Exhibit 10.1

 

 

 

 

 

 

PURCHASE AND SALE AGREEMENT

 

AMONG

 

RC SF OWNER LLC,

 

AS SELLER,

 

AND

 

CWI 2 SAN FRANCISCO HOTEL, LP,

 

AS PURCHASER

 

 

 

 

 

December 28, 2016

 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I

SALE

1

 

 

 

1.1

Real Property

1

1.2

Personal Property

1

1.3

Contracts, Equipment Leases and Leases

2

1.4

Bookings

2

 

 

 

ARTICLE II

PURCHASE PRICE

3

 

 

 

2.1

Purchase Price

3

2.2

Allocation of Purchase Price

3

2.3

Deposit

3

2.4

Independent Consideration

4

 

 

 

ARTICLE III

SELLER’S REPRESENTATIONS AND WARRANTIES

4

 

 

 

3.1

Good Standing

4

3.2

Title

4

3.3

Due Authorization

4

3.4

No Violations or Defaults

4

3.5

Litigation

5

3.6

Condemnation Actions

5

3.7

Contracts

5

3.8

Equipment Leases

5

3.9

Management Agreement

5

3.10

Space Leases

6

3.11

Environmental Matters

6

3.12

Labor and Employment Matters

7

3.13

Possession

7

3.14

Bankruptcy

7

3.15

FIRPTA

7

3.16

Financial Information

7

3.17

Money Laundering

7

3.18

No Violations

8

3.19

Tax Abatement Proceedings

8

3.20

Liquor License

8

3.21

No Options

8

3.22

Taxes

8

3.23

Vouchers

9

3.24

Certain Limitations on Seller’s Representations and Warranties

9

 

 

 

ARTICLE IV

PURCHASER’S REPRESENTATIONS AND WARRANTIES

9

 

 

 

4.1

Good Standing

9

4.2

Due Authorization

9

4.3

No Violations or Defaults

10

4.4

Litigation

10

 

-i-

 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

4.5

Money Laundering

10

4.6

ERISA

10

 

 

 

ARTICLE V

CLOSING

11

 

 

 

5.1

Closing

11

5.2

Costs

11

 

 

 

ARTICLE VI

ACTIONS PENDING CLOSING; FEASIBILITY PERIOD

12

 

 

 

6.1

Conduct of Business; Maintenance and Operation of Property

12

6.2

Title Insurance

13

6.3

Survey

14

6.4

No Action

14

6.5

Cooperation

14

6.6

Inspection; Feasibility Period

14

6.7

Liquor License

15

6.8

Management Agreement

16

6.9

WARN Act and Employees

16

6.10

3-05 Audit

17

6.11

Contracts

17

6.12

Estoppels

17

6.13

Tax Clearance Letter

18

6.14

Environmental Notice

18

 

 

 

ARTICLE VII

CONDITIONS PRECEDENT TO PURCHASER’S OBLIGATIONS AT CLOSING

19

 

 

 

7.1

Representations and Warranties

19

7.2

Covenants of Seller

19

7.3

Title

19

7.4

Manager Consent

19

7.5

Management Agreement Estoppel Certificate

19

7.6

Material Estoppels

19

7.7

No Litigation

19

7.8

Liquor License

19

7.9

Failure of Condition

19

 

 

 

ARTICLE VIII

CONDITIONS PRECEDENT TO SELLER’S OBLIGATIONS AT CLOSING

20

 

 

 

8.1

Representations and Warranties

20

8.2

Covenants of Purchaser

20

8.3

Manager Consent

20

8.4

No Litigation

20

8.5

Failure of Condition

20

 

-ii-

 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

ARTICLE IX

CLOSING DELIVERIES

20

 

 

 

9.1

Seller’s Deliveries

20

9.2

Purchaser’s Deliveries

22

9.3

Possession; Books and Records, Keys

22

 

 

 

ARTICLE X

DEFAULT

23

 

 

 

10.1

Purchaser’s Default

23

10.2

Seller’s Default

24

 

 

 

ARTICLE XI

“AS IS” SALE; SURVIVAL; INDEMNIFICATION OBLIGATIONS; POST-CLOSING OBLIGATIONS

24

 

 

 

11.1

AS IS

24

11.2

Survival and Limitations

25

11.3

Purchaser’s Knowledge

27

11.4

Indemnification

27

11.5

Litigation Claims

28

11.6

Litigation Indemnification

31

11.7

Barraza Case

31

11.8

Survival of Article

31

 

 

 

ARTICLE XII

CASUALTY OR CONDEMNATION

31

 

 

 

12.1

Notice to Purchaser

31

12.2

Condemnation, Casualty or Litigation

31

12.3

Risk of Loss

32

 

 

 

ARTICLE XIII

PRORATIONS AND EXPENSES

32

13.1

Prorations Generally

32

13.2

Revenue, Receivables and Payables

33

13.3

Food and Beverage Revenue; Vending Machine Revenue

34

13.4

Utility Contracts

34

13.5

Hotel Matters

34

13.6

Consumables and Inventory

34

13.7

Cash and Accounts

34

13.8

Other Adjustments and Prorations

34

13.9

Guests’ Property

34

13.10

Real Estate Taxes

35

13.11

Rents

35

13.12

Employee Compensation

35

13.13

FF&E Reserve; Operating Account

35

13.14

Vouchers

36

13.15

Audio Visual Incentive and Bonus

36

13.16

Survival

36

 

-iii-

 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

ARTICLE XIV

MISCELLANEOUS

36

 

 

 

14.1

Assignment

36

14.2

Consents

37

14.3

Applicable Law

37

14.4

Headings; Exhibits

37

14.5

Notices

37

14.6

Waiver

38

14.7

Partial Invalidity

38

14.8

Entire Agreement

38

14.9

Time is of the Essence

39

14.10

Waiver of Jury Trial

39

14.11

Counterparts

39

14.12

Brokerage

39

14.13

Public Announcements

39

14.14

Attorneys’ Fees

40

14.15

Exclusivity

40

14.16

Confidentiality

40

14.17

Reserve Agreement

40

 

 

 

ARTICLE XV

CALIFORNIA DISCLOSURES

41

 

 

 

15.1

Natural Hazard Disclosure

41

15.2

Section 25359.7 of Health and Safety Code

41

15.3

Survival

42

 

-iv-

 

List of Definitions

 

The parties hereby agree that the following terms shall have the meanings
hereinafter set forth, such definitions to be applicable equally to the singular
and plural forms, and the masculine and feminine forms, of such terms:

 

Affiliate

 

Section 14.1(a).

Agreement

 

Preamble.

Amendment and Assignment of Management Agreement

 

Section 6.8.

Assignment of Leases and Contracts

 

Section 9.1(c).

Assumed Contracts

 

Section 6.11.

Assumed Equipment Leases

 

Section 6.11.

ATT

 

Section 6.12.

ATT Lease

 

Section 6.12.

Bill of Sale

 

Section 9.1(c).

BOE

 

Section 6.14.

Bookings

 

Section 1.5.

Business Day

 

Section 14.9.

Capital Transaction

 

Section 14.15.

City

 

Section 6.12.

Claims

 

Section 6.6(a).

Claim Notice

 

Section 11.2(a).

Claim Threshold

 

Section 11.2(b).

Closing

 

Section 5.1(a).

Closing Date

 

Section 5.1(a).

Contracts

 

Section 3.7.

Contract Date

 

Preamble.

Control

 

Section 14.1(a).

CWII

 

Section 14.1(a).

Dataroom

 

Section 11.3.

Deed

 

Section 9.1(a).

Defendant Legal Costs

 

Section 11.5(b)(ii)

Deposit

 

Section 2.3.

DOL

 

Section 4.6(a).

Employees

 

Section 3.12.

Energy Disclosure Requirement

 

Section 15.3.

Environmental Covenant

 

Section 6.6(a).

Environmental Laws

 

Section 3.11.

Environmental Notice

 

Section 6.14.

Equipment Leases

 

Section 3.8.

ERISA

 

Section 4.6(a).

Escrow Agent

 

Section 2.1.

Escrow Instructions

 

Section 2.3.

Estoppel

 

Section 6.12.

Estoppel Document

 

Section 6.12.

 

i

 

Executive Order

 

Section 3.17(a).

Existing Environmental Reports

 

Section 15.2.

Feasibility Period

 

Section 6.6.

FF&E

 

Section 1.2.

Fixed Asset Supplies

 

Section 1.2.

Funds Escrow Agent

 

Section 2.3.

Government List

 

Section 3.17(c).

Guest Ledger

 

Section 13.2.

Improvements

 

Section 1.1.

Indemnify

 

Section 6.6(a).

Independent Consideration

 

Section 2.4.

Intellectual Property

 

Section 1.2.

Inventories

 

Section 1.2.

Hazardous Substances

 

Section 3.11.

Hotel

 

Section 1.1.

Jewelry Lease

 

Section 6.12.

Jewelry Tenant

 

Section 6.12.

Land

 

Section 1.1.

Legal holiday

 

Section 14.9.

Liquor License

 

Section 3.23.

Manager

 

Section 3.9.

Management Agreement

 

Section 3.9.

Material

 

Section  12.2.

Memorandum of Agreement

 

Section 1.3.

Monetary Encumbrance

 

Section 6.2(b).

Natural Hazard Expert

 

Section 15.1.

Operating Tenant

 

Section 6.8

Parking Agreement

 

Section 6.12.

Parking Operator

 

Section 6.12.

Permitted Exceptions

 

Section 6.2(b).

Personal Property

 

Section 1.2.

Plan

 

Section 4.6(a).

Post-Closing Cap

 

Section 11.2(c).

Post-Closing Escrow Agreement

 

Section 11.2(d).

Post-Closing Escrow Agreement (Litigation)

 

Section 11.5(b)(ii)

Post-Closing Escrow Funds

 

Section 11.2(d).

Post-Closing Escrow (Litigation) Funds

 

Section 11.5(b)(ii).

Property

 

Article I.

Prorations

 

Section 13.1.

Proration Time

 

Section 13.1.

PSAV

 

Section 13.15.

PSAV Agreement

 

Section 13.15.

Purchaser

 

Preamble.

Purchase Price

 

Section 2.1.

Purchaser Claim

 

Section 11.2.

 

ii

 

Rents

 

Section 13.13.

Reserve Agreement

 

Section 14.17.

Seller

 

Preamble.

Seller’s Broker

 

Section 14.12.

Seller’s Claims

 

Section 11.4(a).

Seller’s Title Response

 

Section 6.2(b).

Space Leases

 

Section 1.4.

Settlement Statement

 

Section 13.1(b).

Spa Agreement

 

Section 6.12.

Spa Tenant

 

Section 6.12.

Survey

 

Section 6.3.

Survival Period

 

Section 11.2.

Tax Clearance Letter

 

Section 6.14.

Termination Notice

 

Section 6.6(c).

Title Commitment

 

Section 6.2(a).

Title Company

 

Section 6.2(a).

Title Objection

 

Section 6.2(b).

Title Objection Notice

 

Section 6.2(b).

True-up

 

Section 13.1(c).

Uniform System of Accounts

 

Section 1.2.

Verizon

 

Section 6.12.

Verizon Antennae Lease

 

Section 6.12.

Vouchers

 

Section 3.23.

WARN Act

 

Section 6.9(b).

Wine Lease

 

Section 6.12.

Wine Tenant

 

Section 6.12.

 

iii

 

PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is executed as of the 28th
day of December, 2016 (the “Contract Date”) by RC SF OWNER, LLC, a Delaware
limited liability company (“Seller”), and CWI 2 SAN FRANCISCO HOTEL, LP, a
Delaware limited partnership (together with its permitted assigns, “Purchaser”).

 

Article I
Sale

 

Subject to the terms and conditions set forth in this Agreement, Seller agrees
to sell and convey to Purchaser, and Purchaser agrees to buy and take from
Seller the following (collectively, the “Property”):

 

1.1    Real Property.  All of Seller’s fee interest in that certain parcel of
land more particularly described in Exhibit 1.1 attached hereto (collectively,
the “Land”) and located at 600 Stockton Street, San Francisco, CA, including all
right, title and interest of Seller, if any, in and to the land lying in the bed
of any street, highway, alley, road or avenue, in front of or adjoining the Land
to the center line thereof, all easements, rights and other interests
appurtenant thereto (including, without limitation, any rights of Seller to
water, minerals, oil, gas and other hydrocarbon substances on and under said
Land), and all buildings and improvements located on the Land (the
“Improvements”).  The fee interest in the Land and the Improvements is sometimes
referred to hereinafter together as the “Hotel.”

 

1.2    Personal Property.  All of Seller’s and its affiliates’ right, title and
interest in the following personalty (collectively the “Personal Property”):
(a) all items included within the definition of “Furnishings and Equipment”
under the Uniform System of Accounts for the Lodging Industry, Eleventh Revised
Edition, as published by the Hotel Association of New York City, Inc. (the
“Uniform System of Accounts”), located at and/or used exclusively in the
operation of the Hotel, including, without limitation, all furniture,
furnishings, fixtures, vehicles, rugs, mats, carpeting, machinery, appliances,
devices, engines, telephone, computer, and other communications equipment and
systems, artwork, draperies, carpet, televisions and other video equipment,
plumbing fixtures and other equipment located at and/or used exclusively in the
operation of the Hotel (other than items that are part of the Improvements) (the
“FF&E”), (b) all items included within the definition of “Operating Equipment”
under the Uniform System of Accounts located at and/or used exclusively in the
operation of the Hotel, including, without limitation, linen, china, glassware,
tableware, uniforms and similar items (the “Fixed Asset Supplies”); (c) all
“Inventories” as defined in the Uniform System of Accounts located at and/or
used exclusively in the operation of the Hotel, including, without limitation,
provisions in storerooms, refrigerators, pantries, and kitchens, beverages in
wine cellars and bars, other merchandise intended for sale or resale, fuel,
mechanical supplies, stationery, guest supplies, maintenance and housekeeping
supplies and other expensed supplies and similar items, whether in opened or
unopened containers (the “Inventories”); provided, however, that to the extent
that any applicable law prohibits the transfer of alcoholic beverages from
Seller to Purchaser, such beverages shall not be considered a part of
Inventories; (d) to the extent in Seller’s possession or

 

1

 

control, surveys, architectural, consulting and engineering blueprints, plans
and specifications, if any, related to the Property, all non-confidential books
and records, if any, related to the Property, and any goodwill of Seller related
to the Property; (e) Seller’s assignable rights, title and interest, if any, in
(i) trade names, trademarks, service marks, logos, domain names, websites and
other forms of identification used exclusively by Seller to identify the
Property or any of its facilities or operations listed on
Exhibit 1.2(e) attached hereto (the “Intellectual Property”); (ii) any licenses,
permits, consents, authorizations, approvals, registrations and certificates
issued by any governmental authority with respect to the Property which are held
by or on behalf of Seller, but only to the extent the same are transferable
and/or any consents necessary to effectuate such a transfer are obtained;
(iii) contractors’, manufacturers’ and vendors’ written guaranties, warranties
and other obligations (if any) for the repair or maintenance of any component of
the Property; (f) vehicles listed on Exhibit 1.2(f) attached hereto, (g) all
other intangible personal property of Seller associated exclusively with the
Hotel, including without limitation, goodwill, and (h) any and all other items
of personalty owned by Seller located at and/or used exclusively in the
operation of the Hotel, but excluding (A) property of guests, (B) items or
information owned by or proprietary to Manager, (C) any equipment and items
owned by lessees under the Space Leases, (D) tax deposits, utility deposits and
other deposits held by or on behalf of Seller, except for any transferable
deposits assigned to Purchaser for which Seller is reimbursed and (E) unless
otherwise provided in (and subject to adjustments to the Purchase Price set
forth in) Section 13.13, any tax, insurance, FF&E or other reserves or accounts
held by Seller, Manager, Seller’s lender or other parties by or on behalf of
Seller.

 

1.3    Contracts, Equipment Leases and Leases.  All rights of Seller and its
affiliates under (a) all Assumed Contracts and Assumed Equipment Leases, (b) the
Management Agreement, and (c) all leases, subleases, concession agreements, and
other agreements, if any, that provide for the use or occupancy of space or
facilities on or relating to the Hotel to the extent listed on Exhibit 1.4
hereto (including all riders, addenda, amendments, supplements and other
modifications listed thereon, the “Space Leases”).

 

1.4    Bookings.  All bookings and reservations for guest, conference and
banquet rooms or other facilities of the Hotel as of the Closing, together with
all deposits held by or on behalf of Seller and its affiliates with respect to
the Hotel (the “Bookings”).

 

Except to the extent expressly provided in this Agreement, Purchaser shall not
acquire, assume or otherwise have any responsibility with respect to any and all
liabilities, demands, liens, interest, claims, actions or causes of action,
assessments, losses, fines, penalties, costs (including, without limitation,
response and/or remedial costs), damages and expenses including, without
limitation, those asserted by any Federal, state or local governmental or
quasi-governmental agency or any third party (each, a “Liability”) whatsoever,
whether fixed or contingent, recorded or unrecorded, known or unknown, with
respect to the Property or the Hotel (a) that relate to Contracts that are not
Assumed Contracts or Equipment Leases that are not Assumed Equipment Leases,
(b) that arose or relate to the period prior to the Closing relating to
ownership, lease, operation or use of the Property or the Hotel, (b) that relate
to the period prior to the Closing and relate to the Management Agreement, the
Assumed Contracts or the Assumed Equipment Leases, or (c) for which Seller is
expressly made responsible pursuant to this Agreement or any documents delivered
at Closing, in each case other than any Liabilities

 

2

 

assumed by Purchaser pursuant to the express terms hereof, including for which
the parties have agreed to prorate the cost thereof in accordance with the
provisions of this Agreement and then, only to the extent that a credit is
provided to Purchaser therefor.

 

Article II
Purchase Price

 

2.1    Purchase Price.  The purchase price for the Property is Two Hundred
Eighty Million Dollars ($280,000,000) (the “Purchase Price”).  The Purchase
Price shall be paid on the Closing Date by Purchaser to Seller, subject to the
adjustments, charges and credits set forth herein, by wire transfer of
immediately available funds, of which the Deposit shall be deemed a part, to
Kensington Vanguard National Land Services, as escrow agent for the purposes
hereinafter set forth (the “Escrow Agent”), having an address at 39 West 37th
Street, 3rd Floor, New York, New York 10018, Attention:  Jennifer Panciera, for
disbursement to Seller on the Closing Date upon close of escrow.  If the Closing
occurs, the Deposit shall be credited against the Purchase Price.

 

2.2    Allocation of Purchase Price.  Seller and Purchaser shall file federal,
state and local income tax returns based on each party’s own determination of
the proper allocations of the Purchase Price, each bearing its own consequences
of any discrepancies.  Notwithstanding the foregoing, Seller and Purchaser agree
that the amount of the Purchase Price allocable to the Land and Improvements for
purposes of executing and recording the Deed, and calculating the amount of
transfer taxes payable in connection therewith, shall be $192,596,000.  The
provisions of this Section 2.2 shall survive the Closing.

