase (decrease) in cash and cash
equivalents (51,774,587) 88,743,518 4,359,085
Cash and cash equivalents at beginning of
year 101,972,441 13,228,923 8,869,838
--------------- -------------- ---------------
Cash and cash equivalents at end of year $ 50,197,854 $ 101,972,441 13,228,923
=============== ============== ===============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED
Years Ended December 31,
2000 1999 1998
--------------- ------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,802,451 $ 240,994 $ 270,795
=============== ============== ===============
Supplemental schedule of non-cash investing activities:
Amounts incurred but not paid for
construction in progress $ 832,551 $ -- $ --
=============== ============== ===============
During the year ended December 31, 2000, the Company acquired an additional
interest in its previously unconsolidated subsidiary, CNL Hotel Investors,
Inc. ("Hotel Investors") increasing its ownership interest to approximately
71 percent. The Company paid $26,317,810 and accounted for this acquisition
using the purchase method of accounting. The net assets of Hotel Investors
at September 30, 2000 were as follows:
Cash $ 8,445,237
Other assets 162,787,701
Liabilities (91,079,932)
---------------
Net assets $ 80,153,006
===============
Supplemental schedule of non-cash
financing activities:
Distributions declared not paid to
minority interest at year end $ 1,089,394 $ 89,843 $ --
=============== ============== ===============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Hospitality Properties, Inc. was
organized pursuant to the laws of the state of Maryland on June 12, 1996.
CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are wholly owned
subsidiaries of CNL Hospitality Properties, Inc., each of which was
organized in Delaware in June 1998. CNL Hospitality Partners, LP is a
Delaware limited partnership (the "Partnership") formed in June 1998. CNL
Hospitality GP Corp. and CNL Hospitality LP Corp. are the general and
limited partner, respectively, of CNL Hospitality Partners, LP. Properties
acquired are generally expected to be held by the Partnership and, as a
result, are owned by CNL Hospitality Properties, Inc. through the
Partnership. Various other wholly-owned subsidiaries have been formed for
purposes of acquiring or developing hotel Properties. The terms "Company"
or "Registrant" include, unless the context otherwise requires, CNL
Hospitality Properties, Inc., CNL Hospitality Partners, LP, CNL Hospitality
GP Corp., CNL Hospitality LP Corp., CNL Hotel Investors, Inc. ("Hotel
Investors"), CNL DRR Investors, LP, CNL Philadelphia Annex, LLC (formerly
known as Courtyard Annex L.L.C.), CNL LLB LP Holding, Ltd., and each of
their subsidiaries.
The Company was formed primarily to acquire properties (the "Properties")
located across the United States to be leased on a long-term, "triple-net"
basis to hotel operators. The Company may also provide mortgage financing
(the "Mortgage Loans") and furniture, fixture and equipment financing
("Secured Equipment Leases") to operators of hotel chains. The aggregate
outstanding principal amount of Secured Equipment Leases will not exceed 10
percent of gross proceeds from the Company's offerings of shares of common
stock.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CNL Hospitality Properties, Inc., and
its wholly owned subsidiaries, CNL Hospitality GP Corp. and CNL Hospitality
LP Corp., as well as the accounts of CNL Hospitality Partners, LP, Hotel
Investors (a 71 percent owned corporation), CNL DRR Investor, LP, CNL
Philadelphia Annex, LLC (an 89 percent owned limited liability company),
CNL LLB Holding, Ltd., and each of their subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. Interest of unaffiliated third parties is reflected as
minority interest. Hotel Investors was previously accounted for under the
equity method, however, effective October 2000, the Company increased its
ownership interest in Hotel Investors to approximately 71 percent resulting
in consolidation at year end (see note 3).
Real Estate and Lease Accounting - The Company records the acquisition of
land, buildings and equipment at cost, including acquisition and closing
costs. Land, buildings and equipment are leased to unrelated third parties
on a "triple-net" basis, whereby the tenant is generally responsible for
all operating expenses relating to the Property, including property taxes,
insurance, maintenance and repairs.
The Property leases are accounted for using the operating method. Under the
operating method, land, building and equipment are recorded at cost,
revenue is recognized as rentals are earned and depreciation is charged to
operations as incurred. Buildings and equipment are depreciated on the
straight-line method over their estimated useful lives of 40 and seven
years, respectively. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce a constant
periodic rent over the lease term commencing on the date the Property is
placed in service. Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of scheduled rental
payments to date.
When the Properties or equipment are sold, the related cost and accumulated
depreciation, plus any accrued rental income, will be removed from the
accounts and any gain or loss from sale will be reflected as income.
Management reviews its Properties for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable through operations. Management determines whether impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. Significant Accounting Policies - Continued:
-------------------------------------------
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
Cash and cash equivalents consist of demand deposits at commercial banks
and money market funds (some of which are backed by government securities).
Cash equivalents are stated at cost plus accrued interest, which
approximates market value. Cash accounts maintained on behalf of the
Company in demand deposits at commercial banks and money market funds may
exceed federally insured levels; however, the Company has not experienced
any losses in such accounts. Management believes the Company is not exposed
to any significant credit risk on cash and cash equivalents.
Certain amounts of cash are restricted for maintenance and replacement of
furniture, fixtures, and equipment at the Company's various hotel
properties. These amounts have been separately classified as restricted
cash in the accompanying consolidated balance sheets.
Loan Costs - Loan costs incurred in connection with securing financing of
the Company's various acquisitions and developments have been capitalized
and are being amortized over the terms of the loans using the straight-line
method, which approximates the effective interest method.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust (REIT) under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to corporate income taxes on amounts
distributed to stockholders, providing it distributes at least 95 percent
of its REIT taxable income and meets certain other requirements for
qualifying as a REIT. Accordingly, no provision for federal income taxes
has been made in the accompanying consolidated financial statements.
Notwithstanding the Company's qualification for taxation as a REIT, the
Company is subject to certain state taxes on its income and Properties.
Beginning on January 1, 2001, the REIT taxable income distribution
requirement is reduced from 95 percent to 90 percent in accordance with the
REIT Modernization Act of 1999.
Earnings Per Share - Basic earnings per share ("EPS") is calculated based
upon the weighted average number of shares of common stock outstanding
during each year and diluted earnings per share is calculated based upon
weighted average number of common shares outstanding plus potentially
dilutive common shares.
Reclassification - Certain items in the prior years' consolidated financial
statements have been reclassified to conform with the 2000 presentation.
These reclassifications had no effect on stockholders' equity or net
earnings.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Company to defer
recognition of certain percentage rental income until certain defined
thresholds are met. The Company adopted SAB 101 beginning January 1, 2000.
Implementation of SAB 101 did not have a material impact on the Company's
results of operations.
Statement of Financial Accounting Standards No. 133 ("FAS 133") - In June
1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments, embedded in other contracts (collectively referred
to as derivatives), and for hedging activities. The Statement requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company has
reviewed the provisions of this standard and has determined that FAS 133
does not apply to the Company as of December 31, 2000.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
1. Significant Accounting Policies - Continued:
-------------------------------------------
Statement of Financial Accounting Standards No.137 ("FAS 137") - In June
1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133". FAS 137
deferred the effective date of FAS 133 for one year. FAS 133, as amended,
is now effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company has reviewed both statements and has
determined that both FAS 133 and FAS 137 do not apply to the Company as of
December 31, 2000.
REIT Modernization Act - In November 1999, Congress passed the Work
Incentives Act of 1999, also known as the REIT Modernization Act ("RMA"),
which allows a REIT to own up to 100 percent of the stock of a Taxable REIT
subsidiary ("TRS"). A TRS can provide services to REIT tenants and others
without disqualifying the rents that a REIT receives from its tenants from
being "rents from real property" under federal income tax law. A TRS may
not operate or manage lodging facilities, but it may lease lodging
facilities from its affiliated REIT, at market rates, as long as an
independent contractor operates and manages the lodging facilities. The
provisions of the RMA are effective January 1, 2001. The Company,
consistent with the requirements / provisions of the RMA, formed two
subsidiaries, which made elections to be treated as TRS's (one directly
owned and one indirectly owned through a joint venture).
Use of Estimates - Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Capitalization of Interest - The Company's policy is to capitalize interest
incurred during the construction period for hotel construction projects.
2. Public Offerings:
----------------
On June 17, 1999, the Company completed its offering of 16,500,000 shares
of common stock ($165,000,000) (the "Initial Offering"), which included
1,500,000 shares ($15,000,000) available only to stockholders who elected
to participate in the Company's reinvestment plan (the "Reinvestment
Plan"). Following the completion of the Initial Offering, the Company
commenced an offering of up to 27,500,000 additional shares of common stock
($275,000,000) (the "1999 Offering"). On September 14, 2000, the Company
completed the 1999 Offering and commenced an offering of up to 45,000,000
additional shares of common stock ($450,000,000) (the "2000 Offering"). Of
the 45,000,000 shares of common stock to be offered, up to 5,000,000 will
be available to stockholders purchasing shares through the Reinvestment
Plan. The price per share and other terms of the 2000 Offering, including
the percentage of gross proceeds payable (i) to the managing dealer for
selling commissions and expenses in connection with the offering and (ii)
to CNL Hospitality Corp. (the "Advisor") for acquisition fees, are
substantially the same as the Company's Initial Offering and the 1999
Offering. As of December 31, 2000, the Company had received total
subscription proceeds from the Initial Offering, the 1999 Offering and the
2000 Offering of $492,642,031 (49,264,203 Shares), including $1,740,170
(174,017 Shares) through the Reinvestment Plan. The Company expects to use
the net proceeds from the 2000 Offering to purchase additional Properties,
and, to a lesser extent, make Mortgage Loans.
3. Investment in Unconsolidated Subsidiaries:
-----------------------------------------
During 1999, Five Arrows Realty Securities II LLC ("Five Arrows") and the
Company invested a total of approximately $86 million in Hotel Investors,
resulting in the Company owning 49 percent and Five Arrows owning 51
percent of Hotel Investors. Five Arrows owned 48,337 shares of 8 percent
Class A cumulative preferred stock ("Class A Preferred Stock") and the
Company owned 37,979 shares of 9.76 percent Class B cumulative preferred
stock ("Class B Preferred Stock"). The Class A Preferred Stock was
exchangeable upon demand into common stock of the Company, using an
exchange ratio based on the relationship between the Company's operating
results and that of Hotel Investors.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
3. Investment in Unconsolidated Subsidiaries - Continued:
-----------------------------------------------------
In October 2000, Five Arrows, the Company and Hotel Investors entered into
an agreement ("Initial Transaction") with the following terms:
o Hotel Investors agreed to redeem 2,104 shares of both Class A
Preferred Stock and common stock of Hotel Investors held by Five
Arrows for $2,104,000;
o Hotel Investors agreed to redeem 1,653 shares of Class B Preferred
Stock and an aggregate of 10,115 shares of common stock of Hotel
Investors held by the Company for $1,653,000;
o The Company purchased 7,563 shares of both the Class A Preferred Stock
and common stock of Hotel Investors from Five Arrows for $11,395,000;
o The Company repurchased 65,285 shares of the Company's common stock
owned by Five Arrows for $620,207;
o The remaining Class A Preferred Stock owned by Five Arrows (38,670
shares) and the Company (7,563 shares) were exchanged for an
equivalent number of shares of Class E Preferred Stock par value $0.01
("Class E Preferred Stock") of Hotel Investors;
o Five Arrows granted the following options (1) on or before January 31,
2001, the Company had the option to purchase 7,250 shares of Class E
Preferred Stock and an equal number of shares of common stock of Hotel
Investors held by Five Arrows for $1,000 per pair of Class E Preferred
Stock and common stock of Hotel Investors, and (2) provided that the
Company purchased all of the shares under the first option, the
Company would have the option, until June 30, 2001, to purchase 7,251
shares of both Class E Preferred Stock and an equal number of shares
of common stock of Hotel Investors for $1,000 for each pair;
o The Company has agreed to pay Five Arrows additional consideration for
agreeing to defer the conversion of its Class A Preferred Stock (prior
to its conversion to Class E Preferred Stock) to common stock of the
Company. These payments are equivalent to the difference between any
distributions received by Five Arrows from Hotel Investors and the
distributions that Five Arrows would have received from the Company if
Five Arrows had converted its Class A Preferred Stock into the
Company's common stock on June 30, 2000;
o Five Arrows has agreed to forfeit its priority cash distributions from
Hotel Investors;
o Cash available for distributions of Hotel Investors is distributed to
100 CNL Holdings, Inc. and affiliates' associates who each own one
share of Class C preferred stock in Hotel Investors, to provide a
quarterly, cumulative, compounded 8 percent return. All remaining cash
available for distributions is distributed pro rata with respect to
the interest in the common shares of Hotel Investors.
On December 29, 2000, the Company exercised its two options to acquire
14,501 shares of Class E Preferred Stock and the common stock ("Option
Transaction") owned by Five Arrows. As of December 31, 2000, after the
Initial Transaction and the Option Transaction, the Company owned
approximately 71 percent and Five Arrows owned approximately 29 percent of
Hotel Investors. The total amount paid by the Company for the additional 22
percent interest was approximately $26.3 million. This acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
operating results of Hotel Investors have been included in the Company's
consolidated statement of earnings from the date of acquisition (October
2000). The purchase price approximated the fair value of the net assets
acquired. The resulting purchase price adjustment (fair value adjustment)
of approximately $5.5 million has been reflected in land, buildings and
equipment on operating leases, in the accompanying consolidated balance
sheet.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
3. Investment in Unconsolidated Subsidiaries - Continued:
-----------------------------------------------------
During the nine months ended September 30, 2000, prior to the consolidation
of Hotel Investors, the Company recorded $2,780,063 in dividend income and
$386,627 in equity in loss after deduction of preferred stock dividends,
resulting in net earnings of $2,393,436 attributable to its investment in
Hotel Investors. During the year ended December 31, 1999, the Company
recorded $2,753,506 in dividend income and $778,466 in equity in loss after
deduction of preferred stock dividends, resulting in net earnings of
$1,975,040 attributable to the investment.
The following presents condensed financial information for Hotel Investors
as of and for the year ended December 31, 1999:
Land, buildings and equipment on operating
leases, net $165,088,059
Cash and cash equivalents 4,884,014
Restricted cash 288,644
Loan costs, net 708,006
Accrued rental income 283,914
Prepaid expenses, receivables and other assets 3,422,806
Liabilities 92,229,193
Redeemable preferred stock 85,361,864
Stockholders' deficit (2,915,614)
Revenues 13,025,978
Net earnings 4,104,936
Preferred stock dividends 5,693,642
Income (loss) applicable to common stockholders (1,588,706)
The following presents unaudited pro forma information on the results of
operations for the Company as if the acquisition had taken place on January
1, 1999:
2000 1999
------------------- ---------------
Revenues $47,676,054 $20,949,977
Expenses 22,945,999 11,239,759
Net earnings 21,767,326 8,443,138
Basic EPS 0.56 0.53
Diluted EPS 0.56 0.49
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
3. Investment in Unconsolidated Subsidiaries - Continued:
-----------------------------------------------------
On December 21, 2000, the Company, through subsidiaries, acquired a 44
percent interest in Desert Ridge Resort Partners, LLC, a joint venture (the
"Desert Ridge Joint Venture") with an affiliate of Marriott International,
Inc. and a partnership in which an affiliate of the Advisor is the general
partner. The Desert Ridge Joint Venture invested in Desert Ridge Resort,
LLC, a single purpose limited liability company (the "Resort Owner") that
owns the Desert Ridge Marriott Resort & Spa in Phoenix, Arizona (the
"Desert Ridge Property"), which is currently under construction. The
Company made an initial capital contribution of $8.8 million of its
anticipated $25 million investment in the Desert Ridge Joint Venture. The
total cost of the Desert Ridge Property (including acquisition of land,
development and construction) is estimated to be $298 million. On December
21, 2000, the Resort Owner obtained permanent financing from a third party
lender for $179 million, secured by a mortgage on the Desert Ridge
Property. The notes have a term of seven years with interest payable
quarterly in arrears commencing on March 2, 2001. Interest with respect to
$109 million of the notes is payable at a rate of 7.90 percent per annum,
while interest with respect to $70 million of the notes is payable at a
floating rate equal to 185 basis points above the three-month LIBOR. The
blended fixed rate of interest after an interest rate swap is 9.48 percent.
All unpaid interest and principal will be due at maturity. In addition, an
affiliate Marriott International, Inc. will provide financing for 19
percent of the costs to the Desert Ridge Joint Venture, secured by pledges
of the co-venturers' equity contributions to the Desert Ridge Joint
Venture. This investment was accounted for using the equity method of
accounting.
The difference between the Company's carrying amount of the investment in
the Desert Ridge Joint Venture and the underlying equity in the net assets
of the Desert Ridge Joint Venture was $1,375,573 at December 31, 2000. This
amount will be amortized over the estimated life of the building beginning
on date that the hotel begins operations.
The follow presents unaudited condensed financial information for the
Desert Ridge Joint Venture as of December 31, 2000:
Land, buildings and equipment on operating
leases, net $43,803,084
Capitalized loan costs 11,482,378
Restricted cash 143,510,658
Receivable 3,687,341
Cash and cash equivalents
2,047,614
Prepaid and other assets 180,780
Note payable 179,000,000
Due to related parties 9,800,036
Stockholders' equity 15,911,819
4. Land, Buildings and Equipment on Operating Leases:
-------------------------------------------------
During the year ended December 31, 2000, the Company acquired 15 Properties
throughout the United States, including two Properties which are under
construction. The Company did not dispose of any Properties during 2000.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
4. Land, Buildings and Equipment on Operating Leases - Continued:
-------------------------------------------------------------
The Company leases its land, buildings and equipment to hotel operators.
The leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases," and have been
classified as operating leases. The lease terms range from 5 to 20 years
and provide for minimum and contingent rentals. In addition, the tenant
pays all property taxes and assessments and carries insurance coverage for
public liability, property damage, fire and extended coverage. The lease
options allow the tenants to renew each of the leases for two to five
successive five-year to ten-year periods subject to the same terms and
conditions of the initial leases. The leases also require the establishment
of capital expenditure reserve funds which will be used for the replacement
and renewal of furniture, fixtures and equipment relating to the hotel
Properties (the "FF&E Reserve"). Funds in the FF&E Reserve have been
earned, granted and assigned to the Company as additional rent. For the
years ended December 31, 2000, 1999 and 1998, revenues from the FF&E
Reserve totaled $2,508,949, $320,356 and $98,099, respectively, of which
$3,263,712 and $275,630 is classified as restricted cash at December 31,
2000 and 1999, respectively. Land, buildings and equipment on operating
leases consisted of the following at December 31:
2000 1999
-------------- -------------
Land $ 93,758,025 $ 12,337,950
Buildings 446,132,337 92,220,370
Equipment 46,050,378 9,272,785
--------------- --------------
585,940,740 113,831,105
Less accumulated depreciation (9,433,790) (1,603,334)
Construction in progress 5,021,978 --
--------------- --------------
$ 581,528,928 $ 112,227,771
=============== ==============
Certain leases provide an increase in the minimum annual rent at a
predetermined interval during the terms of the leases. Rent revenue is
recognized on a straight-line basis over the terms of the leases commencing
on the date the Property is placed in service. For the years ended December
31, 2000, 1998 and 1998, the Company recognized $117,282, $35,238 and
$44,160, respectively, of such rental income. This amount is included in
rental income from operating leases in the accompanying consolidated
statements of earnings.
The following is a schedule of future minimum lease payments to be received
on the noncancellable operating leases at December 31, 2000:
2001 $ 59,182,433
2002 59,527,707
2003 59,572,962
2004 59,572,962
2005 59,572,962
Thereafter 643,959,055
----------------
$ 941,388,081
================
Since leases are renewable at the option of the tenant, the above table
only presents future minimum lease payments due during the initial lease
terms. In addition, this table does not include any amounts for future
contingent rents which may be received on the leases based on a percentage
of the tenant's gross sales.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
5. Other Assets:
------------
Other assets as of December 31, 2000 and 1999 were $5,185,900 and
$7,627,565, respectively, which consisted of acquisition fees and expenses
relating to Properties the Company intends to acquire.
6. Redemption of Shares:
The Company has a redemption plan such that prior to any listing on a
national securities exchange or over-the-counter market, if any, any
stockholder (other than the Advisor) may present all or any portion equal
to at least 25 percent of such stockholder's shares to the Company for
redemption at any time, in accordance with the procedures outlined in the
Company's prospectus. At such time, the Company may, at its sole option,
redeem such shares presented for redemption for cash to the extent it has
sufficient funds available. During the year ended December 31, 2000 and
1999, 269,276 and 12,885 shares, respectively, were redeemed for $2,503,484
and $118,542, respectively, and retired from shares outstanding of common
stock. No shares were redeemed in 1998.
7. Indebtedness:
-------------
At December 31, 2000 and 1999, indebtedness consisted of:
December 31, 2000 December 31, 1999
--------------------- ---------------------
Mortgages payable, collateralized by hotel Properties, bearing
interest rates ranging from 7.50 percent to 7.75 percent, with total
monthly principal and interest payments of $665,619, maturing July 31, $ 87,555,326 $ --
2009
Mortgages payable, collateralized by hotel Properties, bearing
interest of 8.335 percent, with monthly interest only payments of
$347,000, maturing December 1, 2007 50,000,000 --
Mortgage payable, collateralized by hotel Property, bearing interest
of 8.29 percent, with monthly interest only payments through November
2001 and principal and interest payments of $257,116 through maturity,
maturing December 1, 2007 32,500,000 --
Construction loan facility for up to $55 million in borrowings,
collateralized by hotel Properties, bearing interest of London
Interbank Offered Rate ("LIBOR") plus 275 basis points, with monthly
payments of interest only, maturing November 15, 2003 9,897,341 --
Tax Increment Financing Note, collateralized by hotel Property,
implicit interest of 12.85 percent, with principal and interest
payments made by incremental property tax payments paid by tenant,
maturing December 1, 2017 9,684,609 --
--------------------- ---------------------
$ 189,637,276 $ --
===================== =====================
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
7. Indebtedness - Continued:
------------------------
The Company has a line of credit in the amount of $30,000,000 which expires
on July 30, 2003. Advances under the line of credit will bear interest at
either (i) a rate per annum equal to 318 basis points above the LIBOR or
(ii) a rate per annum equal to 30 basis points above the bank's base rate,
whichever the Company selects at the time advances are made. In addition, a
fee of 0.5 percent per advance will be due and payable to the bank on funds
as advanced. Each advance made under the line of credit will be
collateralized by the assignment of rents and leases. As of December 31,
2000 and 1999, the Company had no amounts outstanding under the line of
credit.
The following is a schedule of maturities for all long-term borrowings at
December 31, 2000:
2001 $ 2,292,415
2002 2,194,877
2003 12,243,846
2004 2,510,389
2005 2,687,520
Thereafter 167,708,229
----------------
Total $ 189,637,276
================
8. Stock Issuance Costs:
--------------------
The Company has incurred certain expenses associated with its offerings of
common stock, including commissions, marketing support and due diligence
expense reimbursement fees, filing fees, legal, accounting, printing and
escrow fees, which have been deducted from the gross proceeds of the
offerings. The Advisor has agreed to pay all organizational and offering
expenses (excluding commissions and marketing support and due diligence
expense reimbursement fees) which exceed three percent of the gross
proceeds received from the sale of shares of the Company in connection with
the offerings.
During the years ended December 31, 2000, 1999 and 1998, the Company
incurred $24,808,156, $26,632,124 and $3,601,898, respectively, in offering
costs, including $16,113,399, $18,475,145 and $2,535,494, respectively, in
commissions and marketing support and due diligence expense reimbursement
fees (see Note 11). The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
9. Distributions:
-------------
For the years ended December 31, 2000, 1999 and 1998, approximately 63
percent, 75 percent and 76 percent, respectively, of the distributions paid
to stockholders were considered ordinary income, and for the years ended
December 31, 2000, 1999 and 1998, approximately 37 percent, 25 percent and
24 percent, respectively, were considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to the
stockholders for the years ended December 31, 2000, 1999 and 1998 are
required to be or have been treated by the Company as a return of capital
for purposes of calculating the stockholders' return on their invested
capital.
10. Capitalized Interest:
--------------------
The Company's policy is to capitalize interest incurred on debt related to
the construction projects. During the year ended December 31, 2000, $52,780
was capitalized. No interest was capitalized in 1999.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
11. Related Party Transactions:
--------------------------
Certain directors and officers of the Company hold similar positions with
the Advisor and the managing dealer, CNL Securities Corp. These affiliates
are entitled to receive fees and compensation in connection with the
offerings, and the acquisition, management and sale of the assets of the
Company.
During the years ended December 31, 2000, 1999 and 1998, the Company
incurred $15,116,931, $17,320,448 and $2,237,026 respectively, in selling
commissions due to CNL Securities Corp. for services in connection with its
offerings. A substantial portion of these amounts ($14,557,335, $16,164,488
and $2,200,516, respectively) were or will be paid by CNL Securities Corp.
as commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5 percent of
the total amount raised from the sale of shares, a portion of which may be
reallowed to other broker-dealers. During the years ended December 31,
2000, 1999 and 1998, the Company incurred $1,016,468, $1,154,697 and
$158,468, respectively, of such fees, the majority of which were reallowed
to other broker-dealers and from which all bona fide due diligence expenses
were paid.
CNL Securities Corp. will also receive, in connection with the Initial
Offering of up to 16,500,000 shares of common stock and the 2000 Offering
of up to 45,000,000 shares of common stock, a soliciting dealer servicing
fee payable annually by the Company, on December 31 of each year following
the year in which the offering terminates, in the amount of 0.20 percent of
"invested capital," as defined by the Company's prospectus, from the
Initial Offering and 2000 Offering. CNL Securities Corp., in turn, may
reallow all or a portion of such fee to soliciting dealers whose clients
hold shares on such date. As of December 31, 2000, $300,145 of such fees
was incurred and payable at December 31, 2000, in connection with the
Initial Offering. No such fees were incurred in 1999 and 1998.
In addition, in connection with its 1999 Offering, the Company had agreed
to issue and sell soliciting dealer warrants ("Soliciting Dealer Warrants")
to CNL Securities Corp. The price for each warrant was $0.0008 and one
warrant was issued for every 25 shares sold by the managing dealer. All or
a portion of the Soliciting Dealer Warrants may be reallowed to soliciting
dealers with prior written approval from, and in the sole discretion of,
the managing dealer, except where prohibited by either federal or state
securities laws. The holder of a Soliciting Dealer Warrant is entitled to
purchase one share of common stock from the Company at a price of $12.00
during the five year period commencing the date the 1999 Offering began. No
Soliciting Dealer Warrants, however, will be exercisable until one year
from the date of issuance. During the year ended December 31, 2000, the
Company issued 960,900 Soliciting Dealer Warrants to CNL Securities Corp.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of leases of the
Properties and Mortgage Loans equal to 4.5 percent of the gross proceeds of
the offerings, loan proceeds from permanent financing and the line of
credit that are used to acquire properties but excluding amounts used to
finance Secured Equipment Leases. During the years ended December 31, 2000,
1999 and 1998, the Company incurred $17,056,532, $10,956,455 and
$1,426,216, respectively, of such fees based on offering proceeds. Such
fees are included in land, buildings and equipment on operating leases and
other assets in the accompanying consolidated balance sheets.
The Advisor is entitled to receive fees in connection with the development,
construction, or renovation of a Property, generally equal to 4 percent of
anticipated project costs. During the year ended December 31, 2000, the
Company incurred $2,125,857 of such fees. No such fees were incurred during
1999 or 1998. Such fees are included in land, buildings and equipment on
operating leases in the accompanying consolidated balance sheet and
investment in unconsolidated subsidiaries.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
11. Related Party Transactions - Continued:
---------------------------------------
The Company incurs operating expenses which, in general, are those expenses
relating to administration of the Company on an ongoing basis. Pursuant to
the advisory agreement described below, the Advisor is required to
reimburse the Company the amount by which the total operating expenses paid
or incurred by the Company exceed in any four consecutive fiscal quarters,
the greater of two percent of average invested assets or 25 percent of net
income (the "Expense Cap"). For the years ended December 31, 2000 and 1999,
the Company's operating expenses did not exceed the Expense Cap. During the
year ended December 31, 1998, the Company's operating expenses exceeded the
Expense Cap by $92,733; therefore, the Advisor reimbursed the Company such
amount in accordance with the advisory agreement.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management fee
of one-twelfth of 0.60 percent of the Company's real estate asset value and
the outstanding principal balance of any Mortgage Loans as of the end of
the preceding month. The management fee, which will not exceed fees that
are competitive for similar services in the same geographic area, may or
may not be taken, in whole or in part as to any year, in the sole
discretion of the Advisor. All or any portion of the management fee not
taken as to any fiscal year shall be deferred without interest and may be
taken in such other fiscal year, as the Advisor shall determine. During the
years ended December 31, 2000, 1999 and 1998, the Company incurred
$1,335,488, $106,788 and $68,114, respectively, of such fees. Additionally,
the Company's consolidated subsidiary, Hotel Investors, incurred asset
management fees and subordinated incentive fees to the Advisor, of which
the Company's pro rata share totalled $61,806 and $55,741, respectively,
and $157,135 and $164,428, respectively, during the nine months ended
September 30, 2000 and the year ended December 31, 1999.
