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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(Amendment No. 13)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
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ITT CORPORATION
(Name of Subject Company)
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ITT CORPORATION
(Name of Person(s) Filing Statement)
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Common Stock, no par value
(including the associated Series A Participating Cumulative
Preferred Stock Purchase Rights)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
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RICHARD S. WARD, Esq.
Executive Vice President,
General Counsel and Corporate Secretary
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
PHILIP A. GELSTON, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
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<PAGE>
INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") originally filed on February 12, 1997, by ITT
Corporation, a Nevada corporation (the "Company"), relates to an offer
by HLT Corporation, a Delaware corporation ("HLT") and a wholly owned
subsidiary of Hilton Hotels Corporation, a Delaware corporation
("Hilton"), to purchase 61,145,475 shares of the common stock, no par
value (including the associated Series A Participating Cumulative
Preferred Stock Purchase Rights), of the Company. All capitalized
terms used herein without definition have the respective meanings set
forth in the Schedule 14D-9.
Item 8. Additional Information to be Furnished.
The response to Item 8 is hereby amended by adding the
following after the final paragraph of Item 8:
On June 9, 1997, the Company entered into a definitive
contract with respect to its previously announced agreement in
principle for FelCor Suites Hotels, Inc. to purchase 5 ITT Sheraton
owned hotels for $200 million in cash. The transaction, which
represents the beginning of a long-term strategic alliance between
FelCor and the Company, is expected to be completed by June 30, 1997.
A copy of a press release announcing the signing of the
definitive contract is filed as Exhibit 56 hereto and is incorporated
herein by reference. The definitive contract for the transaction is a
Contract for Purchase and Sale of Hotels dated as of June 5, 1997,
among ITT Sheraton Corporation, certain ITT Sheraton Corporation
subsidiaries and FelCor Suites Limited Partnership, a copy of which is
filed as Exhibit 57 hereto and is incorporated herein by reference.
Additional documentation, which will be executed at the closing of the
transaction, will include a Management Agreement between Sheraton
Operating Corporation and a limited liability company ("FCH L.L.C.")
to be formed by FelCor in respect of each transferred property; a
Lease Agreement between FelCor Suites Limited Partnership and FCH
L.L.C. in respect of each transferred property; and a Revolving Credit
Agreement between FCH L.L.C. and ITT Sheraton Corporation. Copies of
the form of Management Agreement, Lease Agreement and Revolving Credit
Agreement are filed as Exhibits 58, 59 and 60 hereto, respectively,
and are incorporated herein by reference.
<PAGE>
Item 9. Exhibits.
The response to Item 9 is hereby amended by adding the
following new exhibits:
56. Text of Press Release issued by the Company
dated June 9, 1997.
57. Contract for Purchase and Sale of Hotels dated
as of June 5, 1997 among ITT Sheraton
Corporation, certain ITT Sheraton Corporation
subsidiaries and FelCor Suites Limited
Partnership.
58. Form of Management Agreement between FCH L.L.C.
and Sheraton Operating Corporation.
59. Form of Lease Agreement between FelCor Suites
Limited Partnership and FCH L.L.C.
60. Form of Revolving Credit Agreement between FCH
L.L.C. and ITT Sheraton Corporation.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true,
complete and correct.
ITT CORPORATION
By /s/ RICHARD S. WARD
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Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of June 9, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
(56) Text of Press Release issued by the Company
dated June 9, 1997............................
(57) Contract for Purchase and Sale of Hotels
dated as of June 5, 1997 among ITT Sheraton
Corporation, certain ITT Sheraton
Corporation subsidiaries and FelCor Suites
Limited Partnership...........................
(58) Form of Management Agreement between FCH
L.L.C. and Sheraton Operating Corporation
(included as Exhibit K to Exhibit 57
hereto).......................................
(59) Form of Lease Agreement between FelCor
Suites Limited Partnership and FCH L.L.C.
(included as Exhibit L to Exhibit 57
hereto).......................................
(60) Form of Revolving Credit Agreement between
FCH L.L.C. and ITT Sheraton Corporation
(included as Exhibit M to Exhibit 57
hereto).......................................
