Hilton Garden Inn Net Proceeds AgreementNET PROCEEDS AGREEMENT
This Net Proceeds Agreement (the "Agreement") is entered into this t "ay of May,
2006 by and between GATEWAY HOSPITALITY GROUP, INC., [hereinafter referred to as
"Owner"] of 8920 Canyon Falls Blvd, Twinsburg, OH 44087, and the CITY OF KALISPELL, a
municipal corporation. of Flathead County, Montana, [hereinafter referred to as the "City"] of P.O.
Box 1997, Kalispell, MT 59903-1997.
WITNESSETII:
WHEREAS, Owner and City are parties to a Planned Unit Development Agreement dated May
,_,2006 providing for the construction of a 117,300 square foot Hilton Garden
Inn and Conference Center (the "Facility") on the real property described on Exhibit
"A"} (the "Subject Property"); and
WHEREAS, pursuant to a Sale and Purchase Agreement dated May ,1� 006, Owner has
acquired by purchase from the City, title to the Subject Property and all rights and
appurtenances pertaining thereto; and
WHEREAS, as additional consideration for the sale of the Subject Property by the City to Owner,
the Sale and Purchase Agreement provides that Owner shall assign and convey the
Net Proceeds Interest (as hereinafter defined) to the City.
NOW,, THEREFORE, in consideration of the mutual promises herein contained and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the parties hereto agree as follows:
Section I Definitions. All capitalized terms, not otherwise defined herein, shall have the
meanings given to them in the Planned Unit Development Agreement. For the purposes of this
Agreement, the following terms shall have the meanings set forth below:
(a) "Appraised Value" in the case of an Exchange shall mean the fair market value
of the Subject Property as appraised in accordance with Section 3 of this
Agreement.
(b) "Base Investment" shall mean the sum of (i) Owner's Invested Capital, and (ii)
the principal portion of all Permanent Indebtedness.
(c) "Capital Expense Reserve" shall mean that portion of the proceeds of a
Refinancing deposited in a bank account in the name of Owner as a reserve for
Capital Expenses required by the lender in a Refinancing.
(d) `Capital Expense" shall mean costs which can't be fully expensed in the year
paid under generally accepted accounting principles consistently applied, and
fully deducted in such year from trade or business income under the Internal
Revenue Code of 1986, as amended.
NET PROCEEDS AGREEMENT Page 1 of 11
(e) "Exchange" shall mean a transaction in which the consideration, in whole or in
part, to owner for its transfer or conveyance of the Property is the transfer or
conveyance to Owner of an interest in real property (the `Exchange Property").
(f) "Indebtedness" shall mean any indebtedness secured by a lien on the Property
for the purpose of providing interim or permanent financing for the project, and
any outstanding equipment loans.
(g) "owner's Invested Capital" shall mean that amount set forth in venture
agreement(s) between the owner and the investor or investors providing the
equity portion of the Financing, to be entered into at the Closing providing for
the investment of such equity capital.
(h) "owner's Project Loans" shall mean any of owner's invested Capital booked as
a loan.
W "Interest on owner's Project Loans" shall mean a sum equal to eleven percent
(11%) per annum, cumulative, but not compounded.
(j) "Net Proceeds of a Sale" shall mean gross proceeds from a Sale of the Facility,
less (i) the payment of Transaction Costs, (ii) repayment of the principal
balance of all Indebtedness encumbering the Facility and accrued interest
thereon, (iii) return of Owner's Unrecovered Invested Capital; (iv) repayment of
the principal balance of Owner's Project Loans and accrued interest thereon,
and (v) payment of the Return on base investment.
(k) "Net Proceeds of a Refinancing" shall mean gross proceeds from a Refinancing
of the Facility, less (i) the payment of Transaction Costs, (ii) repayment of the
principal balance of the Indebtedness being refinanced and accrued interest
thereon, (iii) any amounts required by the new lender to establish a Capital
Expenditure Reserve, (iv) return of Owner's Unrecovered Invested Capital, (v)
repayment of the principal balance of Owner's Project Loans and accrued
interest thereon, and (vi) payment of the Return on Base Investment.
(1) "Net Proceeds of an Exchange" shall mean the gross proceeds from the
Exchange, based on the Appraised value of the Property, less (i) the payment of
Transaction Costs, (ii) repayment of the principal balance of all indebtedness
Encumbering the Facility and accrued interest thereon, (iii) return of owner's
Unrecovered Invested Capital, (iv) repayment of the principal balance of
Owner's Project Loans and accrued interest thereon, and (v) payment of the
Return on Base Investment.