 

2.3    Deposit.  Within two (2) Business Days following the Contract Date,
Purchaser shall deliver to First American Title Insurance Company, as escrow
agent for the purposes of holding and disbursing the Deposit, the Closing funds
(including the Purchase Price), the Post-Closing Escrow Funds and the funds held
pursuant to the Reserve Agreement and the Post-Closing Escrow Agreement
(Litigation) (the “Funds Escrow Agent”), having an address at 4380 La Jolla
Village Drive, Suite 110, San Diego, CA 92122, Attention:  Dennis J. Vendetti, a
deposit in the amount of Four Million Two Hundred Fifty Thousand Dollars
($4,250,000) in immediately available funds (together with any interest earned
thereon, the “Deposit”). If Purchaser does not deliver the Deposit to the Funds
Escrow Agent within two (2) Business Days following the Contract Date, Seller
shall have the right to terminate this Agreement by giving written notice to
Purchaser and neither party shall then have any further liability to the other
under this Agreement except for obligations that expressly survive termination
of this Agreement.  The Funds Escrow Agent shall hold the Deposit in accordance
with escrow instructions executed by Seller, Purchaser and the Funds Escrow
Agent (the “Escrow Instructions”) substantially in the form attached hereto as
Exhibit 2.3.  Unless Purchaser terminates this Agreement prior to the expiration
of the Feasibility Period, the Deposit shall be refundable only as provided in
this Agreement.  IF THE TRANSACTION HEREIN PROVIDED SHALL FAIL TO CLOSE BY
REASON OF (1) SELLER’S DEFAULT UNDER THIS AGREEMENT, OR (2) THE FAILURE OF A
CONDITION PRECEDENT TO PURCHASER’S OBLIGATION TO CLOSE AS EXPRESSLY SET FORTH IN
ARTICLE VII BELOW WHICH IS NOT THE RESULT OF A PURCHASER DEFAULT OR (3) ANY
OTHER PROVISION OF THIS AGREEMENT THAT EXPRESSLY PROVIDES FOR THE RETURN OF THE
DEPOSIT TO PURCHASER, THEN

 

3

 

THE DEPOSIT SHALL BE RETURNED TO PURCHASER, AND NEITHER PARTY SHALL HAVE ANY
OTHER OBLIGATION OR LIABILITY TO THE OTHER EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT.  IN THE EVENT THE TRANSACTION HEREIN PROVIDED SHALL FAIL TO CLOSE AS
A RESULT OF A PURCHASER DEFAULT UNDER THIS AGREEMENT, THEN THE DEPOSIT SHALL BE
RETAINED BY SELLER AS LIQUIDATED DAMAGES IN ACCORDANCE WITH SECTION 10.1 BELOW.

 

2.4    Independent Consideration.  An amount equal to One Hundred Dollars
($100.00) of the Deposit shall be deemed “non-refundable option money” given by
Purchaser to Seller as good and valuable consideration for the rights and
obligations of the parties under this Agreement, is independent of all other
consideration provided in this Agreement, and is non-refundable in all events
(the “Independent Consideration”).  Seller and Purchaser acknowledge and agree
that the Independent Consideration is sufficient consideration to support this
Agreement notwithstanding Purchaser’s rights to terminate this Agreement as set
out in this Agreement.  At Closing, the Independent Consideration shall be
credited against the Purchase Price.

 

Article III
Seller’s Representations and Warranties

 

In order to induce Purchaser to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants to Purchaser,
as follows:

 

3.1    Good Standing.  Seller is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of Delaware,
and is duly qualified and in good standing in the State of California.

 

3.2    Title.  Seller has, or will have on the Closing Date, good title to the
Personal Property, which shall be subject only to the Permitted Exceptions (and
no other liens and encumbrances) on the Closing Date.

 

3.3    Due Authorization.  The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
authorized by all requisite limited liability company actions of Seller, none of
which actions have been modified or rescinded, and all of which actions are in
full force and effect.  This Agreement constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as may be limited by bankruptcy, insolvency and creditors’ rights laws.

 

3.4    No Violations or Defaults.  The execution, delivery and performance of
this Agreement and the consummation by Seller of the transactions contemplated
hereby will not (a) violate any law or any order of any court or governmental
authority with proper jurisdiction binding against Seller or its assets;
(b) result in a breach or default under any contract or other binding commitment
of Seller or any provision of the organizational documents of Seller;
(c) require any consent or approval or vote of any governmental or regulatory
authority or any other person or entity that has not been taken or given, or as
of the Closing Date shall not have been taken or given; or (d) result in the
creation or imposition of any lien, charge or encumbrance,

 

4

 

against the Property or any portion thereof.  Notwithstanding the foregoing,
(i) no party to any of the Contracts or Equipment Leases has yet given any
approval required under any such document for the transfer to, or the assumption
thereof by, Purchaser and (ii) Manager has not yet approved the sale of the
Property and an assignment of the Management Agreement to Purchaser.

 

3.5    Litigation.  Except as set forth on Exhibit 3.5, (a) there are no
actions, suits, arbitrations, governmental investigations or other proceedings
pending (for which service of process has been made) or, to Seller’s Knowledge,
threatened against Seller or the Property before any court or governmental
authority, and (b) to Seller’s Knowledge, there are no actions, suits,
arbitrations, governmental investigations or other proceedings pending or
threatened against Manager with respect to the operation of the Property, in
each case as to (a) or (b), an adverse determination of which might affect
(i) the financial condition or operation of the Property, or (ii) Seller’s
ability to enter into or perform this Agreement.

 

3.6    Condemnation Actions.  There are no pending or, to Seller’s Knowledge,
threatened condemnation actions or special assessments of any nature with
respect to the Property or any part thereof.

 

3.7    Contracts.  All contracts related to the maintenance, ownership, use,
possession or operation of the Property, executed by Seller or, to Seller’s
Knowledge, on Seller’s behalf by Manager (together with all riders, addenda,
amendments, supplements and other modifications listed thereon, the
“Contracts”), other than the Management Agreement, Equipment Leases and the
Space Leases, are listed on Exhibit 3.7 attached hereto.  Seller has delivered
to Purchaser copies of all Contracts in Seller’s possession or control, which
copies, to Seller’s Knowledge, are true, accurate and complete in all material
respects.  To Seller’s Knowledge, all of the Contracts are in full force and
effect.  Seller, and to Seller’s Knowledge, Manager, have neither given nor
received any notice of default with respect to any Contract (which default
remains uncured), and there are no events that with notice or the passage of
time or both, would constitute a default by Seller or, to Seller’s Knowledge, by
any other party under any Contract.

 

3.8    Equipment Leases.  All written leases of Personal Property located at and
used in the operation of the Hotel executed by Seller or, to Seller’s Knowledge,
on Seller’s behalf by Manager (including all riders, addenda, amendments,
supplements and other modifications listed thereon, the “Equipment Leases”) are
listed on Exhibit 3.8 attached hereto.  Seller has delivered to Purchaser copies
of all Equipment Leases in Seller’s possession or control, which copies, to
Seller’s Knowledge, are true, accurate and complete in all material respects. 
To Seller’s Knowledge, all of the Equipment Leases are in full force and
effect.  Seller, and to Seller’s Knowledge, Manager, have neither given nor
received any notice of default with respect to any Equipment Lease (which
default remains uncured), and there are no events that with notice or the
passage of time or both, would constitute a default by Seller or, to Seller’s
Knowledge, by any other party under any Equipment Lease.

 

3.9    Management Agreement.  There are no management contracts, franchise
agreements, license agreements or similar contractual arrangements relating to
the Property other than that certain Amended and Restated Management Agreement
dated as of January 1, 2002 between The Ritz Carlton Hotel Company, L.L.C., a
Delaware limited liability company (the

 

5

 

“Manager”), and Seller (as amended and assigned prior to the date hereof and/or
assigned pursuant to the terms hereof, the “Management Agreement”).  Seller has
delivered to Purchaser copies of the Management Agreement (inclusive of all
riders, addenda, amendments, supplements, side letters, and other modifications
relating thereto), which copies are true, accurate and complete.  To Seller’s
Knowledge, the Management Agreement is in full force and effect.  Seller, and to
Seller’s Knowledge, Manager, have neither given nor received any notice of
default with respect to the Management Agreement (which default remains
uncured), and there are no events that with notice or the passage of time or
both, would constitute a default by Seller or, to Seller’s Knowledge, by Manager
under the Management Agreement.

 

3.10                    Space Leases.  All Space Leases executed by Seller or on
Seller’s behalf by Manager (including all riders, addenda, amendments,
supplements and other modifications listed thereon) are listed on Exhibit 1.4
attached hereto.  Seller has delivered to Purchaser copies of all Space Leases
in Seller’s possession or control, which copies, to Seller’s Knowledge, are
true, accurate and complete in all material respects.  To Seller’s Knowledge,
all of the Space Leases are in full force and effect.  Seller, and to Seller’s
Knowledge, Manager, have neither given nor received any notice of default with
respect to any Space Lease (which default remains uncured), and there are no
events that with notice or the passage of time or both, would constitute a
default by Seller or, to Seller’s Knowledge, by any other party under any Space
Lease.

 

3.11                    Environmental Matters.  Except as disclosed on
Exhibit 3.11 or in the environmental reports listed on Exhibit 3.11, neither
Seller nor, to Seller’s Knowledge, Manager has received any written notice from
any governmental or regulatory authority of the presence or release of any
substance that is regulated under any Environmental Laws as a pollutant,
contaminant or toxic, radioactive or otherwise hazardous substance, including
petroleum, its derivatives or by-products and other hydrocarbons (collectively
and individually, “Hazardous Substances”) in violation of any applicable
Environmental Laws which remains uncured.  To Seller’s Knowledge, the
environmental reports listed on Exhibit 3.11 include all of the environmental
site assessment reports in Seller’s possession or control that address the
status of the Property in regard to Hazardous Substances or Environmental Laws. 
To Seller’s Knowledge, Seller has delivered to Purchaser copies of the
environmental reports listed on Exhibit 3.11, which copies are true, accurate
and complete in all material respects.  For the purposes of this Section 3.11,
“Environmental Laws” means any and all federal, state, county and local
statutes, laws, regulations and binding rules in effect on the Contract Date
relating to the protection of the environment or to the use, transportation and
disposal of Hazardous Substances.

 

PURCHASER ACKNOWLEDGES THAT PURCHASER HAS RECEIVED COPIES OF THE ENVIRONMENTAL
REPORTS LISTED ON EXHIBIT 3.11 WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND
OTHER THAN AS SET FORTH IN THE SECOND AND THIRD SENTENCES OF THIS SECTION 3.11. 
SELLER SHALL HAVE NO LIABILITY OR OBLIGATION WHATSOEVER FOR ANY INACCURACY IN OR
OMISSION FROM ANY ENVIRONMENTAL REPORT.  PURCHASER SHALL HAVE NO CLAIMS AGAINST
THE PREPARER OF ANY ENVIRONMENTAL REPORT PROVIDED BY SELLER.

 

6

 

3.12                    Labor and Employment Matters.  Seller has no employees
and, to Seller’s Knowledge, no individuals are employed at the Property other
than employees of Manager (collectively, the “Employees”).  There are no labor
or collective bargaining agreements affecting the Property to which Seller is a
party or to Seller’s Knowledge by which Seller or the Property or Manager is
bound.  Seller, and to Seller’s Knowledge, Manager, has not received any written
notice from any labor union or group of employees that such union or group
represents or believes or claims it represents or intends to represent any of
the employees of Seller nor has Seller, nor to Seller’s Knowledge, Manager,
received any written notice of any claim of unfair labor practices. To Seller’s
Knowledge, there is no other pending or threatened attempt to organize a labor
union covering employees employed by Manager at the Property, and there is no
pending or threatened strike, work stoppage, work slowdown, picketing, lockout
or other material labor dispute involving the Property.

 

3.13                    Possession.  Neither Seller, nor to Seller’s Knowledge
any other party, has granted any license, lease, or other right relating to the
use or possession of the Property or any part thereof, except tenants under the
Space Leases and guests in the ordinary course of business.

 

3.14                    Bankruptcy.  Seller is not insolvent and has not filed
or taken any action to file a voluntary petition, case or proceeding under any
section or chapter of Title 11 of the United States Code, as amended, or under
any similar law or statute of the United States or any state thereof, relating
to bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of its debts; and no such petition, case or proceeding has been filed
against it which has not been dismissed, vacated or stayed on appeal; and it has
not been adjudicated as a bankrupt or insolvent or consented to, nor filed an
answer admitting or failing reasonably to contest an allegation of bankruptcy or
insolvency.  Seller has not admitted in writing its inability to pay its debts
as they become due.

 

3.15                    FIRPTA.  Seller is not a foreign person, as defined in
the Foreign Investment in Real Property Tax Act or the Treasury Regulations
relating thereto.

 

3.16                    Financial Information.  Seller has delivered to
Purchaser, or made available to Purchaser, for examination (or will, within five
(5) days following the Contract Date, deliver or make available to Purchaser for
examination) true and correct copies of the monthly operating statements of the
Hotel prepared by and received by Seller from Manager for the following
periods:  July-December 2013, calendar years 2014 and 2015 and year to date
through October, 2016.  Seller has no Knowledge of any material inaccuracy or
omission in any such operating statements.

 

3.17                    Money Laundering.  (a)  Seller is not acting, directly
or indirectly, for or on behalf of any person, group, entity or nation named by
the United States Treasury Department as a Specifically Designated National and
Blocked person, or for or on behalf of any person, group, entity or nation
designated in Executive Order No. 13224 dated September 24, 2001 issued by the
President of the United States (Executive Order Blocking Property and
Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support
Terrorism), as may be amended or supplemented from time to time (the “Executive
Order”) as a person who commits, threatens to commit, or supports terrorism; and
it is not engaged in this transaction directly or

 

7

 

indirectly on behalf of, or facilitating this transaction directly or indirectly
on behalf of, any such person, group, entity or nation, terrorists, terrorist
organizations or narcotics traffickers, including, without limitation, those
persons or entities that appear on any Government List (as defined below), all
as may be amended from time to time.

 

(b)      Neither Seller, nor any person or entity that directly or indirectly
(i) controls or is controlled by Seller, or (ii) has an ownership interest in
Seller of twenty-five percent (25%) or more is a country, territory, individual
or entity named on a Government List, and the monies used in connection with
this Agreement and amounts committed with respect thereto, were not and are not
derived from any activities that contravene any applicable anti-money laundering
or anti bribery laws and regulations (including, without limitation, funds being
derived from any person, entity, country or territory on a Government List or
engaged in any unlawful activity defined under 18 USC §1956(c)(7)).

 

(c)       For purposes of this Agreement, “Government List” means of any of
(i) the two lists maintained by the United States Department of Commerce (Denied
Persons and Entities), (ii) the list maintained by the United States Department
of Treasury (Specially Designated Nationals and Blocked Persons) and (iii) the
two lists maintained by the United States Department of State (Terrorist
Organizations and Debarred Parties).

 

3.18                    No Violations.  Except as set forth on Exhibit 6.13,
Neither Seller, nor to Seller’s Knowledge, Manager has received any written
notice from any governmental or regulatory authority of any violation of any
applicable laws by Seller, Manager or the Property which has not been corrected.

 

3.19                    Tax Abatement Proceedings.  To Seller’s Knowledge, there
is no currently pending appeal or abatement proceeding with respect to the real
estate taxes assessed on the Real Property except as shown on Exhibit 3.19.

 

3.20                    Liquor License.  The liquor license issued by the State
of California (the “Liquor License”) is held by Manager with respect to the
Hotel.  To Seller’s Knowledge, the Liquor License is in full force and effect
and there are no active violations or investigations pending by any applicable
governmental authority.

 

3.21                    No Options.  Seller has not granted an option or right
of first refusal to purchase the Property.

 

3.22                    Taxes.  To Seller’s Knowledge, Seller and/or Manager
have paid all taxes (including, without limitation, gross receipt, sales, use,
excise, VAT, hotel/motel/transient occupancy taxes, real and personal property
taxes and employer withholding taxes), including penalties and interest, that
are due on or have accrued through or otherwise relate to the period prior to
the Contract Date and all required reports and returns relating thereto have
been, or will be, timely filed, subject to any extension rights.  All sales and
use taxes required to be paid or collected by Seller or, to Seller’s Knowledge,
by Manager in the ownership and operation of the Property have been or will be
collected and paid, in the ordinary course of business, to the

 

8

 

appropriate governmental authority through the Contract Date (and, as of
Closing, will have been paid through the Closing Date).  There are no tax
agreements in place affecting the Property.

 

3.23                    Vouchers.  To Seller’s Knowledge, Exhibit 3.23 attached
hereto lists all outstanding unexpired vouchers and gift certificates, as of the
Contract Date, which may be used in full or partial payment for any Hotel
service, including room rentals, food and beverage service, or any other item
either borne directly by the owner of the Hotel or which is reimbursable by the
owner of the Hotel (collectively, the “Vouchers”) and the aggregate value for
such Vouchers as of the date of issuance, except for Vouchers not set forth on
such exhibit, the value of which does not (and, as to the updated exhibit to be
provided in connection with the Closing pursuant to Section 13.14, will not), in
the aggregate, exceed $2,000 as of the Contract Date (or the Closing Date, as
applicable).

 

3.24                    Certain Limitations on Seller’s Representations and
Warranties.  The representations and warranties of Seller set forth in this
Article III are subject to the following express limitations:

 

(a)       The expiration or termination of any Space Lease, Equipment Lease, or
Contract by its terms shall not affect the obligations of Purchaser hereunder or
render any representation or warranty of Seller untrue;

 

(b)      For purposes of this Agreement, “to the best of Seller’s Knowledge”,
“to the Knowledge of Seller”, “known to Seller” or “to Seller’s Knowledge” (or
words of similar meaning) shall mean to the actual, present knowledge of Bruce
Wiles, Shai Zelering and Erica Graham, after making inquiry of the general
manager and controller/director of finance (or their functional equivalents) of
the Hotel as to the representations set forth in Sections 3.5-3.13, 3.16, 3.18,
3.19, 3.20, 3.22 and 3.23.  Seller shall also be deemed to have “Knowledge” of
all information disclosed in the Exhibits to this Agreement and all information
now or hereafter posted in the Dataroom; and

 

(c)       Seller’s liability shall be limited as set forth in Section 11.2
hereof.

 

Article IV
Purchaser’s Representations and Warranties

 

In order to induce Seller to enter into this Agreement and to consummate the
transactions contemplated hereby, Purchaser represents and warrants to Seller as
follows:

 

4.1    Good Standing.  Purchaser is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is, or as of the Closing Date shall be, qualified to do business in all
jurisdictions where the ownership of its assets or the conduct of its business
makes such qualification necessary.

 

4.2    Due Authorization.  The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
authorized by all requisite actions of Purchaser (none of which actions have
been modified or rescinded, and all of which

 

9

 

actions are in full force and effect).  This Agreement constitutes a valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as may be limited by bankruptcy, insolvency and
creditors’ rights laws.

 

4.3    No Violations or Defaults.  The execution, delivery and performance of
this Agreement and the consummation by Purchaser of the transactions
contemplated hereby will not (a) violate any law or any order of any court or
governmental authority with proper jurisdiction binding against Purchaser or its
assets; (b) result in a breach or default under any contract or other binding
commitment of Purchaser or any provision of the organizational documents of
Purchaser; or (c) require any consent or approval or vote that has not been
taken or given, or as of the Closing Date shall not have been taken or given.