[EXHIBIT 56]
[ITT Letterhead]
DATE: June 9, 1997
CONTACT: Jim Gallagher
TELEPHONE: 212-258-1261
FOR IMMEDIATE RELEASE
ITT AND FELCOR SIGN DEFINITIVE AGREEMENT FOR
SALE OF 5 HOTELS AS PART OF STRATEGIC ALLIANCE
NEW YORK, NY, June 9, 1997 -- ITT Corporation
(NYSE:ITT) and FelCor Suite Hotels, Inc. (NYSE:FCH) today
announced they have signed a definitive agreement for FelCor to
purchase five ITT Sheraton Hotels for $200 million in cash as
part of a long-term strategic alliance.
Under the terms of the agreement Sheraton will have a
contract to manage the hotels for 20 years. The companies
announced an agreement in principle on May 19. The transaction
is expected to close by June 30.
Under the terms of the strategic alliance, ITT Sheraton will
provide its expertise in the hotel business by helping identify
quality acquisition opportunities for FelCor and by making available
the Sheraton brand through long-term management agreements. FelCor
will provide the capital to acquire certain existing Sheraton Hotels
as well as other hotels that will be converted to the Sheraton brand.
# # #
[EXHIBIT 57]
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CONTRACT FOR PURCHASE AND SALE OF HOTELS
by and Among
ITT SHERATON CORPORATION,
SHERATON SAVANNAH CORP.,
SHERATON PEACHTREE CORP.,
SHERATON CRESCENT CORP.,
SHERATON DALLAS CORP.,
SHERATON GATEWAY SUITES O'HARE
INVESTMENT PARTNERSHIP
and
FELCOR SUITES LIMITED PARTNERSHIP
Dated as of June 5, 1997
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Definitions................................... 1
SECTION 1.02. Definitions Generally......................... 7
ARTICLE II
Purchase and Sale; Assumption of Liabilities
SECTION 2.01. Purchase and Sale............................. 8
SECTION 2.02. Assumed Liabilities........................... 8
ARTICLE III
Purchase Price
SECTION 3.01. Deposit ...................................... 9
SECTION 3.02. Cash to Close................................. 9
SECTION 3.03. Allocations................................... 9
ARTICLE IV
Seller's Deliveries; Buyer's Due Diligence
SECTION 4.01. Property Records.............................. 10
SECTION 4.02. Inspection of Hotels;
Confidentiality Agreements ................. 10
SECTION 4.03. Estoppel Certificates ........................ 12
SECTION 4.04. Access to Hotels ............................. 12
SECTION 4.05. Access to Financial Information............... 13
ARTICLE V
Seller's Representations
SECTION 5.01. Seller's Existence............................ 13
<PAGE>
Page
SECTION 5.02. Survival of Representations and
Covenants.................................. 16
SECTION 5.03. No Other Representations and
Warranties by Seller....................... 17
SECTION 5.04. Obligation To Update......................... 17
ARTICLE VI
Covenants and Affirmative Obligations
SECTION 6.01. Maintenance of Property...................... 18
SECTION 6.02. Assumed Contracts............................ 18
SECTION 6.03. No Further Encumbrances...................... 18
SECTION 6.04. Compliance with Obligations.................. 18
SECTION 6.05. Notice of Change in Governmental
Requirements............................... 19
SECTION 6.06. Insurance.................................... 19
SECTION 6.07. Liquor License............................... 19
SECTION 6.08. Capital Expenditures; Dallas
Hotel...................................... 19
SECTION 6.09. Seller's Indemnity........................... 20
SECTION 6.10. Buyer's Indemnity............................ 20
SECTION 6.11. Indemnity Procedures Relating to
Third Party Claims; Exclusivity............ 20
SECTION 6.12. Additional Buyer Obligations................. 21
SECTION 6.13. Seller Approval Rights....................... 22
ARTICLE VII
Conditions
SECTION 7.01. Conditions to Buyer's Obligation
To Close................................... 23
SECTION 7.02. Failure of Buyer's Conditions................ 23
SECTION 7.03. Conditions to Seller's Obligation
to Close................................... 24
SECTION 7.04. Failure of Seller's Conditions............... 24
<PAGE>
Page
ARTICLE VIII
Closing........................................................ 24
ARTICLE IX
Closing Documents
SECTION 9.01. Seller's Closing Documents ................... 25
SECTION 9.02. Buyer's Closing Documents .................... 26
ARTICLE X
Closing Procedure
SECTION 10.01. Transfer of Funds............................. 26