(m) "Net Proceeds Interest" shall mean a ten percent (10%) interest in the Net
Proceeds of a Sale, Refinancing, or Exchange.
NET PROCEEDS AGREEMENT Page 2 of 11
(n) "Permanent Indebtedness' shall mean any indebtedness secured by lien on the
Property for the purpose of providing Permanent Financing for the Facility.
(o) "Refinancing" shall mean repayment in full of the Indebtedness encumbering
the Facility with the proceeds of another loan, regardless of whether repayment
of such loan is secured by a lien on the Facility.
(p) `Return on Base Investment" shall mean a sum equal to a thirteen percent
(13%) per annum, cumulative, but not compounded, return on owner's Invested
Capital and the principal portion of all Permanent Indebtedness.
(q) "Sale" shall mean the sale, transfer, assignment, conveyance, or other
disposition of all or any portion of the Facility or any interest therein, including
but not limited to (i) the sale, transfer, assignment or conveyance of more than
fifty percent (50%) of the partnership or other ownership interests of owner; (ii)
a taking pursuant to an eminent domain proceeding or a conveyance in lieu
thereof and (iii) a master or ground lease.
(r) "Transaction Costs" shall mean the reasonable, usual and, customary costs of
Owner directly associated with the closing of any Sale, Refinancing or
Exchange and actually paid in cash by owner to persons other than owner,
including by way of example, points, refinancing or commitment fees,
brokerage fees to bona fide third party brokers, surveying charges,
environmental reports, recording fees, title insurance premiums, and attorneys'
fees, provided that no costs shall be included as Transaction Costs which
represent sums paid to affiliates of owner unless such fees are no higher than
prevailing fees for similar services in the area where the Facility is located.
(s) "Unrecovered Invested Capital" shall mean owner's Invested Capital, less all
payments received by Owner that, according to accepted accounting procedures
are treated as a return of capital.
Section 2. Net Proceeds Interest. owner hereby assigns, conveys, and transfers the Net
Proceeds Interest to the City and agrees to pay or cause to be paid to the City upon consummation
of a Sale, Exchange, or Refinancing, cash or other good funds in an amount equal to the product
obtained by multiplying the Net Proceeds by the Net Proceeds Interest.
Section 3. Exchanges. If Owner should enter into an exchange agreement, which provides that
the Property will be exchanged for Exchange Property, owner shall pay the City, at closing, the
Net Proceeds Interest, based on the Appraised Value of the Property, and this Agreement shall
terminate. The Appraised Value of the Property shall be determined by agreement of the parties
within fifteen (15) days after the City receives notice of the proposed Exchange. If the parties are
unable to reach agreement, then each shall designate an MAI appraiser familiar with Facility
properties in the area of the Property within ten (10) days, and the two appraisers shall pick a third
appraiser within five (5) days of their appointment. The three appraisers shall determine the
appraised Value of the Property as of the date of closing of the Exchange, and shall notify the
NET PROCEEDS AGREEMENT Page 3 of 11
parties in writing of their determination. The parties shall bear equally the costs and fees of the
three appraisers.
Section 4. No Guarantees. The City and Owner acknowledge and agree that (a) Owner does
not warrant or guarantee that there will be any Net Proceeds of any kind with respect to the
Property and (b) the City has no right to receive any particular sums of money hereunder, but only
such amounts, if any, as may become payable by virtue of the provisions of Section 2 hereinabove.
Section 5. Rights in Pro_ erty. The City does not have, and nothing herein contained shall be
construed to grant or to vest in the City, title in or to the Facility nor does the City have any right to
approve or disapprove or participate in any decision with respect to any aspect of the ownership,
management, financing, leasing, Sale, Refinancing or other disposition of the Facility.
Section 6. Covenants of owner. owner represents, warrants, covenants and undertakes that
during the term of this Agreement, owner will
(a) observe and perform each and every provision of any deed of trust which relates
to the Property and will promptly notify the City if Owner receives a notice of
default or a notice which gives Owner an opportunity to cure a default under or
pursuant to such deed of trust, and Owner agrees to cure any default under such
deed of trust within the time periods required therein;
(b) allow the City, at City's election and in its discretion, to cure any default under
any Permanent Indebtedness, or other debt secured by a lien on the Property
(provided the City shall have no obligation to do so) and any advances made by the
City to cure any default shall bear interest from the date of such advance at the
highest rate permitted by applicable law and shall be repayable to the City on
demand by the City;
(c) not take any action that would cause the Facility to decrease in value, or fail to
take any action that would prevent the Facility from decreasing in value;
(d) give the City written notice of a proposed Sale, Refinancing, Exchange or other
disposition of the Facility at least thirty (30) days prior to the consummation of the
respective transaction, which notice shall include a copy of the executed contract of
Sale or Exchange (in the event of a Sale or Exchange of the Property) or a copy of
the commitment (in the event of a Refinancing);
(e) give the City notice that eminent domain proceedings have been commenced or
the threat of eminent domain proceedings has been asserted within five (5) days
after Owner has been notified thereof; and
(f) maintain insurance upon and relating to the Facility insuring against loss by fire
and such other hazards and casualties and contingencies as are normally and usually
covered by extended coverage policies in effect in Flathead County, Montana, such
policy to be on a replacement cost basis in an amount not less than that necessary to
NET PROCEEDS AGREEMENT Page 4 of 11
comply with any co-insurance percentage stipulated in the policy but not less than
one hundred percent (100%) of the insurable value (based upon replacement cost) of
the Facility.