The Advisor and its affiliates provide various administrative services to
the Company, including services related to accounting; financial, tax and
regulatory compliance reporting; stockholder distributions and reporting;
due diligence and marketing; and investor relations (including
administrative services in connection with the offerings), on a day-to-day
basis. The expenses incurred for these services were classified as follows:
Years Ended December 31,
2000 1999 1998
------------- ------------- -------------
Stock issuance costs $ 3,851,925 $ 3,854,739 $ 494,729
General operating and
administrative expenses 542,870 351,846 140,376
Land, buildings and equipment
on operating leases and
other assets -- 124 9,084
-------------- ------------- -------------
-------------- ------------- -------------
$ 4,394,795 $ 4,206,709 $ 644,189
============== ============= =============
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
11. Related Party Transactions - Continued:
---------------------------------------
The amounts due to related parties consisted of the following at
December 31:
2000 1999
------------- ---------------
Due to the Advisor:
Expenditures incurred on behalf
of the Company for accounting
and administrative services $ 531,220 $ 387,690
Acquisition fees 209,254 337,797
Management fees -- 19,642
------------- ---------------
740,474 745,129
------------- ---------------
Due to CNL Securities Corp.:
Commissions 598,899 229,834
Marketing support and due diligence
expense reimbursement fee 20,044 16,764
------------- ---------------
618,943 246,598
------------- ---------------
Due to other related party -- 3,773
------------- ---------------
$ 1,359,417 $ 995,500
============= ===============
The Company maintains 13 bank accounts in a bank in which certain officers
and directors of the Company serve as directors, and in which an affiliate
of the Advisor is a stockholder. The amount deposited with this affiliate
was $17,568,909 and $15,275,629 at December 31, 2000 and 1999,
respectively.
12. Fair Value of Financial Instruments:
-----------------------------------
The estimated fair value of cash and cash equivalents and accounts payable
and accrued expenses approximates carrying value because of short
maturities. The estimated fair value of long-term borrowings approximates
carrying value as interest rates on the borrowings approximates current
market rates.
13. Concentration of Credit Risk:
----------------------------
Crestline Capital Corporation, City Center Annex Tenant Corporation and WI
Leasing, LLC each contributed more than 10 percent of the Company's total
rental income for the year ended December 31, 2000. In addition, a
significant portion of the Company's rental income was earned from
Properties operating as Marriott(R) brand chains.
Although the Company intends to acquire Properties in various states and
regions and to carefully screen its tenants in order to reduce risks of
default, failure of these lessees or the Marriott(R) brand chains could
significantly impact the results of operations of the Company. However,
management believes that the risk of such as default is reduced due to the
essential or important nature of these Properties for the ongoing
operations of the lessees.
In addition, the hotel industry is generally characterized as being
intensely competitive. The operators of the hotels located on the
Properties do, and are expected to in the future, compete with
independently owned hotels, hotels which are part of local or regional
chains, and hotels in other well-known national chains, including those
offering different types of accommodations. Additionally, any general
downturn in the domestic hotel market could have a negative impact on the
Company's operations.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
14. Earnings Per Share:
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if other contracts to issue common stock were exercised
and shared in the earnings of the Company. For the year ended December 31,
2000 and 1999, approximately 7.2 and 5.5 million shares, respectively,
related to the conversion of Hotel Investors' Preferred Stock to the
Company's common stock, were considered dilutive after the application of
the "if converted method" and were included in the denominator of the
diluted EPS calculation.
As a result of the Initial Transaction with Five Arrows (see Note 3), Five
Arrows has the right to exchange its remaining Class E Preferred Stock and
Common Stock in Hotel Investors, at certain defined dates, into
approximately 3.8 million shares of the Company's common stock.
The numerator in the diluted EPS calculation includes an adjustment for the
net earnings of Hotel Investors for the applicable period. Additionally,
the Company had no potentially dilutive common shares in 1998.
The following represents the calculation of earnings per share and the
weighted average number of shares of potentially dilutive common stock for
the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998
-------------- -------------- --------------
Basic Earnings Per Share:
Net earnings $ 20,670,462 $ 7,515,988 $ 958,939
============== ============== ==============
Weighted average number of shares outstanding 38,698,066 15,890,212 2,402,344
============== ============== ==============
Basic earnings per share $ 0.53 $ 0.47 $ 0.40
============== ============== ==============
Diluted Earnings Per Share:
Net earnings $ 20,670,462 $ 7,515,988 $ 958,939
Additional income attributable to investment in
unconsolidated subsidiary assuming all
Preferred Shares were converted 3,563,543 2,129,899 --
-------------- -------------- --------------
Adjusted net earnings assuming dilution $ 24,234,005 $ 9,645,887 $ 958,939
============== ============== ==============
Weighted average number of shares outstanding 38,698,066 15,890,212 2,402,344
Assumed conversion of Preferred Stock 7,187,676 5,547,647 --
-------------- -------------- --------------
Adjusted weighted average number of
shares outstanding 45,885,742 21,437,859 2,402,344
============== ============== ==============
Diluted earnings per share $ 0.53 $ 0.45 $ 0.40
============== ============== ==============
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
15. Commitments and Contingencies:
------------------------------
In connection with the acquisition of two Properties in 1998, the Company
may be required to make an additional payment (the "Earnout Amount") of up
to $1 million if certain earnout provisions are achieved by July 31, 2001.
After July 31, 2001, the Company will no longer be obligated to make any
payments under the earnout provision. The Earnout Amount is equal to the
difference between earnings before interest, taxes, depreciation and
amortization expense adjusted by the earnout factor (7.44), and the initial
purchase price. Rental income will be adjusted upward in accordance with
the lease agreements for any amount paid. As of December 31, 2000, no such
amounts were payable under this agreement; however, $96,688 was paid during
2000 and has been properly reflected in land, buildings and equipment on
operating leases on the accompanying consolidated balance sheet at December
31, 2000.
In addition, in connection with the acquisition of an 89 percent interest
in the CNL Philadelphia Annex, LLC, the Company and the minority interest
holder each have the right to obligate the other to sell or buy,
respectively, the 11 percent interest in CNL Philadelphia Annex, LLC. These
rights are effective five years after the hotel's opening which is November
2004. The price for the 11 percent interest is equal to 11 percent of the
lesser of (a) an amount equal to the product of 8.5 multiplied times net
house profit (defined as total hotel revenues less property expenses) for
the 13 period accounting year preceding the notice of the option exercise,
or (b) the appraised fair market value.
In connection with the purchase of two Properties in June 2000, the Company
may be required to make an additional payment (the "Earnout Provision") not
to exceed $2,471,500 if certain earnout provisions are achieved by June 1,
2003. After the June 1, 2003, the Company will no longer be obligated to
make any payments under the Earnout Provision. The Earnout Provision is
equal to the difference between earnings before interest, taxes,
depreciation and amortization expense adjusted by the earnout factor
(7.33), and the initial purchase price. Rental income will be adjusted
upward in accordance with the lease agreements for any amount paid. As of
December 31, 2000, no such amounts were payable under this agreement.
On November 7, 2000, the Company, through CNL Philadelphia Annex, LLC,
obtained a letter of credit for $775,000 in the favor of a lender, in
accordance with the related loan agreements. Draws under this letter of
credit may occur if default on the loan were to occur. No such default has
occurred as of December 31, 2000 and the letter of credit remained unused
at that time. The letter of credit is in effect for one year with automatic
annual extensions until November 10, 2007.
The Company had commitments to acquire four hotel Properties for an
anticipated aggregate purchase price of approximately $45 million.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
16. Selected Quarterly Financial Data:
----------------------------------
The following table presents selected unaudited quarterly financial data
for each full quarter during the years ended December 31, 2000 and 1999:
2000 Quarter First Second Third Fourth Year
------------
-------------- -------------- -------------- --------------- ---------------
Revenue $ 5,581,157 $ 6,690,682 $ 8,540,296 $ 15,287,084 $ 36,099,219
Net income 3,945,084 4,642,940 5,251,624 6,830,814 20,670,462
Earning per share:
Basic $ 0.13 $ 0.13 $ 0.13 $ 0.16 $ 0.53
Diluted 0.12 0.13 0.13 0.15 0.53
1999 Quarter First Second Third Fourth Year
------------
-------------- -------------- -------------- --------------- ---------------
Revenue $ $1,333,352 $ 2,087,077 $ 2,981,701 $ 4,275,375 $ 10,677,505
Net income 430,280 1,462,249 2,421,516 3,201,943 7,515,988
Earning per share:
Basic $ 0.07 $ 0.12 $ 0.13 $ 0.12 $ 0.47
Diluted 0.06 0.12 0.12 0.12 0.45
17. Subsequent Events:
-----------------
During the period January 1, 2001 through January 26, 2001, the Company
received subscription proceeds for an additional 1,264,915 shares
($12,649,150) of common stock.
On January 1, 2001, the Company declared distributions totaling $3,120,827,
or $0.06354 per share, of common stock, payable in March 2001, to
stockholders of record on January 1, 2001.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 2001.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 2001.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 2001.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Consolidated Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Earnings for the years ended Decem-
ber 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2000
Notes to Schedule III - Real Estate and Accumulated Deprecia-
tion at December 31, 2000
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements
or notes thereto.
3. Exhibits
3.1 CNL-American Realty Fund, Inc. amended and restated Articles
of Incorporation (Previously filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-11
(Registration No. 333-9943) (the "1996 Form S-11") and
incorporated herein by reference.)
3.2 CNL American Realty Fund, Inc. Bylaws (Previously filed as
Exhibit 3.3 to the 1996 Form S-11 and incorporated herein by
reference.)
3.3 CNL American Realty Fund, Inc. Articles of Amendement to the
Amended and Restated Articles of Incorporation (Previously
filed as Exhibit 3.4 to the 1996 Form S-11 and incorporated
herein by reference.)
3.4 Articles of Amendment to the Amended and Restated Articles
of Incorporation of CNL Hospitality Properties, Inc. dated
May 26, 1999 (Previously filed as Exhibit 3.5 to the
Registrant's Registration Statement on Form S-11
(Registration No. 333-67787) (the "1998 Form S-11") and
incorporated herein by reference.)
3.6 Articles of Amendment to the Amended and Restated Articles
of Incorporation of CNL Hospitality Properties, Inc. dated
June 27, 2000 (Previously filed as Exhibit 3.6 to the
Registrant's Registration Statement on Form S-11 (File No.
333-89691) (the "1999 Form S-11") and incorporated by
reference).
3.7 Amendment No. 1 to the Bylaws of CNL Hospitality Properties,
Inc. (Previously filed as Exhibit 3.7 to the 1999 Form S-11
and incorporated herein by reference.)
4.1 Reinvestment Plan (Previously filed as Exhibit 4.4 to the
1996 Form S-11 and incorporated herein by reference.)
4.2 CNL-American Realty Fund, Inc. Amended and Restated Articles
of Incorporation (Previously filed as Exhibit 3.2 to the
1996 Form S-11 and incorporated herein by reference.)
4.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as
Exhibit 3.3 to the 1996 Form S-11 and incorporated herein by
reference.)
4.4 Articles of Amendment to the Amended and Restated Articles
of Incorporation of CNL American Realty Fund, Inc. dated
June 3, 1998 (Previously filed as Exhibit 3.4 to the 1996
Form S-11 and incorporated herein by reference.)
4.5 Articles of Amendment to the Amended and Restated Articles
of Incorporation of CNL Hospitality Properties, Inc. dated
May 26, 1999 (Previously filed as Exhibit 3.5 to the 1998
Form S-11 and incorporated herein by reference.)
4.7 Articles of Amendment to the Amended and Restated Articles
of Incorporation of CNL Hospitality Properties, Inc. dated
June 27, 2000 (Previously filed as Exhibit 3.6 to the 1999
Form S-11 and incorporated herein by reference.)
4.8 Amendment No. 1 to the Bylaws of CNL Hospitality Properties,
Inc. (Previously filed as Exhibit 3.7 to the 1999 Form S-11
and incorporated herein by reference.)
10.1 Advisory Agreement dated as of June 17, 2000, between CNL
Hospitality Properties, Inc. and CNL Hospitality Corp.
(Previously filed as Exhibit 10.2 to the 1999 Form S-11
(Registration No. 333-89691) (the "1999 Form S-11") and
incorporated herein by reference.)
10.2 Indemnification Agreement between CNL Hospitality
Properties, Inc. and Lawrence A. Dustin dated February 24,
1999. Each of the following directors and/or officers has
signed a substantially similar agreement as follows: James
M. Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J.
Joseph Kruse, Richard C. Huseman, Charles A. Muller, Jeanne
A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian
Strickland dated October 31, 1998; John A. Griswold, dated
January 7, 1999; Charles E. Adams and Craig M. McAllaster,
dated February 10, 1999; Matthew W. Kaplan dated February
24, 1999; and Thomas J. Hutchison III dated May 16, 2000
(Previously filed as Exhibit 10.2 to the Form 10-Q filed on
May 17, 1999 and incorporated herein by reference.)
10.3 Agreement of Limited Partnership of CNL Hospitality
Partners, LP (Previously filed as Exhibit 10.10 to the 1996
Form S-11 and incorporated herein by reference.)
10.4 Hotel Purchase and Sale Contract between CNL Real Estate
Advisors, Inc. and Gwinnett Residence Associates, LLC,
relating to the Residence Inn - Gwinnett Place (Previously
filed as Exhibit 10.11 to the 1996 Form S-11 and
incorporated herein by reference.)
10.5 Assignment and Assumption Agreement between CNL Real Estate
Advisors, Inc. and CNL Hospitality Partners, LP, relating to
the Residence Inn - Gwinnett Place (Previously filed as
Exhibit 10.12 to the 1996 Form S-11 and incorporated herein
by reference.)
10.6 Hotel Purchase and Sale Contract between CNL Real Estate
Advisors, Inc. and Buckhead Residence Associates, LLC,
relating to the Residence Inn - Buckhead (Lenox Park)
(Previously filed as Exhibit 10.13 to the 1996 Form S-11 and
incorporated herein by reference.)
10.7 Assignment and Assumption Agreement between CNL Real Estate
Advisors, Inc. and CNL Hospitality Partners, LP, relating to
the Residence Inn - Buckhead (Lenox Park) (Previously filed
as Exhibit 10.14 to the 1996 Form S-11 and incorporated
herein by reference.)
10.8 Lease Agreement between CNL Hospitality Partners, LP and STC
Leasing Associates, LLC, dated August 1, 1998, relating to
the Residence Inn - Gwinnett Place (Previously filed as
Exhibit to the 1996 Form S-11 and incorporated herein by
reference.)
10.9 Lease Agreement between CNL Hospitality Partners, LP and STC
Leasing Associates, LLC, dated August 1, 1998, relating to
the Residence Inn - Buckhead (Lenox Park) (Previously filed
as Exhibit 10.16 to the 1996 Form S-11 and incorporated
herein by reference.)
10.10 Master Revolving Line of Credit Loan Agreement with CNL
Hospitality Properties, Inc., CNL Hospitality Partners, LP
and Colonial Bank, dated July 31, 1998 (Previously filed as
Exhibit 10.17 to the 1996 Form S-11 and incorporated herein
by reference.)
10.11 Master Loan Agreement by and between CNL Hotel Investors,
Inc. and Jefferson-Pilot Life Insurance Company, dated
February 24, 1999 (Previously filed as Exhibit 10.18 to the
1996 Form S-11 and incorporated herein by reference.)
10.12 Securities Purchase Agreement between CNL Hospitality
Properties, Inc. and Five Arrows Realty Securities II
L.L.C., dated February 24, 1999 (Previously filed as Exhibit
10.19 to the 1996 Form S-11 and incorporated herein by
reference.)
10.13 Subscription and Stockholders' Agreement among CNL Hotel
Investors, Inc., Five Arrows Realty Securities II L.L.C.,
CNL Hospitality Partners, LP and CNL Hospitality Properties,
Inc., dated February 24, 1999 (Previously filed as Exhibit
10.20 to the 1996 Form S-11 and incorporated herein by
reference.)
10.14 Registration Rights Agreement by and between CNL
Hospitality Properties, Inc. and Five Arrows Realty
Securities II L.L.C., dated February 24, 1999 (Previously
filed as Exhibit 10.21 to the 1996 Form S-11 and
incorporated herein by reference.)
10.15 First Amendment to Lease Agreement between CNL Hospitality
Partners, LP and STC Leasing Associates, LLC, dated August
1, 1998, related to the Residence Inn - Gwinnett Place,
(amends Exhibit 10.8 above) and the First Amendment to
Agreement of Guaranty, dated August 1, 1998 (amends
Agreement of Guaranty attached as Exhibit I to 10.8 above)
(Previously filed as Exhibit 10.8 to the Form 10-Q filed on
November 10, 1999 and incorporated herein by reference.)
10.16 First Amendment to Lease Agreement between CNL Hospitality
Partners, LP and STC Leasing Associates, LLC, dated August
1, 1998, related to the Residence Inn - Buckhead (Lenox
Park) (amends Exhibit 10.9 above) and the First Amendment to
Agreement of Guaranty, dated August 1, 1998 (amends
Agreement of Guaranty attached as Exhibit I to 10.9 above)
(Previously filed as Exhibit 10.9 to the Form 10-Q filed on
November 10, 1999 and incorporated herein by reference.)
10.17 Lease Agreement between Courtyard Annex, L.L.C. and City
Center Annex Tenant Corporation, dated November 15, 1999,
relating to the Courtyard - Philadelphia (Previously filed
as Exhibit 10.22 to the 1998 Form S-11 and incorporated
herein by reference.)
10.18 First Amended and Restated Limited Liability Company
Agreement of Courtyard Annex, L.L.C., relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.23
to the 1998 Form S-11 and incorporated herein by reference.)
10.19 Purchase and Sale Agreement between Marriott International,
Inc., CBM Annex, Inc., Courtyard Annex, Inc., as Sellers,
and CNL Hospitality Partners, LP, as Purchaser, dated
November 15, 1999, relating to the Courtyard - Philadelphia
(Previously filed as Exhibit 10.24 to the 1998 Form S-11 and
incorporated herein by reference.)
10.20 Lease Agreement between CNL Hospitality Partners, LP, and
RST4 Tenant LLC, dated December 10, 1999, relating to the
Residence Inn - Mira Mesa (Previously filed as Exhibit 10.25
to the 1998 Form S-11 and incorporated herein by reference.)
10.21 Purchase and Sale Agreement between Marriott International,
Inc., TownePlace Management Corporation and Residence Inn by
Marriott, Inc., as Sellers, and CNL Hospitality Partners,
LP, as Purchaser, dated November 24, 1999, relating to the
Residence Inn - Mira Mesa and the TownePlace Suites - Newark
(Previously filed as Exhibit 10.26 to the 1998 Form S-11 and
incorporated herein by reference.)
10.22 Lease Agreement between CNL Hospitality Partners, LP and
WYN Orlando Lessee, LLC, dated May 31, 2000, relating to the
Wyndham Denver Tech Center (Previously filed as Exhibit
10.29 to the 1998 Form S-11 and incorporated herein by
reference.)
10.23 Lease Agreement between CNL Hospitality Partners, LP and
WYN Orlando Lessee, LLC, dated May 31, 2000, relating to the
Wyndham Billerica (Previously filed as Exhibit 10.30 to the
1998 Form S-11 and incorporated herein by reference.)
10.24 Purchase and Sale Agreement between CNL Hospitality Corp.,
as Buyer, and WII Denver Tech, LLC and PAH Billerica Realty
Company, LLC, as Sellers, and Wyndham International, Inc.,
relating to the Wyndham Denver Tech Center and the Wyndham
Billerica (Previously filed as Exhibit 10.31 to the 1998
Form S-11 and incorporated herein by reference.)
10.25 Lease Agreement between CNL Hospitality Partners, LP and
RST4 Tenant LLC, dated June 17, 2000, relating to the
Courtyard - Palm Desert and the Residence Inn - Palm Desert
(Previously filed as Exhibit 10.32 to the 1999 Form S-11 and
incorporated by reference).
10.26 Purchase and Sale Agreement between PDH Associates LLC, as
Seller, and CNL Hospitality Corp., as Buyer, dated January
19, 2000, relating to the Courtyard - Palm Desert and the
Residence Inn - Palm Desert (Previously filed as Exhibit
10.33 to the 1999 Form S-11 and incorporated by reference).
10.27 Amendment to Purchase and Sale Agreement between PDH
Associates LLC and CNL Hospitality Corp., dated January 19,
2000, relating to Courtyard - Palm Desert and the Residence
Inn - Palm Desert (amends Exhibit 10.26 above) (Previously
filed as Exhibit 10.34 to the 1999 Form S-11 and
incorporated by reference).
10.28 Assignment Agreement between CNL Hospitality Corp. and CNL
Hospitality Partners, LP, relating to the Courtyard - Palm
Desert and the Residence Inn - Palm Desert (Previously filed
as Exhibit 10.35 to the 1999 Form S-11 and incorporated by
reference).
10.29 Lease Agreement between CNL Hospitality Partners, LP and
RST4 Tenant LLC, dated July 28, 2000, relating to the
SpringHill Suites - Gaithersburg (Previously filed as
Exhibit 10.36 to the 1999 Form S-11 and incorporated by
reference).
10.30 Purchase and Sale Agreement between SpringHill SMC
Corporation, as Seller, and CNL Hospitality Partners, LP, as
Purchaser, and joined in by Marriott International, Inc.,
dated June 30, 2000, relating to the SpringHill Suites -
Gaithersburg (Previously filed as Exhibit 10.37 to the 1999
Form S-11 and incorporated by reference).
10.31 Lease Agreement between CNL Hospitality Partners, LP and
RST4 Tenant LLC, dated July 28, 2000, relating to the
Residence Inn - Merrifield (Previously filed as Exhibit
10.38 to the 1999 Form S-11 and incorporated by reference).
10.32 Purchase and Sale Agreement between TownePlace Management
Corporation and Residence Inn by Marriott, Inc., as Sellers,
and CNL Hospitality Partners, LP, as Purchaser, and joined
in by Marriott International, Inc., dated November 24, 1999,
relating to the Residence Inn - Merrifield (Previously filed
as Exhibit 10.39 to the 1999 Form S-11 and incorporated by
reference).
10.33 First Amendment to Purchase and Sale Agreement between
TownePlace Management Corporation and Residence Inn by
Marriott, as Sellers, and CNL Hospitality Partners, LP, as
Purchaser, and joined in by Marriott International, Inc.,
dated November 24, 1999, relating to the Residence Inn -
Mira Mesa, SpringHill Suites - Gaithersburg, Residence Inn -
Merrifield, and TownePlace Suites - Newark (amends Exhibits
10.21, 10.30, and 10.32 above) (Previously filed as Exhibit
10.40 to the 1999 Form S-11 and incorporated by reference).
10.34 Lease Agreement between CNL Hospitality Partners, LP and
CCCL Leasing LLC, dated August 18, 2000, relating to the
Courtyard - Alpharetta (Previously filed as Exhibit 10.41 to
the 1999 Form S-11 and incorporated by reference).
10.35 Lease Agreement between CNL Hospitality Partners, LP and
CCCL Leasing LLC, dated August 18, 2000, relating to the
Residence Inn - Cottonwood (Previously filed as Exhibit
10.42 to the 1999 Form S-11 and incorporated by reference).
10.36 Lease Agreement between CNL Hospitality Partners, LP and
CCCL Leasing LLC, dated August 18, 2000, relating to the
TownePlace Suites - Mt. Laurel (Previously filed as Exhibit
10.43 to the 1999 Form S-11 and incorporated by reference).
10.37 Lease Agreement between CNL Hospitality Partners, LP and
CCCL Leasing LLC, dated August 18, 2000, relating to the
TownePlace Suites - Scarborough (Previously filed as Exhibit
10.44 to the 1999 Form S-11 and incorporated by reference).
10.38 Lease Agreement between CNL Hospitality Partners, LP and
CCCL Leasing LLC, dated August 18, 2000, relating to the
TownePlace Suites - Tewksbury (Previously filed as Exhibit
10.45 to the 1999 Form S-11 and incorporated by reference).
10.39 Purchase and Sale Agreement between Residence Inn by
Marriott, Inc., Courtyard Management Corporation, SpringHill
SMC Corporation and TownePlace Management Corporation, as
Sellers, CNL Hospitality Partners, LP, as Purchaser, CCCL
Leasing LLC, as Tenant, Crestline Capital Corporation,
Marriott International, Inc., and joined in by CNL
Hospitality Properties, Inc., dated August 18, 2000,
relating to the Residence Inn - Cottonwood, Courtyard -
Alpharetta and Overland Park SpringHill Suites - Raleigh,
and TownePlace Suites - Mt. Laurel, Scarborough and
Tewksbury (Previously filed as Exhibit 10.46 to the 1999
Form S-11 and incorporated by reference).
10.40 First Amendment to Purchase and Sale Agreement between
Residence Inn by Marriott, Inc., Courtyard Management
Corporation, SpringHill SMC Corporation and TownePlace
Management Corporation, as Sellers, CNL Hospitality
Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
Crestline Capital Corporation, and Marriott International,
Inc., dated August 18, 2000, relating to the Residence Inn -
Cottonwood, Courtyard - Alpharetta, and Overland Park
SpringHill Suites - Raleigh and TownePlace Suites - Mt.
Laurel, Scarborough and Tewksbury (Previously filed as
Exhibit 10.47 to the 1999 Form S-11 and incorporated by
reference).
10.41 Lease Agreement between CNL Hospitality Partners, LP and
RST4 Tenant LLC, dated November 4, 2000, relating to the
TownePlace Suites - Newark (Previously filed as Exhibit
10.48 to the 1999 Form S-11 and incorporated herein by
reference.)
10.42 Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
Corporation, dated October 12, 2000, relating to the
Courtyard - Little Lake Bryan (Previously filed as Exhibit
10.49 to the 1999 Form S-11 (File No. 333-89691) filed
October 26, 1999, as amended, and incorporated herein by
reference.)
10.43 Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant
Corporation, dated October 12, 2000, relating to the
Fairfield Inn - Little Lake Bryan (Previously filed as
Exhibit 10.50 to the 1999 Form S-11 and incorporated herein
by reference.)
10.44 First Amendment to Lease Agreement between LLB C-Hotel,
L.L.C. and LLB Tenant Corporation, dated November 17, 2000,
relating to the Courtyard - Little Lake Bryan (amends
Exhibit 10.42 above) (Previously filed as Exhibit 10.51 to
the 1999 Form S-11 and incorporated herein by reference.)
10.45 First Amendment to Lease Agreement between LLB F-Inn,
L.L.C. and LLB Tenant Corporation, dated November 17, 2000,
relating to the Fairfield Inn - Little Lake Bryan (amends
Exhibit 10.43 above) (Previously filed as Exhibit 10.52 to
the 1999 Form S-11 and incorporated herein by reference.)
10.46 Purchase and Sale Agreement between Marriott International,
Inc., as Seller, and CNL Hospitality Partners, LP, as
Purchaser, dated September 17, 1998, relating to the
Courtyard - Little Lake Bryan, the Fairfield Inn - Little
Lake Bryan and the SpringHill Suites - Little Lake Bryan
(Previously filed as Exhibit 10.53 to the 1999 Form S-11 and
incorporated herein by reference.)
10.47 Second Amendment to Lease Agreement between CNL LLB C-Hotel
Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
Corporation, dated December 15, 2000, relating to the
Courtyard - Little Lake Bryan (amends Exhibits 10.42 and
10.44 above) (Filed herewith.)
10.48 Second Amendment to Lease Agreement between CNL LLB F-Inn
Management, LP (formerly LLB F-Inn L.L.C.) and LLB Tenant
Corporation, dated December 15, 2000, relating to the
Fairfield Inn - Little Lake Bryan (amends Exhibits 10.43 and
10.45 above) (Filed herewith.)
10.49 Indenture Agreement among Desert Ridge Resort, LLC, as
Issuer; Bank One, National Association, as Trustee; and
Financial Structures Limited, as Insurer, dated December 15,
2000, relating to the Desert Ridge Property (Filed
herewith.)
27. Financial Data Schedule (Filed herewith.)
(b) The Registrant filed reports on Form 8-K on November 16, December
21, 2000, relating to the acquisition of properties.