SECTION 10.02. Delivery of Documents......................... 26
SECTION 10.03. Disbursement of Funds and
Documents................................... 26
ARTICLE XI
Prorations and Closing Costs
SECTION 11.01. Prorations.................................. 27
SECTION 11.02. Seller's Closing Costs...................... 32
SECTION 11.03. Buyer's Closing Costs....................... 32
SECTION 11.04. Accounts Payable ........................... 32
ARTICLE XII
Possession; Risk of Loss....................................... 33
<PAGE>
Page
ARTICLE XIII
Condemnation and Damage by Casualty
SECTION 13.01. Condemnation.................................. 33
SECTION 13.02. Damage by Casualty............................ 33
ARTICLE XIV
Default
SECTION 14.01. Buyer's Default; Liquidated
Damages..................................... 34
SECTION 14.02. Seller's Default.............................. 34
ARTICLE XV
Real Estate and Other Commissions and Fees..................... 35
ARTICLE XVI
Notices........................................................ 36
ARTICLE XVII
Assignment..................................................... 36
ARTICLE XVIII
Escrow Agent
SECTION 18.01. Duties and Authorization...................... 37
SECTION 18.02. Liability..................................... 38
SECTION 18.03. Hold Harmless ................................ 38
SECTION 18.04. FDIC Coverage................................. 38
<PAGE>
Page
ARTICLE XIX
Miscellaneous
SECTION 19.01. Counterparts ................................. 38
SECTION 19.02. Section and Paragraph Headings ............... 38
SECTION 19.03. Amendment .................................... 39
SECTION 19.04. Attorneys' Fees .............................. 39
SECTION 19.05. Governing Law ................................ 39
SECTION 19.06. Entire Contract............................... 39
SECTION 19.07. Time of the Essence .......................... 39
SECTION 19.08. Computation of Time........................... 39
SECTION 19.09. Successors and Assigns........................ 40
SECTION 19.10. No Party Draftsman............................ 40
SECTION 19.11. No Third Party Benefitted..................... 40
EXHIBIT A Title Description
EXHIBIT B Liens and Exceptions
EXHIBIT C Assumed Contracts
EXHIBIT D Opinions on Property
EXHIBIT E Delivered Records
EXHIBIT F Form of Estoppel Certificate
EXHIBIT G Litigation
EXHIBIT H 1997 Capital Budget
EXHIBIT I 1997 and 1998 Operating Forecast
EXHIBIT J [Intentionally Omitted]
EXHIBIT K Form of Management Agreement
EXHIBIT L Form of Lease Agreement
EXHIBIT M Form of Loan Agreement
EXHIBIT N Nondisturbance Agreement
<PAGE>
This CONTRACT FOR PURCHASE AND SALE OF HOTELS
(this "Contract") is made and entered into as of June
5, 1997 (the "Effective Date"), by and among ITT
SHERATON CORPORATION, a Delaware corporation
("Sheraton"), the Subsidiaries of ITT Sheraton
Corporation listed in the signature pages hereto (the
"Sheraton Subsidiaries") and FELCOR SUITES LIMITED
PARTNERSHIP, a Delaware limited partnership (the
"Buyer").
In consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. The following terms when used in
this Contract shall have the following meanings:
Affiliate. With respect to any Person means any other Person
directly or indirectly controlling, controlled by or under common
control with such specified Person or which is a director, officer,
general partner or managing member of such specified Person.
Assignment. The Assignment and Bill of Sale which conveys
all of Seller's right, title and interest in and to the Personal
Property to Buyer or its designee, with full guaranty of title,
subject only to Permitted Exceptions and Permitted Liens.
Assumed Contracts. All service contracts, leases,
installment sales contracts, sales and purchase orders, maintenance
agreements, employment agreements and other agreements relating to the
Property or the use and operation of the Hotels, including those
listed on the attached Exhibit C.
Attorneys' Fees. All reasonable fees charged by attorneys or
law firms for legal services and the services of any paralegals, legal
assistant or law clerks, including without limitation fees charged for
representation in negotiations, at the trial level and in all appeals.
<PAGE>
Buyer's Address. 545 East John Carpenter Freeway, Suite
1300, Irving, Texas 75062. Telephone: (972) 444- 4900; Telecopy: (972)
444-4949.