 

4.4    Litigation.  There are no actions, suits, arbitrations, governmental
investigations or other proceedings pending or, to the Knowledge of Purchaser,
threatened in writing against Purchaser, before any court or governmental
authority, an adverse determination of which might adversely affect (a) the
financial condition or operations of Purchaser or (b) Purchaser’s ability to
enter into or perform this Agreement.

 

4.5    Money Laundering.  (a) Purchaser is not acting, directly or indirectly,
for or on behalf of any person, group, entity or nation named by the United
States Treasury Department as a Specifically Designated National and Blocked
person, or for or on behalf of any person, group, entity or nation designated in
the Executive Order as a person who commits, threatens to commit, or supports
terrorism; and it is not engaged in this transaction directly or indirectly on
behalf of, or facilitating this transaction directly or indirectly on behalf of,
any such person, group, entity or nation, terrorists, terrorist organizations or
narcotics traffickers, including, without limitation, those persons or entities
that appear on any Government List (as defined below), all as may be amended
from time to time.

 

(b)      Neither Purchaser, nor any person or entity that directly or indirectly
(i) controls or is controlled by Purchaser, or (ii) has an ownership interest in
Purchaser of twenty-five percent (25%) or more, is a country, territory,
individual or entity named on a Government List, and the monies used in
connection with this Agreement and amounts committed with respect thereto, were
not and are not derived from any activities that contravene any applicable
anti-money laundering or anti bribery laws and regulations (including, without
limitation, funds being derived from any person, entity, country or territory on
a Government List or engaged in any unlawful activity defined under 18 USC
§1956(c)(7)).

 

4.6    ERISA.

 

(a)       As of the Closing, (i) Purchaser will not be an employee benefit plan
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), which is subject to Title I of ERISA, nor a plan as
defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended
(each of the foregoing hereinafter referred to collectively as “Plan”), and
(ii) the assets of Purchaser will not constitute “plan assets” of one or more
such Plans within the meaning of Department of Labor (“DOL”) Regulation
Section 2510.3-101.

 

10

 

(b)  As of the Closing, if Purchaser is a “governmental plan” as defined in
Section 3(32) of ERISA, the closing of the sale of the Property will not
constitute or result in a violation of state or local statutes regulating
investments of and fiduciary obligations with respect to governmental plans.

 

(c)  Purchaser shall not assign its interest under this Agreement to any entity,
person, or Plan which will cause a violation of ERISA.

 

Article V
Closing

 

5.1 Closing.  The consummation of the purchase and sale of the Property as
contemplated by this Agreement (the “Closing”) shall take place on December 30,
2016 (as may be extended in accordance with the terms hereof, the “Closing
Date”).  Purchaser may elect to accelerate the Closing Date to December 29, 2016
upon the giving of notice to Seller by 3:00 p.m. Eastern time on December 26,
2016.  The Closing shall be conducted as an “escrow closing” which shall take
place at the office of the Escrow Agent without either party being present.  The
parties shall deliver to the Escrow Agent, in escrow, on or prior to the Closing
Date, all of Seller’s and Purchaser’s deliveries, and there shall be no
requirement that the parties attend a formal settlement; provided, however, that
the cash payment of the balance of the Purchase Price (subject to the
adjustments, charges and credits set forth herein) and sufficient additional
cash necessary for the parties to pay the costs contemplated by Section 5.2 at
Closing shall be delivered to and disbursed by the Funds Escrow Agent.  All
transactions at the Closing shall be interdependent and simultaneous, so that
none are effective until all are effective.

 

5.2 Costs.  Seller shall pay (a) all costs of removing any title defects which
Seller is required to remove pursuant to the provisions hereof, (b) the
documentary, stamp, transfer, sales, excise and similar taxes in connection with
recordation of the Deed and sale of the Property, and (c) the premium for the
“standard-CLTA” coverage portion of the Purchaser’s title policy (up to a policy
amount of $270,000,000 with Purchaser paying for any coverage in excess of such
amount).  Purchaser shall pay for (x) all documentary, stamp, transfer and
intangible recording taxes associated with the placement of a mortgage on the
Property, and the premiums of owner’s “extended-ALTA” coverage portion of the
Purchaser’s title policy (for coverage over the general exceptions) and the cost
of any endorsements to the Purchaser’s title policy requested by Purchaser (in
addition to “extended-ATLA” coverage over the general exceptions) and lender’s
title insurance, including, without limitation, the costs and expenses of all
endorsements thereto, (y) the costs of the Survey, and (z) the cost of
terminating any Equipment Leases and Contracts other than the Assumed Equipment
Leases and the Assumed Contracts.  Seller and Purchaser shall each pay for fifty
percent (50%) of all fees of the Escrow Agent and the Funds Escrow Agent in
connection with the Escrow Instructions and the Closing.  Each party shall pay
its own accountants and attorneys’ fees incurred in connection with the
preparation, negotiation and execution of this Agreement and the consummation of
the transactions contemplated hereby.  All other costs and expenses not
expressly addressed in this Section 5.2 shall be allocated between Seller and
Purchaser in accordance with applicable local custom for similar transactions.

 

11

 

Article VI
Actions Pending Closing; Feasibility Period

 

6.1 Conduct of Business; Maintenance and Operation of Property.  Between the
Contract Date and the Closing Date, Seller shall continue to, or shall use
commercially reasonable efforts to cause Manager to, carry on the business of
the Property as currently conducted and consistent with the Management Agreement
and prior practice.  Seller shall cause the Property to be maintained
(including, without limitation, routine maintenance and repairs) in its present
order and condition, so that the Property shall, except for normal wear and
tear, be in substantially the same condition on the Closing Date as on the
Contract Date.  Seller will, and will use commercially reasonable efforts to
cause Manager to, continue the normal operation of the business of the Property
consistent with the terms of the Management Agreement, including without
limitation, the purchase and replacement of consumable and non-consumable
personal property, supplies and equipment (sufficient to maintain consistent
levels of inventory), the maintenance of its beneficial relations with guests,
suppliers and others having business dealings with the Seller and the Manager,
the maintenance of insurance on the Property and renewing all licenses and
permits prior to their expiration.  Seller shall not, and consistent with the
terms of the Management Agreement shall use commercially reasonable efforts to
cause Manager not to sell or dispose of  any Personal Property except as
necessary for repairs or replacements of worn out or obsolete items.  Seller
shall, and consistent with the terms of the Management Agreement shall use
commercially reasonable efforts to cause Manager, to maintain the Personal
Property at levels consistent with prior practice until the Closing Date. 
Notwithstanding the foregoing, (a) during the Feasibility Period, Seller will
promptly provide to Purchaser copies of all contracts entered into, terminated
or amended (including Contracts, Space Leases and Equipment Leases) by Seller or
Manager with respect to the Property during such period and Seller agrees not to
amend (or make a verbal agreement to amend) or to waive any material rights
thereunder the Spa Agreement prior to Closing; and (b) from the expiration of
the Feasibility Period until the Closing Date (provided Purchaser has not
delivered a Termination Notice), Seller shall not enter into, terminate or amend
any contracts with respect to the Hotel (including Contracts, Space Leases and
Equipment Leases except in accordance with their terms), nor consent to
Manager’s entering into any contracts or termination or amendment thereof for
which Manager is required to obtain the prior consent of Seller, without first
obtaining the written consent of Purchaser (which may be granted or withheld in
Purchaser’s sole and absolute discretion); provided such written consent or
disapproval of Purchaser is received within three (3) days following Purchaser’s
receipt of Seller’s written request for such consent from Purchaser; and
provided further that Purchaser’s failure to timely provide any response to
Seller shall be deemed a consent.  Further, from the expiration of the
Feasibility Period until the Closing Date (provided Purchaser has not delivered
a Termination Notice), Seller shall not consent to any capital improvements or
capital expenditures to be undertaken by the Manager, to the extent that Seller
has the right to consent to the same, without Purchaser’s prior written consent
(which consent right shall be subject to the same standard as Seller’s consent
right under the terms of the Management Agreement); provided such written
consent or disapproval of Purchaser is received within three (3) days following
Purchaser’s receipt of Seller’s written request for such consent from Purchaser;
and provided further that Purchaser’s failure to timely provide any response to
Seller shall be deemed a consent.

 

12

 

6.2 Title Insurance.  (a) Purchaser acknowledges receipt of copies of Seller’s
existing Owner’s policy of title insurance and ALTA survey of the Hotel and
those underlying exception documents in Seller’s possession.  Within one
(1) Business Day after the Contract Date, Purchaser shall order the Survey and
order a commitment for the issuance of an ALTA 2006 Owner’s policy of title
insurance (the “Title Commitment”) relating to the Hotel to be issued by the
Escrow Agent, as agent for First American Title Insurance Company (in its
capacity as issuer of the Purchaser’s title policies at closing, the “Title
Company”), committing to insure Purchaser’s title to the Hotel at Closing.

 

(b)  On or before December 19, 2016, Purchaser shall give Seller notice (the
“Title Objection Notice”) of any matters disclosed by the Title Commitment or
the Survey that are objectionable to Purchaser in its sole and absolute
discretion (each, a “Title Objection”).  On or before December 22, 2016, Seller
may give Purchaser notice (the “Seller’s Title Response”) as to whether Seller
will cure or eliminate the Purchaser’s Title Objections.  If Seller does not
notify Purchaser pursuant to the preceding sentence, or if Seller does notify
Purchaser pursuant to the preceding sentence but in Seller’s Title Response
Seller elects not to cure or eliminate one or more of the Purchaser’s Title
Objections, Purchaser may terminate this Agreement by delivery of written notice
to Seller stating the same no later than by 5:00pm (ET) on December 27, 2016,
whereupon this Agreement shall terminate, Funds Escrow Agent shall return the
Deposit to Purchaser and neither Purchaser nor Seller shall have any obligations
or liabilities to the other except for obligations or liabilities that expressly
survive termination of this Agreement.  If Purchaser does not terminate pursuant
to the preceding sentence, any Title Objections that Seller has not expressly
agreed to cure or eliminate will be Permitted Exceptions.  If Seller agrees to
cure or eliminate a Title Objection, then Seller shall use commercially
reasonable efforts to cure or eliminate the same to the Title Company’s
satisfaction at or prior to Closing.  The procurement by Seller of a commitment
for the issuance of a title policy or endorsement thereto (if acceptable to
Purchaser in its sole but good faith discretion) by the Title Company insuring
Purchaser against the exception or other matter shall be deemed a cure of such
exception or matter as long as the Title Company agrees to delete such exception
or (if acceptable to Purchaser in its sole but good faith discretion)
affirmatively insure over such exception.  Any title or survey matter that is
not included in the Title Commitment or the Survey, or in any update thereof
received by Purchaser prior to the date on which Purchaser delivers its Title
Objection Notice, shall be a Permitted Exception if, but only if, such matter is
expressly approved by Purchaser in writing.  As used herein, “Permitted
Exceptions” means: (i) applicable zoning regulations and ordinances, (ii) liens
for taxes, assessments and governmental charges not yet due and payable,
(iii) liens for water and sewer service not yet due and payable, (iv) Space
Leases, (v) the Environmental Covenant, (vi) any matters contained in the Title
Commitment or Survey to which Purchaser does not object in a Title Objection
Notice, and (vii) matters that expressly become Permitted Exceptions pursuant to
the provisions of this Section 6.2(b).  Notwithstanding any provision herein to
the contrary, no mortgage, deed of trust or mechanic’s lien (any of the
foregoing, a “Monetary Encumbrance”) shall be a Permitted Exception, and Seller
hereby agrees to cause all Monetary Encumbrances to be satisfied and discharged
in full at or prior to Closing, provided that, other than deeds of trust or
mortgages (as to which Seller’s obligation to remove the same shall be
uncapped), Seller shall have no obligation to expend in excess of $250,000 to
satisfy and discharge Monetary Encumbrances.

 

13

 

6.3 Survey.  Pursuant to Section 6.2, Purchaser shall order, at Purchaser’s
expense, an ALTA/NSPS as-built survey of the Hotel from a land surveyor or
professional engineer (the “Survey”).

 

6.4 No Action.  Between the Contract Date and the Closing Date, Seller shall not
take any action that would invalidate, void or make untrue any representation or
warranty provided under this Agreement or that would encumber the Property.

 

6.5 Cooperation.  Seller shall cooperate reasonably with Purchaser, at
Purchaser’s cost, in securing any necessary transfer or issuance of any license
and permits to Purchaser immediately following the Closing Date.

 

6.6 Inspection; Feasibility Period.  For the period from the Contract Date until
the earlier of (a) consummation of the Closing, or (b) 5:00 p.m. Pacific Time on
January 6, 2017 (the “Feasibility Period”) and, to the extent that this
Agreement has not been terminated, through Closing:

 

(a)  Purchaser shall have the right, at its own risk, cost and expense, to
enter, or cause its agents, employees, contractors or representatives to enter,
upon the Hotel during normal business hours (and an employee, agent or
representative of Seller or Manager shall have the right, but not the
obligation, to accompany Purchaser or such persons) and upon at least one
(1) business day’s prior written notice (which may be by email) to Seller, for
the purpose of making surveys or other tests, inspections, investigations and/or
studies of all or any part of the Property, provided that any invasive testing
shall require Seller’s prior written consent (along with a description of the
scope of work), which may be withheld in Seller’s sole discretion.  Any invasive
testing shall be subject to the terms of the Covenant and Environmental
Restriction recorded with the City and County of San Francisco on December 12,
2014 (“Environmental Covenant”).  In addition, Purchaser may, at its own cost
and expense, without Seller’s consent conduct such architectural, environmental,
economic and other studies of the Property as Purchaser may, in its sole
discretion, deem desirable, and such other tests that Purchaser deems necessary
under the circumstances in connection with Purchaser’s due diligence activities,
including, without limitation, a non-intrusive Phase I environmental assessment
(provided that such Phase I shall not include any sampling, boring, drilling or
other physically intrusive testing into the structures or ground constituting
any portion of the Property).  Purchaser shall conduct, and ensure that each of
its agents, employees, contractors or representatives conducts, each such entry
in a manner that does not unreasonably interfere with the guests of the Property
or result in the filing of a mechanics’ lien against the Property (and Purchaser
shall cause any such mechanic’s lien to be removed of record within fifteen (15)
days following written notice from Seller); and Purchaser shall Indemnify Seller
with respect to any and all claims, damages, demands, penalties, causes of
action, liabilities, losses, costs (including reasonable attorneys’ fees and
other charges) or expenses (all of the foregoing, collectively, “Claims”)
relating to personal injury, property damage or mechanics liens caused by the
acts or omissions of Purchaser, or its agents, employees, contractors or
representatives in the course of any such entry or inspection of the Property,
other than Claims resulting from the gross negligence or willful misconduct of
Seller or Seller’s employees, contractors, officers or other agents or the mere
discovery or presence of any pre-existing Hazardous Substances or other property
condition.  The foregoing indemnity shall

 

14

 

survive Closing or any termination of this Agreement.  As used throughout this
Agreement, the term “Indemnify” means to hold harmless and indemnify an
indemnified party from and against a Claim and, where applicable, to defend such
party by counsel reasonably satisfactory to it, all at the sole expense and
liability of the indemnifying party.  Unless Seller agrees otherwise, before
Purchaser or its agents or representatives enter onto the Property for the
purpose of performing any physical test or investigation thereof, Purchaser
shall deliver to Seller a certificate of insurance, naming Seller as an
additional insured, evidencing commercial general liability insurance (including
property damage, bodily injury and death) with limits of at least $2,000,000
combined single limit per occurrence for bodily or personal injury or death and
at least $2,000,000 property damage per occurrence.

 

(b)  Purchaser shall have reasonable access to all documentation, agreements and
other information in the possession or control of Seller related to the Property
(and Seller shall request that Manager provide Purchaser with reasonable access
to all such documents that are in the possession of Manager to the extent Seller
is entitled to them pursuant to the terms of the Management Agreement) and shall
have the right to make copies of same, and Seller shall promptly provide to
Purchaser such other Property information as Purchaser may reasonably request,
in all events excluding (subject to Seller’s obligations in Section 6.10)
Seller’s internal proprietary memoranda, attorney-client privileged materials,
internal appraisals conducted by Seller, or reports regarding the Property
prepared by Seller or its affiliates for the information of the investors in
Seller, from time to time after the Contract Date.  Seller shall request that
Manager provide a list of all items or information owned by or proprietary to
Manager and located at the Hotel.

 

(c)  If, at any time during the Feasibility Period, in Purchaser’s sole and
absolute discretion, for any reason or no reason, Purchaser gives Seller written
notification that Purchaser elects not to consummate the purchase of the
Property in accordance with the terms of this Agreement (a “Termination
Notice”), this Agreement shall terminate, whereupon the Deposit shall be
returned to Purchaser, neither party shall have any further liability to the
other under this Agreement except for liabilities that expressly survive
termination of this Agreement, and upon request from Seller, Purchaser shall
immediately return or destroy all materials or information received from Seller
with respect to the Property or the transactions contemplated by this Agreement,
except as may be required to satisfy Purchaser’s document retention policies. 
If Purchaser does not deliver a Termination Notice prior to the expiration of
the Feasibility Period, Purchaser shall be deemed to have elected to consummate
the purchase of the Property in accordance with this Agreement, and the Deposit
shall become immediately non-refundable (subject to the express terms of this
Agreement).

 

6.7 Liquor License.  Manager currently holds the Liquor License.  Purchaser
shall purchase from Seller the alcoholic inventory for the Property, to the
extent transferable in compliance with applicable law.  The purchase price for
the alcoholic inventory is deemed included in the Purchase Price and no
additional purchase price shall be required to be paid for the alcoholic
inventory.  Notwithstanding any other provision of this Agreement, the alcoholic
inventory shall be sold and transferred to Purchaser only in such manner as
complies with applicable law and the terms of the Liquor License.  In no event
shall there be reduction in the Purchase Price or a proration or credit in
Purchaser’s favor if, as of the Closing, the alcoholic

 

15

 

inventory is not able to be sold and transferred in a manner compliant with
applicable law and the terms of the Liquor License.

 

6.8 Management Agreement.  Purchaser acknowledges that the Hotel is currently
subject to the Management Agreement.  At Purchaser’s sole cost and expense
(including, without limitation, any application, transfer, termination or other
fees chargeable (excluding any amounts having accrued prior to Closing) and any
costs incurred in connection with the satisfaction and/or compliance with any
property improvement plan required by Manager in connection with Purchaser’s
assumption of the Management Agreement), Purchaser shall assume all obligations
of Seller arising and accruing from and after the Closing under the Management
Agreement.  Seller shall reasonably cooperate with Purchaser in obtaining
written consent from Manager to the assignment by Seller and/or its affiliate RC
SF Lessee LLC, a Delaware limited liability company (“Operating Tenant”), and
assumption by Purchaser (or its nominee) of the Management Agreement, including
with respect to the satisfaction of any conditions to such assignment and
assumption imposed by Manager, and which consent, it is hereby agreed, must
include a full release of Seller and Operating Tenant for any liabilities to the
extent first arising and accruing from and after Closing that is reasonably
acceptable to Seller and Manager and a termination of that certain Owner
Agreement dated as of June 28, 2013 by and between Manager and Owner relating to
the Management Agreement (such, consent, including such release as is reasonably
acceptable to Seller and Manager, the “Manager Consent”).  It shall be a
condition to Closing that Manager shall have delivered the Manager Consent.  If
Manager grants the Manager Consent, Purchaser shall deliver an original executed
counterpart of the Manager Consent to Seller at or before Closing, and the
parties will execute and deliver at Closing an assignment and assumption of the
Management Agreement, in the form reasonably acceptable to Purchaser and Manager
(the “Assignment of Management Agreement”) pursuant to which Seller or Operating
Tenant will assign, and Purchaser will assume, all obligations of Seller and/or
Operating Tenant to the extent first arising and accruing from and after the
Closing under the Management Agreement.  Prior to Closing, Seller shall use
commercially reasonable efforts to cause Manager to deliver to Seller and
Purchaser an estoppel certificate in the form attached hereto as Exhibit 6.8
(the “Management Agreement Estoppel Certificate”), dated on or prior to the
Closing Date (but not more than thirty (30) days prior thereto).  Purchaser
shall Indemnify Seller and Operating Tenant from and against any and all claims
incurred by Seller and Operating Tenant to the extent first arising and accruing
under the Management Agreement after Closing. The obligations of Seller and
Purchaser contained in this Section 6.8 shall survive Closing.