(d) Other Financial Information
The Company is required to file audited financial information of a
guarantor, Marriott International, Inc. ("Marriott") of two of its tenants
as a result of Marriott guaranteeing lease payments for two of the
Company's tenants which leased more than 20 percent of the Company's total
assets for the year ended December 31, 2000 Marriott is a public company
and as the date hereof, had not filed its Form 10-K; therefore, the
financial statements are not available to the Company to include in this
filing. The Company will file this financial information under cover of a
Form 10-K/A as soon as it is available.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 1st day of
March, 2001.
CNL HOSPITALITY PROPERTIES, INC.
By: ROBERT A. BOURNE
President
/s/ Robert A. Bourne
--------------------------
ROBERT A. BOURNE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ James M. Seneff, Jr. Chairman of the Board and Chief March 1, 2001
- ------------------------- Executive Officer (Principal
James M. Seneff, Jr. Executive Officer)
/s/ Robert A. Bourne Vice Chairman and President March 1, 2001
- -------------------------
Robert A. Bourne
/s/ Matthew W. Kaplan Director March 1, 2001
- -------------------------
Matthew W. Kaplan
/s/ C. Brian Strickland Senior Vice President, Finance March 1, 2001
- ------------------------- Administration (Principal
C. Brian Strickland Financial and Accounting Officer)
/s/ Charles E. Adams Independent Director March 1, 2001
- -------------------------
Charles E. Adams
/s/ Lawrence A. Dustin Independent Director March 1, 2001
- -------------------------
Lawrence A. Dustin
/s/ John A. Griswold Independent Director March 1, 2001
- -------------------------
John A. Griswold
/s/ Craig M. McAllaster Independent Director March 1, 2001
- -------------------------
Craig M. McAllaster
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Costs Capitalized
Properties the Company Subsequent
has Invested in Under Initial Costs To Acquisition
---------------------------------------- ----------------------------------
Operating Leases:
Carrying
Encumbrances Land Buildings Equipment Improvements Costs
-------------- --------------- --------------- --------------- --------------- ---------------
Atlanta, Georgia $ - $ 1,907,479 $ 13,459,040 $ 1,270,174 $ 130,974 $ -
Duluth, Georgia - 1,019,497 10,017,402 1,140,942 63,026 -
Mira Mesa, California - 2,002,314 12,924,317 1,701,280 - -
Palm Desert, California - 2,186,790 14,211,931 1,375,396 - -
Merrifield, Virginia - 2,621,040 15,499,358 2,011,476 - -
Cottonwood, Utah - 2,329,871 11,658,677 1,479,849 - -
Plano, Texas 5,818,645 1,409,287 9,876,280 682,567 - -
Las Vegas, Nevada 17,492,259 3,784,463 28,809,831 1,333,202 - -
Phoenix, Arizona 10,392,015 2,215,181 18,670,889 1,090,121 - -
Orlando, Florida 6,673,553 3,532,687 - - 3,695,552 -
Courtyard by Marriott:
Philadelphia, Pennsylvania 42,184,609 7,408,660 55,819,611 5,160,389 48,840 -
Alpharetta, Georgia - 2,460,479 10,916,325 1,392,450 - -
Palm Desert, California - 1,488,906 11,268,720 1,598,905 - -
Orlando, Florida 17,305,000 9,025,240 24,583,035 4,284,741 - -
Plano, Texas 6,576,262 1,686,729 10,511,792 770,295 - -
Seattle, Washington 19,094,297 7,552,190 28,558,057 1,464,447 - -
Scottsdale Arizona 10,751,181 2,869,201 16,474,852 948,896 - -
Weston, Florida 3,223,788 1,809,838 - - 1,326,426 -
Marriott Suites:
Dallas, Texas 17,430,667 2,777,725 28,900,548 1,954,411 - -
Springhill Suites:
Gaithersburg, Maryland - 2,592,431 11,931,078 1,683,008 - -
Orlando, Florida 17,740,000 8,749,895 26,380,932 3,716,553 - -
TownePlace Suites:
Tewksbury, Massachusetts - 1,059,743 7,982,137 590,519 - -
Scarborough, Maine - 918,734 6,108,981 611,883 - -
Mount Laurel, New Jersey - 1,223,679 6,395,420 623,253 - -
Newark, California - 2,304,707 10,828,211 1,353,030 - -
Wyndham:
Billerica, Massachusetts - 3,838,446 20,471,101 2,255,001 - -
Denver, Colorado - 3,882,969 13,436,260 2,094,428 - -
Fairfield Inn:
Orlando, Florida 14,955,000 9,076,860 20,318,202 3,362,656 - -
-------------- --------------- --------------- --------------- --------------- ---------------
$189,637,276 $ 93,735,040 $ 446,012,989 $ 45,949,871 $ 5,264,818 $ -
============== =============== =============== =============== =============== ===============
Gross Amount at Which Carried
at Close of Period Date
- ---------------------------------------------------------- Accumulated of Con- Date
Land Buildings Equipment Total Depreciation struction Acquired
- -------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 1,913,900 $ 13,504,345 $ 1,349,422 $ 16,767,667 $ 1,250,184 1997 Aug-98
1,022,920 10,051,037 1,166,909 12,240,867 997,537 1997 Aug-98
2,002,314 12,924,317 1,701,280 16,627,911 600,272 1999 Dec-99
2,186,790 14,211,931 1,375,396 17,774,117 298,883 1999 Jun-00
2,621,040 15,499,358 2,011,476 20,131,874 282,996 2000 Jul-00
2,329,871 11,658,677 1,479,849 15,468,397 183,846 1999 Aug-00
1,409,287 9,876,280 682,567 11,968,133 91,920 1998 Feb-99
3,784,463 28,809,831 1,333,202 33,927,496 241,207 1998 Feb-99
2,215,181 18,670,889 1,090,121 21,976,191 163,076 1999 Jun-99
3,532,687 3,695,552 - 7,228,239 - - -
7,421,800 55,860,018 5,155,682 68,437,500 2,372,730 1999 Nov-99
2,460,479 10,916,325 1,392,450 14,769,253 172,497 2000 Aug-00
1,488,906 11,268,720 1,598,905 14,356,531 276,322 1999 Jun-00
9,025,240 24,583,035 4,284,741 37,893,016 146,520 2000 Nov-00
1,686,729 10,511,792 770,295 12,968,816 100,759 1998 Feb-99
7,552,190 28,558,057 1,464,447 37,574,694 241,686 1999 Jun-99
2,869,201 16,474,852 948,896 20,292,949 142,895 1999 Jun-99
1,809,838 1,326,426 - 3,136,264 - - -
2,777,725 28,900,548 1,954,411 33,632,683 268,082 1998 Feb-99
2,592,431 11,931,078 1,683,008 16,206,518 225,909 2000 Jul-00
8,749,895 26,380,932 3,716,553 38,847,380 48,002 2000 Dec-00
1,059,743 7,982,137 590,519 9,632,399 103,796 1999 Aug-00
918,734 6,108,981 611,883 7,639,598 87,792 1999 Aug-00
1,223,679 6,395,420 623,253 8,242,352 91,004 1999 Aug-00
2,304,707 10,828,212 1,353,030 14,485,948 70,887 2000 Nov-00
3,838,446 20,471,101 2,255,001 26,564,548 486,454 1999 Jun-00
3,882,969 13,436,260 2,094,427 19,413,657 370,481 1999 Jun-00
9,076,860 20,318,202 3,362,656 32,757,718 118,051 2000 Nov-00
- -------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 93,758,025 $ 451,154,315 $ 46,050,378 $ 590,962,718 $ 9,433,790
============== =============== =============== =============== ===============
(1) Transactions in real estate and accumulated depreciation during 2000, 1999
and 1998 are summarized as follows:
Cost (2) (4) Accumulated Depreciation
----------------------------------------------------------------
Properties the Company has Invested
in Under Operating Leases:
Balance, December 31, 1997 $ - $ -
Acquisitions 28,752,549 -
Depreciation expense (3) - 384,166
----------------------------------------------------------------
Balance, December 31, 1998 28,752,549 384,166
Acquisitions 85,078,556 -
Depreciation expense (3) - 1,219,168
----------------------------------------------------------------
Balance, December 31, 1999 113,831,105 1,603,334
Acquisitions 477,131,613 -
Depreciation expense (3) - 7,830,456
----------------------------------------------------------------
Balance, December 31, 2000 $ 590,962,718 $ 9,433,790
================================================================
(2) As of December 31, 2000, 1999 and 1998, the aggregate cost of the Properties
owned by the Company and its subsidiaries for federal income tax purposes
was $589,498,826, $113,831,105 and $28,752,549, respectively. All of the
leases are treated as operating leases for federal income tax purposes.
(3) Depreciation expense is computed for buildings and equipment based upon
estimated lives of 40 and seven years, respectively.
(4) During the years ended December 31, 2000, 1999 and 1998, the Company
incurred acquisition fees totaling $16,182,043, $4,470,836 and $1,507,010,
respectively, paid to the Advisor. Acquisition fees are included in land and
buildings on operating leases at December 31, 2000 and 1999.
3.1 CNL-American Realty Fund, Inc. amended and restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-11 (Registration No. 333-9943) (the
"1996 Form S-11") and incorporated herein by reference.)
3.2 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit 3.3
to the 1996 Form S-11 and incorporated herein by reference.)
3.3 CNL American Realty Fund, Inc. Articles of Amendement to the Amended
and Restated Articles of Incorporation (Previously filed as Exhibit
3.4 to the 1996 Form S-11 and incorporated herein by reference.)
3.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-67787) (the "1998 Form
S-11") and incorporated herein by reference.)
3.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the Registrant's Registration
Statement on Form S-11 (File No. 333-89691) (the "1999 Form S-11") and
incorporated by reference).
3.7 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)
4.1 Reinvestment Plan (Previously filed as Exhibit 4.4 to the 1996 Form
S-11 and incorporated herein by reference.)
4.2 CNL-American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the 1996 Form
S-11 and incorporated herein by reference.)
4.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit 3.3
to the 1996 Form S-11 and incorporated herein by reference.)
4.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL American Realty Fund, Inc. dated June 3, 1998
(Previously filed as Exhibit 3.4 to the 1996 Form S-11 and
incorporated herein by reference.)
4.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the 1998 Form S-11 and
incorporated herein by reference.)
4.7 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the 1999 Form S-11 and
incorporated herein by reference.)
4.8 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement dated as of June 17, 2000, between CNL Hospitality
Properties, Inc. and CNL Hospitality Corp. (Previously filed as
Exhibit 10.2 to the 1999 Form S-11 (Registration No. 333-89691) (the
"1999 Form S-11") and incorporated herein by reference.)
10.2 Indemnification Agreement between CNL Hospitality Properties, Inc. and
Lawrence A. Dustin dated February 24, 1999. Each of the following
directors and/or officers has signed a substantially similar agreement
as follows: James M. Seneff, Jr., Robert A. Bourne, G. Richard
Hostetter, J. Joseph Kruse, Richard C. Huseman, Charles A. Muller,
Jeanne A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian
Strickland dated October 31, 1998; John A. Griswold, dated January 7,
1999; Charles E. Adams and Craig M. McAllaster, dated February 10,
1999; Matthew W. Kaplan dated February 24, 1999; and Thomas J.
Hutchison III dated May 16, 2000 (Previously filed as Exhibit 10.2 to
the Form 10-Q filed on May 17, 1999 and incorporated herein by
reference.)
10.3 Agreement of Limited Partnership of CNL Hospitality Partners, LP
(Previously filed as Exhibit 10.10 to the 1996 Form S-11 and
incorporated herein by reference.)
10.4 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Gwinnett Residence Associates, LLC, relating to the Residence
Inn - Gwinnett Place (Previously filed as Exhibit 10.11 to the 1996
Form S-11 and incorporated herein by reference.)
10.5 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn -
Gwinnett Place (Previously filed as Exhibit 10.12 to the 1996 Form
S-11 and incorporated herein by reference.)
10.6 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Buckhead Residence Associates, LLC, relating to the Residence
Inn - Buckhead (Lenox Park) (Previously filed as Exhibit 10.13 to the
1996 Form S-11 and incorporated herein by reference.)
10.7 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn -
Buckhead (Lenox Park) (Previously filed as Exhibit 10.14 to the 1996
Form S-11 and incorporated herein by reference.)
10.8 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn -
Gwinnett Place (Previously filed as Exhibit to the 1996 Form
S-11 and incorporated herein by reference.)
10.9 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn -
Buckhead (Lenox Park) (Previously filed as Exhibit 10.16 to the 1996
Form S-11 and incorporated herein by reference.)
10.10 Master Revolving Line of Credit Loan Agreement with CNL Hospitality
Properties, Inc., CNL Hospitality Partners, LP and Colonial Bank,
dated July 31, 1998 (Previously filed as Exhibit 10.17 to the 1996
Form S-11 and incorporated herein by reference.)
10.11 Master Loan Agreement by and between CNL Hotel Investors, Inc. and
Jefferson-Pilot Life Insurance Company, dated February 24, 1999
(Previously filed as Exhibit 10.18 to the 1996 Form S-11 and
incorporated herein by reference.)
10.12 Securities Purchase Agreement between CNL Hospitality Properties,
Inc. and Five Arrows Realty Securities II L.L.C., dated February 24,
1999 (Previously filed as Exhibit 10.19 to the 1996 Form S-11 and
incorporated herein by reference.)
10.13 Subscription and Stockholders' Agreement among CNL Hotel Investors,
Inc., Five Arrows Realty Securities II L.L.C., CNL Hospitality
Partners, LP and CNL Hospitality Properties, Inc., dated February 24,
1999 (Previously filed as Exhibit 10.20 to the 1996 Form S-11 and
incorporated herein by reference.)
10.14 Registration Rights Agreement by and between CNL Hospitality
Properties, Inc. and Five Arrows Realty Securities II L.L.C., dated
February 24, 1999 (Previously filed as Exhibit 10.21 to the 1996 Form
S-11 and incorporated herein by reference.)
10.15 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Gwinnett Place, (amends Exhibit 10.8 above) and
the First Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.8 above)
(Previously filed as Exhibit 10.8 to the Form 10-Q filed on November
10, 1999 and incorporated herein by reference.)
10.16 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Buckhead (Lenox Park) (amends Exhibit 10.9 above)
and the First Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.9 above)
(Previously filed as Exhibit 10.9 to the Form 10-Q filed on November
10, 1999 and incorporated herein by reference.)
10.17 Lease Agreement between Courtyard Annex, L.L.C. and City Center Annex
Tenant Corporation, dated November 15, 1999, relating to the Courtyard
- Philadelphia (Previously filed as Exhibit 10.22 to the 1998 Form
S-11 and incorporated herein by reference.)
10.18 First Amended and Restated Limited Liability Company Agreement of
Courtyard Annex, L.L.C., relating to the Courtyard - Philadelphia
(Previously filed as Exhibit 10.23 to the 1998 Form S-11 and
incorporated herein by reference.)
10.19 Purchase and Sale Agreement between Marriott International, Inc., CBM
Annex, Inc., Courtyard Annex, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, dated November 15, 1999, relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.24 to the
1998 Form S-11 and incorporated herein by reference.)
10.20 Lease Agreement between CNL Hospitality Partners, LP, and RST4 Tenant
LLC, dated December 10, 1999, relating to the Residence Inn - Mira
Mesa (Previously filed as Exhibit 10.25 to the 1998 Form S-11 and
incorporated herein by reference.)
10.21 Purchase and Sale Agreement between Marriott International, Inc.,
TownePlace Management Corporation and Residence Inn by Marriott, Inc.,
as Sellers, and CNL Hospitality Partners, LP, as Purchaser, dated
November 24, 1999, relating to the Residence Inn - Mira Mesa and the
TownePlace Suites - Newark (Previously filed as Exhibit 10.26 to the
1998 Form S-11 and incorporated herein by reference.)
10.22 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Denver Tech
Center (Previously filed as Exhibit 10.29 to the 1998 Form S-11 and
incorporated herein by reference.)
10.23 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Billerica
(Previously filed as Exhibit 10.30 to the 1998 Form S-11 and
incorporated herein by reference.)
10.24 Purchase and Sale Agreement between CNL Hospitality Corp., as Buyer,
and WII Denver Tech, LLC and PAH Billerica Realty Company, LLC, as
Sellers, and Wyndham International, Inc., relating to the Wyndham
Denver Tech Center and the Wyndham Billerica (Previously filed as
Exhibit 10.31 to the 1998 Form S-11 and incorporated herein by
reference.)
10.25 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated June 17, 2000, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.32 to
the 1999 Form S-11 and incorporated by reference).
10.26 Purchase and Sale Agreement between PDH Associates LLC, as Seller,
and CNL Hospitality Corp., as Buyer, dated January 19, 2000, relating
to the Courtyard - Palm Desert and the Residence Inn - Palm Desert
(Previously filed as Exhibit 10.33 to the 1999 Form S-11 and
incorporated by reference).
10.27 Amendment to Purchase and Sale Agreement between PDH Associates LLC
and CNL Hospitality Corp., dated January 19, 2000, relating to
Courtyard - Palm Desert and the Residence Inn - Palm Desert (amends
Exhibit 10.26 above) (Previously filed as Exhibit 10.34 to the 1999
Form S-11 and incorporated by reference).
10.28 Assignment Agreement between CNL Hospitality Corp. and CNL
Hospitality Partners, LP, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.35 to
the 1999 Form S-11 and incorporated by reference).
10.29 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the SpringHill Suites -
Gaithersburg (Previously filed as Exhibit 10.36 to the 1999 Form S-11
and incorporated by reference).
10.30 Purchase and Sale Agreement between SpringHill SMC Corporation, as
Seller, and CNL Hospitality Partners, LP, as Purchaser, and joined in
by Marriott International, Inc., dated June 30, 2000, relating to the
SpringHill Suites - Gaithersburg (Previously filed as Exhibit 10.37 to
the 1999 Form S-11 and incorporated by reference).
10.31 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the Residence Inn - Merrifield
(Previously filed as Exhibit 10.38 to the 1999 Form S-11 and
incorporated by reference).
10.32 Purchase and Sale Agreement between TownePlace Management Corporation
and Residence Inn by Marriott, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, and joined in by Marriott International,
Inc., dated November 24, 1999, relating to the Residence Inn -
Merrifield (Previously filed as Exhibit 10.39 to the 1999 Form S-11
and incorporated by reference).
10.33 First Amendment to Purchase and Sale Agreement between TownePlace
Management Corporation and Residence Inn by Marriott, as Sellers, and
CNL Hospitality Partners, LP, as Purchaser, and joined in by Marriott
International, Inc., dated November 24, 1999, relating to the
Residence Inn - Mira Mesa, SpringHill Suites - Gaithersburg, Residence
Inn - Merrifield, and TownePlace Suites - Newark (amends Exhibits
10.21, 10.30, and 10.32 above) (Previously filed as Exhibit 10.40 to
the 1999 Form S-11 and incorporated by reference).
10.34 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Courtyard - Alpharetta
(Previously filed as Exhibit 10.41 to the 1999 Form S-11 and
incorporated by reference).
10.35 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Residence Inn - Cottonwood
(Previously filed as Exhibit 10.42 to the 1999 Form S-11 and
incorporated by reference).
10.36 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites - Mt.
Laurel (Previously filed as Exhibit 10.43 to the 1999 Form S-11 and
incorporated by reference).
10.37 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Scarborough (Previously filed as Exhibit 10.44 to the 1999 Form S-11
and incorporated by reference).
10.38 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Tewksbury (Previously filed as Exhibit 10.45 to the 1999 Form S-11 and
incorporated by reference).
10.39 Purchase and Sale Agreement between Residence Inn by Marriott, Inc.,
Courtyard Management Corporation, SpringHill SMC Corporation and
TownePlace Management Corporation, as Sellers, CNL Hospitality
Partners, LP, as Purchaser, CCCL Leasing LLC, as Tenant, Crestline
Capital Corporation, Marriott International, Inc., and joined in by
CNL Hospitality Properties, Inc., dated August 18, 2000, relating to
the Residence Inn - Cottonwood, Courtyard - Alpharetta and Overland
Park SpringHill Suites - Raleigh, and TownePlace Suites - Mt. Laurel,
Scarborough and Tewksbury (Previously filed as Exhibit 10.46 to the
1999 Form S-11 and incorporated by reference).
10.40 First Amendment to Purchase and Sale Agreement between Residence Inn
by Marriott, Inc., Courtyard Management Corporation, SpringHill SMC
Corporation and TownePlace Management Corporation, as Sellers, CNL
Hospitality Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
Crestline Capital Corporation, and Marriott International, Inc., dated
August 18, 2000, relating to the Residence Inn - Cottonwood, Courtyard
- Alpharetta, and Overland Park SpringHill Suites - Raleigh and
TownePlace Suites - Mt. Laurel, Scarborough and Tewksbury (Previously
filed as Exhibit 10.47 to the 1999 Form S-11 and incorporated by
reference).
10.41 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated November 4, 2000, relating to the TownePlace Suites -
Newark (Previously filed as Exhibit 10.48 to the 1999 Form S-11 and
incorporated herein by reference.)
10.42 Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
Corporation, dated October 12, 2000, relating to the Courtyard -
Little Lake Bryan (Previously filed as Exhibit 10.49 to the 1999 Form
S-11 (File No. 333-89691) filed October 26, 1999, as amended, and
incorporated herein by reference.)
10.43 Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant Corporation,
dated October 12, 2000, relating to the Fairfield Inn - Little Lake
Bryan (Previously filed as Exhibit 10.50 to the 1999 Form S-11 and
incorporated herein by reference.)
10.44 First Amendment to Lease Agreement between LLB C-Hotel, L.L.C. and
LLB Tenant Corporation, dated November 17, 2000, relating to the
Courtyard - Little Lake Bryan (amends Exhibit 10.42 above) (Previously
filed as Exhibit 10.51 to the 1999 Form S-11 and incorporated herein
by reference.)
10.45 First Amendment to Lease Agreement between LLB F-Inn, L.L.C. and LLB
Tenant Corporation, dated November 17, 2000, relating to the Fairfield
Inn - Little Lake Bryan (amends Exhibit 10.43 above) (Previously filed
as Exhibit 10.52 to the 1999 Form S-11 and incorporated herein by
reference.)
10.46 Purchase and Sale Agreement between Marriott International, Inc., as
Seller, and CNL Hospitality Partners, LP, as Purchaser, dated
September 17, 1998, relating to the Courtyard - Little Lake Bryan, the
Fairfield Inn - Little Lake Bryan and the SpringHill Suites - Little
Lake Bryan (Previously filed as Exhibit 10.53 to the 1999 Form S-11
and incorporated herein by reference.)
10.47 Second Amendment to Lease Agreement between CNL LLB C-Hotel
Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
Corporation, dated December 15, 2000, relating to the Courtyard -
Little Lake Bryan (amends Exhibits 10.42 and 10.44 above) (Filed
herewith.)
10.48 Second Amendment to Lease Agreement between CNL LLB F-Inn Management,
LP (formerly LLB F-Inn L.L.C.) and LLB Tenant Corporation, dated
December 15, 2000, relating to the Fairfield Inn - Little Lake Bryan
(amends Exhibits 10.43 and 10.45 above) (Filed herewith.)
10.49 Indenture Agreement among Desert Ridge Resort, LLC, as Issuer; Bank
One, National Association, as Trustee; and Financial Structures
Limited, as Insurer, dated December 15, 2000, relating to the Desert
Ridge Property (Filed herewith.)
Exhibit 10.47
Second Amendment to Lease Agreement between
CNL LLB C-Hotel Management, LP
(formerly LLB C-Hotel, L.L.C.)
and LLB Tenant Corporation
relating to the Courtyard - Little Lake Bryan
[LLB CTYD]
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (the "Second Amendment") is
made as of the 15th day of December, 2000, by and between CNL LLB C-HOTEL
MANAGEMENT, LP, a Delaware limited partnership, f/k/a LLB C-HOTEL, L.L.C., a
Delaware limited liability company ("Landlord"), and LLB TENANT CORPORATION, a
Delaware corporation ("Tenant").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Landlord and Tenant have entered into that certain Lease
Agreement dated as of October 12, 2000, as amended by that certain First
Amendment to Lease Agreement dated as of November 17, 2000 (collectively, the
"Original Lease"), for the leasing of that certain Courtyard by Marriott hotel
property located in Little Lake Bryan, Orlando, Florida, and more particularly
described in the Original Lease; and
WHEREAS, Landlord and Tenant desire to amend certain terms and
conditions of the Original Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
1. Recitals. The foregoing recitals are correct and complete and are
hereby incorporated into this Second Amendment by this reference.
2. Defined Terms. Capitalized terms used in this Second Amendment and
not defined elsewhere herein shall have the meanings set forth in the Original
Lease.
3. Amendments to Original Agreement. From and after the date hereof the
Original Lease is hereby amended as follows:
(a) In Article One of the Original Lease (captioned "Definitions"), the
defined term "Tenant's Personal Property" is hereby deleted in its entirety and,
in lieu thereof, the following is hereby substituted:
""Tenant's Personal Property" shall mean all motor vehicles, and any
other tangible personal property of Tenant, if any, acquired by Tenant
at its election and with its own funds on and after the date hereof and
located at the Leased Property or used in Tenant's business at the
Leased Property and all modifications, replacements, alterations and
additions to such personal property installed at the expense of Tenant,
other than any items included within the definition of Leased
Property."
(b) Section 2.1(e) of the Original Lease is hereby deleted in its
entirety and, in lieu thereof, the following is hereby substituted:
"(e) all machinery, equipment, furniture, furnishings,
moveable walls or partitions, computers, trade fixtures, FAS or
Inventories located on or in the Leased Improvements, and all
modifications, replacements, alterations and additions to such
property, except items, if any, included within the category of
Fixtures, but specifically excluding all items included within the
category of Tenant's Personal Property (collectively, the "Leased
Personal Property");"
(c) Section 5.2 of the Original Lease (captioned "Tenant's Personal
Property") is hereby deleted in its entirety.
4. Counterparts. This Second Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5. Governing Law. This Second Amendment shall be interpreted,
construed, applied and enforced in accordance with Section 22.13 of the Original
Lease.
6. Section and Other Headings. The headings contained in this Second
Amendment are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Second Amendment.
7. Entire Agreement. The Original Lease, as amended by this Second
Amendment, contains and embodies the entire agreement of the parties hereto, and
no representations, inducements, or agreements, oral or otherwise, not contained
in the Original Lease, as amended by this Second Amendment, shall be of any
force or effect. This Second Amendment may not be modified or changed in whole
or in part in any manner other than by an instrument in writing duly signed by
the parties hereto. Except as modified by this Second Amendment, the terms and
provisions of the Original Lease, which are incorporated herein by this
reference, are hereby reaffirmed and shall be binding upon the parties hereto.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed as a sealed instrument as of the date first above written.
LANDLORD:
CNL LLB C-HOTEL MANAGEMENT, L.P.
a Delaware limited partnership
By: CNL LLB C-Hotel Management Corp.,
a Delaware corporation
its managing member
By: /s/ Charles A. Muller
--------------------------
Charles A. Muller
Executive Vice President
TENANT:
LLB TENANT CORPORATION,
a Delaware corporation
By: /s/ Timothy J. Grisius
-----------------------------------
Timothy J. Grisius
Vice President
EXHIBIT 10.48
Second Amendment to Lease Agreement between
CNL LLB F-Inn Management, LP
(formerly LLB F-Inn L.L.C.)
and LLB Tenant Corporation
relating to the Fairfield Inn - Little Lake Bryan
[LLB F-INN]
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (the "Second Amendment") is
made as of the 15th day of December, 2000, by and between CNL LLB F-INN
MANAGEMENT, LP, a Delaware limited partnership, f/k/a LLB F-INN, L.L.C., a
Delaware limited liability company ("Landlord"), and LLB TENANT CORPORATION, a
Delaware corporation ("Tenant").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Landlord and Tenant have entered into that certain Lease
Agreement dated as of October 12, 2000, as amended by that certain First
Amendment to Lease Agreement dated as of November 17, 2000 (collectively, the
"Original Lease"), for the leasing of that certain Fairfield Inn hotel property
located in Little Lake Bryan, Orlando, Florida, and more particularly described
in the Original Lease; and
WHEREAS, Landlord and Tenant desire to amend certain terms and
conditions of the Original Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
1. Recitals. The foregoing recitals are correct and complete and are
hereby incorporated into this Second Amendment by this reference.
2. Defined Terms. Capitalized terms used in this Second Amendment and
not defined elsewhere herein shall have the meanings set forth in the Original
Lease.
3. Amendments to Original Agreement. From and after the date hereof the
Original Lease is hereby amended as follows:
(a) In Article One of the Original Lease (captioned "Definitions"), the
defined term "Tenant's Personal Property" is hereby deleted in its entirety and,
in lieu thereof, the following is hereby substituted:
""Tenant's Personal Property" shall mean all motor vehicles, and any
other tangible personal property of Tenant, if any, acquired by Tenant
at its election and with its own funds on and after the date hereof and
located at the Leased Property or used in Tenant's business at the
Leased Property and all modifications, replacements, alterations and
additions to such personal property installed at the expense of Tenant,
other than any items included within the definition of Leased
Property."