Section 7. Assignment. The City may assign or encumber its rights under this Agreement
without the prior written consent of Owner.
Section 8. No Partnership; Indemnity. Nothing contained in this Agreement is intended. nor
shall it be construed, to create a partnership or joint venture between the parties hereto or to render
either of the parties liable or responsible for the debts or obligations of the other, including, but not
limited to, interest, taxes, losses or any other liability. Owner shall indemnify and hold the City
harmless from and against any and all liabilities and obligations incurred in connection with the
Facility.
Section 9. Default. Upon any default by Owner hereunder, in addition to any other remedies
which the City may have at law or in equity, the City shall have the right to bring suit for specific
performance against Owner.
Section 10. Notices. All notices or other communications required or desired to be given with
respect to this Agreement shall be in writing and shall be delivered by hand or by courier service,
sent by registered or certified mail, return receipt requested, bearing adequate postage, or sent by
nationally recognized overnight delivery service, or sent by facsimile, and properly addressed as
provided below. Each notice given by mail shall be deemed to be given by the sender when
received or refused by the party intended to receive such notice; each notice delivered by hand or
by courier service shall he deemed to have been given, and received when actually received by the
party intended to receive such notice or when such party refuses to accept delivery of such notice;
each notice given by overnight delivery service shall be deemed to have been given and received
on the next business day following deposit thereof with the overnight delivery company; and each
notice given by facsimile shall be deemed to have been given and received upon transmission,
provided confirmation of receipt is received back by the sending facsimile prior to 5:00 pm local
time at the sending location, or on the next business day if after 5:00 p.m. local time at the sending
location. Upon a change of address by either party, such party shall give written notice of such
change to the other parties in accordance with the foregoing. Inability to deliver because of
changed address or status of which no notice was given shall be deemed to be receipt of the notice
sent, effective as of the date such notice would otherwise have been received.
To the City:
City of Kalispell
City Manager
P.O. Box 1997
Kalispell, MT 59903
FAX: (406) 758-7758
To Owner:
Gateway Hospitality Group
Bob Voelker
8920 Canyon Falls Blvd
Suite #125
Twinsburg, OH 44087
FAX (330) 405-9898
NET PROCEEDS AGREEMENT Page 5 of 11
Section 11. Governimy Law and Venue. The laws of the State of Montana and the United States
of America shall govern the validity, enforcement and interpretation of this Agreement. The
obligations of the parties are performable and venue for any legal action arising out of this
Agreement shall lie in Flathead County, Montana.
Section 12. Integration, Modification and Waiver. This Agreement constitutes the complete and
final expression of the agreement of the parties relating to the subject matter hereof, and supersedes
all previous contracts, agreements and understandings of the parties, either oral or written, relating
to such subj ect matter. This Agreement cannot be modified, nor any of the terms hereof waived,
except by an instrument in writing (referencing specifically to this Agreement) executed by the
party against whom enforcement of the Modification or waiver is sought.
Section 13. Counterpart Execution. This Agreement may be executed in several counterparts,
each of which shall be fully effective as an original and all of which together shall constitute one
and the same instrument.
Section 14. Construction. The headings, which have been used throughout this Agreement,
have been inserted for convenience of reference only and do not constitute matter to be construed
in interpreting this Agreement. Words of any gender used in this Agreement shall be held and
construed to include the plural and vice versa, unless the context requires otherwise. The words
"herein", "hereof . hereunder" and other similar compounds of the word "here", when used in this
Agreement shall refer to the entire Agreement and not any particular provision or section. If the
last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the
duration of such time period shall be extended so that it shall end on the next succeeding day which
is not a Saturday, Sunday or legal holiday.