 

6.9 WARN Act and Employees.  (a) Purchaser shall (or shall use commercially
reasonable efforts to cause Manager to) refrain, concurrently with and for a
period of ninety (90) days after the Closing, from terminating employees in a
manner that would trigger a notice obligation under the Worker’s Adjustment and
Retraining Notification Act of 1988, 29 U.S.C. § 2101, et seq., and any similar
state and local laws, as amended from time to time, and any regulations,
rules and guidance issued pursuant thereto (the “WARN Act”).  Purchaser shall
Indemnify Seller from and against any Claims under the WARN Act with respect to
the Hotel employees with respect to actions that occur post-Closing. 
Purchaser’s indemnity set forth in this Section 6.9 shall survive Closing for
the applicable statute of limitations period.

 

16

 

(b)        Seller has provided to Purchaser a list of positions for Manager
employees at the Property who have experienced an employment loss or layoff
within ninety (90) days prior to the Contract Date and Seller shall request that
Manager update the list prior to the Closing Date.  Seller shall Indemnify
Purchaser from and against any Claims under the WARN Act with respect to the
Hotel employees with respect to actions that occur prior to Closing. Seller’s
indemnity set forth in this Section 6.9 shall survive Closing for the applicable
statute of limitations period.

 

6.10     3-05 Audit.  At Purchaser’s request, Seller agrees to promptly deliver
to RSM US LLP the audited financial statements of RC SF Mezz Borrower LLC (the
parent of Seller) and RC SF Mezz Lessee LLC (the parent of Operating Tenant) for
the years 2013, 2014, 2015, and, when completed, 2016 such that RSM US LLP may
complete the audit of the financial statements of Seller in compliance with
Rule 3-05 of Regulation S-X of the Securities and Exchange Commission. Seller
shall engage (at Purchaser’s sole cost and expense) RSM US LLP to commence such
required audit and shall promptly deliver, solely to the extent in Seller’s
possession or control, or to use commercially reasonable efforts to cause
Manager to promptly deliver, solely to the extent in Manager’s possession or
control, to RSM US LLP all documents and financial information that RSM US LLP
reasonably requires to complete the audit of the financial statements of Seller
to prepare and audit financial statements of Seller in compliance with Rule 3-05
of Regulation S-X of the Securities and Exchange Commission.
Exhibit 6.10(A) attached hereto is a list of documents and financial information
that may be required by RSM US LLP to complete such audit.  Seller shall engage
(at Purchaser’s sole cost and expense) RSM US LLP to commence such required
audit at Purchaser’s request, but not prior to the expiration of the Feasibility
Period (if this Agreement has not been terminated), provided that the completion
of such audit shall not be a condition precedent to Closing hereunder.  In
connection with the foregoing audit, and in furtherance of Seller’s obligations
to assist Purchaser pursuant to this Section 6.10, Seller covenants and agrees
to execute and deliver to RSM US LLP an audit representation letter, the form of
which is attached hereto as Exhibit 6.10(B).  Seller’s obligations under this
Section 6.10 shall survive the Closing for a period of twenty-four (24) months.

 

6.11     Contracts.  At Closing, Purchaser shall assume all Contracts and
Equipment Leases that are listed on Exhibit 3.7 and Exhibit 3.8, respectively,
provided that Purchaser has requested that Seller terminate, or request that
Manager terminate, those Contracts and Equipment Leases identified on
Exhibit 3.7-A and Exhibit 3.8-A.  To the extent that the Contracts and Equipment
Leases identified on Exhibit 3.7-A and Exhibit 3.8-A, respectively, are
terminable by their respective terms and may be terminated without Manager’s
consent pursuant to the Management Agreement, Seller shall promptly give notices
of termination (to be effective only in the event that Closing actually occurs)
to the appropriate counterparties, which terminations shall be at Purchaser’s
sole cost and expense.  All Contracts and Equipment Leases which are not
terminated effective upon Closing pursuant to the immediately preceding sentence
shall be referred to herein as “Assumed Contracts” and “Assumed Equipment
Leases”, respectively.

 

6.12     Estoppels.  Seller shall use commercially reasonable efforts (which in
no event shall require the payment of any fee or similar amount by Seller) to
cause to be delivered to Purchaser at or prior to Closing an executed estoppel
certificate (each estoppel in clause (a) – (d) 

 

17

 

of this Section 6.12, an “Estoppel” and, collectively, the “Estoppels”; and each
estoppel in clause (a) and (b) of this Section 6.12, a “Material Estoppel” and,
collectively, the “Material Estoppels”) from each of (a) Spa Tenant under the
Spa Agreement, substantially in the form attached hereto as Exhibit 6.12(A);
(b) Parking Operator under the Parking Agreement, substantially in the form
attached hereto as Exhibit 6.12(B); (c) Jewelry Tenant under the Jewelry Lease,
substantially in the form attached hereto as Exhibit 6.12(C); (d) Wine Tenant
under the Wine Lease, substantially in the form attached hereto as
Exhibit 6.12(D); (e) ATT under the ATT Lease, substantially in the form attached
hereto as Exhibit 6.12(E); and (f) Verizon under the Verizon Antennae Lease,
substantially in the form attached hereto as Exhibit 6.12(F).  As used herein:
“Spa Tenant” means, collectively, Love of Spa – RC SFO LLC, a Delaware limited
liability company, and Sanghvi Brands US Holdings Inc., a Delaware corporation;
“Spa Agreement” means that certain Spa Concession Agreement dated as of
December 9, 2015 by and between Operating Tenant and Spa Tenant, as amended;
“Parking Operator” means Mile Hi Valet Service, Inc., a Colorado corporation;
“Parking Agreement” means that certain Valet Parking Service Agreement dated as
of July 11, 2014 by and between Seller and Parking Operator, as assigned to
Operating Tenant; “Jewelry Tenant” means Wellendorff North America Inc., a
Nevada corporation; “Jewelry Lease” means that certain Retail Lease dated as of
October 28, 2015 by and between Manager (as manager for Operating Tenant) and
Wine Tenant; “Wine Tenant” means Wheeler Winery, Inc., a California corporation;
“Wine Lease” means that certain Retail Lease dated as of December 1, 2014 by and
between Manager (as manager for Operating Tenant) and Wine Tenant; “ATT” means
New Cingular Wireless PCS, LLC, a Delaware limited liability company; “ATT
Lease” means that certain In Building Radio Distribution Agreement dated as of
March 26, 2014 by and between Operating Tenant and ATT; “Verizon” means GTE
Mobilnet of California Limited Partnership, a California limited partnership;
and “Verizon Antennae Lease” means that certain Antenna License Agreement, dated
as of June 9, 1997 by and between Owner and Verizon, as amended.

 

6.13     Tax Clearance Letter.  From and after the Contract Date, Seller shall
cooperate with Purchaser in its efforts to obtain a “tax clearance” letter from
the California State Board of Equalization (“BOE”) for Seller. “Tax Clearance
Letter” shall mean (a) a “tax clearance” letter from the BOE showing that no
taxes are delinquent and unpaid for Seller under California Revenue Tax Code
Section 6811 through 6815, or (b) a notice of withholding from the BOE setting
forth the taxes that are due and payable for Seller under California Revenue Tax
Code Section 6811 through 6815.  The provisions of this Section 6.14 shall
survive Closing until such time as Purchaser receives a Tax Clearance Letter.

 

6.14     Environmental Notice.  No later than on the fifth (5th) Business Day
prior to Closing, Purchaser shall execute and deliver to Seller the notice to
the City and County of San Francisco required by Section 1.3(b) of the
Environmental Covenant in substantially the form attached hereto as Exhibit 6.14
(the “Environmental Notice”), and no later than on the third (3rd) Business Day
prior to Closing, Seller shall countersign the Environmental Notice and deliver
the fully executed Environmental Notice to the City in accordance with
Section 1.3(b) of the Environmental Covenant.  Purchaser acknowledges and agrees
that from and after Closing Purchaser shall be bound by the Environmental
Covenant in accordance with its terms.

 

18

 

Article VII
Conditions Precedent to Purchaser’s Obligations at Closing

 

In addition to any conditions set forth elsewhere in this Agreement for the
benefit of Purchaser, it shall be a condition to Purchaser’s obligation to
purchase the Property that each and every one of the following conditions shall
have been satisfied as of the Closing Date (or waived in writing by Purchaser).

 

7.1 Representations and Warranties.  Each of Seller’s representations and
warranties shall be true and complete in all material respects as if made on and
as of the Closing Date, as certified by an officer of Seller at Closing.

 

7.2 Covenants of Seller.  Seller shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed or complied with by Seller at or prior to Closing, including,
without limitation, delivery of the documents and items required by Section 9.1.

 

7.3 Title.  Subject only to payment of the Purchase Price and payment of the
applicable title premiums at Closing, the Title Company shall be unconditionally
and irrevocably committed to issue to Purchaser title insurance, in an amount at
least equal to the consideration set forth in the Deed and otherwise in
conformance with the Title Commitment, subject only to the Permitted Exceptions
and any exception taken by the Title Company resulting from Purchaser’s failure
to deliver an affidavit regarding brokers and/or a broker’s lien waiver.  In
addition to the foregoing, the financing statements listed on Exhibit 7.3 shall
have been terminated on or before the Closing Date.

 

7.4 Manager Consent.  Manager shall have issued the Manager Consent.

 

7.5 Management Agreement Estoppel Certificate.  Manager shall have executed and
delivered the Management Agreement Estoppel Certificate, meeting the
requirements of Section 6.8.

 

7.6 Material Estoppels.  Purchaser shall have received an executed copy of each
of the Material Estoppels, in accordance with the requirements of Section 6.12.

 

7.7 No Litigation.  No litigation or other court action shall have been
commenced seeking to obtain an injunction or other relief from such court to
enjoin the consummation of the transaction described in this Agreement and no
preliminary or permanent injunction or other order, decree or ruling shall have
been issued by a court of competent jurisdiction or by any governmental
authority, that would make illegal or invalid or otherwise prevent the
consummation of the transactions described in this Agreement.

 

7.8 Liquor License.  The Liquor License shall be in full force and effect.

 

7.9 Failure of Condition.  If any condition precedent set forth in this
Article VII is not satisfied as of the Closing Date (other than by reason of
Seller’s default in which case Purchaser

 

19

 

shall have its rights and remedies pursuant to Section 10.2), Purchaser, at its
sole election, may (a) terminate this Agreement (and receive a return of the
Deposit), (b) waive the condition and proceed to Closing or (c) extend the
Closing Date for such additional period of time, not to exceed thirty (30) days,
as may be reasonably required to allow Seller to satisfy such condition.

 

Article VIII
Conditions Precedent to Seller’s Obligations at Closing

 

In addition to any conditions set forth elsewhere in this Agreement for the
benefit of Seller, it shall be a condition to Seller’s obligation to sell the
Property that each and every one of the following conditions shall have been
satisfied as of the Closing Date (or waived in writing by Seller).

 

8.1 Representations and Warranties.  Each of Purchaser’s representations and
warranties shall be true and complete in all material respects as if made on and
as of the Closing Date, as certified by an officer of Purchaser at Closing.

 

8.2 Covenants of Purchaser.  Purchaser shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed or complied with by Purchaser at or prior to Closing.

 

8.3 Manager Consent.  Manager shall have issued the Manager Consent.

 

8.4 No Litigation.  No litigation or other court action shall have been
commenced seeking to obtain an injunction or other relief from such court to
enjoin the consummation of the transaction described in this Agreement and no
preliminary or permanent injunction or other order, decree or ruling shall have
been issued by a court of competent jurisdiction or by any governmental
authority, that would make illegal or invalid or otherwise prevent the
consummation of the transactions described in this Agreement.

 

8.5 Failure of Condition.  If any condition precedent set forth in this
Article VIII is not satisfied as of the Closing Date, Seller, at its sole
election, may (a) terminate this Agreement (and (i) for any Purchaser default,
keep the Deposit as and to the extent provided in Section 10.1, and (ii) for
failure of any other condition and in all other instances, the Deposit shall be
promptly returned to Purchaser), (b) waive the condition and proceed to Closing
or (c) extend the Closing Date for such additional period of time, not to exceed
thirty (30) days, as may be reasonably required to allow Purchaser to satisfy
such condition.

 

Article IX
Closing Deliveries

 

9.1 Seller’s Deliveries.  At Closing, Seller shall deliver to Purchaser, via
escrow with the Escrow Agent, the following documents (each dated as of the
Closing Date) and deliveries:

 

(a)  Deed.  A recordable grant deed in the form attached as
Exhibit 9.1(a) hereto (the “Deed”), executed by Seller.

 

20

 

(b)  Bill of Sale.  Two (2) executed counterparts of a bill of sale and
assignment and assumption of documents substantially in the form attached as
Exhibit 9.1(b) hereto (the “Bill of Sale”), together with a corresponding bill
of sale from Operating Tenant to Seller (as to Personal Property, licenses and
permits and other Property described in the Bill of Sale but owned by Operating
Tenant at such time).

 

(c)  Assignment of Leases and Contracts.  Two (2) executed counterparts of an
Assignment and Assumption of Leases and Contracts in the form of
Exhibit 9.1(c) attached hereto, assigning the Space Leases, Assumed Equipment
Leases and Assumed Contracts to Purchaser, with the assumption by Purchaser of
the liabilities and obligations thereunder to the extent first arising and
accruing from and after the Closing Date (the “Assignment of Leases and
Contracts”), together with a corresponding assignment from Operating Tenant to
Seller (as to Space Leases, Assumed Equipment Leases and Assumed Contracts to
which Operating Tenant is a party).

 

(d) Transfer Declarations.  Any separately required real estate transfer tax
declaration or similar documents required in connection with any tax imposed by
any governmental authority in connection with the transaction contemplated
hereunder, executed by Seller.

 

(e)  FIRPTA Certificate.  A certificate, in the form attached hereto as
Exhibit 9.1(e), executed by Seller.

 

(f)  593-C. A 2016 California Form 593-C or other evidence legally sufficient to
establish Purchaser is not required to withhold any portion of the Purchase
Price from Seller pursuant to the California Revenue Taxation Code, executed by
Seller.

 

(g)  Title Affidavit.  An owner’s title affidavit and gap indemnity, in
substantially the form attached hereto as Exhibit 9.1(g) executed by Seller.

 

(h)  Assignment and Assumption of Management Agreement. The Assignment of
Management Agreement, executed by Seller and Manager, including the Seller
release, pursuant to Section 6.8.

 

(i)   Terminations.  A recordable termination of that certain Lease Agreement
dated as of June 28, 2013, duly executed and acknowledged by Seller and
Operating Tenant.

 

(j)   Settlement Statement.  The Settlement Statement, executed by Seller.

 

(k)  Post-Closing Escrow Agreement.  The Post-Closing Escrow Agreement, executed
by Seller.

 

(l)   Reserve Agreement.  The Reserve Agreement, executed by Seller.

 

(m) Post-Closing Escrow Agreement (Litigation).  The Post-Closing Escrow
Agreement (Litigation), executed by Seller.

 

21

 

(n)  Title to Vehicles. A certificate or registration of title for any owned
vehicle in the Property which requires such certification or registration, duly
executed by Seller, conveying such vehicle to Purchaser;

 

(o)  Other Documents.  Such other documents and instruments as may be reasonably
requested by Purchaser or the Title Company to effectuate the transactions
contemplated by this Agreement or to induce the Title Company to insure title to
the Hotel as described herein.

 

9.2 Purchaser’s Deliveries.  At Closing, Purchaser shall deliver to Seller, via
escrow with the Escrow Agent (or, in the case of the funds described in
Section 9.2(a) below, the Funds Escrow Agent), the following documents (each
dated as of the Closing Date) and deliveries:

 

(a)  Purchase Price.  The Purchase Price, subject to the adjustments and
prorations set forth on the Settlement Statement, in the manner provided for in
this Agreement.

 

(b)  Bill of Sale.  Two (2) executed counterparts of the Bill of Sale.

 

(c)  Reserve Agreement.  Two (2) executed counterparts of the Reserve Agreement.

 

(d) Post-Closing Escrow Agreement (Litigation).  Two (2) executed counterparts
of the Post-Closing Escrow Agreement (Litigation).

 

(e)  Assignment of Leases and Contracts.  Two (2) executed counterparts of the
Assignment of Leases and Contracts.

 

(f)  Transfer Declarations.  Any separately required real estate transfer tax
declaration or similar documents required in connection with any tax imposed by
any governmental authority in connection with the transaction contemplated
hereunder executed by Purchaser.

 

(g)  Settlement Statement.  The Settlement Statement, executed by Purchaser.

 

(h)  Assignment of Management Agreement.  The Assignment of Management
Agreement, executed by Purchaser.

 

(i)   Post-Closing Escrow Agreement.  The Post-Closing Escrow Agreement,
executed by Purchaser.

 

(j)   Other Documents.  Such other documents and instruments as may be
reasonably required or requested by Seller or the Title Company to effectuate
the transactions contemplated by this Agreement and to induce the Title Company
to insure title to the Hotel as described herein.

 

9.3       Possession; Books and Records, Keys.  At Closing, Seller shall deliver
to Purchaser possession of the Property, together with all non-confidential
books and records in Seller’s possession, or which may be obtained from Manager,
in accordance with and subject to any privacy laws or regulations, necessary for
the operation of the Property, and all keys, including, without limitation, keys
for all security systems, rooms and offices.

 

22

 

Article X
Default

 

10.1     Purchaser’s Default.  (a)       If Purchaser fails to consummate the
purchase and sale contemplated herein in breach of this Agreement after all
conditions precedent to Purchaser’s obligation to do so have been satisfied or
waived by Purchaser, and if as a result of such failure Seller terminates this
Agreement, Funds Escrow Agent shall pay the Deposit to Seller in accordance with
the Escrow Instructions, as full and complete liquidated damages, and as the
exclusive and sole right and remedy of Seller, whereupon this Agreement shall
terminate, and neither party shall have any further obligations or liabilities
to the other party (except for such obligations and liabilities as expressly
survive the termination hereof).  IF THE CLOSING AND THE TRANSACTIONS
CONTEMPLATED HEREBY DO NOT OCCUR AS PROVIDED HEREIN BY REASON OF PURCHASER’S
FAILURE TO CLOSE WHEN OBLIGATED TO DO SO, PURCHASER AND SELLER AGREE IT WOULD BE
IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE DAMAGES WHICH SELLER MAY SUFFER. 
THEREFORE, PURCHASER AND SELLER HEREBY AGREE THE DEPOSIT IS A REASONABLE
ESTIMATE OF THE TOTAL NET DETRIMENT SELLER WOULD SUFFER IN THE EVENT PURCHASER
DEFAULTS AND FAILS TO COMPLETE THE PURCHASE OF THE PROPERTY.  NOTHING CONTAINED
HEREIN  SHALL  BE  DEEMED  TO  LIMIT  OR  OTHERWISE AFFECT  PURCHASER’S
INDEMNIFICATION OBLIGATIONS UNDER  THIS  AGREEMENT.