Buyer's Attorney. Thomas E. Davis. Buyer's attorney's
address is: Bracewell & Patterson LLP, Lincoln Plaza, 500 North Akard
Street, Suite 4000, Dallas, Texas 75201-3387. Telephone: (214)
740-4000; Telecopy: (214) 740-4010.
Cash to Close. The Purchase Price plus all of Buyer's
closing costs specified herein, subject to the adjustments and
prorations set forth herein, less the Deposit.
Closing. The delivery of the Assignment and the Deeds to
Buyer concurrently with the delivery of the Purchase Price to Seller
and the consummation of the other transactions contemplated hereby.
Closing Date. The date of consummation of the transactions
contemplated hereby in accordance with the terms of this Contract;
provided that in no event shall the Closing Date occur later than
August 1, 1997.
control. With respect to any Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled"
shall have correlative meanings.
Deeds. Collectively, the special warranty deeds (or
equivalent) by which Seller conveys the Hotels, together with the
respective Improvements thereon to Buyer.
Deposit. At Buyer's sole option, either (i) an irrevocable
letter of credit in the face amount of $5,000,000 naming Sheraton as
the payee, in a form and from a financial institution acceptable to
Seller and Buyer or (ii) the sum of $5,000,000 cash, together with all
interest earned on said sum while it is held in escrow by Escrow Agent
in accordance with this Contract. Except as specifically provided
herein, any interest earned on the Deposit shall be paid to Buyer at
Closing.
Effective Date. The date this Contract is fully executed by
all parties hereto (including the Escrow Agent) and a fully executed
counterpart thereof is delivered to Buyer and Buyer's Attorney.
<PAGE>
Escrow Agent. The Title Company.
Governmental Authority. Any Federal, state, county,
municipal or other governmental department, entity, authority,
commission, board, bureau, court, agency or any instrumentality of any
of them.
Governmental Requirement. Any law, statute, code, ordinance,
rule, regulation, permit, certificate, license, authorization,
agreement or requirement now existing of any Governmental Authority.
Hazardous Material. Any flammable or explosive materials,
petroleum or petroleum products, oil, crude oil, natural gas or
synthetic gas usable for fuel, radioactive materials, asbestos,
polychlorinated biphenyls (PCB's), hazardous wastes or substances or
toxic wastes or substances, including, without limitation, any
substances now or hereafter defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials",
"toxic materials" or "toxic substances" under any applicable
Governmental Requirement.
Hotels. Collectively, the existing (i) 395-room hotel
located on the College Park Land, (ii) 277-room hotel located on the
Atlanta Land, (iii) 297-room hotel located on the Rosemont Land, (iv)
342-room hotel located on the Phoenix Land and (v) 545-room hotel
located on the Dallas Land together, in each case, with all Land,
Improvements and Personal Property related thereto. Each of the
foregoing is referred to individually herein as a "Hotel".
Improvements. The Hotels together with and including all
structures, fixtures or other improvements on, over or beneath the
Land.
Land. Collectively, the real property located in (i) College
Park, Clayton County, Georgia (the "College Park Land"), more
particularly described in the attached Exhibit A-1, (ii) Atlanta, Cobb
County, Georgia (the "Atlanta Land"), more particularly described in
the attached Exhibit A-2, (iii) Rosemont, Cook County, Illinois (the
"Rosemont Land"), more particularly described in the attached Exhibit
A-3 (iv) Phoenix, Maricopa County, Arizona (the "Phoenix Land"), more
particularly described in the attached Exhibit A-4 and (v) Dallas,
Dallas County, Texas, more particularly described in the attached
Exhibit A-5.
<PAGE>
Lease Agreements. The lease agreements to be entered into
with respect to each Hotel substantially in the form of Exhibit L
hereto.
Lessee. The lessee under the Lease Agreements or any
successor to such entity as the holder of the lessee's interest under
the Lease Agreements.
Loan Agreement. A revolving credit agreement substantially
in the form of Exhibit M hereto.
Management Agreement. The Management Agreements to be
entered into with respect to each Hotel substantially in the form of
Exhibit K hereto.
Manager. ITT Sheraton Operating Corporation, as Manager
under the Management Agreement.
Material Damage. Unrepaired damage as a result of fire or
other casualty to all or any portion of any Hotel having an aggregate
value in excess of $4,000,000.
Material Portion. All or any portion of any Hotel that
represents at least 25% of the assessed value for Tax purposes of such
Hotel.