(b) Section 2.1(e) of the Original Lease is hereby deleted in its
entirety and, in lieu thereof, the following is hereby substituted:
"(e) all machinery, equipment, furniture, furnishings,
moveable walls or partitions, computers, trade fixtures, FAS or
Inventories located on or in the Leased Improvements, and all
modifications, replacements, alterations and additions to such
property, except items, if any, included within the category of
Fixtures, but specifically excluding all items included within the
category of Tenant's Personal Property (collectively, the "Leased
Personal Property");"
(c) Section 5.2 of the Original Lease (captioned "Tenant's Personal
Property") is hereby deleted in its entirety.
4. Counterparts. This Second Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5. Governing Law. This Second Amendment shall be interpreted,
construed, applied and enforced in accordance with Section 22.13 of the Original
Lease.
6. Section and Other Headings. The headings contained in this Second
Amendment are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Second Amendment.
7. Entire Agreement. The Original Lease, as amended by this Second
Amendment, contains and embodies the entire agreement of the parties hereto, and
no representations, inducements, or agreements, oral or otherwise, not contained
in the Original Lease, as amended by this Second Amendment, shall be of any
force or effect. This Second Amendment may not be modified or changed in whole
or in part in any manner other than by an instrument in writing duly signed by
the parties hereto. Except as modified by this Second Amendment, the terms and
provisions of the Original Lease, which are incorporated herein by this
reference, are hereby reaffirmed and shall be binding upon the parties hereto.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed as a sealed instrument as of the date first above written.
LANDLORD:
CNL LLB F-INN MANAGEMENT, L.P.
a Delaware limited partnership
By: CNL LLB F-Inn Management Corp.,
a Delaware corporation
its managing member
By: /s/ Charles A. Muller
--------------------------
Charles A. Muller
Executive Vice President
TENANT:
LLB TENANT CORPORATION,
a Delaware corporation
By: /s/ Timothy J. Grisius
-----------------------------------
Timothy J. Grisius
Vice President
EXHIBIT 10.49
Indenture Agreement among Desert Ridge Resort, LLC,
as Issuer; Bank One, National Association,
as Trustee; and Financial Structures Limited,
as Insurer, relating to the Desert Ridge Property
INDENTURE
among
DESERT RIDGE
RESORT, LLC
as Issuer,
BANK ONE, NATIONAL ASSOCIATION
as Trustee,
and
FINANCIAL STRUCTURES LIMITED
as Insurer
Dated as of December 15, 2000
$70,000,000
Senior Secured Floating Rate Notes Due 2007
$109,000,000
7.90% Senior Secured Notes Due 2007
TABLE OF CONTENTS
Page
RECITALS......................................................................1
ARTICLE I DEFINITIONS.......................1
SECTION 1.1 Definitions.............................................1
SECTION 1.2 Rules of Construction..................................14
ARTICLE II THE NOTES.......................15
SECTION 2.1 Forms of the Notes Generally...........................15
SECTION 2.2 Form of Trustee's Certificate of Authentication........17
SECTION 2.3 The Notes..............................................17
SECTION 2.4 Execution, Authentication and Delivery of the Notes....18
SECTION 2.5 Registration; Transfer and Exchange; Restrictions on
Transfer of Notes....................................18
SECTION 2.6 Mutilated, Destroyed, Lost and Stolen Notes............23
SECTION 2.7 Payment of Principal and Interest......................24
SECTION 2.8 Interest on New Notes..................................24
SECTION 2.9 Cancellation...........................................24
SECTION 2.10 Transfer Agent and Paying Agent........................24
SECTION 2.11 Rule 144A Information..................................24
SECTION 2.12 Provision of Payment Date Statements and Other
Information to Holders...............................25
SECTION 2.13 Provision of Financial Information of Insurer.........26
ARTICLE III COVENANTS......................27
SECTION 3.1 Payment of Principal and Interest; Appointment of
Agents...............................................27
SECTION 3.2 Performance of Obligations.............................27
SECTION 3.3 Further Instruments and Acts...........................27
SECTION 3.4 Notice of Events of Default............................28
SECTION 3.5 Maintenance of Books and Records.......................28
SECTION 3.6 Continuation of Ratings................................28
ARTICLE IV REMEDIES........................28
SECTION 4.1 Notices of Default.....................................28
SECTION 4.2 Exercise of Remedies...................................28
SECTION 4.3 Limitation of Suits....................................29
SECTION 4.4 Unconditional Rights of Noteholders To Receive
Principal, Interest and Additional Amounts...........29
SECTION 4.5 Performance and Enforcement of Certain Obligations.....30
SECTION 4.6 Special Construction Servicer..........................30
ARTICLE V THE TRUSTEE......................31
SECTION 5.1 Duties of the Trustee..................................31
SECTION 5.2 Rights of Trustee......................................33
SECTION 5.3 Individual Rights of Trustee...........................34
SECTION 5.4 Trustee's Disclaimer...................................34
SECTION 5.5 Notice of Defaults; Notice of Requirement to Pay
Additional Amounts...................................34
SECTION 5.6 Appointment of Administrative Agent....................35
SECTION 5.7 Compensation and Indemnity.............................36
SECTION 5.8 Replacement of Trustee.................................37
SECTION 5.9 Successor Trustee by Merger............................38
SECTION 5.10 Eligibility; Disqualification..........................38
SECTION 5.11 Unclaimed Funds........................................39
ARTICLE VI NOTEHOLDERS' LISTS, REPORTS
AND MEETINGS..............................39
SECTION 6.1 Preservation of Information; Communications to
Noteholders..........................................39
SECTION 6.2 Voting by Noteholders..................................39
SECTION 6.3 Purposes for Which Noteholder Meetings May Be Called...39
SECTION 6.4 Call, Notice and Place of Meetings.....................40
SECTION 6.5 Persons Entitled to Vote at Meetings...................40
SECTION 6.6 Quorum; Action.........................................40
SECTION 6.7 Determination of Voting Rights; Conduct and
Adjournment of Meetings..............................41
SECTION 6.8 Counting Votes and Recording Action of Meetings........42
ARTICLE VII ACCOUNTS, COLLECTIONS AND
DISBURSEMENTS.............................43
SECTION 7.1 Collection and Disbursements of Money..................43
SECTION 7.2 The Accounts...........................................45
SECTION 7.3 General Provisions Regarding Accounts..................45
SECTION 7.4 Payment of Accounts Balances...........................46
ARTICLE VIII SUPPLEMENTAL INDENTURES.......46
SECTION 8.1 Supplemental Indentures Without Consent of Noteholders.46
SECTION 8.2 Supplemental Indentures with Consent of Noteholders....47
SECTION 8.3 Execution of Supplemental Indentures...................48
SECTION 8.4 Effect of Supplemental Indenture.......................48
SECTION 8.5 Reference in Notes to Supplemental Indentures..........49
ARTICLE IX REDEMPTION OF NOTES; PURCHASE
OF NOTES; DEFEASANCE......................49
SECTION 9.1 Redemption.............................................49
SECTION 9.2 Purchase...............................................49
SECTION 9.3 Mechanics of Redemption or Purchase....................50
SECTION 9.4 Form of Redemption Notice or Purchase Notice...........52
SECTION 9.5 Notes Payable on Payoff Date...........................52
SECTION 9.6 Defeasance.............................................52
SECTION 9.7 Release of Collateral..................................53
ARTICLE X OBLIGATIONS ABSOLUTE.............53
SECTION 10.1 Issuer's Obligations Absolute.........................53
ARTICLE XI THE INSURER.....................53
SECTION 11.1 Effect of Payment by Insurer; Subrogation.............53
SECTION 11.2 Rights of the Insurer.................................54
SECTION 11.3 Indemnification; Reimbursement of Costs...............55
SECTION 11.4 Liability of the Insurer..............................56
SECTION 11.5 Consents..............................................56
SECTION 11.6 Substitution of Reinsurer.............................56
SECTION 11.7 Notice of Failure to Pay Premiums.....................56
ARTICLE XII MISCELLANEOUS..................56
SECTION 12.1 Compliance Certificates and Opinions, etc.............56
SECTION 12.2 Form of Documents Delivered to Trustee................57
SECTION 12.3 Acts of Noteholders...................................58
SECTION 12.4 Notices, etc., to the Trustee, the Issuer, the
Insurer, the Guarantor and the Rating Agencies.......59
SECTION 12.5 Notices to and from Noteholders; Waiver...............62
SECTION 12.6 Payment and Notice Dates..............................63
SECTION 12.7 Alternative Payment and Notice Provisions.............63
SECTION 12.8 Effect of Headings and Table of Contents..............63
SECTION 12.9 Successors and Assigns................................63
SECTION 12.10 Separability..........................................63
SECTION 12.11 Benefits of Indenture.................................63
SECTION 12.12 Legal Holiday.........................................63
SECTION 12.13 Governing Law.........................................64
SECTION 12.14 Counterparts..........................................64
SECTION 12.15 Recording of Indenture................................64
SECTION 12.16 Corporate Obligation..................................64
SECTION 12.17 Inspection............................................64
SECTION 12.18 Waiver of Immunities..................................65
SECTION 12.19 Satisfaction and Discharge............................65
EXHIBIT A-1 FORM OF REGULATION S GLOBAL FLOATING RATE NOTE DUE 2007.......A-1-1
EXHIBIT A-2 FORM OF RESTRICTED GLOBAL FLOATING RATE NOTE DUE 2007.........A-2-1
EXHIBIT B-1 FORM OF REGULATION S GLOBAL FIXED RATE NOTE...................B-1-1
EXHIBIT B-2 FORM OF RESTRICTED GLOBAL FIXED RATE NOTE.....................B-2-1
EXHIBIT C FORM OF SECURITIES LEGEND.........................................C-1
EXHIBIT DFORM OF REGULATION S CERTIFICATE...................................D-1
EXHIBIT EFORM OF RULE 144A EXCHANGE CERTIFICATE.............................E-1
EXHIBIT F
Opinions of Arent Fox, Kelley Drye, and Skadden, Arps, Slate,
Meagher & Flom LLP........................................................F-1
EXHIBIT GFORM OF CLEARING SYSTEM CERTIFICATE................................G-1
EXHIBIT HFORM OF INFORMATION REQUEST........................................H-1
INDENTURE
INDENTURE, dated as of December 15, 2000 (as amended, supplemented or
otherwise modified and in effect from time to time, this "Indenture"), among
DESERT RIDGE RESORT, LLC, a limited liability company organized under the laws
of the State of Delaware (together with any successor thereto (the "Issuer");
BANK ONE, NATIONAL ASSOCIATION, a national banking association, as trustee and
not in its individual capacity (in such capacity and, together with any
successor thereto as trustee hereunder, the "Trustee"); and FINANCIAL STRUCTURES
LIMITED, a company organized under the laws of Bermuda (the "Insurer").
RECITALS
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for the issuance and delivery of the Notes (as defined
herein).
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Noteholders (as defined herein) of (i) the
Issuer's Senior Secured Floating Rate Notes Due 2007 (the "Floating Rate Notes")
and (ii) the Issuer's 7.90% Senior Secured Notes Due 2007 (the "Fixed Rate
Notes" and together with the Floating Rate Notes, the "Notes"):
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. Except as otherwise specified herein or as the
context may otherwise require, the following terms have the respective meanings
specified below for all purposes of this Indenture. Other capitalized terms used
herein without definition have the meanings given to them in the Construction
Loan Agreement.
"Accounts" shall mean, collectively, the Guarantee Payment Account, the
Note Purchase Account, the Payment Account and the Policy Payment Account.
"Act" shall have the meaning specified in Section 12.3(a).
"Additional Amounts" shall have the meaning specified in the
Construction Loan Agreement.
"Additional Premium" shall have the meaning specified in the Policy.
"Affiliate" shall mean, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any Person shall mean the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"Agents" shall have the meaning specified in Section 3.1(b).
"Applicable Procedures" shall mean the rules and procedures of DTC,
Euroclear or Clearstream, in each case to the extent applicable and as in effect
from time to time.
"Assignment of Reinsurance" shall mean the Assignment of Reinsurance of
even date herewith between the Insurer and the Trustee for the benefit of the
Noteholders, a copy of which is attached as Exhibit N.
"Assignment of Reinsurance (Swap)" shall mean the Assignment of
Reinsurance of even date herewith between the Insurer and Merrill Lynch Capital
Services, Inc., a copy of which is attached as Exhibit O.
"Authenticating Agent" shall mean the Trustee.
"Authorized Officer" with respect to the Issuer, shall mean any
officer, or Person performing the same or a similar function, of a member of the
Issuer who is authorized to act for or on behalf of the Issuer in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Issuer to the Trustee on the Closing Date (as such list may be
modified or supplemented from time to time thereafter). With respect to the
Trustee, any Agent or the DTC Custodian, "Authorized Officer" shall mean a Trust
Officer. With respect to the Insurer, "Authorized Officer" shall mean any
officer, employee or agent of the Insurer who is authorized to act for the
Insurer in matters relating to, and binding upon, the Insurer. Each party may
receive and accept a certification of the authority of any other party as
conclusive evidence of the authority of any person to act, and such
certification may be considered as in full force and effect until receipt by
such other party of written notice to the contrary.
"Basic Documents" shall mean this Indenture, the Policy, the
Reinsurance Agreement, the Assignment of Reinsurance, and the other documents
and certificates delivered in connection therewith, as the same may from time to
time be amended, supplemented or otherwise modified and in effect.
"Beneficial Owner" shall mean each Person having a beneficial interest
in a Global Note.
"Business Day" shall mean any day, other than a Saturday or a Sunday,
on which commercial banks in New York City or the jurisdiction where the
Corporate Trust Office is located are not required or authorized by law,
executive order or regulation to close and on which such commercial banks are
open for business.
"Cash" shall mean such coin or currency of the United States of America
as at the time shall be legal tender for payment of all public and private
debts.
"Cede" shall mean Cede & Co., as DTC's nominee.
"Certificate of Authentication" shall have the meaning specified in
Section 2.2.
"Clearance System" shall mean either Clearstream or Euroclear or both,
as the context requires.
"Clearance System Certificate" shall mean a certificate in
substantially the form of Exhibit G hereto or such other form of certificate as
shall be satisfactory to the Note Registrar, Euroclear and Clearstream.
"Clearstream" shall mean Clearstream Banking, societe anonyme or any
successor securities clearing agency.
"Closing Date" shall mean December 21, 2000.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Construction Loan Agreement" shall mean the Construction Loan
Agreement of even date herewith among the Issuer, DRR Tenant Corporation as
Operating Tenant, the Trustee and Administrative Agent.
"Construction Loan Proceeds Account" shall have the meaning specified
in the Construction Loan Agreement.
"Corporate Trust Office" shall mean the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at 1 Bank One Plaza, Suite IL1-0126, Chicago, IL 60670-0126, Attention: Global
Corporate Trust Services, or at such other address within the United States as
the Trustee may designate from time to time by notice to the Noteholders, the
Insurer and the Issuer, or the principal corporate trust office of any successor
Trustee at the address designated by such successor Trustee by notice to the
Noteholders, the Insurer and the Issuer.
"Default" shall mean any occurrence or circumstance that is, or with
notice or the lapse of time or both would become, an Event of Default.
"Default Payment" shall mean any money collected by or paid to the
Trustee by any Person after the occurrence and during the continuance of an
Event of Default, including the proceeds collected by the Trustee upon the sale
or other disposition of Collateral or upon the exercise of any remedies under
the Construction Loan Documents.
"Default Payment Date" shall mean the first Business Day on which funds
in an Account resulting from a deposit therein by the Trustee of a Default
Payment are available to be disbursed as immediately available funds.
"Default Rate" shall have the meaning specified in the Construction
Loan Agreement.
"Defeasance Collateral" shall have the meaning specified in Section
8.6(b) of the Construction Loan Agreement.
"Defeasance Redemption Date" shall have the meaning specified in
Section 9.1(b).
"Depository" shall mean, with respect to any Global Note, DTC or such
other Person as shall be designated as Depository by the Issuer pursuant hereto.
"Depository Institution" shall mean any depository institution or trust
company incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal or state banking
authorities.
"DTC" shall mean The Depository Trust Company, a New York corporation.
"DTC Custodian" shall mean Bank One, National Association, as custodian
of the Global Notes for the Depository under a custody agreement or any similar
successor agreement.
"Eligible Account" shall mean an account that is either: (a) maintained
with an Eligible Institution or (b) a trust account maintained with the
corporate trust department of a Depository Institution with corporate trust
powers acting in its fiduciary capacity and which is subject to regulations or
has established internal guidelines regarding fiduciary funds on deposit
substantially similar to 12 CFR 9.10(b). Each Eligible Account shall (i) be a
separate, identifiable and segregated account from all other funds held by the
Depository Institution holding such Eligible Account, (ii) be established and
maintained in the name of, or on behalf of, the Trustee, and clearly indicate
that the funds deposited therein are held for the benefit of the Noteholders and
the Issuer, (iii) provide that the Trustee possess all right, title and interest
in all funds on deposit therein from time to time and all proceeds thereof, (iv)
provide that it is under the sole dominion and control of the Trustee, on behalf
of the Noteholders and the Issuer, and (v) be an account as to which the holder
thereof has agreed that it has no right of setoff or banker's lien against, and
no right to otherwise deduct from any funds in such account for any amount owed
to such holder by the Noteholder or the Issuer. Notwithstanding the foregoing,
an Eligible Account shall also include such other accounts having such other
characteristics as are reasonably acceptable to the Trustee and the Issuer so
long as the deposit of funds hereunder in such other accounts would not result,
in and of itself, in the withdrawal, qualification or reduction of the then
current ratings of the Rating Agencies assigned to the Notes, as confirmed in
writing by the Rating Agencies.
"Eligible Institution" shall mean any Depository Institution the
short-term unsecured deposit or debt obligations of which (or, in the case of a
Depository Institution that is the principal subsidiary of a holding company,
the short-term unsecured debt obligations of such holding company) are rated at
least "P-1" by Moody's and "A-1" by S&P; provided that, if any funds are to be
held in an Eligible Account for more than 30 calendar days, an Eligible
Institution shall mean a Depository Institution the long-term unsecured debt
obligations of which (or, in the case of a Depository Institution or trust
company that is the principal subsidiary of a holding company, the long-term
unsecured debt obligations of such holding company) are rated at least "Aa3" by
Moody's and "AA-" by S&P. Notwithstanding the foregoing, an "Eligible
Institution" shall also include such other Depository Institutions having such
other characteristics as are reasonably acceptable to the Trustee so long as the
deposit of funds hereunder in such other Depository Institutions would not
result, in and of itself, in the withdrawal, qualification or downgrading of the
then current ratings of the Rating Agencies assigned to the Notes, as confirmed
in writing by the Rating Agencies.
"Euroclear" shall mean Morgan Guaranty Trust Company, Brussels Office,
as operator of the Euroclear System, or any successor securities clearing
agency.
"Event of Default" shall have the meaning specified in the Construction
Loan Agreement.
"Fixed Rate Notes" shall have the meaning specified in the preamble of
this Indenture.
"Floating Rate Notes" shall have the meaning specified in the preamble
of this Indenture.
"Four-Year Date" shall mean December 15, 2004.
"Global Note" shall mean a Regulation S Global Note or a Restricted
Global Note, as the case may be.
"Guarantee Payment Account" shall mean the Eligible Account established
by the Trustee for the benefit of the Noteholders and the Insurer pursuant to
Section 7.2 for payments made with respect to the Notes by the Guarantor and all
monies, securities, instruments, documents and other property on deposit
therein.
"Indenture" shall have the meaning specified in the preamble of this
Indenture and shall include the terms of the Notes.
"Independent" shall mean, when used with respect to any specified
Person, that such Person (a) is in fact independent of the Issuer and any
Affiliate of the Issuer, (b) does not have any direct financial interest or any
material indirect financial interest in the Issuer or any Affiliate of the
Issuer and (c) is not connected with the Issuer or any Affiliate of the Issuer
as an officer, employee, promoter, underwriter, trustee, partner, director or
person performing similar functions.
"Independent Certificate" shall mean a certificate or opinion to be
delivered to the Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 12.1, made by an
Independent appraiser or other expert appointed by an Issuer Order, and such
opinion or certificate shall state that the signator has read the definition of
"Independent" in this Indenture and that the signator is Independent within the
meaning thereof.
"Individual Note" shall mean a Floating Rate Note or a Fixed Rate Note
issued in definitive, certificated, fully registered form without interest
coupons and substantially in the form attached hereto as Exhibit A-3 or B-3,
respectively.
"Information Request" shall mean an information request in the form of
Exhibit H hereto, which Information Request, if delivered by a Beneficial Owner
of a Global Note, shall include a certification as to such owner's beneficial
ownership.
"Insurer" shall have the meaning specified in the preamble of this
Indenture.
"Interest Payment Date" shall have the meaning specified in the
Construction Loan Agreement.
"Interest Period" shall have the meaning specified in the Construction
Loan Agreement.
"Issuer" shall have the meaning specified in the preamble of this
Indenture.
"Issuer Order" and "Issuer Request" shall mean a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Trustee at least one (1) Business Day (or such longer
period as the Trustee may reasonably request) prior to the date of the requested
action specified therein.
"Legended Individual Note" shall mean an Individual Note bearing the
Securities Legend which shall initially be all Individual Notes.
"Lien" shall mean any assignment for security, charge, mortgage,
pledge, security interest, conditional sale or other title retention agreement
or similar lien.
"Make Whole Amount" shall have the meaning specified in the
Construction Loan Agreement.
"Make Whole Hedge" shall have the meaning specified in Section 9.6(b).
"Marriott" shall mean Marriott International, Inc. and its successors.
"Moody's" shall mean Moody's Investors Service, Inc. or any successor
thereto.
"New Note" has the meaning specified in Section 2.8.
"Noteholder" or "Holder" shall mean the Person in whose name a Note is
registered in the Note Register.
"Note Purchase Account" shall mean the Eligible Account established by
the Trustee for the benefit of the Noteholders pursuant to Section 7.2 for
payments made with respect to the purchase of the Notes by a Purchaser and all
monies, securities, instruments, documents and other property or deposit
therein.
"Note Register" has the meaning specified in Section 2.5.
"Note Registrar" shall mean the Trustee.
"Notes" shall have the meaning specified in the preamble of this
Indenture.
"Notice of Claim" shall have the meaning specified in the Policy.
"Officer's Certificate" shall mean a certificate signed by any
Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 12.1, and
delivered to the Trustee and the Insurer. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer.
"Opinion of Counsel" shall mean one or more written opinions of counsel
who may, except as otherwise expressly provided in this Indenture, be counsel to
the Issuer (and, if expressly provided herein, may be an employee of the Issuer)
and which opinion or opinions shall be addressed to the Trustee in its capacity
as such, and shall comply with any applicable requirements of Section 12.1.
"Opening Date" shall have the meaning specified in the Hotel Management
Agreement.
"Original Principal Amount" shall mean (i) with respect to the Notes,
$179,000,000, (ii) with respect to the Floating Rate Notes, $70,000,000 and
(iii) with respect to the Fixed Rate Notes, $109,000,000.
"Outstanding Principal Amount" shall mean the Original Principal Amount
of the Notes reduced from time to time by the amount of any payment (including
prepayment) of the Original Principal Amount made by the Issuer in accordance
with the terms of the Notes; provided, however, that the Outstanding Principal
Amount for any Note shall not be less than zero.
"Paying Agent" shall mean the Trustee.
"Payment Date" shall mean an Interest Payment Date, a Payoff Date, the
Stated Maturity Date or a Default Payment Date.
"Payment Date Statement" shall have the meaning specified in Section
2.12.
"Payoff Date" shall mean the date on which all of the Notes are
required to be redeemed or purchased, as the case may be, following the delivery
of a Redemption Notice or a Purchase Notice, as the case may be.
"Payment Account" shall mean the Eligible Account established by the
Trustee for the benefit of the Noteholders and the Insurer pursuant to Section
7.2 for payments made with respect to the Notes by the Issuer and all monies,
securities, instruments, documents and other property on deposit therein.
"Permitted Investments" shall mean at any time, any one or more of the
following obligations and securities, including those issued by, or entered into
with, the Trustee as long as the rating level described in the applicable
sub-paragraph, if any, is complied with:
(a) direct debt obligations of, and debt obligations fully
guaranteed as to timely payment of principal and interest by, the
United States, or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United
States;
(b) direct debt obligations of, and debt obligations fully
guaranteed as to timely payment of principal and interest by
government-sponsored corporations and agencies of the United States,
whether or not backed by the full faith and credit of the United
States, including, without limitation, debt obligations of Federal Home
Mortgage Corporation, Federal National Mortgage Association, Student
Mortgage Loan Marketing Association, Financing Corp. (FICO), Resolution
Funding Corp. (REFCORP), Consolidated Systemwide Bonds and notes of the
Farm Credit System and Consolidated Debt Obligations of the Federal
Home Mortgage Loan Banks;
(c) commercial paper of a depository institution or other
corporation organized under the law of the United States or any state
thereof which commercial paper is rated at the time of purchase at
least "A1" by Standard & Poor's and "P1" by Moody's;
(d) unsecured certificates of deposit, time deposits, federal
funds or bankers' acceptances issued by any Depository Institution;
provided that the short-term unsecured debt obligations of such
Depository Institution (or in the case of the principal Depository
Institution in a holding company system, the short-term unsecured debt
obligations of such holding company) is rated at the time of purchase
at least "A1" by Standard & Poor's and "P1" by Moody's;
(e) demand and time deposits of any Depository Institution
which deposits are fully insured by the Federal Deposit Insurance
Corporation;
(f) repurchase obligations with respect to any security
described in clauses (a) and (b) of this definition and entered into
with a Depository Institution (acting as principal) described in clause
(d) above;
(g) debt obligations (other than stripped bonds or stripped
coupons) bearing interest or sold at a discount and issued by any
corporation incorporated under the laws of the United States or any
state thereof which is rated at the time of purchase in at least the
second highest generic long-term unsecured debt rating category of each
of the Rating Agencies;
(h) money market funds rated at the time of purchase in at
least the second highest money market rating category of each of the
Rating Agencies;
(i) principal-only strips and interest-only strips in respect
of non-callable obligations issued by the United States Treasury;
(j) Resolution Funding Corp. (REFCORP) securities stripped by
the Federal Reserve Bank of New York; and
(k) any other instrument or security acceptable to the Rating
Agencies as evidenced by a letter delivered to the Trustee from each
such Rating Agency to the effect that the rating assigned to the Notes
by such Rating Agency would not be downgraded, qualified or withdrawn
if such instrument or security were included in the definition of
"Permitted Investment."
Unless otherwise specified herein, (i) any such Permitted Investment
must be available for withdrawal without penalty and must mature no later than
the Business Day immediately preceding the next Interest Payment Date; (ii) no
such instrument shall have a remaining term to maturity in excess of 365 days;
(iii) no such instrument specified above (other than the instruments described
in clauses (i) and (j) of this definition) shall constitute a Permitted
Investment if such instrument evidences a right to receive only interest
payments with respect to the obligations underlying such instrument; (iv) such
instrument (other than interest-only strips described in clauses (i) and (j) of
this definition) shall provide for a predetermined fixed dollar payment of
principal that cannot vary or change; and (v) no such instrument shall
constitute a "mortgage-backed" security.
"Person" shall mean any individual, corporation, estate, partnership,
joint venture, association, joint stock company, limited liability company,
trust (including any beneficiary thereof), unincorporated organization, or
government or any agency or political subdivision thereof.
"Policy" shall mean the Debt Service Insurance Policy of even date
herewith issued by the Insurer to the Trustee for the benefit of the
Noteholders, a copy of which is attached as Exhibit L, including any novation
and assumption of liability by the Reinsurer thereunder, as provided for in the
Assumption of Liability and Novation Endorsement to the Reinsurance Agreement.
"Policy Event" shall mean the occurrence and continuation of any one of
the following events:
(1) the Trustee shall have delivered a valid Notice of Claim to
the Insurer and the Reinsurer, the Insurer and/or the
Reinsurer shall have failed to make all required payments then
due under the Policy and such failure has not been cured in
all respects; or
(2) the Insurer or the Reinsurer shall be the subject of a
bankruptcy, insolvency or similar proceeding and such
proceeding shall not have been dismissed.
"Policy Payment Account" shall mean the segregated trust account
established by the Trustee for the benefit of the Noteholders pursuant to
Section 7.2 for payments made with respect to the Notes by or for the account of
the Insurer or the Reinsurer (other than payments made as a Purchaser) and all
monies, securities, instruments, documents and other property on deposit
therein.