 

(b)        BY THEIR SEPARATELY INITIALING THIS SECTION 10.1(b) BELOW, SELLER AND
PURCHASER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTOOD THE ABOVE PROVISION
COVERING LIQUIDATED DAMAGES, AND THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO
EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS
AGREEMENT WAS EXECUTED.

 

BW

 

 

MGM

Seller’s Initials

Purchaser’s Initials

 

23

 

10.2     Seller’s Default.  If Seller breaches its representations, warranties,
covenants and/or agreements under this Agreement or has failed or is unable to
consummate the purchase and sale contemplated herein by the Closing Date,
Purchaser may either (a) waive such default in writing and proceed to Closing,
(b) within forty-five (45) days following the scheduled Closing Date, commence
an action for specific performance without offset to the Purchase Price, or
(c) terminate this Agreement, whereupon (i) the Funds Escrow Agent shall
promptly return the Deposit to Purchaser in accordance with the Escrow
Instructions, (ii) Seller shall reimburse Purchaser for third party
out-of-pocket costs and expenses incurred by Purchaser relating to this
transaction, including, without limitation, diligence costs, financing costs and
attorneys’ fees and costs, in an amount not to exceed Three Hundred Thousand
Dollars ($300,000) (iii) this Agreement shall terminate, and (iv) neither party
shall have any further rights or obligations under this Agreement except for
obligations that expressly survive termination.  Notwithstanding the foregoing,
nothing herein shall limit Purchaser’s right to seek recovery pursuant to
Section 14.14 (which recovery amounts shall not count towards or be subject to
the cap set forth in subsection (ii) of this Section 10.2).

 

Article XI
“AS IS” Sale; Survival; Indemnification Obligations; Post-Closing Obligations

 

11.1     AS IS.  PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE 
EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENTS EXECUTED AT CLOSING,
PURCHASER IS ACQUIRING THE PROPERTY AS-IS, WHERE-IS, AND WITH ALL FAULTS, AND
WITHOUT ANY WARRANTIES OF WHATSOEVER  NATURE,  EXPRESS  OR  IMPLIED,  IT  BEING 
THE  INTENTION  OF SELLER AND PURCHASER EXPRESSLY TO NEGATE AND EXCLUDE ALL
WARRANTIES NOT EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENTS
EXECUTED AT CLOSING, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, WARRANTIES CREATED BY
ANY AFFIRMATION OF FACT OR PROMISE OR BY ANY DESCRIPTION OF THE PROPERTY
CONVEYED HEREUNDER, OR BY ANY SAMPLE OR MODEL THEREOF (INCLUDING, WITHOUT
LIMITATION, ANY AND ALL WARRANTIES WHATSOEVER CONTAINED IN OR CREATED UNDER THE
UNIFORM COMMERCIAL CODE IN EFFECT IN ANY OTHER JURISDICTION WHOSE LAW MAY BE
APPLICABLE TO THE CONSTRUCTION OR ENFORCEMENT OF THIS AGREEMENT OR ANY AND ALL
INSTRUMENTS CONTEMPLATED HEREIN).  WITHOUT LIMITING SELLER’S REPRESENTATIONS,
WARRANTIES AND COVENANTS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY
DOCUMENTS EXECUTED AT CLOSING, PURCHASER WILL BE ACQUIRING THE PROPERTY SOLELY
IN RELIANCE ON PURCHASER’S OWN INSPECTIONS,  EXAMINATIONS, AND EVALUATIONS OF
THE PROPERTY AND PRIOR TO TAKING TITLE TO THE PROPERTY, PURCHASER SHALL HAVE HAD
THE OPPORTUNITY TO DETERMINE WHETHER PURCHASER IS SATISFIED WITH THE CONDITION,
QUALITY, QUANTITY, OPERATION, STATE OF REPAIR, AND PROSPECTS OF THE PROPERTY IN
ALL RESPECTS, AND PURCHASER SHALL HAVE  DECIDED THAT

 

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PURCHASER IS WILLING TO ACQUIRE THE PROPERTY “AS-IS, WHERE-IS”, AND WITH ALL
FAULTS.  PURCHASER AGREES AND ACKNOWLEDGES THAT, EXCEPT FOR SELLER’S EXPRESS
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENTS
EXECUTED AT CLOSING, NO OTHER REPRESENTATIONS, STATEMENTS OR WARRANTIES HAVE AT
ANY TIME BEEN MADE BY SELLER, OR ANY OF SELLER’S RESPECTIVE AGENTS, AS TO THE
PHYSICAL CONDITION, QUALITY, QUANTITY OR STATE OF REPAIR OF THE PROPERTY, OR AS
TO THE CONDITION, QUALITY, QUANTITY, OPERATION, STATE OF REPAIR, OR PROSPECTS
FOR THE PROPERTY IN ANY RESPECT.

 

PURCHASER ACKNOWLEDGES THAT IT HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.”

 

BEING AWARE OF SAID CODE SECTION, PURCHASER EXPRESSLY WAIVES ANY RIGHTS IT
MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES, COMMON LAW PRINCIPLES
OR OTHER LEGAL REQUIREMENTS OF SIMILAR EFFECT.

 

11.2     Survival and Limitations.  Except as otherwise expressly provided in
this Agreement, Seller’s and Purchaser’s representations and warranties
expressly set forth in Articles III and IV hereof, respectively, Seller’s and
Purchaser’s indemnification obligations expressly set forth in Section 11.4
hereof (except with respect to Litigation Claims (as defined below)),
respectively, and all other covenants and agreements of Seller (except with
respect to Litigation Claims) shall survive the Closing for a period of nine
(9) months (the “Survival Period”) and shall not be deemed to have merged into
any of the documents delivered at Closing.  Any Claim (except with respect to
Litigation Claims) by Purchaser of a breach of any representation, warranty,
covenant or agreement of Seller set forth in this Agreement, and any right of
Purchaser to have Seller Indemnify Purchaser for a Claim pursuant to
Section 11.4 hereof (except as otherwise expressly provided herein and expressly
excluding Litigation Claims) (each such Claim, but expressly excluding
Litigation Claims, a “Purchaser Claim”) shall at all times and in all events be
subject to and limited by the following:

 

(a)  Purchaser shall have delivered to Seller written notice claiming such
breach, and stating in reasonable detail the factual basis for such Purchaser
Claim (a “Claim Notice”), prior to the expiration of the Survival Period.

 

(b)  Purchaser’s damages resulting from Purchaser Claims must exceed an amount
equal to Seventy-Five Thousand Dollars ($75,000) (the “Claim Threshold”) in the
aggregate, and, in the event Purchaser’s aggregate damages exceed such amount,
then subject to the limitations set

 

25

 

forth in Sections 11.2(c) and 11.4(b) below, Purchaser shall be entitled to
recover from Seller the total amount of such damages (i.e., from the first
dollar).

 

(c)  Notwithstanding anything contained in this Agreement to the contrary,
except for fraud or willful misconduct on the part of Seller, in no event shall
(i) Seller have any liability for a Purchaser Claim after Closing if, prior to
Closing, Purchaser has Knowledge (as described in Section 11.3 below) of any
fact or circumstance which makes such representation or warranty untrue or of
any breach of any other covenant or agreement and nonetheless elects to proceed
with the Closing, or (ii) Seller’s aggregate liability in respect of all
Purchaser Claims exceeds an amount equal to Five Million Dollars ($5,000,000)
(the “Post-Closing Cap”).  In no event shall Seller be obligated to make a
payment to Purchaser for any Purchaser Claim to the extent Purchaser has
received insurance proceeds or has made a damage recovery against a third party
for such Purchaser Claim; provided, that if Purchaser shall receive any such
insurance or other third-party proceeds relating to a Purchaser Claim following
receipt of payment by Seller with respect to such Purchaser Claim, then
Purchaser shall promptly remit such insurance or third-party proceeds directly
to Seller.  In no event shall Purchaser have any liability for a Seller Claim
after Closing if, prior to Closing, Seller has Knowledge of any fact or
circumstance which makes a Purchaser representation or warranty untrue or of any
breach of any other covenant or agreement by Purchaser and nonetheless elects to
proceed with the Closing.  Notwithstanding the foregoing, the Claim Threshold
and the Post-Closing Cap shall not apply to Seller’s obligations in
Section 13.1(c) and Section 14.12.

 

(d) As security for any Purchaser Claim, Seller shall deliver to Funds Escrow
Agent at Closing cash in the amount of Five Million Dollars ($5,000,000)
(together with any and all interest earned thereon, the “Post-Closing Escrow
Funds”).  The Post-Closing Escrow Funds shall be held by the Funds Escrow Agent,
in escrow, in accordance with the terms and provisions of an escrow agreement to
be entered into at Closing by and among Seller, Purchaser and Funds Escrow
Agent, in form attached to this Agreement as Exhibit 11.2(d) (the “Post-Closing
Escrow Agreement”).  The Post-Closing Escrow Funds shall be held by Funds Escrow
Agent in escrow until the expiration of the Survival Period, subject to the
Post-Closing Escrow Agreement; provided that if Purchaser shall deliver a Claim
Notice within the Survival Period, (i) Funds Escrow Agent shall continue to hold
in escrow an amount equal to the amount claimed by Purchaser until the earlier
of (A) Seller’s cure of such breach as provided for in the Claim Notice to
Purchaser’s reasonable satisfaction, (B) the date Seller and Purchaser settle by
mutual written agreement the claim made by Purchaser and delivered to Funds
Escrow Agent, (C) the date a final judgment is entered by a court of competent
jurisdiction in favor of Purchaser against Seller directing the payment of the
amount set forth therein (but not more than the Post-Closing Escrow Funds
required to be held by Funds Escrow Agent) to Purchaser, a copy of which shall
be delivered to Funds Escrow Agent by Purchaser, or (D) the date a final
judgment is entered by a court of competent jurisdiction in favor of Seller
against Purchaser (in which event Funds Escrow Agent may release the remaining
Post-Closing Escrow Funds); and (ii) Funds Escrow Agent may release to Seller
from the Post-Closing Escrow Funds any and all amounts in excess of the
claim(s) timely made by Purchaser.  At the Closing, Seller may direct that a
portion of the Purchase Price be used for the funding of the Post-Closing Escrow
Funds.

 

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(e)  Purchaser hereby acknowledges and agrees that if the Closing occurs under
this Agreement, then Purchaser’s remedies set forth in this Section 11.2 and in
Section 11.4 hereof, and subject in all events to the limitations and
restrictions set forth in this Article XI, shall be Purchaser’s sole and
exclusive remedies against Seller for any breach or default or alleged breach or
default by Seller under this Agreement or in connection with any matter related
to the transactions contemplated under this Agreement or any indemnification
therefor, and that in no event shall Purchaser have the right to initiate any
other action or remedy against Seller in connection with this Agreement or in
connection with any matter related to the transactions contemplated under this
Agreement.  Notwithstanding the foregoing, nothing herein shall limit
Purchaser’s right to seek recovery pursuant to Section 14.14 (which recovery
amounts shall not count towards or be subject to the Post-Closing Cap).

 

11.3     Purchaser’s Knowledge.  If Purchaser has Knowledge of a breach of any
representation or warranty made by Seller in this Agreement prior to the
Closing, and Purchaser nevertheless elects to proceed to Closing hereunder, such
representation or warranty by Seller shall be deemed to be qualified or modified
to reflect Purchaser’s Knowledge of such breach and Seller shall have no
liability to Purchaser in connection with such breach following Closing.  As
used in this Agreement, “to the best of Purchaser’s Knowledge”, “to the
Knowledge of Purchaser”, “known to Purchaser” or “to Purchaser’s Knowledge” (or
words of similar meaning) shall mean to the actual, present knowledge of Gil
Murillo or Adam Hickman.

 

Purchaser shall also be deemed to have “Knowledge” of the following:  (a) the
contents of all of the due diligence materials provided to Purchaser on Seller’s
online data room hosted at http://dataroom.hwehotels.com/room.php?id=1139 (the
“Dataroom”) as of the Contract Date, (b) for purposes of determining Purchaser’s
Knowledge in the context of any breaches alleged prior to Closing, the contents
of all of the due diligence materials posted to the Dataroom as of the date that
is five (5) Business Days prior to the expiration of the Feasibility Period,
(c) the contents of all third party reports obtained by Purchaser, (d) all
Schedules to this Agreement and (e) for purposes of determining Purchaser’s
Knowledge for any breaches alleged following Closing, all updates to the
Dataroom through the day that is five (5) Business Days prior to the Closing
Date.  From and after the Contract Date, Seller shall provide email
notifications to Derek Roth, Myles Blau, Gil Murillo and Adam Hickman of all due
diligence materials posted to the Dataroom each time such materials are uploaded
as well as the location where such materials are stored on the Dataroom.

 

11.4     Indemnification.

 

(a)  Agreement to Indemnify.  Notwithstanding any provisions of this Agreement
to the contrary, but in all events subject to the limitations otherwise set
forth in Article XI hereof, from and after Closing, (i) Seller shall hold
harmless, indemnify and defend Purchaser against any and all obligations,
claims, losses, damages, liabilities and expenses (including reasonable
attorneys’ fees and other charges) arising out of (A) the material inaccuracy of
any representation or warranty of Seller herein, (B) the failure of Seller to
perform any of its obligations hereunder in any material respect, (C) Claims
asserted by third-parties relating to damage to property or injury to or death
of any person occurring on or about the Property or any portion thereof during
the period of Seller’s ownership of the Hotel, and (D) Claims asserted by
Manager against “Owner”

 

27

 

under the Management Agreement which are established to be related to acts,
events or omissions that occurred during the period of Seller’s ownership of the
Hotel (provided, however, that in no event shall Seller’s obligations under this
Section 11.4(a) apply to any matters arising out of or in connection with the
Robinson Case or the Barraza Case (each as defined below)), and (ii) Purchaser
shall hold harmless, indemnify and defend Seller against any and all
obligations, claims, losses, damages, liabilities and expenses (including,
without limitation, reasonable attorneys’ fees and other charges) arising out of
(A) the material inaccuracy of any representation or warranty of Purchaser
herein, (B) the failure of Purchaser to perform any of its obligations hereunder
in any material respect, or (C) Claims asserted by third parties relating to in
connection with events relating to damage to property or injury to or death of
any person occurring on or about the Property or any portion thereof during the
period of Purchaser’s ownership of the Hotel (the “Seller Claims”).

 

(b)  Notice and Cooperation on Indemnification.  Whenever either party shall
learn through the filing of a Purchaser Claim or Seller Claim, as the case may
be, that the other party is or may be responsible under this Agreement, the
party learning of such liability shall notify the other party promptly and
furnish such copies of documents (and make originals thereof available) and such
other information as such party may have that may be used or useful in the
defense of such claims and shall afford said other party full opportunity to
defend the same in the name of the notifying party and generally shall cooperate
with said other party in the defense of any such claim.  Upon receipt of such
notice of possible liability, the party obligated to provide indemnity shall
have the right to provide a written notice to the party entitled to indemnity
that the indemnifying party elects to assume the defense of such matter,
including, without limitation, the employment of counsel reasonably satisfactory
to the indemnified party; whereupon the indemnifying party shall have the right
to prosecute such defense and shall be responsible for the payment of the fees
and disbursements of such counsel; provided, however, if in the reasonable
judgment of the indemnified party, (i) such litigation, action, suit, demand,
claim or the resolution thereof, would have a material adverse effect on the
indemnified party, or (ii) the indemnifying party shall have a conflict of
interest in defending such action on the indemnified party’s behalf, then at the
indemnified party’s election, the indemnified party may defend itself, and in
either of such instances it shall be at the indemnifying party’s expense;
provided, however, that the indemnifying party shall be responsible for the
reasonable fees of no more than one counsel in each jurisdiction in each
proceeding.  The failure of an indemnified party to provide prompt notice of a
Purchaser Claim or a Seller Claim to the indemnifying party pursuant to the
first sentence of this Section 11.4(b) shall not relieve the indemnifying party
of its obligation to Indemnify the indemnified party hereunder, except to the
extent that such failure materially prejudices the indemnifying party’s ability
to conduct such Indemnification, and except to the extent such failure
materially increases the amount of the applicable Purchaser Claim or Seller
Claim.

 

11.5     Litigation Claims.

 

(a)        As used herein:

 

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(i)       “Robinson Case” means that certain legal proceeding instituted by Mark
Robinson, as plaintiff, in the Superior Court of California County of San
Francisco, case number CGC 15-546585, filed on or about June 29, 2015;

 

(ii)      “Litigation Period” shall mean the period commencing on the Closing
Date and continuing until ten (10) days after a full and final resolution of all
the claims in the Robinson Case with no further right to appeal or seek review,
including, without limitation, the occurrence of any of the following after an
Early Distribution Event: (A) the failure to timely file a petition for review
in the California Supreme Court, (B) the California Supreme court denying a
petition for review, or (C) the California Supreme Court failing to issue review
on its own motion;

 

(iii)     “Early Distribution Event” shall mean the California Court of Appeal
issues a decision in the Robinson Case that becomes final as to that Court with
no further proceedings required in the California Superior Court; and

 

(iv)     “Barraza Case” means that certain legal proceeding instituted by
Claudia Barraza, as plaintiff, in the Superior Court of California County of Los
Angeles, case number BC615299, filed on or about March 29, 2016.

 

(b)      Seller’s obligations with respect to the Robinson Case in this
Section 11.5 and in Section 11.6 shall survive the Closing until the expiration
of the Litigation Period (and the additional period contemplated by
Section 11.5(b)(ii) with respect to any unresolved Litigation Claim Notices) and
shall not be deemed to have merged into any of the documents delivered at
Closing.  Notwithstanding anything to the contrary herein, any right of
Purchaser to have Seller Indemnify Purchaser for a Claim pursuant to
Section 11.6 hereof (each such Claim, a “Litigation Claim”), shall at all times
and in all events be subject to and limited by the following:

 

(i)       Purchaser shall have delivered to Seller written notice claiming such
right to have Seller Indemnify Purchaser, and stating in reasonable detail the
factual basis for such Litigation Claim (a “Litigation Claim Notice”), prior to
the expiration of the Litigation Period.