Net Operating Income. The "Net Operating Income" for the
Hotel located on the Dallas Land, as such term is defined in the Lease
Agreement for such Hotel as in effect on the Closing Date.
1997 Capital Budget. The 1997 Budget of Capital Expenditures
for the each of Hotels attached as Exhibit H.
1997 Operating Budget. The 1997 Budget of operating expenses
for each of the Hotels attached as Exhibit I.
NonDisturbance Agreement. A Nondisturbance and Attornment
Agreement substantially in the form of Exhibit N hereto.
Permitted Exceptions. The title exceptions (including those
described in Exhibits B-1 through B-5 hereto) described in the
Delivered Records or otherwise identified by Buyer prior to the Review
Period (including the pending condemnation proceeding with respect to
a road widening at the Phoenix Land) if not objected to in writing by
Buyer prior to, or concurrent with, Buyer's termination of this
Contract pursuant to Section 4.02(b).
<PAGE>
Permitted Liens. All liens, security interests, claims,
charges and encumbrances (i) pertaining to the Assumed Contracts, (ii)
which are mechanics', carriers', workmen's, repairmen's or other like
liens arising or incurred in the ordinary course of business for
amounts not due and payable, (iii) arising under conditional sales
contracts and equipment leases with third parties entered into in the
ordinary course of business, (iv) for Taxes, assessments and other
governmental charges (A) which are not due and payable, (B) which may
thereafter be paid without penalty or (C) which are being contested in
good faith by appropriate proceedings and (v) which are other
imperfections of title or encumbrances expressly permitted hereunder
or which do not materially impair the continued use and operation of
the Hotel to which they relate.
Personal Property. All items of personal property located on
the Land or owned by Seller and used in connection with the operation
of the Hotels, but excluding therefrom the personal property that
belongs to tenants, guests, contracting parties under the Assumed
Contracts and vending arrangements, and employees. Such items of
personal property shall include, but not be limited to: (i) all
fixtures, furnishings, building materials, machinery, equipment,
telephones, televisions, computers, glass, tools, silver, china,
glassware, utensils, towels, linens, signs, transferable licenses and
permits, telephone numbers, trade names (but excluding the words
"Sheraton", "Sheraton Suites" and any other trade names currently used
in respect of the Property that are also currently used in respect of
other property owned by Seller), motor vehicles, inventories, food and
beverages in process and all other articles of personal property now
or hereafter attached or appurtenant to the Land and Improvements or
used in connection with the use or operation thereof, including any
Property Records, drawings, as-built plans and specifications and all
permits and warranties in the possession of Seller, (ii) all
attachments, appliances, fittings, lighting fixtures, doors, cabinets,
elevators, flagpoles, sprinkler, plumbing, heating, air conditioning,
electrical, ventilating, lighting, incinerating, vacuum cleaning,
refrigerating and cooling systems, vaults, safes, carpets, floor
coverings, together with all parts and supplies pertaining thereto,
and (iii) the Property Records.
Property. Collectively, the Hotels, the Land, the
Improvements and the Personal Property.
<PAGE>
Property Records. The Property Records shall be each of the
following, to the extent such is in the Seller's possession or
control:
(a) all operating statements (including income and expense
statements) and financial statements (for the most recent
three-year period), existing operating capital expenditure
budgets and other books and records for the Property, including
all guest registration cards, guest transcripts, guest histories
and all other available guest information;
(b) all engineering and architectural plans, specifications
and drawings and as-built plans pertaining to the Property (the
"Plans");
(c) all advance reservations and trade-out agreements for
hotel rooms, meetings, conventions, and the use of facilities for
banquets, parties, affairs and the like which extend to a period
beyond the Closing Date;
(d) copies of all assignable guarantees and warranties
issued or made in connection with the construction, improvement,
alteration, equipment and repair of any improvements comprising a
part of the Property, schedule of work currently in progress and
expected completion dates;
(e) copies of all certificates of occupancy, licenses,
permits, authorizations and approvals required by law for the
current operation of the Property, and issued by all Governmental
Authorities having jurisdiction and copies of all certificates
issued by the local board of fire underwriters (or other body
exercising similar functions);
(f) copies of all Assumed Contracts;
(g) all existing environmental audits, engineering
reports, ADA compliance reports, similar studies,
notices and information concerning the condition of the
Improvements and any Hazardous Material on or about the
Property; and
(h) copies of all existing title reports, surveys
and engineering and structural reports in respect of
the Property.