"Pool Members" shall mean the member companies, from time to time, of
the Royal Indemnity Pool, which are, as of the date hereof, the Reinsurer, Globe
Indemnity Company, American & Foreign Insurance Company, Safeguard Insurance
Company, and Royal Insurance Company of America.
"Predecessor Note" of any particular Note shall mean every previous
Note evidencing all or a portion of the same indebtedness as that evidenced by
such particular Note.
"Prepayment Date" shall have the meaning specified in Section 9.1(a).
"Principal Amount" shall mean the Original Principal Amount or
Outstanding Principal Amount of the Notes, as the case may be, payable upon
maturity or redemption in respect of the principal thereof in accordance with
the terms of this Indenture.
"Priority of Payments" shall have the meaning specified in Section
7.1(b).
"Proceeding" shall mean any suit in equity, action at law or other
judicial or administrative proceeding.
"Purchase Notice" shall have the meaning specified in Section 9.2(a).
"Purchaser" shall have the meaning specified in Section 9.2(a).
"QIB" shall mean a qualified institutional buyer within the meaning of
Rule 144A.
"Rating Agencies" shall mean Moody's and S&P.
"Rating Agency Condition" shall mean, with respect to any action, that
the Rating Agencies shall have been given prior notice thereof and that the
Rating Agencies shall have notified the Trustee, the Issuer and the Insurer that
such action shall not result in a reduction, qualification or withdrawal of the
then-current rating assigned to the Notes.
"Record Date" shall mean, with respect to any Interest Payment Date,
the Stated Maturity Date, Payoff Date or Default Payment Date as applicable, the
close of business on the date (whether or not a Business Day) ten (10) calendar
days preceding such date.
"Redemption/Purchase Deposit Amount" shall mean, as of any date, an
amount equal to the sum of the following as of such date: (i) the Outstanding
Principal Amount of the Floating Rate Notes and the Make Whole Amount of the
Fixed Rate Notes, if applicable, (ii) accrued and unpaid interest on the Notes
to the date of deposit of the Redemption/Purchase Deposit Amount with the
Trustee and (x) with respect to the Floating Rate Notes, interest which will
accrue from such date of deposit through the scheduled Redemption Date at the
fixed rate provided for in the Interest Rate Swap Agreement and (y) with respect
to the Fixed Rate Notes, interest which will accrue from such date of deposit
until the scheduled Redemption Date at the rate provided for under the Fixed
Rate Notes, (iii) any unpaid Additional Amounts, (iv) any other amounts due or
to become due through the Redemption Date pursuant to this Indenture and unpaid,
(v) accrued and unpaid interest at the Default Rate and due and unpaid Late
Payment Fees, (vi) all amounts paid to the Trustee pursuant to the Policy and
not previously reimbursed, and (vii) the amount of any Additional Premium then
due or to become due on or prior to the Redemption Date to the Insurer pursuant
to the Policy; provided, however, if the Notes are being redeemed in part on
such date, the Redemption/Purchase Deposit Amount shall equal the sum of (A) the
aggregate Outstanding Principal Amount of the Floating Rate Notes to be redeemed
or the Make Whole Amount of the Fixed Rate Notes to be redeemed, (B) accrued and
unpaid interest on the amount of clause (A) through such date and (x) with
respect to the Floating Rate Notes, interest which will accrue from such date of
deposit through the scheduled Redemption Date at the fixed rate provided for in
the Interest Rate Swap Agreement and (y) with respect to the Fixed Rate Notes,
interest which will accrue from such date of deposit until the scheduled
Redemption Date at the rate provided for under the Fixed Rate Notes, (C) any
Additional Amounts due with respect to the amount being paid in connection with
such redemption and (D) Additional Premiums due or to become due on or prior to
the Redemption Date as provided in the Policy.
"Redemption Date" shall mean either a Prepayment Date or a Defeasance
Redemption Date.
"Redemption Notice" shall mean the notice of prepayment given by the
Issuer to the Trustee pursuant to the Construction Loan Agreement.
"Registered Owners" has the meaning specified in Section 2.7(b).
"Regulation S" shall mean Regulation S under the Securities Act.
"Regulation S Certificate" shall mean a certificate substantially in
the form of Exhibit D hereto.
"Regulation S Global Note" shall mean a Floating Rate Note or a Fixed
Rate Note initially sold in an offshore transaction in reliance on Regulation S
under the Securities Act and represented by one or more Global Notes in
definitive, fully registered form without interest coupons, deposited with the
DTC Custodian or any successor, and substantially in the form of Exhibit A-2 or
B-2, respectively.
"Reinsurance Agreement" shall mean the Quota Share Reinsurance
Agreement including the Assumption of Liability and Novation Endorsement thereto
of even date herewith issued by the Reinsurer, a copy of which is attached as
Exhibit M.
"Reinsurer" shall mean Royal Indemnity Company, a Delaware corporation,
and its successors as reinsurer under the Reinsurance Agreement.
"Restricted Global Note" shall mean a Floating Rate Note or a Fixed
Rate Note initially sold within the United States to U.S. Persons that are QIBs
issued in definitive, fully registered form without interest coupons, and
represented by one or more Restricted Global Notes, deposited with the DTC
Custodian or any successor, and substantially in the form of Exhibit A-1 or B-1,
respectively.
"Restricted Period" shall mean the period of forty (40) calendar days
commencing on the day after the latest of (i) the day on which the Notes are
first offered to Persons other than distributors (as defined in Regulation S
under the Securities Act) in reliance on Regulation S under the Securities Act
and (ii) the Closing Date.
"Rule 144A" shall mean Rule 144A under the Securities Act.
"Rule 144A Exchange Certificate" shall mean a certificate substantially
in the form of Exhibit E hereto.
"Rule 144A Information" shall mean such information as is specified
pursuant to Rule 144A(d)(4) under the United States Securities Act (or any
successor provision thereto) (which, at the date of this Indenture, consists of
(x) a very brief statement of the nature of the business, products and services
(which statement shall be as of a date within 12 months prior to the date of the
intended resale) of the Issuer and (y) the most recent financial statements for
such period of time during the two fiscal years preceding the period covered in
the most recent financial statements that the Issuer has been in operation. Such
financial statements shall include a balance sheet (as of a date less than 16
months before the date of the intended transaction for which such information is
required to be made available) and profit and loss and retained earnings
statements (provided that if the balance sheet is not as of a date less than 6
months before the date of the intended transaction, such most recent profit and
loss and retained earnings statements shall be for the period from the date of
such balance sheet to a date less than 6 months before the date of the intended
transaction) and shall be audited to the extent reasonably available.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or any successor thereto.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
"Securities Legend" shall mean the legend set forth in Exhibit C
hereto.
"Special Construction Servicer" shall have the meaning specified in
Section 4.6.
"State" shall mean any of the fifty states of the United States of
America or the District of Columbia.
"Stated Maturity Date" shall mean December 15, 2007.
"Swap Policy" shall mean the Debt Service Insurance Policy dated
December 14, 2000 issued by the Insurer to Merrill Lynch Capital Services, Inc.,
a copy of which is attached as Exhibit L, including any novation and assumption
of liability by the Reinsurer, as provided in the Assumption of Liability and
Novation Endorsement (Swap) to the Swap Reinsurance Agreement.
"Swap Reinsurance Agreement" shall mean the Quota Share Reinsurance
Agreement including the Assumption of Liability and Novation Endorsement (Swap)
thereto dated December 14, 2000 issued by the Reinsurer, a copy of which is
attached hereto as Exhibit M.
"Transfer Agent" shall mean the Trustee.
"Trustee" shall have the meaning specified in the preamble of this
Indenture.
"Trust Officer" shall mean when used with respect to the Trustee, any
officer within the Corporate Trust Office (or any successor group of the
Trustee) including any officer of the Trustee customarily performing functions
similar to those performed by the persons who at the time shall be such
officers, respectively, or any other officers to whom any corporate trust matter
is referred because of his or her knowledge of and familiarity with the
particular subject.
"Two-Year Date" shall mean December 15, 2002.
"United States" or "U.S." shall mean the United States of America and
any State, Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands and other
territories or possessions of the United States of America.
"Unlegended Individual Note" shall mean an Individual Note which does
not bear the Securities Legend and which can only be issued if the Issuer
determines under applicable law that the placement of the Securities Legend is
no longer required.
SECTION 1.2 Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with United States generally accepted accounting
principles as in effect from time to time;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) all references to "$" are to U.S. dollars, unless
otherwise stated;
(7) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns; and
(8) all percentages resulting from any calculation in respect
of a Note shall be rounded to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.8976545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all
dollar amounts used in or resulting from such calculation in respect of a Note
shall be rounded to the nearest cent (with one-half cent rounded upwards).
ARTICLE II
THE NOTES
SECTION 1.3 Forms of the Notes Generally. (a) On the Closing Date, the
Notes shall be in substantially the forms provided for in Exhibit A (in the case
of the Floating Rate Notes) and Exhibit B (in the case of the Fixed Rate Notes)
to this Indenture, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture, and may
have such letters, numbers or other marks of identification or designation and
such legends or endorsements placed thereon as may be required to comply with
any law or with any rules made pursuant thereto or with the rules of any
securities exchange on which the Notes may be listed or governmental agency or
as may, consistent herewith, be determined by the Authorized Officers executing
such Notes, as evidenced by their execution of the Notes. The Notes shall be
typewritten, printed, lithographed or engraved on steel engraved borders or may
be produced in any other manner, all as determined by the officers executing
such Notes, as evidenced by their execution of such Notes.
(1) Each Note shall be dated the date of its authentication.
Each Note shall bear the Trustee's Certificate of Authentication as provided in
Section 2.2.
(2) On the Closing Date, the appropriate Authorized Officers
of the Issuer will execute and deliver to the Trustee (i) a Restricted Global
Floating Rate Note to be in an aggregate principal amount of up to $70,000,000
and a Restricted Global Fixed Rate Note to be in an aggregate principal amount
of up to $109,000,000, and (ii) a Regulation S Global Floating Rate Note to be
in an aggregate principal amount of up to $70,000,000 and a Regulation S Global
Fixed Rate Note to be in an aggregate principal amount of up to $109,000,000;
provided, however, that the aggregate principal amount of such Notes shall not
exceed $179,000,000.
Each Global Note (i) shall be delivered by the Trustee to DTC acting as
the Depository or, pursuant to DTC's instructions, shall be delivered by the
Trustee on behalf of DTC to and deposited with the DTC Custodian, and in either
case shall be registered in the name of Cede and (ii) shall bear a legend
substantially to the following effect:
"Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation
("DTC"), to the Issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co.
or to such other entity as is requested by an authorized representative
of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein."
Any Global Note may be deposited with such other Depository as the
Issuer may from time to time designate, and shall bear such legend as may be
appropriate; provided that such successor Depository maintains a book-entry
system that qualifies to be treated as "registered form" under Section 163(f)(3)
of the Code.
(3) If at any time the Depository for the Global Note notifies
the Issuer that it is unwilling or unable to continue as Depository for such
Global Note or if at any time the Depository for such Global Note shall no
longer be eligible to act as such under this Section 2.1, the Issuer shall
appoint a successor Depository with respect to such Global Note. Any such
successor Depository must maintain a book-entry system that qualifies under
Section 163(f)(3) of the Code. If a successor Depository for such Global Note is
not appointed by the Issuer within 90 days after the Issuer receives such notice
or becomes aware of such ineligibility, the Issuer's election pursuant to this
Section 2.1 that such Notes be represented by a Global Note shall no longer be
effective and the Issuer will execute, and the Trustee will authenticate and
deliver Individual Notes in any authorized denominations in an aggregate
principal amount equal to the principal amount of such Global Note in exchange
for such Global Note. If the Trustee has instituted or has been directed to
institute any judicial proceeding in a court to enforce the rights of the
Noteholders under the Notes, and the Trustee has been advised by counsel that in
connection with such proceeding it is necessary or appropriate for the Trustee
to obtain possession of the Notes, the Trustee may in its sole discretion
determine that the Notes represented by a Global Note shall no longer be
represented by such Global Note. In such event, the Issuer hereby agrees to
execute and the Trustee will authenticate and deliver, in exchange for such
Global Note, Individual Notes (and if the Trustee has in its possession
Individual Notes previously executed by the Issuer, the Trustee will
authenticate and deliver such Notes), in authorized denominations, in an
aggregate principal amount equal to the principal amount of such Global Note.
(4) The Global Notes shall in all respects be entitled to the
same benefits under this Indenture as Individual Notes authenticated and
delivered hereunder.
Beneficial interests in the Global Notes shall be held in minimum
denominations of $25,000 of Original Principal Amount and integral multiples of
$1,000 of Original Principal Amount above such minimum amount. Beneficial Owners
of a Global Note will be entitled to receive physical delivery of Individual
Notes only as provided herein. The Individual Notes will be issuable in minimum
denominations of $25,000 of Original Principal Amount and integral multiples of
$1,000 of Original Principal Amount above such minimum amount.
SECTION 1.4 Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication for Notes shall be in
substantially the following form:
This Note is one of the Notes designated above and referred to in the
within-mentioned Indenture.
____________________________,
as Trustee
By:_________________________
Authorized Officer
OR
____________________________,
as Authenticating Agent
By:_________________________
Authorized Officer
SECTION 1.5 The Notes. (a) The Notes shall be designated as (i) the
Issuer's Senior Secured Floating Rate Notes due December 15, 2007 and (ii) the
Issuer's 7.90% Senior Secured Notes due December 15, 2007. Each Note shall rank
pari passu with each other Note and be equally and ratably secured by the
Collateral. The aggregate principal amount of Floating Rate Notes and Fixed Rate
Notes that may be authenticated, delivered and outstanding at any time under
this Indenture is limited to $70,000,000 and $109,000,000, respectively (except
for Notes authenticated and delivered upon transfer of, or in exchange for, or
in lieu of, other Notes pursuant to the provisions of this Indenture or the
Notes). All Notes shall be substantially identical to all other Notes except as
to denominations and tenor and except as may otherwise be provided by resolution
of the Issuer and expressly permitted in this Indenture.
(1) The Notes shall be secured as provided in the Construction
Loan Agreement.
SECTION 1.6 Execution, Authentication and Delivery of the Notes. Each
Note shall be executed manually or in facsimile on behalf of the Issuer by its
Authorized Officer. Notes bearing the manual or facsimile signatures of
individuals who were at any time the Authorized Officers of the Issuer shall
bind the Issuer, notwithstanding that such individuals, or any of them, shall
have ceased, for any reason, to hold such offices prior to the authentication
and delivery of such Note or did not hold such offices at the date of any such
Note.
The Trustee is authorized, upon receipt of Notes duly executed on
behalf of the Issuer for the purposes of the original issuance of Notes, (i) to
authenticate such Notes in an aggregate principal amount not in excess of the
aggregate principal amount specified herein and to deliver such Notes in
accordance with the written order or orders of the Issuer signed on its behalf
by any Authorized Officer and (ii) thereafter to authenticate and deliver Notes
in accordance with the provisions hereinafter set forth.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein,
executed by the Trustee by manual signature, and such certificate of
authentication upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder and
is entitled to the benefits of this Indenture.
SECTION 1.7 Registration; Transfer and Exchange; Restrictions on
Transfer of Notes. (a) The Trustee shall be the Note Registrar for the
registration and transfer of the Notes. The Note Registrar shall cause to be
maintained in accordance with the provisions of this Section 2.5 a register (the
"Note Register") in which, subject to such reasonable regulations as it may
prescribe, the Note Registrar shall provide for the registration of the Notes
and of transfers and exchanges of Notes as herein provided.
(1) The Note Register shall show the amount of such Notes,
whether a Note is a Fixed Rate Note or a Floating Rate Note, the date of issue,
all subsequent transfers and changes of ownership in respect thereof and the
names, taxpayer identifying numbers (if relevant to a specific Holder), and
addresses of the Holders of the Notes and any payment instructions with respect
thereto (if different from a Holder's registered address). The Note Register
shall also include notations as to whether Notes have been paid or cancelled,
and, in the case of mutilated, destroyed, stolen or lost Notes, whether such
Notes have been replaced. In the case of the replacement of any of the Notes,
the Note Register will include notations of the Note so replaced, and the Notes
issued in replacement thereof. In the case of the cancellation of any of the
Notes, the Note Register will include notations of the Note so cancelled and the
date on which such Note was cancelled. The Note Registrar shall at all
reasonable times during office hours make the Note Register available, upon
reasonable advance request therefor, to the Trustee (if the Trustee is not then
serving as Note Registrar), the Issuer or any Person authorized by the Issuer in
writing for inspection and for the taking of copies thereof or extracts
therefrom, and at the expense of the Issuer the Note Registrar shall deliver to
such Persons all lists of Holders as they may request.
(2) A Note may be transferred by the Holder thereof only upon
presentation and surrender of such Note at the Corporate Trust Office of the
Note Registrar duly endorsed or accompanied by an assignment duly executed by
such Holder or his duly authorized attorney-in-fact in such form as shall be
satisfactory to the Note Registrar. Upon the transfer of any Note in accordance
with the preceding sentence and subject to the provisions of this Section 2.5,
the Issuer shall execute, the Authenticating Agent shall authenticate and the
Note Registrar shall deliver to the transferee one or more new Notes of the same
type (i.e., Fixed Rate Note or Floating Rate Note, as applicable) in authorized
denominations, evidencing, in the aggregate, the same principal balance as the
Note being transferred.
(3) A Note may be exchanged by the Holder thereof for any
number of new Notes of the same type (i.e., Fixed Rate Note or Floating Rate
Note, as applicable) in authorized denominations, representing in the aggregate
the same principal balance as the Note surrendered, upon surrender of the Note
to be exchanged at the Corporate Trust Office of the Note Registrar. Notes
delivered upon any such exchange will evidence the same obligations under the
Notes and this Agreement, and will be entitled to the same rights and
privileges, as the Notes surrendered. Upon the exchange of any Note in
accordance with the preceding sentence, the Issuer shall execute, the
Authenticating Agent shall authenticate and the Note Registrar shall deliver to
the exchanging Holder one or more new Notes of the same type (i.e., Fixed Rate
Note or Floating Rate Note, as applicable), in authorized denominations,
evidencing, in the aggregate, the same principal balance as the Note being
exchanged. No certifications shall be required in respect of any such exchange.
(4) If Individual Notes have been issued pursuant to Section
2.1(d), subject to Section 2.5(j), no restrictions shall apply to the transfer
or registration of transfer of an Unlegended Individual Note to a transferee
that takes delivery in the form of an Individual Note. By acceptance of a
Legended Individual Note, whether upon original issuance or subsequent transfer,
each Holder of such a Note acknowledges the restrictions on the transfer of such
Note set forth in the Securities Legend and agrees that it will transfer such a
Note only as provided herein. In addition to the provisions of Section 2.5(j),
the following restrictions shall apply with respect to the transfer and
registration of transfer of a Legended Individual Note to a transferee that
takes delivery in the form of an Individual Note:
(1) The Note Registrar shall register the transfer of
a Legended Individual Note if the requested transfer is (x) to the
Issuer or an Affiliate of the Issuer (such Affiliate status to be
certified in writing by an Authorized Officer of the Issuer in a form
satisfactory to the Note Registrar) or (y) being made by a transferor
who has provided the Note Registrar with a Rule 144A Exchange
Certificate; and
(2) The Note Registrar shall register the transfer of
a Legended Individual Note if the transferor has provided the Note
Registrar with a Regulation S Certificate.
(5) Subject to Section 2.5(j), so long as the Global Notes
remain outstanding and are held by or on behalf of the Depository, transfers of
beneficial interests in any of such Global Notes, may be made only in accordance
with this Section 2.5(f) and in accordance with Applicable Procedures.
(1) A beneficial interest in a Regulation S Global
Note may be transferred to a transferee that is a QIB and takes
delivery in the form of a beneficial interest in the Restricted Global
Note only upon receipt by the Note Registrar of a Rule 144A Exchange
Certificate.
(2) A beneficial interest in a Restricted Global Note
may be transferred to a transferee that takes delivery in the form of a
beneficial interest in a Regulation S Global Note only upon receipt by
the Note Registrar of a Regulation S Certificate.
(3) No restrictions shall apply with respect to the
transfer or registration of transfer of (x) a beneficial interest in a
Restricted Global Note to a transferee that is a QIB that takes
delivery in the form of a beneficial interest in a Restricted Global
Note or (y) a beneficial interest in a Regulation S Global Note to a
transferee that takes delivery in the form of a beneficial interest in
a Regulation S Global Note.
(6) Upon acceptance for transfer of a beneficial interest in
any Global Note for a beneficial interest in another Global Note as provided
herein, the Note Registrar shall (or shall request the Depository to) endorse on
the schedules affixed to each of such Global Notes (or on continuations of such
schedules affixed to each of such Global Notes and made parts thereof)
appropriate notations evidencing the date of such transfer and (x) in the case
of the Global Note from which such transfer is made, a decrease in the principal
balance of such Global Note equal to the principal balance being transferred and
(y) in the case of the Global Note into which such transfer is made, an increase
in the principal balance of such Global Note equal to the principal balance
being transferred.
(7) The following provisions shall apply to the placement of
the Securities Legend on any Individual Note initially issued pursuant to
Section 2.1(d) or issued in exchange for or upon transfer of another Individual
Note or of a beneficial interest in any of the Global Notes and to the removal
of the Securities Legend from any Legended Individual Note.
(1) Unless determined otherwise by the Note Registrar
in accordance with applicable law, an Individual Note initially issued
pursuant to Section 2.1(d) in exchange for a beneficial interest in a
Restricted Global Note or a Regulation S Global Note prior to the end
of the Restricted Period shall bear the Securities Legend.
(2) Unless determined otherwise by the Issuer, based
upon an Opinion of Counsel satisfactory to the Note Registrar, in
accordance with applicable law, an Individual Note initially issued
pursuant to Section 2.1(d) in exchange for a beneficial interest in an
Regulation S Global Note shall not bear the Securities Legend.
(3) Upon the transfer, exchange or replacement of a
Legended Individual Note, or upon specific request of a holder of a
Legended Individual Note for removal of the Securities Legend
therefrom, the Note Registrar shall deliver an Unlegended Individual
Note or Notes if there is provided to the Note Registrar evidence
reasonably satisfactory to the Note Registrar (which may include an
Opinion of Counsel to the transferor or transferee) as may reasonably
be required by the Note Registrar that neither the Securities Legend
nor the restrictions on transfer set forth therein are required to
ensure compliance with the provisions of the Securities Act.
(4) Upon the transfer, exchange or replacement of an
Unlegended Individual Note for an Individual Note, the Note Registrar
shall deliver a Legended or Unlegended Individual Note or Notes, as the
Holder may request.
(8) Subject to the restrictions on transfer and exchange set
forth in this Section 2.5, the holder of any Individual Note may transfer or
exchange the same in whole or in part (in an initial principal balance equal to
$25,000 or any integral multiple of $1,000 in excess thereof) by surrendering
such Individual Note at the Corporate Trust Office of the Note Registrar, or at
the office of any other Transfer Agent, together with an executed instrument of
assignment and transfer satisfactory in form and substance to the Note Registrar
in the case of transfer and a written request for exchange in the case of
exchange. Subject to Section 2.1 and the restrictions imposed by this Section
2.5, the Beneficial Owner of a Global Note may, subject to Applicable
Procedures, cause the Depository (or its nominee) to notify the Note Registrar
in writing of a request for transfer or exchange of such beneficial interest in
whole or in part (in an initial principal balance equal to $25,000 or any
integral multiple of $1,000 in excess thereof) for an Individual Note or Notes.
Following a proper request for transfer or exchange, the Note Registrar shall,
within five Business Days of such request if made at such Corporate Trust
Office, or within 10 Business Days if made at the office of another Transfer
Agent (other than the Note Registrar), cause the Issuer to execute and the
Authenticating Agent to authenticate, and the Note Registrar shall deliver at
such Corporate Trust Office or such transfer agent, as the case may be, to the
transferee (in the case of transfer) or holder (in the case of exchange) or send
by first class mail at the risk of the transferee (in the case of transfer) or
holder (in the case of exchange) to such address as the transferee or holder, as
applicable, may request, an Individual Note or Notes, as the case may require,
for a like aggregate principal balance and in such authorized denomination or
denominations as may be requested. The presentation for transfer or exchange of
any Individual Note shall not be valid unless made at the Corporate Trust Office
of the Note Registrar or at the office of another Transfer Agent by the
registered holder in person, or by a duly authorized attorney-in-fact. The Note
Registrar or any other transfer agent may decline to accept any request for an
exchange or registration of transfer of any Note during the period commencing on
a Record Date and ending on the related Payment Date on the Notes.
(9) Transfer, registration and exchange shall be permitted as
provided in this Section 2.5 without any charge to the Holder except for the
expenses of delivery (if any) not made by regular mail and except, if the Note
Registrar shall so require, the payment of a sum sufficient to cover any stamp
duty, tax or governmental charge or insurance charge that may be imposed in
relation thereto; provided that any Opinions of Counsel or certificates required
by this Section 2.5 shall be at the expense of the Holder or its proposed
transferee and provided further that, in the event of any exchange of beneficial
interests in a Global Note for Individual Notes pursuant to Section 2.1(d) and
stamp duties, taxes or governmental charges or insurance charges shall be an
expense of the Issuer. Registration of the transfer of a Note by the Note
Registrar shall be deemed to be the acknowledgment of such transfer on behalf of
the Issuer.
(10) All Notes surrendered for registration of transfer or
exchange shall be cancelled by the Note Registrar or the Trustee in accordance
with their standard procedures.
(11) The Note Registrar shall provide to the Trustee (unless
the Trustee is acting as Note Registrar) (i) upon receipt of a written request
from the Trustee, notice of each registration of transfer of a Note, (ii) an
updated copy of the Note Register at the beginning of each calendar quarter and
(iii) upon receipt of a written request therefor, a list of Holders of the
Notes.
(12) Prior to due presentment of a Note for registration of
transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name such Note is registered as the absolute and sole
owner of such Note for the purpose of receiving payment of principal of, and
interest (and Additional Amounts, if any) on such registered Note and for all
other purposes whatsoever, whether or not such registered Note be overdue, and
neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall
be affected by notice to the contrary, and payment of the principal of and
interest on such registered Note by the Trustee shall be made only to or upon
the order of such registered owner.
(13) The transfer of any Note, or beneficial interest therein,
inconsistent with or contrary to this Indenture shall be deemed void ab initio
for all purposes under this Indenture.
Notwithstanding anything to the contrary in this Section, a Fixed Rate
Note may be replaced or exchanged only for another Fixed Rate Note in accordance
with this Indenture, and a Floating Rate Note may be replaced or exchanged only
for another Floating Rate Note in accordance with this Indenture.
SECTION 1.8 Mutilated, Destroyed, Lost and Stolen Notes. If any
mutilated Note is surrendered to the Trustee, the Issuer shall execute, and the
Trustee shall authenticate and deliver in exchange therefor, a new Note of like
tenor and principal amount and bearing a number not contemporaneously
outstanding. Each new Note issued pursuant to this Section in exchange for, in
substitution for, or in lieu of a Predecessor Note shall be dated the date of
such Predecessor Note.
If there shall be delivered to the Issuer and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such security or indemnity as may be required by each of them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Issuer or the Trustee that such Note has been acquired by a bona fide
purchaser, the Issuer shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a
new Note of like kind (Fixed Rate or Floating Rate) tenor and principal amount
and bearing a number not contemporaneously outstanding. In every case of
mutilation or defacement, the applicant shall surrender to the Trustee the Note
so mutilated or defaced. Upon the issuance of any substitute Note, the Issuer
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, evidencing the same debt as the
Predecessor Note, whether or not the destroyed, lost or stolen Note shall be at
any time enforceable by anyone, and any such new Note shall be entitled to all
the benefits of this Indenture and of the other Basic Documents and the
Construction Loan Agreement equally and proportionately with any and all other
Notes and to the same extent as such Predecessor Note.
All Notes shall be held and owned upon the express condition that, to
the extent permitted by law, the foregoing provisions are exclusive with respect
to the replacement or payment of mutilated, destroyed, lost or stolen Notes and
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen Notes or
negotiable instruments without their surrender.
Notwithstanding anything to the contrary in this Section, a Fixed Rate
Note may be replaced or exchanged only for another Fixed Rate Note in accordance
with this Indenture, and a Floating Rate Note may be replaced or exchanged only
for another Floating Rate Note in accordance with this Indenture.
SECTION 1.9 Payment of Principal and Interest. (a0 The Issuer hereby
authorizes and directs the Trustee to make or cause to be made payment of the
principal of, interest on and Additional Amounts with respect to the Notes as
set forth in this Indenture, including Section 7.1(b).