 

(ii)      As security for any Litigation Claim other than (unless Purchaser
otherwise elects or consents thereto in writing) for payment of the fees, costs
and expenses of counsel hired by Manager to defend against the claims asserted
in the Robinson Case (the “Defendant Legal Costs”), Seller shall deliver to
Funds Escrow Agent at Closing cash in the amount of Eight Million Dollars
($8,000,000) (together with any and all interest earned thereon, the
“Post-Closing Escrow (Litigation) Funds”).  The Post-Closing Escrow (Litigation)
Funds shall be held by the Funds Escrow Agent, in escrow, in accordance with the
terms and provisions of an escrow agreement to be entered into at Closing by and
among Seller, Purchaser and Funds Escrow Agent, in form attached to this
Agreement as Exhibit 11.5(b)(ii) (the “Post-Closing Escrow Agreement
(Litigation)”); provided, however, that upon any Early Distribution Event, the
Post-Closing Escrow (Litigation) Funds shall be reduced by $3,000,000 less the
sum of (i) the amount of any Litigation Claim made prior to such

 

29

 

Early Distribution Event that remains outstanding, and (ii) any amounts
previously released to Purchaser from the Post-Closing Escrow (Litigation)
Funds.  The Post-Closing Escrow (Litigation) Funds shall be used for all
Litigation Claims other than Defendant Legal Costs; provided, however, that upon
the expiration of the Litigation Period or upon any Early Distribution Event, to
the extent that any Defendant Legal Costs have not been paid, such fees shall be
paid from the applicable Post-Closing Escrow (Litigation) Funds being released
to Seller, prior to such release.  The balance of the Post-Closing Escrow
(Litigation) Funds shall be held by Funds Escrow Agent in escrow until the
expiration of the Litigation Period, subject to the Post-Closing Escrow
Agreement (Litigation); provided that if Purchaser shall deliver a Litigation
Claim Notice within the Litigation Period, (i) Funds Escrow Agent shall continue
to hold in escrow an amount equal to the amount claimed by Purchaser until the
earlier of (A) Seller’s satisfaction of its indemnification obligation as
provided for in the Litigation Claim Notice to Purchaser’s reasonable
satisfaction, (B) the date Seller and Purchaser settle by mutual written
agreement the claim made by Purchaser and delivered to Funds Escrow Agent,
(C) the date a final judgment is entered by a court of competent jurisdiction in
favor of Purchaser against Seller directing the payment of the amount set forth
therein (but not more than the Post-Closing Escrow (Litigation) Funds required
to be held by Funds Escrow Agent) to Purchaser, a copy of which shall be
delivered to Funds Escrow Agent by Purchaser, or (D) the date a final judgment
is entered by a court of competent jurisdiction in favor of Seller against
Purchaser (in which event Funds Escrow Agent may release the remaining
Post-Closing Escrow (Litigation) Funds); and (ii) Funds Escrow Agent may release
to Seller from the Post-Closing Escrow (Litigation) Funds any and all amounts in
excess of the claim(s) timely made by Purchaser.  At the Closing, Seller may
direct that a portion of the Purchase Price be used for the funding of the
Post-Closing Escrow (Litigation) Funds.

 

(iii)     For the avoidance of doubt, Litigation Claims (including, without
limitation, to the extent arising pursuant to a claim by Manager under the
Management Agreement), are not subject to the Claim Threshold, the Survival
Period or the Post-Closing Cap; provided, however, that Seller’s only liability
to Purchaser with respect to Litigation Claims shall be the disbursement of the
Post-Closing Escrow (Litigation) Funds in accordance with the terms of this
Agreement and the Post-Closing Escrow Agreement (Litigation), and the payment of
Defendant Legal Costs in accordance with the terms of this Agreement.

 

(iv)     As security for Seller’s indemnity obligation pursuant to
Section 11.6(a) hereof to pay all Defendant Legal Costs from and after the
Closing Date through and including the Litigation Period (and the additional
period contemplated by Section 11.5(b)(ii) with respect to any unresolved
Litigation Claim Notices), Seller hereby agrees to establish at Closing a cash
reserve in a bank account in its own name in an amount equal to $250,000 (such
cash reserve to be used during the Litigation Period only for Defendant Legal
Costs and costs relating to maintaining Seller in existence).  Purchaser agrees
Seller shall have the right to arrange with Manager for the direct payment of
Defendant Legal Costs by Seller from time to time.

 

30

 

(v)      Notwithstanding the foregoing, nothing herein shall limit Purchaser’s
right to seek recovery pursuant to Section 14.14 in connection with any failure
by Seller to fulfill its obligations in this Section 11.5 and Section 11.6.

 

11.6     Litigation Indemnification.

 

(a)  Agreement to Indemnify.  Notwithstanding any provisions of this Agreement
to the contrary, but in all events subject to the limitations otherwise set
forth in Section 11.5 hereof, from and after Closing, Seller shall hold
harmless, indemnify and defend Purchaser against (A) the amount of any judgment
against defendant in, or the amount of any sum payable by defendant in order to
settle, the Robinson Case to the extent directly or indirectly paid by Purchaser
(including, without limitation, to the extent arising pursuant to a claim by
Manager under the Management Agreement) and (B) all Defendant Legal Costs, but
in all events excluding (i) any and all amounts arising from any litigation
other than the Robinson Case, (ii) such amounts to the extent applicable to
revenue earned by Purchaser from and after Closing (e.g., if banquet revenue
that Purchaser receives after Closing is required to be forfeited, Seller shall
not be responsible for the same), including interest and penalties that accrue
after Closing with respect to such amounts, and (iii) legal fees, costs and
expenses incurred by Purchaser for its own counsel with respect to the Robinson
Case (as distinct from Defendant Legal Costs).  For the avoidance of doubt,
however, (I) Seller shall be responsible for all interest and penalties accruing
with respect to revenue earned prior to the Closing, including interest and
penalties that accrue after Closing with respect to such amounts, and
(II) Seller shall be responsible for all Defendant Legal Costs, whether
occurring before or after the Closing.

 

(b)  Notice and Cooperation on Indemnification.  The provisions of
Section 11.4(b) shall apply to Litigation Claims, mutatis mutandis.

 

11.7     Barraza Case.  Purchaser’s rights with respect to the Barraza Case
shall be as set forth in the Reserve Agreement and shall survive Closing in
accordance therewith.

 

11.8     Survival of Article.  The provisions of this Article XI shall survive
the Closing for the Survival Period.

 

Article XII
Casualty or Condemnation

 

12.1     Notice to Purchaser.  Seller agrees to give Purchaser prompt notice of
any fire or other casualty occurring at the Hotel between the Contract Date and
the Closing Date; provided, however, that Seller shall not be deemed to be in
default under this Section 12.1 for failure to report minor incidents causing
insignificant damage.

 

12.2     Condemnation, Casualty or Litigation.  If, prior to Closing,
(a) condemnation proceedings or similar proceedings are commenced against all or
any material portion of the Property, or (b) a material fire or other casualty
occurs, Purchaser shall have the right, upon notice in writing to Seller
delivered within ten (10) days after actual notice of such condemnation, fire or
other casualty, to terminate this Agreement.  Upon such termination, the

 

31

 

Deposit shall be returned immediately to Purchaser, and neither party shall have
any further liability to the other hereunder except for obligations that
expressly survive termination of this Agreement.  If the Property is so
condemned or damaged but this Agreement is not terminated, the Purchase Price
shall not be reduced, but Purchaser shall be entitled to an assignment of all of
Seller’s share of the condemnation award or the proceeds of any fire or other
casualty insurance plus a credit against the Purchase Price in the amount of any
deductible under such insurance that has not been applied to the restoration or
repair of such damage, and all business interruption insurance proceeds (if any)
payable with respect to the Property relating to the period on and after
Closing, and Seller shall have no obligation to repair or restore the Property. 
As used herein with respect to a condemnation, the term “material” means a
condemnation or similar event as a result of which (i) the amount of the
condemnation award or purchase price, as the case may be, exceeds or is likely
to exceed $2,500,000, or (ii) the number of available parking spaces at the
Property will be reduced, or (iii) access to the Property will be altered or
modified such that the Property will not be usable for its intended purpose (or
interference with such use will occur) to the same extent as existed prior to
the condemnation, in whole or in part, or (iv) the Property will be rendered
non-compliant with applicable law, or (v) any of the Improvements on the
Property are condemned. As used herein with respect to a casualty, the term
“material” means a casualty as a result of which the cost of repair is
reasonably estimated to exceed $2,500,000. If a casualty to any part of the
Property has occurred and Purchaser is required or elects to complete the
purchase of the Property, Seller shall reasonably cooperate with Purchaser in
prosecuting all insurance claims assigned to Purchaser at Closing.  This
Section 12.2 shall survive the Closing.

 

12.3     Risk of Loss.  Subject to the provisions of this Article XII, the risk
of loss or damage to the Property shall remain with Seller until the Closing.

 

Article XIII
Prorations and Expenses

 

13.1     Prorations Generally.  The items of revenue and expense set forth in
this Section 13.1 shall be prorated between Seller and Purchaser (the
“Prorations”) as of 11:59 p.m. local time on the day immediately preceding the
Closing Date (the “Proration Time”), or such other time expressly provided in
this Section 13.1, so that the Closing Date is a day of income and expense for
Purchaser.  Seller and Purchaser shall receive debits and credits against the
Purchase Price pursuant to this Article XIII.  In the case of any adjustment to
be made at Closing, the Purchase Price payable pursuant to Section 2.1 shall be
increased or decreased to reflect such adjustment.

 

(a)  Income and Expenses.  Except as otherwise expressly set forth in this
Article XIII, all items of income and expense of the Property (including,
without limitation, base and incentive management fees under the Management
Agreement) with respect to the period prior to the Proration Time shall be for
the account of Seller, and all items of income and expense of the Hotel with
respect to the period after the Proration Time shall be for the account of
Purchaser.  Except as otherwise expressly set forth in this Article XIII, all
prorations shall be on an accrual basis in accordance with generally accepted
accounting principles.

 

32

 

(b)  Settlement Statement.  All income and expenses described in this
Article XIII that can be determined or estimated on the Closing Date shall be so
determined or estimated by Purchaser and Seller in good faith based on a final
night audit performed, and shall be set forth on a settlement
statement (“Settlement Statement”) executed by Seller and Purchaser at Closing.

 

(c)  Post-Closing True-up.  Except as provided below, on the date which is one
hundred twenty (120) days following the Closing, Seller and Purchaser shall make
a final determination of the prorations required hereunder (the “True-up”), and
within ten (10) Business Days of the True-up, Seller or Purchaser, as the case
may be, shall pay to the other the amount as may be required by the True-up.  At
the True-up, Seller and Purchaser shall recalculate and reapportion any income
and expenses (i) which were not apportioned on the Settlement Statement because
of the unavailability of information, or (ii) which were apportioned on the
Settlement Statement based upon estimated or incomplete information.  The
True-up shall be final and except as otherwise expressly set forth in this
Agreement there shall be no further adjustment between Seller and Purchaser for
income and expenses.  Notwithstanding the foregoing, taxes shall be trued-up as
and when final tax bills are received and/or upon resolution of any pending tax
appeal proceedings involving the year in which Closing occurs.

 

13.2     Revenue, Receivables and Payables.

 

(a)  All revenues (less taxes, commissions and collection costs) received or to
be received on account of room rents for the period prior to and including the
Proration Time shall belong to Seller (with Purchaser to remit such revenues to
Seller to the extent any such revenues are paid to Purchaser following Closing),
and all such revenues for the period beginning on the day immediately following
the Proration Time shall belong to Purchaser; provided however, that all room
revenues (less taxes, commissions and collection costs) for the night preceding
Closing will be divided evenly between Seller and Purchaser.  The accounts
receivable of registered guests at the Property who have not checked out and
were occupying rooms as of the Proration Time are collectively called the “Guest
Ledger.”  Purchaser shall pay over to Seller, as and when received by Purchaser,
a portion of the proceeds from each Property guest on the Guest Ledger (less
taxes, commissions and collection costs), which portion corresponds
proportionately to the portion of such guest’s payment attributable to the
period ending on and including the Proration Time; provided, however, that if an
amount less than the total amount due from a guest is collected and the guest
continued in occupancy after the Proration Time, such amount shall be allocated
to Seller and Purchaser on a pro rata basis based on their respective
receivables due from such guest.

 

(b)  All accounts payable relating to the Hotel in respect of the period prior
to the Proration Time shall be assumed by Purchaser, and Purchaser shall receive
a credit against the Purchase Price in an amount equal to the sum of such
accounts payable.

 

(c)  In addition to the Guest Ledger, Purchaser shall assume all accounts
receivable due and payable at or prior to the Proration Time. Seller shall
receive a credit for all accounts receivable (other than the Guest Ledger which
is addressed in Section 13.2(a)) (provided that such amount will be reconciled
upon the completion of True-Up to reflect collections of the

 

33

 

accounts receivable, and any amounts owing by one party to the other shall be
promptly paid), and Purchaser shall be entitled to all amounts collected for
such accounts receivable.

 

13.3     Food and Beverage Revenue; Vending Machine Revenue.  All monies
received in connection with bar and restaurant services, if any, at the Hotel
(other than amounts due from any guest) prior to the Proration Time shall belong
to Seller.  Vending machine proceeds shall be counted as close to the Proration
Time as is possible and the net amount thereof shall be credited to Seller at
Closing.

 

13.4     Utility Contracts.  All utility services (including, without
limitation, electricity, gas, water, sewer and telecommunication) shall be
prorated as of the Proration Time between Purchaser and Seller.  To the extent
practicable, readings shall be obtained for all utilities as of the Proration
Time.  If not practicable, the cost of such utilities shall be prorated between
Seller and Purchaser by estimating such cost on the basis of the most recent
bill for such service; provided, however, that after the Closing, Seller and
Purchaser shall reprorate the amount for such utilities and pay any deficiency
in the original proration to the other Party promptly upon receipt of the actual
bill for the relevant billing period.  Seller shall receive a credit for all
deposits actually transferred to Purchaser or which remain on deposit for the
benefit of Purchaser (as acknowledged orally or in writing by such utility) with
respect to such utility contracts.

 

13.5     Hotel Matters.  Purchaser shall receive a credit for deposits and other
advance payments, if any, received by Seller or Manager under Bookings for Hotel
facilities for the period after Closing that remain in effect as of Closing.

 

13.6     Consumables and Inventory.  Seller shall receive no credit for any
Personal Property, including without limitation, Fixed Asset Supplies or
Inventories (whether opened or unopened).

 

13.7     Cash and Accounts.  At the Closing, Seller shall transfer to Purchaser
all petty cash on hand at the Hotel and Seller shall receive a credit at the
Closing for such cash.

 

13.8     Other Adjustments and Prorations.  To the extent not inconsistent with
any of the foregoing, all other items of income and expense as are customarily
adjusted or prorated upon the sale and purchase of a hotel property similar to
the Hotel shall be adjusted and prorated between Seller and Purchaser
accordingly.

 

13.9     Guests’ Property.  All baggage or other property of patrons of the
Hotel checked or left in care of Seller (including, without limitation, in any
central safe deposit box) shall be listed in an inventory to be prepared in
duplicate and signed by Seller’s and Purchaser’s representatives on the Closing
Date.  Seller will indemnify and hold Purchaser harmless from and against all
claims for all baggage and property to the extent that any such baggage or
property was lost or misplaced by Seller prior to the time Seller and Purchaser
conduct such baggage inventory on the Closing Date.  Purchaser shall be
responsible from and after the Closing Date and will indemnify and hold Seller
harmless from and against all claims for all baggage and property listed in such
inventory.  All baggage or other property of guests retained by Seller as
security for unpaid accounts receivable may be left at the Hotel, for a period
not to exceed one

 

34

 

(1) month from the Closing Date, within which time such baggage or other
property shall be removed or otherwise disposed of by Purchaser.

 

13.10   Real Estate Taxes.  Real estate taxes, supplemental real estate taxes,
gross, receipt taxes, personal property taxes, special assessments, and vault
charges, if any, shall be apportioned as of the Closing Date on the basis of the
fiscal period for which assessed.  Seller will be responsible for all such taxes
assessments and charges relating to the period prior to Closing.  Purchaser will
be responsible for all such taxes, assessments and charges relating to the
period on and after Closing (including supplemental taxes resulting from the
change in ownership and any reassessment occurring as a result of the Closing
pursuant to this Agreement).  If any such taxes, assessments or charges which
have been apportioned shall subsequently be reduced by abatement, Seller shall
have the right to all sums relating to the period prior to Closing and Purchaser
shall have the right to all sums relating to the period after Closing.  Seller
shall not file any new appeals or abatement proceedings with respect to the
Property for any period that includes the Closing Date or any period thereafter.

 

13.11   Rents.  Rent and other fixed or variable payments due from tenants under
the Space Leases (“Rents”) shall be prorated between Purchaser and Seller as of
Closing; provided, however, that no proration shall be made of any Rent that is
not actually received by Seller prior to Closing.  Rent that relates to the
period in which the Closing occurs but that was not paid before Closing (and
therefore was not prorated at Closing) shall be prorated between Seller and
Purchaser as of the Closing Date, but not until it is actually collected by
Purchaser after the Closing, it being understood and agreed that Purchaser shall
have no obligation to collect delinquent rent on behalf of Seller.  Rent
collected by Purchaser after the Closing, net of the costs of collection
(including reasonable attorneys’ fees and costs), shall be applied first to
unpaid Rent accruing on and after the Closing Date, and then to unpaid Rent
accruing before the Closing Date.  Purchaser shall receive a credit for all
security deposits held by Seller under the Space Leases which are not
transferred to Purchaser.

 

13.12   Employee Compensation.  Subject to Section 6.9, Seller shall be
responsible for any liability to or respecting Hotel employees arising from
Manager’s employment thereof prior to the Closing Date, including but not
limited to employees’ wages, employment taxes, accrued vacation pay, sick leave,
bonuses, severance and pension benefits.  Purchaser shall be responsible for any
liability to or respecting Hotel employees arising from Purchaser’s or Manager’s
employment thereof from and following the Closing Date, including but not
limited to employees’ wages, employment taxes, accrued vacation pay, sick leave,
bonuses, severance and pension benefits.

 

13.13   FF&E Reserve; Operating Account.  (a) The account or accounts that hold
funds comprising any “FF&E reserve,” “reserve for replacements”, or similar
reserve and any other reserve accounts held by Manager (collectively, “Reserve
Accounts”) shall remain in place for the benefit of Purchaser after Closing, and
at Closing Seller shall receive a credit in an amount equal to the aggregate
balance of such Reserve Accounts as of the Closing Date.

 

35

 

(b)  The Operating Accounts (as defined in the Management Agreement) held by
Manager shall remain in place for the benefit of Purchaser after Closing, and at
Closing Seller shall receive a credit in an amount equal to the aggregate
balances of such accounts as of the Closing Date.

 

(c)  At Closing, Seller shall retain any account or accounts held by Seller’s
lender, Seller or any other party on behalf of Seller (other than the Operating
Accounts and Reserve Accounts), and no adjustment to Purchase Price shall be
made in respect of such other accounts.

 

(d) At Closing, unless Seller has provided Purchaser with evidence that all
costs therefor have been paid prior to Closing, Purchaser shall receive a credit
against the Purchase Price in an amount equal to any unpaid sums relating to the
following projects as described in the November 2016 Rent Letter: (i) the rooms
renovation, (ii) the service elevator modernization, and (iii) the lobby and
lounge renovation.