Section 15. Invalid Provisions. If any one or more of the provisions of this Agreement, or the
applicability of any such provision to a specific situation, shall he held invalid or unenforceable,
such provision shall be modified to the minimum extent necessary to make it or its application
valid and enforceable, and the validity and enforceability of all other provisions of this Agreement
and all other applications of any such provision shall not be affected thereby.
Section 16. Memorandum of Net Proceeds A Bement. Upon the request of either party, both
parties shall execute a Memorandum of Net Proceeds Agreement in the form attached hereto as
Exhibit B (the "Memorandum") which shall be filed in the office of Clerk and Recorder for
Flathead County, Montana.
NET PROCEEDS AGREEMENT Page 6 of 11
EXECUTED on the date first above written.
OWNER
GATEWA��TALITY G�OUP, IliC.
By:
Bob oelker, President
CITY of KALISPELL
r
1a s H. Patrick, City Manager
NET PROCEEDS AGREEMENT Page 7 of 11
STATE OF MONTANA )
):ss
County of Flathead )
On this day of May, 2006, before me, the undersigned, a Notary Public for the State of
Montana, personally appeared Robert voelker, in his capacity as President of GATEWAY
HOSPITALITY GROUP, INC., that executed the foregoing instrument, and acknowledged to me
that he executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.
STATE OF MONTANA )
):ss
County of Flathead )
Notary Public, Sae of
Residingat s , - �
My Commission Expires )'-:-eG 16 0/
DENNIS HALLAHAN
Notary Public, State of Ohio, Portage County
My Commission Expires Feb. 16, 2010
On this EV�,day of May 2006, before me, a Notary Public in and for the State of
Montana, personally appeared JAMES H. PATRICK, known to me to be the City Manager of the
City of Kalispell, a municipality, that executed the within instrument, and acknowledged that such
City Manager subscribed, sealed and delivered said instrument as the free and voluntary act of said
municipality, for the uses and purposes therein set forth, and that he was duly authorized to execute
the same on behalf of said municipality.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal, the
day and year first above written.
Notary Public, State of Montana
Residing at���;-�-
My Commission Expires
NET PROCEEDS AGREEMENT Page 8 of 11
EIIBIT "A"
Tract I of Certificate of Survey No. 17045, a tract of land, situated, lying, and being
in the North Hal, f of the Northwest Quarter of Section 20, Township 28 North, Range
21 West, P.M.M., Flathead County, Montana.
NET PROCEEDS AGREEMENT Page 9 of 11
EXHIBIT "B"
MEMORANDUM OF NET PROCEEDS AGREEMENT
A Net Proceeds Agreement was entered into on the day of May 2005 by and between
GATEWAY HOSPITALITY GROUP, INC., of 8920 Canyon Falls Blvd, Twinsburg, OH 44087,
and. the CITY OF KALISPELL, a municipal corporation of Flathead County, Montana, of P.O.
Box 1997, Kalispell, MT 59903-1997. Said Agreement affects the rights of the parties upon the
sale, refinancing or exchange the following described real property. -
Tract I of Certificate of Survey No. 17045, a tract of land, situated, lying, and being
in the North Ha f of the Northwest Quarter of Section 20, Township 28 North, Range
21 West, P.M.M., Flathead County, Montana.
A copy of said Agreement may be obtained from either of the parties at the addresses set
forth above.
E'AECUTED on the date first above written.
OWNER
GATEWAY ITAL Y GROUP,, C.
t�
By.
Bob Voelker, President
CITY OF KALISPELL
004
Jar49 H. Pat�c,ty Manager
NET PROCEEDS AGREEMENT Page 10 of 11
STATE OF MONTANA )
)-*ss
County of Flathead )
On this day of May 2006, before me, the undersigned, a Notary Public for the State of
Montana, personally appeared Robert Voelker, in his capacity as President of GATEWAY
HOSPITALITY GROUP, INC., that executed the foregoing instrument, and acknowledged to me
that he executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.
STATE OF MONTANA )
)-.Ss
County of Flathead )
Notary Public, State of�■
Residing at al C 57-V-
My Commission Expires Fe G o
DENNIS HALL,AHAN
Notary Public, State of Ohio; Portage County
My Commission Expires Feb.16, 2010
On this ` day of May 2006, before me, a Notary Public in and for the State of
Montana, personally appeared JAMES H. PATRICK, known to me to be the City Manager of the
City of Kalispell, a municipality, that executed the within instrument, and acknowledged that such
City Manager subscribed, sealed and delivered said instrument as the free and voluntary act of said
municipality, for the uses and purposes therein set forth, and that he was duly authorized to execute
the same on behalf of said municipality.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal, the
day and year first above written.
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Notary Public, State of Montana
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My Commission Expires
NET PROCEEDS AGREEMENT Page 11 of 11