(1) Any interest shall be paid, unless otherwise provided in
the text of the Notes, to the persons (the "Registered Owners") in whose names
such Notes are registered on the Note Register maintained pursuant to Section
2.5(a) hereof at the close of business on the related Record Date; provided,
however, that interest payable upon the Maturity Date of the principal of any
Note shall be payable to the Person to whom such principal is payable. Principal
of the Notes shall be payable when due against surrender of the Notes at the
Corporate Trust Office of the Paying Agent. Payments of principal of and
interest on, and Additional Amounts, if any, the Notes shall be made by check
mailed on or before the due date for such payment to the person entitled thereto
at such person's address appearing on the Note Register for the Notes maintained
pursuant to Section 2.5(a) hereof, or, in the case of payments of principal, to
such other address as the registered Holder shall provide in writing at the time
of surrender of the Notes. Payments of principal of and interest and Additional
Amounts, if any, on the Notes shall be paid by wire transfer of immediately
available funds to such account with a bank in the United States as such Holder
shall designate by written instruction received by the Trustee not less than
five days prior to the applicable Payment Date.
SECTION 1.10 Interest on New Notes. Interest shall be deemed to have
been paid on each new Note (a "New Note") issued pursuant to Section 2.5 hereof
in exchange for, in substitution for, or in lieu of a Predecessor Note to the
date to which interest was paid on such Predecessor Note.
SECTION 1.11 Cancellation. The Issuer may at any time deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly cancelled by the Trustee.
All Notes delivered to the Trustee for payment, redemption, or exchange
as herein or in the Notes provided shall be cancelled and destroyed by the
Trustee or such other person as may be jointly designated by the Issuer and the
Trustee, which shall thereupon furnish certificates of such destruction to the
Issuer.
SECTION 1.12 Transfer Agent and Paying Agent. The Trustee shall be the
Transfer Agent for the Notes and the Paying Agent for the Notes.
SECTION 1.13 Rule 144A Information. For so long as any of the Notes
remain Outstanding and are "restricted securities" within the meaning of Rule
144(a)(3) under the Securities Act, the Issuer will, during any period in which
the Issuer is not subject to Section 13 or 15(d) under the Securities Act make
available the Rule 144A Information at its own expense to any Holder of a Note
or any Beneficial Owner of a Global Note, to a prospective purchaser of a Note
or beneficial interest therein who is a QIB, in each case at the Holder's
written request to the Issuer or to the Trustee (which shall notify the Issuer
in writing of any such request). Upon request by the Issuer, the Trustee shall
so furnish the Rule 144A Information to the extent provided by the Issuer to the
Trustee.
SECTION 1.14 Provision of Payment Date Statements and Other Information
to Holders. (a0 On each Payment Date, the Trustee shall forward a statement (the
"Payment Date Statement") in respect of the distribution made on any such
Payment Date by mail to (i) the Depository, (ii) the Rating Agencies, (iii) the
Issuer, (iv) the Holders of Individual Notes that deliver an Information Request
to the Trustee, (v) the Insurer and (vi) other Beneficial Owners of Notes that
deliver an Information Request to the Trustee, confirming their beneficial
ownership of Notes. To the extent such information is either known by a Trust
Officer of the Trustee or furnished to the Trustee pursuant to Section 2.12(b)
below by the Issuer, each Payment Date Statement will include the following
information:
(1) the amount of the payment made on such Payment
Date allocable to principal (or the Make Whole Amount, as applicable)
and separately identifying the amount of any principal payment or
prepayments (specifying the reason therefor) included therein;
(2) the amount of the payment made on such Payment
Date allocable to interest and the amount of Additional Amounts, if
any;
(3) if the payment to the Noteholders is less than
the full amount payable on such Payment Date to such Holders, the
amount of the shortfall;
(4) the Outstanding Principal Amount of the Floating
Rate Notes and the Fixed Rate Notes after giving effect to any payment
of principal on such Payment Date;
(5) LIBOR as determined on the Determination Date
with respect to the Reset Date immediately preceding such Payment Date
and the interest rate applicable to the Floating Rate Notes for the
period commencing on such Payment Date and ending on (but not
including) the next succeeding Payment Date;
(6) notice of the occurrence of a Default or Event of
Default;
(7) notice of any claims made or payments made under
the Policy or the Reinsurance Agreement;
(8) the then-current estimated date on which the
Resort will first accept paying guests;
(9) the amount, if any, by which the Issuer's current
construction project budget is estimated to exceed $298,000,000;
(10) the amount spent by or on behalf of the Issuer
to acquire, construct, equip and furnish the Hotel as part of the
construction project budget; and
(11) the then-remaining amounts of committed debt and
equity funds available for payment of costs to acquire, construct,
equip and furnish the Hotel.
The Issuer shall provide the information specified in paragraphs (8)
through and including (11) of the Payment Date Statement to the Trustee on or
before the Deposit Date preceding the applicable Interest Payment Date.
(2) Additional information regarding the Notes and the Issuer
shall also be prepared by the Issuer upon reasonable request by the Rating
Agencies, the Trustee, any agent acting on its behalf, or any Beneficial Owner
that provides to the Trustee an Information Request certifying to its beneficial
ownership of Notes or any Noteholder that provides an Information Request and
upon payment of the Trustee's fees and expenses in connection with providing
such information. Such additional information (to the extent provided to the
Trustee by the Issuer) shall be distributed by the Trustee to the Rating
Agencies and, upon payment or reimbursement of the Trustee's costs and expenses
of distribution thereof, to requesting Beneficial Owners that provide to the
Trustee an Information Request certifying to their beneficial ownership of Notes
and Noteholders that provide an Information Request.
(3) Within 60 days following the end of each calendar year,
the Trustee shall prepare, or cause to be prepared, and provide to each Person
who at any time during the calendar year was a Noteholder such customary
information as the Trustee deems necessary or desirable for Noteholders to
prepare their federal income tax returns. Such obligation of the Trustee shall
be deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code. Upon prior written request and the prior payment of the costs and expenses
to be incurred in connection therewith, the Trustee will prepare such other
reasonable reports as may be requested in writing by any Holder of a Note.
SECTION 1.15 Provision of Financial Information of Insurer. (a0 The
Insurer agrees that, while any of the Notes remain outstanding, it will deliver
to the Trustee, for redelivery, upon request, to any Noteholder or prospective
purchasers of Notes or the Initial Purchaser any quarterly or annual financial
statements (which may be prepared in accordance with the statutory basis of
accounting) that it most recently filed with the insurance regulatory
authorities of its jurisdiction of domicile. The Insurer further agrees that,
while any of the Notes remain outstanding, it will cause to be delivered to the
Trustee, upon request, for redelivery to any holder of Notes or prospective
purchasers of Notes or the Initial Purchaser quarterly and annual financial
statements (which may be prepared in accordance with the statutory basis of
accounting) presented on an individual and a combined basis based upon the
financial statements most recently filed by the Reinsurer and each Pool Member
with the insurance regulatory authorities of their respective jurisdictions of
domicile.
(1) Upon the request of any Holder or Beneficial Owner for
financial statements of the Insurer or the Pool Members (including the
Reinsurer), the Trustee shall deliver a written request for such statements to
the Insurer and upon receipt of such statements deliver such statements to the
requesting Holder or Beneficial Owner.
ARTICLE III
COVENANTS
SECTION 1.16 Payment of Principal and Interest; Appointment of Agents.
(a) The Issuer shall duly and punctually pay to the Trustee the principal (and
Make Whole Amounts, as applicable) of, interest on, and Additional Amounts with
respect to the Notes and all other amounts due to the Trustee pursuant to this
Indenture, the Construction Loan Agreement and the other Construction Loan
Documents, all in accordance with the terms of the Notes, the Construction Loan
Agreement, the other Construction Loan Documents and this Indenture.
(1) The Issuer hereby appoints the Trustee as the Paying
Agent, the Calculation Agent, the Authenticating Agent, the Transfer Agent and
the Note Registrar (collectively the "Agents"). Each Person which ceases to be
the Trustee for any reason shall cease to be the Agents, and each Person which
becomes a successor Trustee pursuant to Article V hereof shall become the
Agents.
SECTION 1.17 Performance of Obligations. (a0 The Issuer shall
punctually perform and observe all its obligations and agreements specified in
this Indenture and the Construction Loan Documents.
(1) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Trustee in an Officer's Certificate of the Issuer
shall be deemed to be action taken by the Issuer.
(2) So long as any Notes are outstanding or any amounts due
with respect to the Notes or to the Holders, the Trustee or the Insurer pursuant
to this Indenture remain unpaid, the Issuer shall not permit the validity or
effectiveness of this Indenture to be impaired.
SECTION 1.18 Further Instruments and Acts. Upon request of the Trustee,
the Issuer shall execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture and the Construction Loan Documents.
SECTION 1.19 Notice of Events of Default. The Issuer shall give the
Trustee, the Insurer, the Guarantor and the Rating Agencies written notice of
each Default as provided in Section 4.1 and of each default on the part of any
party to the Basic Documents or the Construction Loan Documents with respect to
any of the provisions thereof to which the Issuer has knowledge.
SECTION 1.20 Maintenance of Books and Records. The Issuer shall
maintain and implement administrative and operating procedures reasonably
necessary in the performance of its obligations hereunder and the Issuer shall
keep and maintain at all times, or cause to be kept and maintained at all times
at its principal office, all documents, books, records, accounts and other
information reasonably necessary or advisable for the performance of its
obligations hereunder to the extent required under applicable law.
SECTION 1.21 Continuation of Ratings. The Issuer agrees to provide the
Rating Agencies with information, to the extent reasonably obtainable by the
Issuer, to allow the Rating Agencies to monitor the rating of the Notes. The
Issuer shall pay such ongoing fees of the Rating Agencies as they may reasonably
request to monitor the ratings of the Notes.
ARTICLE IV
REMEDIES
SECTION 1.22 Notices of Default. The Issuer shall deliver to Trustee,
the Insurer and the Guarantor (with a copy to the Rating Agencies), within five
Business Days after obtaining knowledge of the occurrence thereof, written
notice in the form of an Officer's Certificate of the occurrence of any Default,
its status and what action the Issuer is taking or proposes to take with respect
thereto. In addition, the Trustee shall deliver the notices required pursuant to
Section 5.5.
SECTION 1.23 Exercise of Remedies. If an Event of Default has occurred
and is continuing, the Insurer so long as no Policy Event has occurred and is
continuing, or the Holders of greater than 50% of the Outstanding Principal
Amount of the Notes if a Policy Event has occurred and is continuing, shall have
the right (subject to providing an indemnity to the reasonable satisfaction of
the Trustee) to direct the time, method and place of exercising any remedy
available to the Trustee, and of conducting any Proceeding for any remedy
available to the Trustee, with respect to the Notes, this Indenture, the
Construction Loan Agreement, the Construction Loan Deed of Trust and each other
Construction Loan Document, and of exercising any trust or power conferred on
the Trustee; provided that:
(1) such direction shall not be in conflict with any rule of
law or with this Indenture; and
(2) if Noteholders (and not the Insurer) have directed the
Trustee to take the action in question, the Trustee need not take any action
which might materially adversely affect the rights of any Noteholders not
consenting to such action.
SECTION 1.24 Limitation of Suits. No Noteholder shall have any right to
institute any Proceeding, judicial or otherwise, with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(1) a Policy Event has occurred and is continuing;
(2) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(3) the Holders of greater than 50% of the Outstanding
Principal Amount of Notes have made written request to the Trustee to institute
such Proceeding in respect of such Event of Default in its own name as Trustee
hereunder;
(4) such Holder or Holders has offered to the Trustee
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred or in respect of which it may be or become liable in
complying with such request;
(5) the Trustee for sixty (60) calendar days after its receipt
of such notice, request and offer of indemnity has failed to institute such
Proceedings; and
(6) no direction inconsistent with such written request has
been received by the Trustee during such 60-day period from the Holders of
greater than 50% of the Outstanding Principal Amount of the Notes.
It is understood and intended that no one or more Holders shall have
any right in any manner whatsoever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture, except in the manner
herein provided.
SECTION 1.25 Unconditional Rights of Noteholders To Receive Principal,
Interest and Additional Amounts. Notwithstanding any other provisions in this
Indenture and subject to the Priority of Payments, the Holder of each Note shall
have the right, which is absolute and unconditional, to receive payment of the
principal (or the Make Whole Amount, as applicable) of, interest on and
Additional Amounts with respect to such Note, and such right shall not be
impaired without the consent of such Holder.
SECTION 1.26 Performance and Enforcement of Certain Obligations. (a0
Unless a Policy Event has occurred and is continuing, the Trustee may, and at
the direction of the Insurer (subject to having been indemnified reasonably to
its satisfaction) shall, take all lawful action to compel or secure the
performance and observance by the Issuer and the Guarantor, of each of their
respective obligations under this Indenture, the Construction Loan Agreement,
Construction Loan Deed of Trust and each other Construction Loan Documents
including the Completion Guaranty and the Payment Guaranty, and, if so directed,
the Trustee shall exercise any and all rights, remedies, powers and privileges
lawfully available under or in connection with all of such agreements, including
the transmission of notices of default thereunder and the institution of legal,
arbitral or administrative actions or proceedings to compel or secure
performance thereunder.
(1) If an Event of Default and a Policy Event have occurred
and are continuing, the Trustee may, and at the direction of the Holders of
greater than 50% of the Outstanding Principal Amount of the Notes (subject to
having been indemnified to its satisfaction), shall take all lawful action to
compel or secure the performance and observance by the Insurer, the Issuer and
the Guarantor of each of their respective obligations under this Indenture, the
other Basic Documents, the Construction Loan Agreement, the Construction Deed of
Trust, the other Construction Loan Documents (including the Completion Guarantee
and the Payment Guarantee) and, if so directed, the Trustee shall exercise any
and all rights, remedies, powers and privileges lawfully available under or in
connection with all of such agreements, including the transmission of notices of
default thereunder and the institutions of legal, arbitral or administrative
actions or proceedings to compel or secure performance thereunder.
SECTION 1.27 Special Construction Servicer. In the event that a Policy
Event occurs prior to the Opening Date, the Trustee shall appoint a special
construction servicer (the "Special Construction Servicer") to administer the
application of the balance remaining in the Construction Loan Proceeds Account
to the payment of Costs under the Construction Loan Agreement and to provide
other services determined by the Trustee related to the construction of the
Required Improvements on behalf of the Trustee for the benefit of the
Noteholders. Any such Special Construction Servicer will be an entity that
appears at the time of appointment on the list of "approved special servicers"
for commercial mortgage securitizations maintained by S&P. The Special
Construction Servicer will be required to perform its duties in the best
interests of and for the sole benefit of the Noteholders (as determined by the
Special Construction Servicer in its reasonable good-faith business judgment) in
accordance with the terms of the Construction Loan Documents and in furtherance
of and to the extent consistent with such terms, and in accordance with the
higher of (a) the same care, skill, prudence and diligence with which the
Special Construction Servicer services and administers similar construction
mortgage loans for other third-party portfolios, giving due consideration to
customary and usual standards of practice of prudent institutional commercial
loan special servicers servicing commercial construction loans for third parties
generally and (b) the same care, skill, prudence and diligence which the Special
Construction Servicer uses for construction mortgage loans in its own portfolio.
The administration of the Construction Loan Agreement by the Special
Construction Servicer is required to be undertaken without regard to (i) any
relationship (other than that created by this Indenture, the other Basic
Documents and the Construction Loan Agreement) that it or any of its Affiliates
may have with the Noteholders, the Issuer, the Guarantor, the Insurers or any of
their respective Affiliates; (ii) ownership of any Note by it or any of its
Affiliates; (iii) the adequacy of its compensation for its services or (iv) its
ownership, servicing or special servicing of other mortgage loans. Any expenses
incurred by the Trustee in retaining the Special Construction Servicer and all
amounts of compensation, fees and expenses payable to the Special Construction
Servicer shall be paid by the Issuer on demand.
ARTICLE V
THE TRUSTEE
SECTION 1.28 Duties of the Trustee. (a) So long as no Policy Event has
occurred and is continuing, the Trustee shall take all lawful action directed by
the Insurer to enforce the Trustee's rights and exercise the remedies available
to the Trustee, including at law and in equity, under or with respect to the
Basic Documents, the Construction Loan Agreement, the Construction Loan Deed of
Trust and all of the other Construction Loan Documents, and shall take all
lawful actions directed by the Insurer to fully enable the Insurer to exercise
its rights pursuant to Article XI of this Indenture. The Trustee shall
authenticate the Notes and execute and deliver this Indenture, the Basic
Documents, the Construction Loan Documents to which it is a party and any other
documents, instruments or certificates to which it is a party to be executed and
delivered in connection therewith.
(1) The Trustee shall hold the Policy, the Assignment of
Reinsurance and the Assumption of Liability and Novation Endorsement for the
benefit of the Noteholders and shall enforce all of the rights and powers, and
satisfy all of the obligations, of the beneficiary thereunder.
(2) After the occurrence and during the continuance of an
Event of Default, the Trustee shall exercise the rights and powers vested in it
by this Indenture, the other Basic Documents, the Construction Loan Agreement
and the other Construction Loan Documents, and use the same degree of skill and
care in their exercise as a prudent person would use or exercise under the
circumstances in the conduct of such Person's own affairs.
(3) Prior to the occurrence of an Event of Default, the
Trustee undertakes to perform such duties and only such duties as are
specifically specified in this Indenture, the Construction Loan Agreement, the
other Construction Loan Documents and the other documents to which it is a party
and no implied covenants or obligations shall be read into this Indenture and
the other documents to which it is a party against the Trustee.
(4) In addition, prior to the occurrence of an Event of
Default, in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions which are furnished to the
Trustee and conform to the requirements of this Indenture and the other
documents to which it is a party; however, in the case of any such certificates
or opinions which by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of this
Indenture and the other documents to which it is a party; provided, however,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Issuer hereunder.
(5) The Trustee may not be relieved from liability for its own
negligent action or its own willful misconduct, except that:
(1) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts;
(2) no provision of this Indenture or the other
documents to which it is a party shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it;
(3) anything in this Indenture and the other
documents to which it is a party to the contrary notwithstanding, in no
event shall the Trustee be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including, but not
limited to, lost profits), even if the Trustee has been advised of the
likelihood of such loss or damage and regardless of the form of action,
or any insufficiency in the Accounts resulting from a loss, including
loss of principal, on any Permitted Investment included therein; and
(4) the right of the Trustee to perform any
discretionary act enumerated in this Indenture and the other documents
to which it is a party shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or
willful misconduct in the performance of such act.
(6) Every provision of this Indenture and the other documents
to which it is a party that in any way relates to the Trustee acting in any of
its capacities is subject to this Section 5.1.
(7) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer.
(8) Whether or not herein expressly so provided, every
provision of this Indenture and the other documents to which it is a party
relating to the conduct or affecting the liability of or affording protection to
the Trustee (in any capacity in which it may serve) shall be subject to the
provisions of this Section 5.1.
(9) The Trustee shall not be charged with knowledge of any
Default, Event of Default or Policy Event unless either (1) a Trust Officer
shall have actual knowledge of such Default, Event of Default or Policy Event or
(2) written notice of such Default, Event of Default or Policy Event shall have
been received by a Trust Officer in accordance with the provisions of this
Indenture.
(10) The Trustee accepts its appointment as the Agents.
SECTION 1.29 Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter stated in
such document.
(1) Any request or direction of the Issuer mentioned herein
shall be sufficiently evidenced by an Issuer Order or an Issuer Request.
(2) Before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officer's Certificate or Opinion of Counsel.
(3) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
Affiliates, delegates, agents or attorneys or a custodian or nominee, and the
Trustee shall not be responsible for any misconduct or negligence on the part
of, or for the supervision of, any such agent, attorney, custodian or nominee
appointed with due care by it hereunder.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(5) The Trustee may consult with counsel, and the advice or
opinion of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
omitted or suffered by it hereunder in good faith and in reliance thereon.
(6) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture and the other documents
to which it is a party at the request or direction of the Insurer or any of the
Noteholders pursuant to this Indenture and the other documents to which it is a
party or to institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of the Insurer or any of the
Noteholders pursuant to this Indenture and the other documents to which it is a
party, unless the Insurer or such Noteholders, as applicable, shall have offered
to the Trustee reasonable security or indemnity satisfactory to the Trustee
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction.
(7) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Issuer, personally or by an agent or attorney.
(8) The Trustee shall not be required to give any bond or
surety in respect of the execution of the trust created hereby or the powers
granted hereunder.
SECTION 1.30 Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Issuer or its Affiliates and with the other parties
to the Basic Documents and the Construction Loan Documents and their respective
Affiliates with the same rights it would have had if it were not Trustee.
SECTION 1.31 Trustee's Disclaimer. The Trustee (i) shall not be
responsible for, and makes no representation, as to the validity or adequacy of
the Notes, any Basic Document or any Construction Loan Document, (ii) shall not
be accountable for the Issuer's use of the proceeds from the Notes and (iii)
shall not be responsible for any statement of the Issuer in this Indenture or in
any document executed in connection with the sale of the Notes or in the Notes,
any Basic Document, or any Construction Loan Document, other than the Trustee's
Certificate of Authentication.
The Trustee is and will be acting hereunder solely in its capacity as
Trustee. All parties to this Indenture acknowledge and agree that where there is
any reference herein to Trustee performing any activity, making any decision or
determination, approving or consenting to any matter, exercising any rights,
fulfilling any obligation, exercising any discretion or otherwise acting in any
capacity, the Trustee will not be the party doing so unless it is specifically
authorized and directed to do so in each instance by an appropriate direction
hereunder. Any such performance, decision, determination, approval, consent or
action to be made, taken, given or exercised by Trustee under any Basic Document
that the Trustee is not so specifically authorized and directed to perform in
each instance as required by the terms of this Indenture or such Basic Document
may be made, taken, given or exercised by other parties who are beneficiaries or
agents of beneficiaries of this Indenture.
SECTION 1.32 Notice of Defaults; Notice of Requirement to Pay
Additional Amounts. (a) If the Trustee obtains knowledge (as provided in Section
5.1(j)) of an Event of Default or Policy Event, the Trustee shall mail to each
Noteholder, the Issuer, the Guarantor and the Insurer (with a copy to the Rating
Agencies), notice of such Event of Default or Policy Event within five (5)
calendar days after obtaining knowledge thereof; provided, however, that with
respect to an Event of Default caused by a failure to pay when due the principal
of, interest on or Additional Amounts with respect to the Notes, the notice
shall be mailed promptly after obtaining such notice. If the Trustee receives a
notice from the Issuer pursuant to Section 4.1, the Trustee will include a copy
of such notice with its notice of an Event of Default. Where a notice of the
occurrence of an Event of Default or Policy Event has been given by the Trustee
pursuant to this Section 5.5 and the Event of Default or Policy Event is
thereafter cured, the Trustee shall give notice that the Event of Default or
Policy Event is no longer continuing within ten (10) calendar days after the
Trustee obtains knowledge thereof.
(1) The Trustee shall deliver to the Issuer, the Guarantor and
the Insurer, within five (5) Business Days after obtaining knowledge or receipt
thereof, written notice of any event, condition or circumstance, or any notice,
publication or communication, whether sent or published by a governmental entity
or otherwise, the effect of which would require the Issuer to pay Additional
Amounts hereunder. To the extent that the Trustee has received information
sufficient for it to do so, the Trustee shall calculate the amount of any
Additional Amounts required to be paid by the Issuer on any Deposit Date or
otherwise, and shall deliver notice of such calculation to the Issuer, the
Guarantor and the Insurers as soon as reasonably practicable under the
circumstances.
Absent manifest error, such calculation shall be binding on the Issuer,
the Guarantor and the Insurer, and the Issuer's making of a payment in reliance
on such calculation, even if such calculation is erroneous, shall not result in
a Default or an Event of Default if the Issuer makes payment of any shortfall
immediately after its receipt of written notice thereof from the Trustee.
(2) Before 5:00 p.m. (New York City time) on the Business Day
next succeeding each Deposit Date or any other date on which the Trustee
receives any payment, the Trustee shall provide to the Issuer, the Guarantor,
the Insurer, and the Administrative Agent prompt notice of all amounts it
receives under or pursuant to the Notes, the Construction Loan Agreement, the
Construction Loan Deed of Trust, any interest rate protection agreement, any
other Construction Loan Document (including proceeds collected by the Trustee
upon the sale or other disposition of Collateral or upon the exercise of any
remedies under the Construction Loan Documents), the Policy, the Assignment of
Reinsurance and the Reinsurance Agreement, the Completion Guarantee and the
Payment Guarantee. The Trustee shall specify in such notice the amount received
and the source of such payment and any other relevant details concerning such
payment.
SECTION 1.33 Appointment of Administrative Agent. Until the principal
of and interest on the Notes is indefeasibly paid in full, the Insurer is
irrevocably appointed the "Administrative Agent" under and in accordance with
the terms of the Construction Loan Agreement and the other Construction Loan
Documents; provided, however, that (i) if a Policy Event occurs prior to the
Opening Date, the Insurer shall cease to be the Administrative Agent and the
Special Construction Servicer shall become the Administrative Agent and (ii) if
a Policy Event occurs on or after the Opening Date, the Insurer shall cease to
be the Administrative Agent and the Trustee may, at its option, appoint a
successor Administrative Agent, or, if it does not appoint a successor
Administrative Agent, the Trustee shall perform the duties of the Administrative
Agent. Any Administrative Agent may resign (other than the Insurer, which may
not resign unless a Policy Event occurs), and, if any such Administrative Agent
resigns, a successor Administrative Agent shall be appointed as provided in the
Construction Loan Agreement.
Each Administrative Agent shall have the right and power to take such
action as Administrative Agent and to exercise such powers under this Indenture,
the Construction Loan Agreement, the other Construction Loan Documents and any
other documents as are delegated to the Administrative Agent by the terms hereof
and thereof, together with all such powers as are reasonably incidental thereto.
The Insurer hereby accepts such appointment.
SECTION 1.34 Compensation and Indemnity. (a) On the Closing Date and
from time to time thereafter, the Issuer shall pay to the Trustee any costs,
fees and expenses of its counsel and a fee as agreed upon between the Issuer and
the Trustee in a letter agreement, dated as of the date hereof, as compensation
for its services as Trustee, Paying Agent, Registrar and Transfer Agent,
hereunder and under the Construction Loan Documents to which it is a party. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuer shall reimburse the Trustee upon request
for all reasonable out-of-pocket expenses incurred or made by it, including
costs of collection, in addition to the compensation to the Trustee for its
services. Such expenses shall include, but will not be limited to, the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents (including any receiver), delegates, counsel, accountants and
experts. The Issuer shall indemnify the Trustee against any and all loss,
liability or expense (including reasonable attorney's fees) incurred by it in
connection with the administration of this trust and the performance of its
duties hereunder or under the Construction Loan Documents including the costs
and expenses of defending against any claim or liability in connection with the
exercise or performance of any powers or duties hereunder and thereunder. The
Trustee shall notify the Issuer promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuer shall not relieve the
Issuer of its obligations hereunder. The Issuer need not reimburse any expense
or indemnity against any loss, liability or expense incurred by the Trustee
through the Trustee's own willful misconduct, negligence or bad faith unless the
act in question has been directed pursuant to this Indenture. To the extent the
Trustee renders services or incurs expenses after an Event of Default involving
a bankruptcy, insolvency or the like, the compensation for services and expenses
incurred by it are intended to constitute expenses of administration under any
applicable federal, state or foreign bankruptcy, insolvency or other similar law
now or hereafter in effect.
(1) Indemnification by the Insurer. The Insurer shall
indemnify and hold the Trustee harmless from and against any and all loss,
damage, liability, cost and expense (including, without limitation, reasonable
attorney's fees and disbursements) incurred by the Trustee, any of its
Affiliates, or any of their respective officers, directors, shareholders,
employees and agents, arising out of or in connection with any action taken by
the Trustee under or pursuant to this Indenture, the Construction Loan Agreement
or any of the other Construction Documents in accordance with or pursuant to
written directions from the Insurer after the occurrence and during the
continuance of an Event of Default.
(2) The Issuer's and the Insurer's payment obligations to the
Trustee pursuant to this Section 5.7 shall survive the resignation or removal of
the Trustee, the occurrence of any Policy Event, the payment in full of all the
Notes, and the termination or discharge of any Basic Document or Construction
Loan Document, and shall not be affected by any obligation which Issuer, the
Insurer and the Trustee may have to provide indemnification under this
Agreement.