 

13.14   Vouchers.  Purchaser shall (i) honor the Vouchers listed on Exhibit 3.23
attached hereto (as such exhibit shall be updated as of Closing) and shall
assume all liability, if any, for such outstanding Vouchers as of the Closing
Date, (ii) receive a credit against the Purchase Price payable at Closing in an
amount equal to thirty percent (30%) of the estimated value listed on
Exhibit 3.23, and (iii) indemnify, defend and hold Seller harmless for, from and
against all claims, liabilities, costs and expenses arising out of the Vouchers
for which Purchaser has received a credit hereunder from and after the Closing
Date.

 

13.15   Audio Visual Incentive and Bonus.  So long as the PSAV Agreement (as
defined below) is an Assumed Contract or an Assumed Equipment Lease at Closing,
Purchaser shall receive a credit against the Purchase Price in an amount equal
to the sum of (a) the unamortized Bonus (as defined in that certain Service
Agreement for Audiovisual Service dated as of February 16, 2016 by and between
Operating Tenant and Audio Visual Services Group, Inc., a Delaware corporation
(“PSAV”), as amended by that certain First Amendment to Service Agreement for
Audiovisual Service dated as of February 16, 2016 by and between Operating
Tenant and PSAV (collectively, the “PSAV Agreement”)) as of the Closing Date and
(b) the unamortized Incentive (as defined in the PSAV Agreement) as of the
Closing Date.

 

13.16   Survival.  The terms and provisions of this Article XIII shall survive
the Closing for the Survival Period.

 

Article XIV
Miscellaneous

 

14.1     Assignment.  (a)  Neither party shall assign or transfer or permit the
assignment or transfer of its rights or obligations under this Agreement without
the prior written consent of the other, any such assignment or transfer without
such prior consent being hereby declared to be null and void; provided, however,
that Purchaser shall have the right to either nominate one or more Affiliates
(as defined below) to take title to the Property (or any component thereof)
without Seller’s consent, upon written notice to Seller no later than three
(3) Business Days prior to the Closing Date, but Purchaser shall remain liable
following any such assignment for all obligations of “Purchaser” hereunder until
Closing (at which time the assignor shall be released

 

36

 

from all liability under this Agreement).  As used in this Section 14.1,
“Affiliate” shall mean an entity that Controls, is Controlled by, or is under
common Control with Purchaser or Carey Watermark Investors Incorporated, a
Maryland corporation (“CWII”), or their respective principal shareholders or
partners, and “Affiliate” shall also include any partnership of which Purchaser
or CWII or their respective direct or indirect principal shareholders are a
majority owner.  As used in this Section 14.1, “Control” and its derivations
shall mean direct or indirect ownership of at least fifty-one percent (51%) of
the controlled entity’s ownership interests and the right, directly or
indirectly, to direct the controlled entity’s management and policies.

 

(b)  In the event either party consents to an assignment of this Agreement by
the other for which consent is required, no further assignment shall be made
without another written consent from the consenting party, unless the assignment
may otherwise be made without consent under this Agreement.  An assignment by
either Seller or Purchaser of its interest in this Agreement shall not relieve
Seller or Purchaser, as the case may be, from its obligations (except as set
forth in Section 14.1(a) above), but this Agreement shall then inure to the
benefit of, and be binding on, the assignee’s permitted successors, heirs, legal
representatives and assigns.

 

14.2     Consents.  If, under this Agreement, the consent of a party is
required, the consent shall be in writing and shall be executed by a duly
authorized officer or agent.

 

14.3     Applicable Law.  This Agreement shall be governed by the laws of the
State of California, without resort to the choice of law rules thereof.

 

14.4     Headings; Exhibits.  The headings of articles and sections of this
Agreement are inserted only for convenience; they are not to be construed as a
limitation of the scope of the particular provision to which they refer.  All
exhibits attached or to be attached to this Agreement are incorporated herein by
this reference.  The words “herein” and “hereof” mean “in this Agreement” and
“of this Agreement,” respectively, and do not designate any particular section,
subsection or other portion of this Agreement to the exclusion of any other
portion of this Agreement.

 

14.5     Notices.  Notices and other communications required by this Agreement
shall be in writing and (i) delivered by hand against receipt; (ii) sent by
recognized overnight delivery service; (iii) sent by certified or registered
mail, postage prepaid, with return receipt requested; or (iv) by electronic
mail, with a confirmation copy delivered by another method permitted under this
Section 14.5.  All notices shall be addressed as follows:

 

If to Purchaser:

 

CWI 2 San Francisco Hotel, LP
c/o Carey Watermark Investors 2 Incorporated
272 East Deerpath Road, Suite 320
Lake Forest, Illinois 60045
Attention:  Michael G. Medzigian
E-mail: medzigian@watermarkcap.com

 

37

 

With a copy to:

 

Paul Hastings LLP
515 South Flower Street, 25th Floor
Los Angeles, California 90071
Attention:  Rick S. Kirkbride, Esq.
E-mail: rickkirkbride@paulhastings.com

 

If to Seller:

 

RC SF Owner LLC
c/o Thayer Lodging Group LLC, a Brookfield company
1997 Annapolis Exchange Pkwy, Suite 550
Annapolis, Maryland  21401
Attention:  Bruce G. Wiles
E-mail:  bwiles@thayerlodging.com

 

With a copy to:

 

Morris, Manning & Martin
1401 Eye Street NW, Suite 600
Washington, DC  20005
Attention:  Carol Weld King, Esq.
E-mail:  cwking@mmmlaw.com

 

or to such other address as may be designated by a proper notice.  Notices shall
be deemed to be effective upon receipt or refusal of the addressee to accept
delivery; provided that notices sent by electronic mail, provided the same are
not returned as undeliverable and provided the same are followed by a hard copy,
shall be deemed delivered upon receipt of electronic confirmation of
transmission.

 

14.6     Waiver.  The failure of either party to insist on strict performance of
any of the provisions of this Agreement or to exercise any right granted to it
shall not be construed as a relinquishment or future waiver; rather, the
provision or right shall continue in full force.  No waiver of any provision or
right shall be valid unless it is in writing and signed by the party giving it.

 

14.7     Partial Invalidity.  If any part of this Agreement is declared invalid
by a court of competent jurisdiction, this Agreement shall be construed as if
such portion had never existed, unless this construction would operate as an
undue hardship on Seller or Purchaser or would constitute a substantial
deviation from the general intent of the parties as reflected in this Agreement.

 

14.8     Entire Agreement.  This Agreement, together with the other writings
signed by the parties and incorporated herein by reference and together with any
instruments to be executed and delivered under this Agreement, constitutes the
entire agreement between the parties with

 

38

 

respect to the purchase and sale of the Property and supersedes all prior oral
and written understandings.  Any amendments to this Agreement shall not be
effective unless in writing and signed by the parties hereto.

 

14.9     Time is of the Essence.  Time is of the essence with respect to
performance of all obligations under this Agreement.  Notwithstanding the
foregoing, if any day herein set forth for the performance of any obligations of
Seller or Purchaser, for the delivery of any instrument or notice as herein
provided, or for the expiration of any period should be a Saturday, Sunday or
legal holiday, the compliance with such obligations shall be timely, the
delivery of such instrument or notice shall be timely or the expiration of such
period shall occur, as applicable, on the next Business Day following such
Saturday, Sunday or legal holiday.  As used herein, (a) the term “legal holiday”
means any state or federal holiday on which, or in observance of which, the
Board of Governors of the U.S. Federal Reserve System dictates that Federal
Reserve banks are to be closed, and (b) the term “Business Day” means a day that
is not a Saturday, Sunday or legal holiday.

 

14.10   Waiver of Jury Trial.  Seller and Purchaser each hereby waives any right
to jury trial in the event any party files an action relating to this Agreement
or to the transactions or obligations contemplated hereunder.

 

14.11   Counterparts.  This Agreement may be executed in separate counterparts,
none of which need contain the signatures of all parties, each of which shall be
deemed to be an original, provided all of such counterparts, taken together,
include the signatures of all parties hereto.  It shall not be necessary in
making proof of this Agreement to produce or account for more than the number of
counterparts containing the respective signatures of, or on behalf of, all of
the parties hereto.

 

14.12   Brokerage.  Purchaser and Seller each represents and warrants to the
other that no broker or agent is entitled to the payment of a commission for
services rendered in connection with the transactions contemplated herein,
except for Hodges Ward Elliott, Inc. (“Seller’s Broker”).  In the event this
transaction closes, Seller shall compensate Seller’s Broker for services
provided in connection with this transaction under the terms of a separate
agreement.  Each of the parties hereto agrees to Indemnify the other with
respect to any Claim made by a broker, attorney or finder claiming through such
party for a commission, fee or compensation in connection with this Agreement or
the sale of the Property hereunder.  The provisions of this Section 14.12 shall
survive Closing and the Survival Period.

 

14.13   Public Announcements.  The parties acknowledge and agree that either may
issue a press release after the Closing, the form and content of which shall be
subject to the prior consent of the other (which consent will not be
unreasonably withheld, conditioned or delayed); provided, however, Seller hereby
approves Purchaser’s form of press release in the form set forth on
Exhibit 14.13.  Without limiting the foregoing, in no event shall (a) Seller or
Purchaser publicly disclose the Purchase Price hereunder, (b) Seller issue any
press release until after Purchaser issues its press release regarding the
transaction, and (c) Seller publicly disclose its acquisition purchase price,
its gain or profit with respect to the Hotel or the Purchase Price, in each case
except to the extent required by Applicable Law or the Securities and Exchange

 

39

 

Commission.  This Section 14.13 shall survive the Closing or any earlier
termination of this Agreement.

 

14.14   Attorneys’ Fees.  If either party hereto fails to materially perform any
of its obligations under this Agreement or if any dispute arises between the
parties hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such
dispute, as the case may be, shall pay any and all reasonable costs and expenses
incurred by the other party on account of such default and/or in enforcing or
establishing its rights hereunder, including, without limitation, court costs
and reasonable attorneys’ fees and disbursements.  Notwithstanding anything in
this Agreement to the contrary, any such attorneys’ fees and other expenses
incurred by either party in enforcing a judgment in its favor under this
Agreement shall be recoverable separately from and in addition to any other
amount included in such judgment, and such attorneys’ fees obligation is
intended to be severable from the other provisions of this Agreement and to
survive and not be merged into any such judgment.  The obligations of the
parties under this Section 14.14 shall survive Closing or any termination of
this Agreement.

 

14.15   Exclusivity.  From and after the Contract Date until the earlier of
(a) the termination of this Agreement in accordance with its terms, and (b) the
Closing, neither Seller nor any of Seller’s affiliates, agents or
representatives shall, directly or indirectly, (i) offer the Property or any
portion thereof for sale to any other Person; (ii) engage, negotiate or discuss
with any person (other than Purchaser and Purchaser’s Affiliates, agents and
representatives) any sale, equity transfer or issuance, master lease,
refinancing or joint venture relating to Seller, the Property or any portion
thereof (each, a “Capital Transaction”); (iii) solicit or consider any offers
from any person (other than Purchaser and its Affiliates) with respect to a
Capital Transaction; or (iv) market, provide any information to, or otherwise
cooperate with, any other Person (other than Purchaser and Purchaser’s
Affiliates, agents and representatives) relating to any proposed Capital
Transaction.

 

14.16   Confidentiality.  Each party hereto agrees to maintain the
confidentiality and existence of the non-public information provided to it by or
on behalf of the other party, except that the foregoing shall not prohibit
(a) disclosure of such information to such party’s Affiliates, directors,
managers, officers, employees, agents, representatives, advisors, consultants,
investors, potential investors, lenders and potential lenders so long as such
disclose agrees to maintain the confidentiality of such information as set forth
herein or (b) any disclosure required by or regulations mandating disclosure
(including Purchaser’s and its affiliates’ filings or other disclosures required
by or customary in connection with regulation by the Securities and Exchange
Commission).  Further, Purchaser and Seller shall cause those people in their
employ and their third party professionals to be bound by the same level of care
with respect to maintaining the confidentiality of the existence of the
transactions contemplated by this Agreement and the non-public information
provided to them in connection therewith as Purchaser and Seller are charged
with hereunder.

 

14.17   Reserve Agreement.  At Closing, in addition to the Purchase Price,
Purchaser shall deposit with Funds Escrow Agent the sum of Ten Million Dollars
($10,000,000), to be held and disbursed, if applicable, pursuant to the terms of
an agreement in the form of Exhibit 14.17

 

40

 

attached hereto (the “Reserve Agreement”).  The Reserve Agreement shall provide
that, to the extent the Hotel does not achieve certain financial performance
thresholds during the two (2) year period immediately following the Closing (the
“Protection Period”), disbursements shall be made to Purchaser on a quarterly
basis as provided therein, with any remaining amounts being disbursed to Seller
at the end of the Protection Period.  Seller and Purchaser agree that any
disbursements made to Seller at the end of the Protection Period pursuant to the
Reserve Agreement will be treated by each of Seller and Purchaser as an increase
to the Purchase Price hereunder.

 

Article XV
CALIFORNIA DISCLOSURES

 

15.1     Natural Hazard Disclosure.  Purchaser and Seller acknowledge that
Seller may be required under California law to disclose if the Property lies
within the following natural hazard areas or zones:  (a) a special flood hazard
area designated by the Federal Emergency Management Agency; (b) an area of
potential flooding; (c) a very high fire hazard severity zone; (d) a wild land
area that may contain substantial forest fire risks and hazards; (e) an
earthquake fault zone; or (f) a seismic hazard zone.  Purchaser acknowledges
that Seller will employ the services of the Title Company or another third party
selected by Seller and reasonably acceptable to Purchaser (“Natural Hazard
Expert”) to examine the maps and other information specifically made available
to the public by government agencies for the purposes of enabling Seller to
fulfill Seller’s disclosure obligations, and to report the result of the Natural
Hazard Expert’s examination to Purchaser and Seller in writing.  The written
reports prepared by the Natural Hazard Expert regarding the results of the
Natural Hazard Expert’s examination fully and completely discharges Seller from
Seller’s disclosure obligations referred to herein, if and to the extent any
such obligations exist, and, for the purpose of this Agreement, the provisions
of Civil Code Section 1103.4 regarding non-liability of Seller for errors or
omissions not within Seller’s personal knowledge shall be deemed to apply and
the Natural Hazard Expert shall be deemed to be an expert, dealing with matters
within the scope of the Natural Hazard Expert’s expertise with respect to the
examination and written report regarding the natural hazards referred to above.

 

15.2     Section 25359.7 of Health and Safety Code.  Section 25359.7 of the
California Health and Safety Code requires owners of non-residential real
property who know, or have reasonable cause to believe, that any release of
hazardous substance has come to be located on or beneath the real property to
provide written notice of such to a Purchaser of the real property.  Purchaser
acknowledges and agrees that the sole inquiry and investigation Seller has
conducted in connection with the environmental condition of the Property is to
obtain and/or review those existing environmental reports delivered or made
available to Purchaser pursuant to this Agreement (the “Existing Environmental
Reports”).  Purchaser (a) acknowledges Purchaser’s receipt of the foregoing
notice given pursuant to Section 25359.7 of the California Health and Safety
Code; (b) will be, prior to the Contingency Date, fully aware of the matters
described in the Existing Environmental Reports; and (c) after receiving advice
of Purchaser’s legal counsel, waives any and all rights Purchaser may have to
assert that Seller has not complied with the requirements of Section 25359.7 of
the California Health and Safety Code. The representations, warranties and
agreements set forth herein shall survive the consummation of the transactions
contemplated hereby.

 

41

 

15.3     Survival.  The provisions of this ARTICLE XV shall survive the Closing
for the Survival Period.

 

[Signature page follows]

 

42

 

IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be
executed as of the Contract Date indicated above.

 

 

SELLER

 

 

 

RC SF OWNER LLC,

 

a Delaware limited liability company

 

 

 

By:

RC SF Mezz Borrower LLC,

 

 

a Delaware limited liability company,

 

 

its Equity Member

 

 

 

 

 

By:

Thayer GP VI LLC,

 

 

 

a Delaware limited liability company,

 

 

 

its Manager

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Bruce Wiles

 

 

 

 

Name: Bruce Wiles

 

 

 

 

Title: President

 

 

 

 

 

 

 

 

 

 

 

PURCHASER

 

 

 

 

 

 

CWI 2 SAN FRANCISCO HOTEL, LP,

 

a Delaware limited partnership

 

 

 

 

 

 

By:

CWI 2 San Francisco Hotel GP, LLC,

 

 

a Delaware limited liability company,

 

 

its general partner

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/Michael G. Medzigian

 

 

 

Name: Michael G. Medzigian

 

 

 

Title: Chief Executive Officer and
President

 

[Signature Page to Purchase and Sale Agreement (Ritz-Carlton San Francisco)]

 

 

EXHIBITS

 

1.1                                                                           
Legal Description of Land

1.2(e)                                                           List of
Intellectual Property

1.2(f)                                                            List of
Vehicles

1.4                                                                           
List of Space Leases

2.2                                                                           
Purchase Price Allocation

2.3                                                                           
Escrow Instructions

3.5                                                                           
List of Proceedings

3.7                                                                           
List of Contracts

3.7-A                                                           List of Excluded
Contracts

3.8                                                                           
List of Equipment Leases

3.8-A                                                           List of Excluded
Equipment Leases

3.11                                                                   
Environmental Reports & Matters

3.19                                                                    Tax
Proceedings

3.23                                                                    List of
Vouchers

6.8                                                                           
Form of Management Agreement Estoppel Certificate

6.10(A)                                              List of Audit Request
Materials

6.10(B)                                               Form of Audit
Representation Letter

6.12(A)                                              Form of Spa Estoppel

6.12(B)                                               Form of Parking Estoppel

6.12(C)                                               Form of Jewelry Estoppel

6.12(D)                                              Form of Winery Estoppel

6.12(E)                                                Form of ATT Estoppel

6.12(F)                                                 Form of Verizon Estoppel

6.13                                                                    Existing
Violations

6.14                                                                   
Environmental Notice

9.1(a)                                                           Form of Deed

9.1(b)                                                          Form of Bill of
Sale

9.1(c)                                                           Form of
Assignment of Leases and Contracts

9.1(e)                                                           Form of FIRPTA
Affidavit

9.1(g)                                                          Form of Owner’s
Affidavit

11.2(d)                                                 Form of Post-Closing
Escrow Agreement

11.5(b)(ii)                                Post-Closing Escrow Agreement
(Litigation)

14.13                                                            Form of
Purchaser Press Release

14.17                                                            Reserve
Agreement

 

 

EXHIBIT 1.1

 

Legal Description of Land

 

BEGINNING AT A POINT OF INTERSECTION OF THE EASTERLY LINE OF STOCKTON STREET
WITH THE NORTHERLY LINE OF PINE STREET, AND RUNNING THENCE NORTHERLY ALONG SAID
LINE OF STOCKTON STREET, 275 FEET TO THE SOUTHERLY LINE OF CALIFORNIA STREET;
RUNNING THENCE EASTERLY ALONG SAID LINE OF CALIFORNIA STREET, 312 FEET AND 6
INCHES; THENCE AT A RIGHT ANGLE SOUTHERLY, MEASURED PARALLEL WITH THE WEST LINE
OF GRANT AVENUE 68.75 FEET; THENCE AT A RIGHT ANGLE WESTERLY, 37.50; THENCE AT A
RIGHT ANGLE SOUTHERLY, 68.75 FEET; THENCE AT A RIGHT ANGLE EASTERLY, 20 FEET;
THENCE AT A RIGHT ANGLE SOUTHERLY, 57 FEET AND 6 INCHES TO THE NORTHERLY LINE OF
VINTON (FORMERLY VIRGINIA) COURT; THENCE AT A RIGHT ANGLE WESTERLY ALONG SAID
NORTHERLY LINE OF VINTON COURT, 20 FEET; THENCE AT A RIGHT ANGLE SOUTHERLY, 80
FEET TO THE NORTHERLY LINE OF PINE STREET, DISTANT THEREON 137 FEET 6 INCHES
WESTERLY FROM THE WESTERLY LINE OF GRANT AVENUE, FORMERLY DUPONT STREET; RUNNING
THENCE WESTERLY ALONG SAID NORTHERLY LINE OF PINE STREET 275 FEET TO THE
EASTERLY LINE OF STOCKTON STREET AND THE POINT OF BEGINNING.