SECTION 1.35 Replacement of Trustee. (a) No resignation or removal of
the Trustee, and no appointment of a successor Trustee, shall become effective
until the acceptance of appointment by the successor Trustee pursuant to this
Section 5.8. The Trustee may resign at any time upon not less than sixty (60)
calendar days prior written notice to the Issuer and the Insurer. So long as no
Event of Default has occurred and is continuing the Issuer may remove the
Trustee without cause by so notifying the Trustee; provided, however, if no
Policy Event has occurred and is continuing, such removal shall require the
consent of the Insurer. If an Event of Default has occurred and is continuing,
the Insurer, so long as no Policy Event has occurred and is continuing, or the
Holders of 662/3% of the Outstanding Principal Amount of the Notes, if a Policy
Event has occurred or is continuing, may remove the Trustee without cause by so
notifying the Trustee and the Issuer. The Issuer shall remove the Trustee
promptly if:
(1) the Trustee fails to comply with Section 5.10;
(2) the Trustee is adjudged to be bankrupt or
insolvent;
(3) a receiver or other public officer takes charge
of the Trustee or its property; or
(4) the Trustee otherwise becomes incapable of
acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), (i) so long as no Event of Default has occurred and is
continuing, the Issuer shall promptly appoint a successor Trustee, provided that
so long as no Policy Event has occurred and is continuing, the appointment of
any such successor Trustee shall be subject to the prior consent of the Insurer,
(ii) if an Event of Default has occurred and is continuing and no Policy Event
has occurred and is continuing, the Insurer shall appoint a successor Trustee,
or (iii) if an Event of Default has occurred and is continuing and a Policy
Event has occurred and is continuing, Holders of 662/3% of the Outstanding
Principal Amount of the Notes may appoint a successor Trustee.
(2) Any successor Trustee shall, without further act, be the
Trustee under the other Basic Documents and the Construction Loan Agreement, and
shall deliver a written acceptance of its appointment as Trustee (which shall
include acceptance of its appointment as the Agents and as Trustee under the
other Basic Documents and the Construction Loan Documents) to the retiring
Trustee and to the Issuer and the Insurer. Thereupon, the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to the Noteholders. If
the retiring Trustee resigns or is removed, and the Issuer, the Insurer or the
requisite Holders fail to appoint a successor Trustee as provided herein, the
retiring Trustee, the Issuer, the Insurer or the Holders of greater than 50% of
the Outstanding Principal Amount of the Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee. If the
Trustee fails to comply with Section 5.10, any Noteholder may petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
(3) Notwithstanding the replacement of the Trustee pursuant to
this Section 5.8, the Issuer's obligations under Section 5.7 shall continue for
the benefit of the retiring Trustee.
SECTION 1.36 Successor Trustee by Merger. (a) If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association without any further act shall be the successor Trustee; provided,
however, that such corporation or banking association shall be otherwise
qualified and eligible under Section 5.10. The Trustee shall provide the Rating
Agencies with written notice of any such transaction.
(1) In case at the time such successor or successors by
merger, conversion or consolidation to the Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the Certificate of
Authentication of any predecessor trustee, and deliver such Notes so
authenticated, and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee. In all such cases such certificates shall have the full force which it
is anywhere in the Notes or in this Indenture provided that the certificate of
the Trustee shall have.
SECTION 1.37 Eligibility; Disqualification. The Trustee or its parent
shall have a combined capital and surplus of at least $250,000,000 as specified
in its most recent published annual report and shall have a long-term senior
unsecured debt rating of no lower than "BBB-" by S&P and "Baa3" by Moody's, or
shall otherwise be acceptable to the Rating Agencies.
SECTION 1.38 Unclaimed Funds. Subject to applicable laws with respect
to abandoned property, any funds held by the Trustee (as Trustee or as Paying
Agent) for the payment of principal (or the Make Whole Amount, as applicable) or
purchase price on any Note that remains unclaimed for five (5) years and for the
payment of interest (including interest which is a part of the purchase price)
and Additional Amounts on any Note that remain unclaimed for ten (10) years, in
each case, after such amount shall have become due and payable, shall be paid to
the Insurer to the extent of any unreimbursed or outstanding amounts paid by the
Insurer pursuant to the terms of the Policy and thereafter repaid to the Person
which originally paid such funds to the Trustee, and the Holder of such Note
shall thereafter look, as an unsecured general creditor, only to the Issuer,
Insurer or Purchaser (whichever was liable to make the payment being sought) for
payment thereof, and all liability of the Trustee with respect to such funds
shall thereupon cease. The Trustee shall also adopt and employ, at the expense
and direction of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
the Holders whose Notes have been called but have not been surrendered for
redemption or purchase or whose right to or interest in monies due and payable
but not claimed is determinable from the records of the Trustee, at the last
address of record for each such Holder).
ARTICLE VI
NOTEHOLDERS' LISTS, REPORTS AND MEETINGS
SECTION 1.39 Preservation of Information; Communications to
Noteholders. The Trustee shall preserve in as current a form as is reasonably
practicable, the names and addresses of Holders of Global Notes received by the
Trustee in its capacity as Registrar.
SECTION 1.40 Voting by Noteholders. Except as otherwise provided in the
Indenture (including, without limitation, the provisions of Section 8.2) all
resolutions of the Noteholders shall be passed by votes representing more than
50% of the Outstanding Principal Amount.
SECTION 1.41 Purposes for Which Noteholder Meetings May Be Called. A
meeting of Noteholders may be called at any time and from time to time pursuant
to this Article VI to make, give or take any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be made, given or taken by the Noteholders.
SECTION 1.42 Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Noteholders
for any purpose specified in Section 6.3, to be held at such time and at such
place as the Trustee shall determine. Notice of every meeting of Noteholders,
setting forth the time and place of such meeting and in general terms the action
proposed to be taken at such meeting, shall be given by the Trustee, in the
manner provided in Section 11.4, not less than ten (10) nor more than 180
calendar days prior to the date fixed for the meeting.
(2) In case at any time the Issuer, pursuant to a resolution
of the managing member of the Issuer, or the Holders of at least 10% of the
Outstanding Principal Amount of the Notes shall have requested the Trustee to
call a meeting of the Noteholders for any purpose specified in Section 6.3, by
written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have made the first publication
of the notice of such meeting within ten (10) calendar days after receipt of
such request or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the Issuer or the Noteholders in the amount above
specified, as the case may be, may determine the time and the place, for such
meeting and may call such meeting for such purposes by giving notice thereof as
provided in subsection (a) of this Section 6.4.
SECTION 1.43 Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of the Noteholders a Person shall
(a) be a Holder of one or more of the outstanding Notes or (b) be a Person
appointed by an instrument in writing as proxy by a Holder of one or more Notes.
The only Persons who shall be entitled to be present or to speak at any meeting
of Noteholders shall be the Persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel, any
representatives of the Issuer and its counsel, and any representatives of the
Insurer and its counsel.
SECTION 1.44 Quorum; Action.
Persons entitled to vote at least 51% of the Outstanding Principal
Amount of the Notes shall constitute a quorum for a meeting of the Noteholders.
In the absence of a quorum within 60 minutes of the time appointed for any such
meeting, the meeting shall, if convened at the request of Noteholders, be
dissolved. In any other case the meeting may be adjourned for a period of not
less than ten (10) calendar days as determined by the chairman of the meeting
prior to the adjournment of such meeting. In the absence of a quorum at any such
adjourned meeting, such adjourned meeting may be further adjourned for a period
of not less than ten (10) calendar days as determined by the chairman of the
meeting prior to the adjournment of such adjourned meeting. Notice of the
reconvening of any adjourned meeting shall be given as provided in Section 12.4,
except that such notice need be given only once not less than five (5) calendar
days prior to the date on which the meeting is scheduled to be reconvened.
Notice of the reconvening of an adjourned meeting shall state expressly the
percentage, as provided above, of the Outstanding Principal Amount of the Notes
that shall constitute a quorum.
Except as limited by the proviso to the first paragraph of Section 8.2,
any resolution presented to a meeting or adjourned meeting duly reconvened at
which a quorum is present as aforesaid may be adopted by the affirmative vote of
the Holders of at least 51% of the Outstanding Principal Amount of the Notes;
provided, however, that, except as limited by the proviso to the first paragraph
of Section 8.2, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that this
Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage, which is less than 51% of the Outstanding Principal Amount
of the Notes, may be adopted at a meeting or an adjourned meeting duly
reconvened and at which a quorum is present as aforesaid by the affirmative vote
of the Holders of such specified percentage of the Outstanding Principal Amount
of the Notes.
Any resolution passed or decision taken at any meeting of Holders of
Notes duly held in accordance with this Article VI shall be binding on all the
Noteholders, whether or not present or represented at the meeting.
Notwithstanding the foregoing provisions of this Article VI, if any
action is to be taken at a meeting of Noteholders with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
this Indenture expressly provides may be made, given or taken by the Holders of
a specified percentage in aggregate Outstanding Principal Amount of the Notes
affected thereby, or of the Noteholders:
(1) there shall be no minimum quorum requirement for such
meeting; and
(2) the aggregate Outstanding Principal Amount of the Notes
that vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under this Indenture.
SECTION 1.45 Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(1) Notwithstanding any other provisions of this Indenture,
the Trustee may make such reasonable regulations as it may deem advisable for
any meeting of Noteholders in regard to proof of the holding of the Notes and of
the appointment of proxies and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of Notes shall be
proved in the manner specified in Section 2.5(m) and the appointment of any
proxy shall be proved in the manner specified in Section 2.5(m) or by having the
signature of the person executing the proxy witnessed or guaranteed by any trust
company, bank or banker authorized by Section 2.5(m). Such regulations may
provide that written instruments appointing proxies, regular on their face, may
be presumed valid and genuine without the proof specified in Section 2.5(m) or
other proof.
(2) The Trustee shall, by an instrument in writing, appoint a
chairman of the meeting, unless the meeting shall have been called by the Issuer
or by Holders of Notes as provided in Section 6.4, in which case the Issuer or
the Holders of Notes calling the meeting, as the case may be, shall in like
manner appoint a chairman. A permanent chairman and a permanent secretary of the
meeting shall be elected by vote of the Persons entitled to vote at least 51% of
the Outstanding Principal Amount of the Notes represented at the meeting.
(3) At any meeting each Noteholder or proxy shall be entitled
to one vote for each $1,000 of the Outstanding Principal Amount of the Notes
held or represented by him; provided, however, that no vote shall be cast or
counted at any meeting in respect of any Note challenged as not Outstanding and
ruled by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote, except as a Noteholder or of a proxy.
(4) Any meeting of Noteholders duly called pursuant to Section
6.4 at which a quorum is present may be adjourned from time to time by Persons
entitled to vote at least 51% of the Outstanding Principal Amount of the Notes
represented at the meeting; and the meeting may be held as so adjourned without
further notice.
SECTION 1.46 Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Noteholders
shall be by written ballots on which shall be subscribed the signatures of the
Noteholders or their representatives by proxy and the Outstanding Principal
Amount and serial numbers of the Notes held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record, at least in
duplicate, of the proceedings of each meeting of Noteholders shall be prepared
by the secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was given
as provided in Section 6.4 and, if applicable, Section 6.8. Each copy shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one such copy shall be delivered to the Issuer, and another to
the Trustee to be preserved by the Trustee, the latter to have attached thereto
the ballots voted at the meeting. Any record so signed and verified shall be
conclusive evidence of the matters therein stated.
ARTICLE VII
ACCOUNTS, COLLECTIONS AND DISBURSEMENTS
SECTION 1.47 Collection and Disbursements of Money.
(1) All moneys paid to or collected by the Trustee under or
pursuant to the Notes, the Construction Loan Agreement, the Construction Loan
Deed of Trust, any interest rate protection agreement or any other Construction
Loan Document (including proceeds collected by the Trustee upon the sale or
other disposition of Collateral or upon the exercise of any remedies under the
Construction Loan Documents, but excluding moneys collected under the Completion
Guaranty or the Payment Guaranty), after making any payments required pursuant
to Section 2.3(f) of the Construction Loan Agreement, shall be deposited in the
Payment Account for application in accordance with this Indenture. All moneys
paid to or collected by the Trustee under the Policy, the Assignment of
Reinsurance and the Reinsurance Agreement, shall be deposited by the Trustee in
the Policy Payment Account for application in accordance with this Indenture.
All moneys paid to or collected by the Trustee under the Completion Guarantee
and the Payment Guarantee, after making any payments required pursuant to
Section 2.3(f) of the Construction Loan Agreement, shall be deposited by the
Trustee in the Guarantee Payment Account for application in accordance with this
Indenture. All moneys paid to the Trustee pursuant to Section 9.2(b) by a
Purchaser, after making any payments required pursuant to Section 2.3(f) of the
Construction Loan Agreement, shall be deposited by the Trustee in the Note
Purchase Account for application in accordance with this Indenture.
(2) On each Interest Payment Date, Payoff Date, Default
Payment Date and on the Stated Maturity Date the Trustee will pay the following
amounts then held in the Accounts in the following order of priority (the
"Priority of Payments"):
(1) first, out of the Payment Account and the
Purchase Account only, to the Trustee for all amounts due to the
Trustee in each of its capacities hereunder, including all amounts due
under Section 5.7, and for all amounts due to the Trustee pursuant to
the Construction Loan Documents and for any amounts due to a Special
Construction Servicer appointed pursuant to Section 4.6;
(2) second, out of the Payment Account and the
Purchase Account only, to the Insurer for all amounts due to the
Insurer in both its capacities as Insurer and Administrative Agent
under this Indenture and the Construction Loan Documents, including
indemnification and reimbursement of costs and expenses, but exclusive
of the amounts referred to in clauses fifth, sixth and seventh below;
(3) third, to the Holders of the Notes the amounts of interest
and Additional Amounts due and unpaid with respect to the Notes, and any
interest at the Default Rate, from the due date thereof until the date paid to
the Noteholders;
(4) fourth, to the Holders of the Notes the amounts of
principal (or, if applicable, Make Whole Amount) due and unpaid with respect to
the Notes;
(5) fifth, to the Insurer the amount of all payments made
under the Policy and the Swap Policy which have not been reimbursed to, or
collected by, the Insurer;
(6) sixth, to the Insurer the amount of any interest at the
Default Rate (to the extent not required to be paid under clause third above)
and Late Payment Fees paid by the Issuer or for the Issuer's account under the
Construction Loan Agreement and not previously paid to the Insurer pursuant to
this clause sixth and the amount of interest at the Default Rate and Late
Payment Fees then due and unpaid under the Construction Loan Agreement;
(7) seventh, to the Insurer all amounts due and unpaid under
or pursuant to the Policy and the Swap Policy;
(8) eighth, to the Trustee amounts necessary to enable the
Trustee to pay, repay, or reimburse third parties for amounts expended on Costs;
(9) ninth, if no Event of Default has occurred and is
continuing to the Issuer, the Insurer, the Guarantor or a Purchaser, as the case
may be, the amounts set forth in Section 7.3(a); and
(10) tenth, if the conditions set forth in Section 12.19 to
the satisfaction and discharge of this Indenture have been satisfied, the
balance in the Accounts to the Issuer or such other Person as may be legally
entitled thereto or as may be ordered or directed by a court of competent
jurisdiction.
Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and the Trustee receives proceeds from the sale or other
disposition of the Collateral or upon the exercise of remedies under or pursuant
to the Construction Loan Documents, no payments from such proceeds shall be made
pursuant to clause fifth of this Section 7.1(b) until the Outstanding Principal
Amount of, accrued and unpaid interest on, and Additional Amounts, if any, with
respect to the Notes have been paid in full.
Notwithstanding anything in this Indenture to the contrary, all
payments made by the Reinsurer under the Assignment of Reinsurance, the
Assignment of Reinsurance (Swap), the Reinsurance Agreement or the Swap
Reinsurance Agreement and all amounts due to the Reinsurer pursuant to any
thereof, respectively, for all purposes of this Indenture, including
specifically this Section 7.1(b) and Section 12.19, shall be deemed to have been
made by the Insurer under the Policy or the Swap Policy, and shall be deemed due
to the Insurer under the Policy or the Swap Policy, respectively.
SECTION 1.48 The Accounts. On or prior to the Closing Date, the Trustee
shall establish and thereafter maintain the Accounts at an Eligible Institution.
The Accounts shall initially be held at Bank One, National Association. If any
Eligible Institution ceases to be an Eligible Institution, the Issuer shall
choose another Eligible Institution, which Eligible Institution shall be
reasonably acceptable to the Insurer (so long as no Policy Event shall have
occurred and be continuing) to hold the Accounts, and shall direct the Trustee
in writing to transfer the Accounts to such Eligible Institution, and the
Trustee shall cause the Accounts to be transferred to such Eligible Institution.
All amounts deposited in the Accounts shall be held for the benefit of the
Noteholders. The only permitted withdrawal from or application of funds on
deposit in, or otherwise to the credit of, the Accounts, shall be in accordance
with the provisions of this Indenture. The Trustee agrees to give the Issuer,
the Insurer, the Guarantor, the Purchasers and the Noteholders prompt notice if
any of the Accounts any funds on deposit therein, or otherwise to the credit
thereof, shall become subject to any writ, order, judgment, warrant of
attachment, execution or similar process.
SECTION 1.49 General Provisions Regarding Accounts. (a) Any funds held
in an Account shall be invested by the Trustee in Permitted Investments at the
written direction of the Person which made the payment to the Trustee of the
funds to be so invested; provided, however, that (i) if an Event of Default
shall have occurred and is continuing and no Policy Event has occurred and is
continuing, such funds shall be invested in Permitted Investments at the written
direction of the Insurer, or (ii) if an Event of Default has occurred and is
continuing and a Policy Event has occurred and is continuing, or, if no
Permitted Investment has been designated in writing to the Trustee by the party
having the right to make such designation, such funds shall be invested in the
One Group Prime Institutional Fund. If no Event of Default has occurred and
continuing, on each Interest Payment Date, Payoff Date and on the Stated
Maturity Date all income or other gain (net of losses and investment expenses)
from investments of monies deposited in the Accounts, shall be withdrawn by the
Trustee from such account and remitted to the Issuer, the Insurer, the Guarantor
or a Purchaser, whichever made the payment to the Trustee of the funds so
deposited in the Accounts, pursuant to clause (ix) of the Priority of Payments,
to the extent of the funds on deposit in the relevant Account after the payments
required to be made pursuant to clauses (i) through (viii) of the Priority of
Payments are made. If any investment of funds in an Account results in a loss
such that the amount remaining on deposit will not be sufficient to pay in full,
when due, the amounts for which the deposit of such funds was made, the Person
which made the payment to the Trustee of the funds shall immediately pay to the
Trustee an amount sufficient to pay in full, when due, such amounts for which
the deposit was made, and if such additional amount is paid to the Trustee prior
to the due date of the payment to be made with such funds, the existence of such
deficiency shall not constitute an Event of Default notwithstanding any
provision in the Construction Loan Documents to the contrary.
(b) The Trustee shall not in any way be held liable by reason
of any insufficiency in the Accounts, resulting from any loss on any Permitted
Investment included therein acquired at the direction of the Issuer, the
Insurer, the Guarantor or a Purchaser pursuant to clause (a) of this Section
7.3.
SECTION 1.50 Payment of Accounts Balances. At such time as the
principal of, interest on and all other amounts due with respect to the Notes,
and all amounts due to any other Person pursuant to this Indenture and the
Policy have been indefeasibly paid in full, the Trustee shall withdraw from the
Accounts any moneys then on deposit therein and disburse such moneys as follows:
if from the (i) Payment Account, to the Issuer, (ii) the Policy Payment Account,
to the Insurer, (iii) the Note Purchase Account, to the Purchaser, and (iv) the
Guarantee Payment Account, to the Guarantor.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 1.51 Supplemental Indentures Without Consent of Noteholders.
Without the consent of the Noteholders, but with prior notice to the Rating
Agencies, the Issuer, the Insurer (so long as no Policy Event has occurred and
is continuing) and the Trustee, when authorized by an Issuer Order, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession, in compliance with the
applicable provisions hereof, of another Person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein and in
the Notes;
(2) to add to the covenants of the Issuer, for the benefit of
the Insurer and the Noteholders, or to surrender any right or power herein
conferred upon the Issuer;
(3) to convey, transfer, assign, mortgage or pledge any
additional property to or with the Trustee;
(4) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be inconsistent with
any other provision herein or in any supplemental indenture or to make any other
provisions with respect to matters or questions arising under this Indenture
which will not be inconsistent with other provisions of the Indenture; or
(5) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes and to
add to or change any of the provisions of this Indenture as shall be necessary
to facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article V;
provided, however, that (i) such action shall not, as evidenced by an Opinion of
Counsel, adversely affect the interests of any Noteholder; (ii) the Rating
Agency Condition shall have been satisfied with respect to such action and (iii)
any additional property Environmental Report reasonably requested by the Trustee
(if any additional real property is conveyed, transferred, assigned, mortgaged
or pledged to or with the Trustee) shall have been received and shall be
reasonably satisfactory to the Trustee. The Trustee is hereby authorized to join
in the execution of any such supplemental indenture and to make any further
appropriate agreements and stipulations that may be therein specified.
SECTION 1.52 Supplemental Indentures with Consent of Noteholders. The
Issuer, the Insurer and the Trustee, when authorized by an Issuer Order, also
may (i) so long as a Policy Event has occurred and is continuing, with the
consent of the Holders of greater than 50% of the Outstanding Principal Amount
of the Notes affected thereby, or (ii) so long as no Policy Event has occurred
and is continuing, with the prior consent of the Insurer and without consent of
the Holders, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or modifying in any manner the rights
of the Holders of the Notes under this Indenture; provided that (x) the Rating
Agency Condition shall have been satisfied with respect to such action and (y)
no such supplemental indenture shall, without the consent of the Holder of each
outstanding Note affected thereby:
(1) change the Stated Maturity Date, any Interest Payment Date
or any Payoff Date (or the dates on which a redemption or purchase is
permitted), or reduce the Outstanding Principal Amount, the interest rate (or
manner of calculation of the interest rate) or the Redemption/Purchase Deposit
Amount with respect to any Note, or change any time or place of payment where,
or the coin or currency in which, any principal (or the Make Whole Amount, as
applicable) of, interest on or Additional Amounts with respect to any Note is
payable (or modify the definition of "Additional Amounts" or "Make Whole
Amount"), or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available
therefor, as provided in Article IV, to the payment of any such amount due on
the Notes on or after the respective due dates thereof (or, in the case of
redemption on or after the Redemption Date or, in the case of a purchase of the
Notes by Marriott, on or after the Purchase Date);
(2) reduce the percentage of the Outstanding Principal Amount
of the Notes the consent of the respective Noteholders of which is required for
any such supplemental indenture, or the consent of the respective Noteholders of
which is required for any waiver of future compliance with certain provisions of
this Indenture or certain past defaults hereunder and their consequences
provided for in this Indenture;
(3) modify any provision of this Indenture specifying a
percentage of the aggregate Outstanding Principal Amount of the Notes necessary
to amend this Indenture;
(4) modify any of the provisions of this Indenture in such
manner as to affect the calculation of any amounts of principal or interest due
with respect to the Notes, or the manner or method of calculating such amounts;
(5) change the dates upon which optional redemption or
purchase of the Notes is permitted; or
(6) release the Insurer from all or any part of its
obligations under or with respect to the Policy or release the Reinsurer from
all or any part of its obligations under or with respect to the Assignment of
Reinsurance or the Reinsurance Agreement.
It shall not be necessary for any act of the Noteholders under this
Section 8.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer, the Insurer and the Trustee
of any supplemental indenture pursuant to this Section 8.2, the Trustee shall
mail to the Guarantor and the Holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Trustee to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
SECTION 1.53 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article VIII or the modification thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and subject to
Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture and that all conditions precedent to the
execution and delivery of such supplemental indenture have been satisfied. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture that affects the Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
SECTION 1.54 Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Trustee, the Issuer, the Insurer and the Holders of the
Notes shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be part
of the terms and conditions of this Indenture for any and all purposes.
SECTION 1.55 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article VIII may, and if required by the Issuer or the Insurer
shall, bear a notation in form approved by the Trustee as to any matter provided
for in such supplemental indenture. If the Issuer or the Trustee shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Issuer, to any such supplemental indenture may be prepared and executed
by the Issuer, and upon Issuer Order authenticated and delivered by the Trustee
in exchange for Outstanding Notes.
ARTICLE IX
REDEMPTION OF NOTES; PURCHASE OF NOTES; DEFEASANCE
SECTION 1.56 Redemption. (a) On any date on which the Issuer makes a
prepayment of the Construction Loan, in whole or in part, pursuant to the
Construction Loan Agreement (a "Prepayment Date"), principal of the Notes in an
amount equal to the principal of the Construction Loan so prepaid shall be
redeemed in accordance with this Article IX.
(1) If the Issuer has elected to defease the Construction Loan
pursuant to the Construction Loan Agreement and the Issuer has delivered to the
Trustee for deposit in the Payment Account the Defeasance Collateral, on the
first Business Day following the Four-Year Date (also a "Defeasance Redemption
Date"), the Notes shall be redeemed in whole pursuant to this Article IX. If the
Trustee has required the Issuer to defease the Construction Loan pursuant to the
Construction Loan Agreement and the Issuer has delivered to the Trustee for
deposit in the Payment Account the Defeasance Collateral, on the first Business
Day following the Two-Year Date (also a "Defeasance Redemption Date"), the Notes
shall be redeemed in whole pursuant to this Article IX.
(c) In the event that, after the Defeasance Collateral has
been delivered to the Trustee prior to the Two-Year Date or Four-Year Date, as
applicable, an event occurs which would require the payment of any Additional
Amounts on the Notes (the payment of which is not provided for in the Defeasance
Collateral), then the Trustee promptly shall give notice of redemption to the
Noteholders. The date of redemption shall be the first Business Day following
the 30th calendar day after the Trustee gives such redemption notice. On such
Redemption Date, the Issuer shall redeem the entire Outstanding Principal Amount
of the Notes in accordance with this Article IX.
SECTION 1.57 Purchase. (a) On any date on or after the Four-Year Date
Marriott may purchase the Notes in whole but not in part. On any date on or
after the Two-Year Date, (i) if an Event of Default has occurred and is
continuing, Marriott may purchase the Notes, in whole but not in part, and (ii)
if Marriott has not previously elected to purchase the Notes and any payment has
been made pursuant to the Policy, the Swap Policy, the Reinsurance Agreement or
the Swap Reinsurance Agreement on account of a claim made thereunder, the
Insurer or the Reinsurer may purchase the Notes, in whole but not in part (the
party electing to purchase the Notes under the preceding sentence or clause (i)
or (ii) above being referred to as the "Purchaser"). In addition, if the Insurer
or the Reinsurer elects to purchase the Notes under clause (ii) above, within
ten (10) calendar days after receipt of notice from the Insurer or the
Reinsurer, Marriott may instead elect to purchase the Notes under clause (i)
above, which election by Marriott will supersede the election by the Insurer or
the Reinsurer under clause (ii) above. Any election to purchase the Notes will
be made by delivery from the Purchaser to the Trustee and to the Insurer (in the
case of the first sentence of this Section 9.2(a) or clause (i) above) or
Marriott (in the case of clause (ii) above) of written notice thereof (a
"Purchase Notice"). A Purchase Notice shall be delivered at least 35 (or fewer,
but not less than 30, with the consent of the Trustee) calendar days and not
more than 95 calendar days prior to the date upon which a purchase will occur,
which notice shall be irrevocable. The purchase price of the Notes shall be as
set forth in Section 9.3(a).
(1) If the Purchaser is Marriott, simultaneously with the
giving of a Purchase Notice, such Purchaser shall deliver to the Trustee for
deposit into the Note Purchase Account the Redemption/Purchase Deposit Amount,
and no Purchase Notice from such Purchaser shall be deemed to be effective
unless and until such funds have been deposited. If the Insurer is the
Purchaser, the Insurer shall deliver to the Trustee for deposit in the Note
Purchase Account by 11:00 a.m. New York City Time on the Payoff Date an amount
equal to the Outstanding Principal Amount of, accrued and unpaid interest on,
and due and unpaid Additional Amounts with respect to the Notes as of the Payoff
Date.
SECTION 1.58 Mechanics of Redemption or Purchase.
(1) If the Notes are to be redeemed in whole, the redemption
price shall be 100% of the Outstanding Principal Amount of the Notes (or the
Make Whole Amount of the Fixed Rate Notes, if applicable) plus accrued and
unpaid interest thereon and any due and unpaid Additional Amounts with respect
thereto as of the Payoff Date. If the Notes are to be redeemed in part, the
redemption price shall be 100% of the portion of the Outstanding Principal
Amount of the Notes (or the Make Whole Amount of the Fixed Rate Notes, if
applicable) to be redeemed plus accrued and unpaid interest on and any due and
unpaid Additional Amounts with respect to the amount being redeemed as of the
Payoff Date. If the Notes are being purchased by Marriott, the purchase price
shall be 100% of the Outstanding Principal Amount of the Notes (or the Make
Whole Amount of the Fixed Rate Notes, if applicable) plus accrued and unpaid
interest and any due and unpaid Additional Amounts as of the Payoff Date. If the
Notes are being purchased by the Insurer, the purchase price shall be 100% of
the Outstanding Principal Amount of the Notes (and not the Make Whole Amount of
the Fixed Rate Notes), plus accrued interest and unpaid Additional Amounts as of
the Payoff Date.