 

BEING A PORTION OF 50 VARA BLOCK NO. 116.

 

APN:  Lot 012, Block 0257

 

 

EXHIBIT 1.2(e)

 

List of Intellectual Property

 

None.

 

[End of Exhibit]

 

 

EXHIBIT 1.2(f)

 

List of Vehicles

 

 

[End of Exhibit]

 

 

EXHIBIT 1.4

 

List of Space Leases

 

1.            Spa Agreement (as defined in this Agreement)

2.            Jewelry Lease (as defined in this Agreement)

3.            Wine Lease (as defined in this Agreement)

4.            ATT Lease (as defined in this Agreement)

5.            Verizon Lease (as defined in this Agreement)

 

[End of Exhibit]

 

 

EXHIBIT 2.3

 

Escrow Instructions

 

 

EXHIBIT 3.5

 

List of Proceedings

 

 

 

[End of Exhibit]

 

 

EXHIBIT 3.7

 

List of Contracts

 

 

[End of Exhibit]

 

 

EXHIBIT 3.7-A

 

List of Excluded Contracts

 

Not applicable

 

 

 

 

[End of Exhibit]

 

 

EXHIBIT 3.8

 

List of Equipment Leases

 

 

[End of Exhibit]

 

 

EXHIBIT 3.8-A

 

List of Excluded Equipment Leases

 

Not applicable

 

 

 

 

[End of Exhibit]

 

 

 

EXHIBIT 3.11

 

Environmental Matters

 

 

[End of Exhibit]

 

 

EXHIBIT 3.19

 

List of Proceedings

 

 

[End of Exhibit]

 

 

EXHIBIT 3.23

 

List of Vouchers

 

 

[End of Exhibit]

 

 

EXHIBIT 6.8

 

Form of Management Agreement Estoppel Certificate

 

[End of Exhibit]

 

 

EXHIBIT 6.10(A)

 

EXAMPLE AUDIT REQUEST MATERIALS

 

Internal Controls

·                 Process narratives for the all control cycles (purchase and
payables, treasury, revenue and receivables, fixed assets, payroll, month-end
close process, etc.) in place during the periods under audit

·                 If available, copies of SOC 1 Reports for the Property Manager
/ Hotel Franchise for the period ended 2016 and 2015 (no earlier than period
ended September 30)”

o              Narrative for the night auditor packet process

o              Availability of night audit packets for selection (selections to
be made at a later date)

·                 Narrative describing the IT environment including applications
used, IT governance structure, planned IT changes and processes for systems
developments and change management, physical and logical security and data
backup and recovery

·                 Copies of SOC 1 Reports for the payroll service provider for
period ended 2016 and 2015 (no earlier than period ended September 30)

 

General

·                 Closed trial balances (in excel) for the years ended 12/31/14,
12/31/15 and 12/31/16

·                 Hotel Operator Statements

o              December 2016 Statements of Operations (detailed by department)

o              December 2015 Statements of Operations (detailed by department)

·                 Complete general ledger detail (excel preferable) for the
following periods:

o              Year Ended December 31, 2015

o              Year Ended December 31, 2016

·                 Please provide copies of the following executed agreements or
documents (if applicable):

o              Organization chart

o              LLC Agreement

o              PSA for Acquisition of Hotel by the Seller

o              Closing Statement for Acquisition of Hotel by the Seller

o              Articles of Organization

o              Management agreement

o              Loan Agreement, Promissory Agreement and Guaranties

o              Closing statement for loan / mortgage

o              Other material or significant contracts or agreements relevant to
the audit

 

Cash

 

·                                         Bank reconciliations for ALL cash
accounts as of the following dates

o              December 31, 2014

o              December 31, 2015

 

 

o              December 31, 2016

·                 Listing of all bank accounts used during 2014, 2015 AND 2016
(including those that were closed during the years) containing the following
information:

o              Financial institution

o              Bank account numbers

o              Authorized signer (including email address as we will be using
E-confirmation service where available)

·                 Copies of ALL bank statements for the following periods

o              December 31, 2014

o              December 31, 2015

o              December 31, 2016

·                 Copies of ALL bank statements for the following periods

o              January 31, 2015

o              January 31, 2016

o              January 31, 2017

·                 Copies of all restricted cash/escrow statements (if
applicable) as of the following periods

o              December 31, 2014

o              December 31, 2015

o              December 31, 2016

 

Revenue and receivables

 

·                 Guest ledger and accounts receivable aging detail (city
ledger) as of the following dates:

o              December 31, 2014

o              December 31, 2015

o              December 31, 2016

·                 Detail of Reserves for bad debt (if any) with explanation of
adequacy as of the following periods

o              December 31, 2015

o              December 31, 2016

·                 STAR reports for the last three years

·                 Listing of all sales tax and occupancy tax payments made
during 2016 and 2015.  We will request copies of the corresponding tax returns
as necessary.

 

Investment in hotels

 

·                 Detail of investment in hotels roll-forward, including listing
of all additions and dispositions BY FIXED ASSET CATEGORY *(NOTE - Invoices will
be selected for requested items)*           :

o              Acquisition in hotel thru 12/31/2014

o              1/1/2015 thru 12/31/2015

 

 

o              1/1/2016 thru 12/31/2016

·                 Purchase price analysis prepared by specialist in accordance
with ASC 805 at time of acquisition

 

Deferred loan costs, franchise fees or any other deferred charges

 

·                 Roll-forward of deferred loan costs, franchise fees or any
other deferred charges detailing the beginning balance, amortization, disposals
and ending balance *(NOTE - Invoices will be selected for requested items)*:

 

o              Inception thru 12/31/2014

o              1/1/2015 thru 12/31/2015

o              1/1/2016 thru 12/31/2016

 

Accounts payable and accrued expenses

 

·                               Accounts payable aging detail as of the
following periods:

o              December 31, 2014

o              December 31, 2015

o              December 31, 2016

·                               Advance deposit ledger as of the following
periods:

o              December 31, 2014

o              December 31, 2015

o              December 31, 2016

·                 Reconciliations of accrued expense accounts (including accrued
vacation, accrued payroll, accrued other, etc.) as of the following periods:

o              December 31, 2014

o              December 31, 2015

o              December 31, 2016

·                 Check register detail for the periods *(NOTE - Invoices will
be selected for requested items)*:

o              1/1/2015 - 2/28/2015

o              1/1/2016 - 2/29/2016

o              1/1/2017 - 2/28/2017

 

Long-Term Debt (if applicable)

 

·                 Roll-forward of notes payable for the following periods
including any advances, repayments and ending balance:

o              1/1/2015 thru 12/31/2015

o              1/1/2016 thru 12/31/2016

·                 Listing of all financial institutions during all periods from
(December 31, 2014 thru December 31, 2016) containing the following information:

o              Financial institution

 

 

o              Bank account numbers

o              Authorized signer (including email address as we will be using
E-confirmation service where available)

·                 Listing of information in connection with interest rate swap
for confirmation (if applicable)

 

Members’ Equity

 

·                 Roll forward schedule for equity detailing contributions,
distributions, income/loss, and other activity *(NOTE - Items for cash activity
surrounding contributions and distributions will be requested)*:

o              Inception thru 12/31/2014

o              1/1/2015 thru 12/31/2015

o              1/1/2016 thru 12/31/2016

 

Profit and Loss

 

·                 Copies of all legal invoices paid during the year ended:

o              December 31, 2015

o              December 31, 2016

·                 Reconciliation for the report from the payroll service
provider to the trial balance for the year ended

o              December 31, 2015

o              December 31, 2016

·                 Calculation of the management fees and asset management fees
paid for the years ended:

o              December 31, 2015

o              December 31, 2016

·                 Copies of all real estate tax bills paid during the years
ended

o              December 31, 2015

o              December 31, 2016

 

WHERE POSSIBLE, PLEASE PROVIDE THE REQUESTED INFORMAITON IN ELECTRONIC FORMAT. 
ALSO, PLEASE NOTE THAT THERE WILL BE ADDITIONAL REQUESTS AS WE PROGRESS THROUGH
THE AUDIT AS THIS IS NOT AN ALL-INCLUSIVE LIST.

 

THIS LIST CONTEMPLATES THAT THE HOTEL HAS NOT BEEN AUDITED PREVIOUSLY IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.  ADDITIONAL REQUESTS
WILL BE MADE AS NEEDED IN ORDER TO PERFORM SUFFICIENT PROCEDURES ON THE OPENING
BALANCE SHEET

 

 

EXHIBIT 6.10(B)

 

Form of Audit Representation Letter

 

[REPORT DATE]

 

RSM US LLP

1 South Wacker Drive

Suite 800

Chicago, IL 60606

 

This representation letter is provided in connection with your audits of the
[consolidated] [combined] financial statements of [COMPANY NAME] which comprise
the [consolidated] [combined] balance sheets as of December 31, 2016 and 2015
and the related [consolidated] [combined] statements of operations, changes in
equity, and cash flows for the years then ended, and the related notes to the
financial statements, for the purpose of expressing an opinion on whether the
financial statements are presented fairly, in all material respects, in
accordance with accounting principles generally accepted in the United States
(U.S. GAAP).

 

We confirm, to the best of our knowledge and belief, that as of [REPORT DATE]:

 

Financial Statements

 

1)           We have fulfilled our responsibilities, as set out in the terms of
the audit arrangement letter dated [ARRANGEMENT LETTER DATE], for the
preparation and fair presentation of the financial statements referred to above
in accordance with U.S. GAAP.

 

2)           We acknowledge our responsibility for the design, implementation,
and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement,
whether due to fraud or error.

 

3)           We acknowledge our responsibility for the design, implementation,
and maintenance of internal control to prevent and detect fraud.

 

4)           Significant assumptions used by us in making accounting estimates,
including those measured at fair value, are reasonable and reflect our judgment
based on our knowledge and experience about past and current events and our
assumptions about conditions we expect to exist and courses of action we expect
to take.

 

5)           Related party relationships and transactions have been
appropriately accounted for and disclosed in accordance with the requirements of
U.S. GAAP.

 

6)           All events subsequent to the date of the financial statements and
for which U.S. GAAP requires adjustment or disclosure have been adjusted or
disclosed.

 

 

7)           The effects of all known actual or possible litigation and claims
have been accounted for and disclosed in accordance with U.S. GAAP.

 

8)           We have no knowledge of any uncorrected misstatements in the
financial statements.

 

Information Provided

 

9)           We have provided you with:

 

a)            Access to all information, of which we are aware that is relevant
to the preparation and fair presentation of the financial statements such as
records, documentation, and other matters.

 

b)           Additional information that you have requested from us for the
purpose of the audit.

 

c)            Unrestricted access to persons within the entity from whom you
determined it necessary to obtain audit evidence.

 

d)          Minutes of the meetings of stockholders, directors and committees of
directors, or summaries of actions of recent meetings for which minutes have not
yet been prepared.

 

10)   All transactions have been recorded in the accounting records and are
reflected in the financial statements.

 

11)   We have disclosed to you the results of our assessment of risk that the
financial statements may be materially misstated as a result of fraud.

 

12)   We have no knowledge of allegations of fraud or suspected fraud, affecting
the entity’s financial statements involving:

 

a)            Management.

 

b)           Employees who have significant roles in the internal control.

 

c)            Others where the fraud could have a material effect on the
financial statements.

 

13)   We have no knowledge of any allegations of fraud or suspected fraud
affecting the entity’s financial statements received in communications from
employees, former employees, analysts, regulators, short sellers, or others.

 

14)   We have no knowledge of noncompliance or suspected noncompliance with laws
and regulations whose effects should be considered when preparing financial
statements.

 

 

15)   We are not aware of any pending or threatened litigation and claims whose
effects should be considered when preparing the financial statements [and we
have not consulted legal counsel concerning litigation or claims.

 

16)   We have disclosed to you the identity of the entity’s related parties and
all the related-party relationships and transactions of which we are aware.

 

17)   We are aware of no significant deficiencies, including material
weaknesses, in the design or operation of internal controls that could adversely
affect the entity’s ability to record, process, summarize, and report financial
data.

 

18)   There have been no communications from regulatory agencies concerning
noncompliance with, or deficiencies in, financial reporting practices.

 

19)   During the course of your audits, you may have accumulated records
containing data that should be reflected in our books and records. All such data
have been so reflected. Accordingly, copies of such records in your possession
are no longer needed by us.

 

[COMPANY NAME]

 

 

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

Chief Financial Officer

 

 

 

EXHIBIT 6.12(A)

 

Form of Spa Estoppel

 

 

EXHIBIT 6.12(B)

 

Form of Parking Estoppel

 

 

EXHIBIT 6.12(C)

 

Form of Jewelry Estoppel

 

 

EXHIBIT 6.12(D)

 

Form of Winery Estoppel

 

 

EXHIBIT 6.12(E)

 

Form of ATT Estoppel

 

 

EXHIBIT 6.12(F)

 

Form of Verizon Estoppel

 

 

EXHIBIT 6.13

 

Existing Violations

 

[End of Exhibit]

 

 

EXHIBIT 6.14

 

Form of Environmental Notice

 

 

EXHIBIT 7.3

 

Bank of the Ozarks UCCs

 

 

EXHIBIT 9.1(a)

 

FORM OF DEED

 

 

Exhibit 9.1(b)

 

Form of Bill of Sale

 

 

EXHIBIT 9.1(c)

 

ASSIGNMENT AND ASSUMPTION OF LEASES AND CONTRACTS

 

 

EXHIBIT 9.1(d)

FORM OF FIRPTA AFFIDAVIT

 

 

EXHIBIT 9.1(g)

 

Form of Owner’s Affidavit

 

 

EXHIBIT 11.2(d)

 

Form of Post-Closing Escrow Agreement

 

 

EXHIBIT 11.5(b)(ii)

 

Form of Post-Closing Escrow Agreement (Litigation)

 

 

EXHIBIT 14.13

 

Form of Purchaser Press Release

 

Carey Watermark Investors 2 Completes Acquisition of San Jose Marriott

Top performing Silicon Valley property connected to San Jose Convention Center

Company Release - 07/14/2016 07:30

 

NEW YORK, July 14, 2016 /PRNewswire/ -- Carey Watermark Investors 2 Incorporated
(CWI 2), a non-traded real estate investment trust (REIT) focused on investing
in lodging and lodging-related properties, announced that it has acquired the
San Jose Marriott. The recently renovated hotel includes 510 guestrooms and is
located in downtown San Jose, CA, one of Silicon Valley’s strongest lodging
markets.

 

Key Facts

 

·                  Recently renovated, high-quality asset: The high-quality
27-story hotel was built in 2004 and is located in a prominent area of downtown
San Jose. The property benefits from $10 million of capital improvements
completed since 2014, including a soft goods renovation of the guestrooms and
corridors, the addition of four guestroom keys and a complete renovation of the
lobby, as well as updates to the public space and concierge lounge.

 

·                  Strong San Jose market: The San Jose market is fueled by the
high-growth technology sector. As a result, the San Jose lodging market has
shown exceptional performance, with a RevPAR compound average growth rate (CAGR)
of 15.6% from 2011 through 2015. With over 109 million square feet of office
space in Silicon Valley, 29 million square feet in the greater San Jose area and
14 million square feet in downtown San Jose, the hotel benefits from significant
corporate demand. In addition, with an additional 17 million square feet of
office development proposed or currently under construction in Silicon Valley,
as well as the addition of nearly 10,000 residential units in downtown San Jose
alone, continued growth within the region is anticipated.

 

·                  Desirable location: The property benefits from a convenient
downtown San Jose location, with a direct connection to the newly renovated and
expanded San Jose McEnery Convention Center. In addition to corporate demand
generators, the hotel is in close proximity to San Jose State University and
attractions such as the Tech Museum of Innovation, the San Jose Museum of Modern
Art and the SAP Center, home of the NHL’s San Jose Sharks. The region’s primary
airport, the San Jose Mineta International Airport, is located just 3 miles
away. The recent development of Levi’s Stadium, which is home to the San
Francisco 49ers, and the proposed expansion of the Bay Area Rapid Transit (BART)
are expected to further increase the desirability of the Marriott’s location.

 

·                  Attractive all-in investment: The investment includes $5.8
million of planned capital expenditures and other acquisition-related costs.

 

 

·                  Strong brand affiliation and management: The hotel will
continue to be managed by Marriott International and benefit from Marriott’s
strong reservation system and loyalty program, as well as its superior brand
recognition and demand among both domestic and international travelers.

 

·                  Property and amenities:

 

o                510 guestrooms

 

o                23,000 square feet of meeting and event space

 

o                Three food and beverage outlets

 

o                Concierge lounge

 

o                Business center

 

o                Fitness center and outdoor swimming pool

 

Management Commentary
Michael Medzigian, Chief Executive Officer of CWI 2, said: “Given the limited
supply of institutional quality assets in the Silicon Valley market, the San
Jose Marriott represented a unique investment opportunity.  The property is the
newest hotel in downtown San Jose and the acquisition adds a top performing,
well-located asset in a high growth market with high barriers to entry to CWI
2’s portfolio. With a strong current yield and expected solid risk-adjusted
returns, the property’s central location and superior access within Silicon
Valley should allow it to continue to outperform within its competitive set.”

 

Carey Watermark Investors 2
Carey Watermark Investors 2 (CWI 2) is a publicly registered REIT that was
formed to make investments primarily in the lodging and lodging-related sectors.
Affiliates of W. P. Carey Inc. and Watermark Capital Partners advise CWI 2 and
manage its overall portfolio. www.careywatermark2.com

 

This press release contains forward-looking statements within the meaning of the
Federal securities laws. The statements of Mr. Medzigian and those regarding San
Jose’s growth prospects, the proposed expansion of the BART and the impact of
future developments are examples of forward-looking statements. A number of
factors could cause CWI 2’s actual results, performance or achievement to differ
materially from those anticipated. Among those risks, trends and uncertainties
are the general economic climate; the supply of and demand for hotels; interest
rate levels; the availability of financing; other risks associated with the
acquisition and ownership of hotels; and risks related to CWI 2’s offering of
shares. For further information on factors that could impact CWI 2, reference is
made to its filings with the Securities and Exchange Commission. Statements
about past performance (including regarding RevPAR growth), are presented for
informational purposes only and are not a guarantee of future results.

 

Press contact:
Guy Lawrence

 

 

Ross & Lawrence
212-308-3333
gblawrence@rosslawpr.com

 

 

EXHIBIT 14.17

 

 

Form of Reserve Agreement