(2) If the Notes are to be partially redeemed, a ratable
portion of each Note outstanding on the Payoff Date shall be redeemed.
(3) In the case of (i) a redemption pursuant to Section 9.1(a)
or a purchase pursuant to Section 9.2, not more than five (5) calendar days
following receipt of the Redemption Notice or the Purchase Notice, as the case
may be, (ii) a redemption following a defeasance, not less than thirty (30) days
prior to a Defeasance Redemption Date, or (iii) a redemption pursuant to Section
9.1(c), promptly after obtaining knowledge of the event requiring payment of
Additional Amounts, the Trustee shall give notice of the redemption or purchase
to the Noteholders and the Insurer, such notice to be in the form of Notice of
Redemption/Purchase attached hereto as Exhibit I-1.
(4) Payments to the Noteholders in connection with a
redemption or purchase of the Notes will be made pursuant to Section 7.1(b)
hereof, provided, however, and notwithstanding the provisions of Section 7.1(b),
(i) if the Notes are to be redeemed, each Noteholder, as a condition to
receiving payment under Section 7.1(b), shall surrender such Noteholder's Note
to the Trustee for cancellation at the location specified in the Redemption
Notice or (ii) if the Notes are to be purchased, each Noteholder, as a condition
to receiving payment pursuant to Section 7.1(b), shall surrender such
Noteholder's Note to the Trustee at the location specified in the Purchase
Notice duly endorsed for transfer to the Purchaser. Further, notwithstanding the
provisions of Section 7.1(b), if the funds required to be paid to the Trustee by
the Issuer or a Purchaser have been so paid and deposited in the Payment Account
or Note Purchase Account, as the case may be, if any Noteholder is not paid
because such Noteholder failed to satisfy the condition specified in the
preceding sentence, the amount due to such Noteholder shall be retained in the
appropriate Account until the condition is satisfied and such amount is paid to
such Noteholder (and the retention of such amount in such Account shall be taken
into account by the Trustee in making payments and all subsequent payments
pursuant to the Priority of Payments).
(5) If the Notes are redeemed by the Issuer, in whole or in
part, all Notes delivered to the Trustee for cancellation shall be cancelled by
the Trustee, provided, however, if any Note is redeemed in part, upon surrender
of such Note to the Trustee for cancellation, the Issuer shall execute and the
Trustee shall authenticate and deliver to the Holder of such Note a new Note in
a principal amount equal to the unredeemed portion of such Note. If the Notes
are purchased by the Purchaser, the Notes will remain outstanding and thereafter
the Purchaser will be the Holder thereof. Notwithstanding anything herein to the
contrary, upon the purchase of the Notes the Policy will terminate in accordance
with its terms, and the Purchaser (rather than the Insurer) will have all of the
rights and powers, granted to the Insurer pursuant to this Indenture (including
Section 12.2) and shall have the same rights and benefits as the Insurer
pursuant to this Indenture (including Sections 12.3 and 12.4).
(6) If the Notes are to be purchased and the Purchaser has
paid the Redemption/Purchase Deposit Amount to the Trustee pursuant to Section
9.2(b), on the Payoff Date the Notes shall be deemed to have been transferred to
the Purchaser (whether or not Holders have delivered their Notes duly endorsed
for transfer as required by Section 9.3(c)), from and after the Payoff Date the
Holders' only rights with respect to the Notes shall be to receive payment
therefor from the Trustee pursuant to Section 7.1(b), and the Trustee shall take
all actions necessary to register the Notes in the name of the Purchaser.
SECTION 1.59 Form of Redemption Notice or Purchase Notice. Redemption
Notices shall be in the form and contain the information required by the
Construction Loan Agreement. Purchase Notices shall state the Payoff Date and
the Redemption/Purchase Deposit Amount as of such Payoff Date.
SECTION 1.60 Notes Payable on Payoff Date. In the case of a redemption,
the principal amount of the Notes to be redeemed shall become due and payable on
the Payoff Date specified in the Redemption Notice and interest shall cease to
accrue on the amount to be redeemed from and after such Payoff Date. From and
after the Payoff Date the Notes or portions thereof redeemed shall cease to be
outstanding for all purposes, and the Holders' rights shall be limited to
receiving payment therefor, together with any Additional Amounts, in accordance
with this Indenture.
SECTION 1.61 Defeasance.
(1) If the Issuer elects or is required to defease the Notes
pursuant to the Construction Loan Agreement and delivers the Defeasance
Collateral and the Make Whole Hedge to the Trustee, the Defeasance Collateral
shall be deposited in the Payment Account and disbursed in accordance with
Section 7.1(b). In addition, the Trustee shall deposit in the Payment Account
all amounts received pursuant to the Make Whole Hedge in the Payment Account.
The Trustee shall call the Notes for redemption on the Defeasance Redemption
Date and, on such date, shall make the payments from the Payment Account as
specified in Section 7.1(b).
(2) In order to ensure that the amount deposited pursuant to
Section 9.6(a) above is sufficient to pay any applicable Make Whole Amount on
the Fixed Rate Notes, the Issuer shall enter into (and pre-fund) one or more
interest rate hedging arrangements (a "Make Whole Hedge") with a counterparty or
counterparties having long-term debt ratings at least equal to "AA-" by S&P and
"Aa3" by Moody's. The Issuer shall remain liable for any shortfall on such
deposit and for any Additional Amounts that become payable on the Notes.
(3) Notwithstanding the deposit of the Defeasance Collateral,
the entering into and pre-funding of the Make Whole Hedge and the application of
such Defeasance Collateral and the proceeds of the Make Whole Hedge as provided
herein and in the Construction Loan Agreement, the Insurer shall remain liable
for the payment of the entire Principal Amount of the Notes at the Stated
Maturity Date, and interest when due in accordance with the terms of the Policy
SECTION 1.62 Release of Collateral. If the Issuer has delivered a
Notice of Redemption for a redemption of the Notes in whole and has paid the
Redemption/Purchase Deposit Amount to the Trustee for deposit in the Payment
Account, or the Issuer has elected or is required to fund the cash collateral
account as described in Section 9.6 above and the Construction Loan Agreement
and has delivered the Defeasance Collateral and the Make Whole Hedge to the
Trustee, upon receipt of an Issuer Request and an Opinion of Counsel, the
Trustee shall take or cause to be taken, at the Issuer's sole cost and expense,
all action to release all of the Liens on and security interests in the
Collateral as provided in the Construction Loan Agreement and, at the Issuer's
sole cost and expense, shall execute and deliver all documents reasonably
requested by the Issuer to accomplish such release. Notwithstanding the delivery
of the Defeasance Collateral and the Make Whole Hedge to the Trustee by the
Issuer and the release of the Collateral to the Issuer pursuant to this Section
9.7, the Issuer shall remain liable with respect to any Additional Amounts that
become due with respect to the Notes, as provided in the Construction Loan
Agreement.
ARTICLE X
OBLIGATIONS ABSOLUTE
SECTION 1.63 Issuer's Obligations Absolute. Nothing contained in this
Indenture shall impair, as between the Issuer, the Guarantor, the Insurer and
the Trustee, the obligation of the Issuer to pay to the Trustee all amounts due
and payable under or pursuant to the Construction Loan Agreement, the
Construction Loan Deed of Trust and the other Construction Loan Documents as and
when the same shall become due and payable in accordance with the terms thereof,
or prevent the Trustee or the Insurer from exercising all rights, powers and
remedies otherwise permitted by this Indenture, any of the other Basic Documents
or the Construction Loan Documents (including the Construction Loan Agreement
and the Construction Loan Deed of Trust).
ARTICLE XI
THE INSURER
SECTION 1.64 Effect of Payment by Insurer; Subrogation. THE ISSUER
EXPRESSLY ACKNOWLEDGES AND AGREES THAT THE OBLIGATIONS OF THE ISSUER UNDER THIS
INDENTURE, THE NOTES, THE CONSTRUCTION LOAN AGREEMENT, INCLUDING THE PAYMENT OF
THE PRINCIPAL OF, AND INTEREST ON AND ADDITIONAL AMOUNTS WITH RESPECT TO, THE
NOTES, THE CONSTRUCTION LOAN DEED OF TRUST AND THE OTHER CONSTRUCTION LOAN
DOCUMENTS ARE OWED TO, AND ARE FOR THE BENEFIT OF THE TRUSTEE (ON BEHALF OF THE
NOTEHOLDERS AND THE INSURER) AND NO PAYMENT MADE PURSUANT TO THE POLICY THE
ASSIGNMENT OF REINSURANCE, OR THE REINSURANCE AGREEMENT ON ACCOUNT OF PRINCIPAL
OR INTEREST ON THE NOTES OR ANY OTHER AMOUNT DUE TO THE NOTEHOLDERS SHALL
MODIFY, AMEND, DIMINISH OR EXTINGUISH ANY AMOUNTS DUE FROM THE ISSUER TO THE
TRUSTEE, OR OTHERWISE AFFECT THE OBLIGATIONS OF THE ISSUER OR THE RIGHTS AND
REMEDIES OF THE TRUSTEE UNDER THIS INDENTURE, THE NOTES, THE CONSTRUCTION LOAN
AGREEMENT, THE CONSTRUCTION LOAN DEED OF TRUST OR ANY OTHER CONSTRUCTION LOAN
DOCUMENT. In addition to any other rights granted to the Insurer pursuant to the
terms of this Indenture, the Issuer and the Trustee acknowledge that, without
the need for any further action on the part of the Insurer, the Issuer, the
Trustee or any other Person, to the extent payments are made with monies
received pursuant to the Policy, the Reinsurance Policy or the Assignment of
Reinsurance on account of principal of or interest on the Notes or any
Additional Amounts to the Noteholders, the Insurer will be fully subrogated to
the rights of the Noteholders to receive such amounts of principal, interest and
Additional Amounts; provided, however, that to the extent such payment is
derived from the sources and in the manner provided herein for the payment of
such principal, interest or Additional Amounts, the Insurer shall be paid, in
each case, only after the Noteholders have received payments as provided in
Section 7.1(b).
SECTION 1.65 Rights of the Insurer.
(1) So long as no Policy Event has occurred and is continuing,
to the extent that (i) the Trustee in its capacity as Trustee under this
Indenture or (ii) the Trustee under the Construction Loan Documents (including
the Construction Loan Agreement and the Construction Loan Deed of Trust) is
required to take any actions (other than the collection and payment of moneys in
accordance with the Construction Loan Documents), or grant any approvals,
consents or waivers pursuant to the Construction Loan Documents, the Trustee
will take such actions only at the direction of or with the prior approval of
the Insurer.
(2) Without limiting paragraph (a), so long as no Policy Event
has occurred and is continuing, the Trustee shall cooperate in all respects with
any request by the Insurer for action to preserve or enforce the Insurer's
rights or interests under this Indenture, including a request to institute
Proceedings for the collection of all amounts then payable under this Indenture
or the Construction Loan Documents and a request to enforce any judgment
obtained and collect the amount adjudged due.
(3) Without limiting paragraph (a), so long as no Policy Event
has occurred and is continuing, (i) the Insurer shall have all rights to direct
the Trustee to enforce all rights and exercise all remedies under the
Construction Loan Documents; (ii) no amendment, modification or waiver of any
term of this Indenture or the Construction Loan Documents shall be made without
the prior consent of the Insurer; (iii) the Trustee shall not be replaced
without the prior written consent of the Insurer; (iv) the Insurer shall have
the sole right to direct the time, method and place of conducting any Proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee, and the Noteholders shall have no right or entitlement
to so direct the Trustee; and (v) no Noteholder shall have any right to
institute any Proceeding, judicial or otherwise, with respect to the
Construction Loan Documents, or for the appointment of a receiver or a trustee,
or for any other remedy under the Construction Loan Documents.
(4) Notwithstanding anything in this Indenture, the
Construction Loan Agreement or any other Construction Loan Document to the
contrary, at its option the Insurer, in its own name or in the name of the
Trustee, shall have the right , to the exclusion of the Trustee, to take any
action under this Indenture, the Construction Loan Agreement and each other
Construction Loan Document which the Trustee has the right to take pursuant to
the terms and provisions thereof, including the right to exercise all remedies
after the occurrence of a Default or Event of Default. If the Insurer elects or
is required to take any such action in the name of the Trustee, the Trustee
shall reasonably cooperate with the Insurer to facilitate the taking of such
action, which actions by the Trustee shall be covered by the indemnification
provided in Section 5.7.
(5) Each of the rights and remedies granted to the Insurer
pursuant to this Indenture and the Construction Loan Documents are granted to
the Insurer in its individual capacity as obligor under the Policy for the sole
benefit of the Insurer to facilitate any recovery to which the Insurer may be
entitled. No such grant contained herein or in any Construction Loan Document
shall in any way create or be deemed to create any duty to, or trust
relationship with, any Noteholder or the Trustee, and each Noteholder, by its
acceptance of a Note hereunder, acknowledges and agrees that the sole duties and
obligations of the Insurer to the Trustee for the benefit of the Noteholders
shall be specified in the Policy.
SECTION 1.66 Indemnification; Reimbursement of Costs. (a) The Issuer
agrees to indemnify and hold harmless the Insurer and Affiliates, shareholders,
directors, officers, employees and agents against any and all liabilities,
costs, expenses and losses (including reasonable attorneys fees and
disbursements) incurred by the Insurer in the performance of obligations and the
exercise of its rights and remedies hereunder or under the Construction Loan
Documents other than if caused by the gross negligence or willful misconduct of
the Insurer, including, without limitation, for any amounts of indemnification
paid to the Trustee pursuant to Section 5.7.
(1) The Issuer agrees to pay or reimburse the Insurer for all
costs and expenses, including reasonable attorneys fees and disbursements,
incurred by the Insurer in connection with this Indenture and the Construction
Loan Documents, and the transactions contemplated hereby or thereby, including
the reasonable fees and disbursements of consultants (including a construction
consultant), other experts and counsel.
SECTION 1.67 Liability of the Insurer. Unless specifically provided
otherwise in a Construction Loan Document, so long as the Insurer performs all
of its obligations under the Policy, the Insurer shall not be liable for taking
or failing to take any action delegated to the Insurer hereunder or under the
Construction Loan Documents.
SECTION 1.68 Consents. Unless specifically provided otherwise in a
Construction Loan Document, all actions by the Insurer hereunder, including the
giving or withholding of consents, may be taken by the Insurer in its sole and
absolute discretion.
SECTION 1.69 Substitution of Reinsurer. If, pursuant to Assumption of
Liability and Novation Endorsement to the Reinsurance Agreement, the Policy is
deemed novated and amended and the obligations of the Insurer thereunder are
assumed by the Reinsurer in substitution for the Insurer, the Reinsurer shall be
substituted for the Insurer hereunder, all references to the Insurer shall
thereafter refer to the Reinsurer, the Reinsurer shall have all of the rights,
duties and obligations that the Insurer had prior to such substitution,
including the right to receive all payments pursuant to Section 7.1(b) to be
made on account of periods beginning after such substitution, and all references
to the Policy shall mean the Policy as so amended. If the foregoing occurs, the
Issuer and the Trustee shall join with the Insurer and the Reinsurer in
executing and delivering any documents or instruments reasonably requested by
the Issuer, the Trustee, the Insurer or the Reinsurer to effectuate the intent
of this Section 11.6, including documents necessary to make the Reinsurer or
party to this Indenture. Notwithstanding the foregoing, the Insurer shall
continue to have the right to receive all payments under Section 7.1(b) on
account of payments made by the Insurer prior to such substitution or which
accrued to the benefit of the Insurer during periods prior to such substitution,
all indemnification payments under this Indenture and the Construction Loan
Documents for acts, events and occurrences prior to such substitution (even if
claims therefor are made after such substitution) in its capacity as Insurer and
Administrative Agent, and reimbursement of all costs and expenses that accrued
prior to such substitution.
SECTION 1.70 Notice of Failure to Pay Premiums. The Insurer shall give
the Issuer, the Trustee and the Guarantor prompt written notice of any failure
by the Issuer to pay premiums due with respect to the Policy, the Swap Policy,
the Reinsurance Agreement or the Swap Reinsurance Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 1.71 Compliance Certificates and Opinions, etc. Upon any
application or request by the Issuer to the Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Trustee and, if
applicable, the Insurer (a) an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, (b) if required hereunder, an Opinion of Counsel
stating that in the opinion of such counsel all such conditions precedent, if
any, have been complied with and (c) if applicable, an Independent Certificate
from a firm of certified public accountants meeting the applicable requirements
of this Section 12.1, except that, in the case of any such application or
request as to which the furnishing of such documents is specifically required by
any provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements made or opinions given in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
The Trustee and the Insurer may conclusively rely on and be fully
protected in acting in reliance on any such Officer's Certificate or Opinion of
Counsel without any further investigation on its parts as to any matter
specified therein.
SECTION 1.72 Form of Documents Delivered to Trustee. (a) In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
(1) Any certificate or opinion of an Authorized Officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such Officer Certificate
or opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Issuer, stating that the information with respect to such factual matters
is in the possession of the Issuer, unless such officer or officers of the
Issuer or such counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous.
(2) Where any Person is required to make, give or execute two
or more applications, requests, comments, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
(3) Whenever in this Indenture, in connection with any
application or certificate or report to the Trustee, it is provided that the
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Issuer's compliance with any term hereof, it
is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application granted
or to the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Trustee's right to rely upon the truth and
accuracy of any statement made or opinion given in any such document as provided
in Article V.
SECTION 1.73 Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied herein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 5.1)
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section 12.3.
(1) The ownership of the Notes shall be proved by the Note
Register.
(2) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 1.74 Notices, etc., to the Trustee, the Issuer, the Insurer,
the Guarantor and the Rating Agencies.
(1) Any request, demand, authorization, direction, notice,
consent, waiver or Act of Noteholders or other documents provided or permitted
by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or Act of Noteholders is to be
made upon, given or furnished to or filed with:
(1) the Trustee by any Noteholder, the Insurer or the
Issuer, shall be sufficient for every purpose hereunder if in writing
and mailed first-class, postage prepaid or sent by facsimile to the
Trustee addressed to:
1 Bank One Plaza, Suite IL1-0126
Chicago, IL 60670-0126
Attention: Global Corporate Trust Services
Fax No.: [(312) 407-4656]
Any notice to be given to the Trustee hereunder shall also be given to the
Depository and shall not be deemed given to the Trustee until also given to the
Depository;
(2) the Issuer by the Trustee, the Insurer or any
Noteholder, shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid or sent by facsimile to
the Issuer addressed to:
Desert Ridge Resort LLC
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attention: Chief Operating Officer
Fax No.: (407) 650-1085
with a copy to:
Lowndes, Drosdick, Doster, Kantor & Reed
215 North Eola Drive
Orlando, Florida 32802
Attention: Richard Fildes, Esq.
Fax No.: (407) 843-4444
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Harvey R. Uris, Esq.
Fax No.: (212) 735-2000
or at any other address previously furnished in writing to the Trustee by the
Issuer. The Issuer shall promptly transmit any notice received by it from the
Noteholders to the Trustee.
(3) the Insurer by the Issuer or the Trustee, shall
be sufficient for every purpose hereunder if given in the manner
required for notices pursuant to the terms of the Policy, including,
without limitation, satisfying the requirements specified in the Policy
for telephonic confirmation of deliveries by facsimile and delivery of
original copies of required notices and documentation by
internationally recognized overnight courier service or by personal
delivery. The Insurer's address for notices, subject to any change of
address pursuant to the terms of the Policy, shall be:
Financial Structures Limited
Chevron House, 11 Church Street
Hamilton, HMHX Bermuda
Attention: President
Fax No.: (441) 295-6448
with a copy to:
FSL Group, Inc.
10 Wright Street, Suite 120
Westport, CT 06880
Attention: Martin J. Walker
Fax No.: (203) 227-2555
with a copy to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Attention: John A. Garraty, Jr.
Fax No.: (212) 808-7897
with a copy to the Reinsurer. The Reinsurer's address for notices, subject to
any change of address pursuant to the terms of the Reinsurance Agreement, shall
be:
Royal Indemnity Company
9300 Arrowpoint Blvd.
Charlotte, NC 28273-8135
Attention: B.J. Rood, General Manager
Fax No.: (704) 543-3499
-and-
Royal Indemnity Company
9300 Arrowpoint Blvd.
Charlotte, NC 28273-8135
Attention: Arthur W. Francis, Legal
and Regulatory Services
Fax No.: (704) 522-2688
Any notice given to the Insurer shall be deemed to be given or delivered to the
Insurer at the time and in the same manner in which any Notice of Claim is
deemed to be "Received" (as defined in the Policy).
(4) the Rating Agencies by the Issuer or the Trustee,
shall be sufficient for every purpose hereunder if in writing and
mailed first-class, postage prepaid or sent by facsimile to the Rating
Agencies addressed to:
Standard & Poor's Ratings Services
55 Water Street
New York, NY 10041
Attention: Structured Finance Surveillance Group
Fax No.: (212) 438-7190
Moody's Investors Service, Inc.
99 Church Street
New York, NY 10004
Attention: Structured Finance Monitoring
Fax No.: (212) 553-4170
(5) the Guarantor by the Issuer, the Trustee or the
Insurer, shall be sufficient for every purpose hereunder if in writing,
and mailed first-class, postage prepaid or sent by facsimile to the
Guarantor address to:
Marriott International, Inc.
One Marriott Drive
Washington, D.C. 20058
Attention: Treasurer
Fax No.: (301) 380-5067
Marriott International, Inc.
One Marriott Drive
Washington, D.C. 20058
Attention: General Counsel
Fax No.: (301) 380-6727
with a copy to:
Arent, Fox Kintner, Plotkin & Kahn
1050 Connecticut Ave., N.W.
Washington, D.C. 20036-5339
Attention: Gerald L. Mitchell, Esq.
Fax No.: (202) 857-6395
(2) The Issuer shall give the Insurer a copy of any notice
given by the Issuer to any party hereunder.
(3) A copy of any notice given by or received by the Issuer or
the Trustee shall be provided to the Insurer.
SECTION 1.75 Notices to and from Noteholders; Waiver. (a) There may be,
so long as a Global Note is held in its entirety on behalf of the Depository,
the delivery of the relevant notice to the Depository for communication by them
to the Beneficial Owners. Any such notice shall be deemed to have been given to
the Beneficial Owners on the seventh (7th) calendar day after the date on which
the said notice was given to the Depository.
Notices to be given by any Noteholder shall be in writing and given by
lodging the same with the Trustee. Such notice may be given by a Noteholder to
the Trustee via the Depository in such manner as the Trustee and the Depository
may approve for this purpose.
(1) Where this Indenture provides for notice in any manner,
such notice may be waived in writing by any Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Noteholders shall be filed with
the Trustee but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such a waiver.
(2) In case, by reason of the suspension of regular mail
service as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
(3) Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice to the Rating Agencies shall not affect
any other rights or obligations created hereunder, and shall not under any
circumstance constitute a Default or an Event of Default.
(4) Notices to be given by any Noteholders shall be in writing
and given by lodging the same with the Trustee. Such notice may be given by a
Noteholder to the Trustee via the Depository in such manner as the Trustee and
the Depository may approve for this purpose.
(5) At any time at which a Global Note is not held in its
entirety on behalf of the Depository, notices to Noteholders shall be given by
the Trustee to the Noteholders in writing at the address therefor set forth in
the Note Register.
SECTION 1.76 Payment and Notice Dates. All payments to be made and
notices to be delivered pursuant to this Indenture shall be made by the
responsible party as of the dates specified herein.
SECTION 1.77 Alternative Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer,
subject to receipt of the prior consent of the Insurer, may enter into any
agreement with any Noteholder providing for a method of payment, or notice by
the Trustee or any Paying Agent, to such Holder that is different from the
methods provided for in this Indenture for such payments or notices. The Issuer
shall furnish to the Trustee a copy of each such agreement and the Trustee
shall, if practicable, cause payments to be made and notices to be given in
accordance with such agreements.
SECTION 1.78 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.79 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Trustee in this
Indenture shall bind its successors, co-trustees and agents.
SECTION 1.80 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1.81 Benefits of Indenture. Subject to Sections 9.1 and 9.2 and
Article XI, nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 1.82 Legal Holiday. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and, except as otherwise
expressly provided herein, interest shall continue to accrue for the period from
and after any such nominal date.
SECTION 1.83 Governing Law. THIS INDENTURE AND EACH NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.84 Counterparts. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
SECTION 1.85 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense.
SECTION 1.86 Corporate Obligation. No recourse may be taken, directly
or indirectly (i) with respect to the obligations of the Trustee under this
Indenture or any certificate or other writing delivered in connection herewith
or therewith, against (A) the Trustee in its individual capacity, or (B) any
partner, owner, beneficiary, agent, officer, director, employee or agent of the
Trustee in its individual capacity, any holder of equity in the Trustee or in
any successor or assign of the Trustee in its, his or her individual capacity,
(it being understood that the Trustee has no such obligations in its individual
capacity); (ii) with respect to the obligations of the Insurer or the Reinsurer
under this Indenture, the Policy, the Reinsurance Agreement, the Assignment of
Reinsurance or any certificate or other writing delivered in connection herewith
or therewith, against any partner, owner, beneficiary, agent, officer, director,
shareholder or employee of the Insurer or the Reinsurer or any Affiliate of
either thereof, each in its, his or her individual capacity or any holder of
equity in the Insurer or the Reinsurer or any Affiliate of either thereof, each
in its, his or her individual capacity; and (iii) with respect to the
obligations of the Issuer on the Notes or under the Indenture or any certificate
or other writing delivered in connection herewith or therewith, against any
partner, owner, beneficiary, agent, officer, director or employee of the Issuer
or any Affiliate of the Issuer, each in its, his or her individual capacity, or
any holder of equity in the Issuer or any Affiliate of the Issuer, each in its,
his or her individual capacity, provided, however, nothing in this Section 12.16
shall limit the obligations and liabilities of the Guarantor under the
Completion Guarantee or the Payment Guarantee.
SECTION 1.87 Inspection. The Issuer agrees that, with reasonable prior
notice, it will permit any representative of the Trustee and the Insurer during
the Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. Except
with respect to any such information disclosed to or on behalf of the
Noteholders, the Trustee and the Insurer shall and shall cause their respective
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing).
SECTION 1.88 Waiver of Immunities. To the extent that the Issuer has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, the Issuer hereby irrevocably waives such immunity in respect
of its obligations under this Indenture and the Notes, to the extent permitted
by law.
SECTION 1.89 Satisfaction and Discharge. This Indenture, upon Issuer
Request and receipt by the Trustee of an Opinion of Counsel, shall cease to be
of further effect, and the Trustee, at the Issuer's expense, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
when all Notes (except those theretofore paid in full, which were lost, stolen
or destroyed and replaced, or delivered to the Trustee for cancellation) and all
amounts due to the Insurer (whether by virtue of the Insurer's rights of
subrogation set forth in the last sentence of Section 11.1 or otherwise) have
been indefeasibly paid in full (including all amounts of principal, interest and
Additional Amounts, if any) or funds in an amount sufficient to make payment in
full have been irrevocably deposited with the Trustee, in trust, for the purpose
of making such payments, and all other amounts due and payable under this
Indenture to the Trustee and the Insurer, including the fees and expenses of the
Trustee in all of its capacities, have been paid in full. Notwithstanding the
foregoing, the provisions of Sections 5.7, 11.3 and 12.16 shall survive such
satisfaction and discharge. Any moneys deposited with the Trustee pursuant to
this Section 12.19 shall be held by the Trustee in trust and applied to the
payment to the Persons entitled thereto, all in accordance with the terms of the
Notes and this Indenture, including Section 7.1(b). Upon the satisfaction and
discharge of this Indenture as provided in this Section 12.19, the Collateral
shall be released.
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IN WITNESS WHEREOF, the Issuer, the Trustee and the Insurer
have caused this Indenture to be duly executed by their respective officers,
thereunto duly authorized and duly attested, all as of the day and year first
above written.
DESERT RIDGE RESORT, LLC,
as Issuer
By: Desert Ridge Resort Partners, LLC,
a Delaware limited liability company,
its sole member
By: CNL DRR Investor LP,
a Delaware limited partnership,
its managing member
By: CNL Phoenix GP Corp., general partner
By: /s/ C. Brian Strickland
-----------------------
Name: C. Brian Strickland
Title: Senior Vice President of Finance
and Administration
BANK ONE, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
the Trustee under this Indenture
By: /s/ Chris Holly
------------------------
Name: Chris Holly
Title: Assistant Vice President
FINANCIAL STRUCTURES LIMITED,
as Insurer
By: /s/ David Ezekiel
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Name: David Ezekiel
Title: Authorized Representative
FSL-00-239