<PAGE>
Purchase Price. Two hundred million Dollars ($200,000,000).
Seller. With respect to each Hotel, each Sheraton Subsidiary
which has any right, title or interest in or to such Hotel and
Sheraton (it being understood that wherever the term "Seller" is used,
Sheraton and such Sheraton Subsidiary are jointly and severally
responsible and liable with respect to the statement, agreement
covenant, representation and/or warranty being made pursuant to the
terms of this Contract).
Seller's Address. ITT Sheraton Corporation, 60 State Street,
Boston, Massachusetts 02109 (Telephone: (617) 367-3600) Attention:
General Counsel.
Seller's Attorney. Kevin J. Grehan at the following mailing
address: Cravath, Swaine & Moore, 825 Eighth Avenue, New York, NY
10019 (Telephone: (212) 474-1490) and Patrick Donnelly at the
following mailing address: ITT Corporation, 1330 Avenue of the
Americas, New York 10019 (Telephone: (212) 258-1730).
Tax. Any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, franchise,
capital, paid-up capital, profits, greenmail, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax
or additional amount imposed by any governmental authority (domestic
or foreign) responsible for the imposition of any such tax.
Title Company. Commonwealth Land Title Insurance Company,
14643 Dallas Parkway, Suite 101, LB 61, Dallas Texas 75240, Attention:
Rick Wilson or LeAnn Turrentine.
SECTION 1.02. Definitions Generally. Definitions in this
Contract apply equally to both the singular and plural forms of the
defined terms. The words "include" and "including" shall be deemed to
be followed by the phrase "without limitation" when such phrase does
not otherwise appear. The terms "herein", "hereof" and "hereunder" and
other words of similar import refer to this Contract as a whole and
not to any particular section, paragraph or subdivision. All article,
section, paragraph, clause, exhibit or schedule references not
attributed to a
<PAGE>
particular document shall be references to such parts of this
Contract.
ARTICLE II
Purchase and Sale; Assumption of Liabilities
SECTION 2.01. Purchase and Sale. On the terms and subject to
the conditions set forth herein, Seller agrees to sell and convey the
Property to Buyer and Buyer agrees to purchase and acquire the
Property from Seller.
SECTION 2.02. Assumed Liabilities. (a) Buyer shall assume as
of the Closing Date and shall pay, perform and discharge when due, and
shall indemnify Seller and its Affiliates against and hold them
harmless from, all obligations and liabilities of whatever kind and
nature, primary or secondary, direct or indirect, absolute or
contingent, known or unknown, of the Seller arising out of or
attributable to the ownership or operation of the Property (including
the use or operation of each Hotel) on or after the Closing Date (the
"Assumed Liabilities"), including, without limitation, the following:
(i) all obligations and liabilities of the Seller under the
Assumed Contracts that have not accrued prior to the Closing
Date;
(ii) all liabilities to customers with respect to all
unrefunded cash deposits paid by such customers to Seller prior
to the Closing Date and paid by Seller to Buyer pursuant to
Section 11.01 hereof.
(iii) all claims, obligations and liabilities relating to
the use or operation of the Hotels or arising out of Property at
any time on or after the Closing Date;
(iv) all obligations and liabilities with respect to Taxes
relating to the Property with respect to any period that is not a
Pre-Closing Tax Period; provided, however, that the Buyer will
not assume liability for any Taxes relating to the Property with
respect to any Pre-Closing Tax Period except as set forth in
Section 11.01 of this Contract. A "Pre-Closing Tax Period" shall
mean all taxable periods ending on or before the Closing Date and
the portion ending on the Closing Date of any taxable period that
includes (but does not end on) such day. In the case of any
taxable
<PAGE>
period that includes (but does not end on) the Closing Date (a
"Straddle Period"): (i) real, personal and intangible property
Taxes ("Property Taxes") relating to the Property with respect to
the Pre-Closing Tax Period shall be equal to the amount of such
Property Taxes for the entire Straddle Period multiplied by a
fraction, the numerator of which is the number of days in the
Pre-Closing Tax Period and the denominator of which is the number
of days in the applicable Straddle Period and (ii) Taxes (other
than Property Taxes) relating to the Property with respect to the
Pre- Closing Tax Period shall be computed as if such taxable
period ended as of the close of business on the Closing Date; and
(v) all capital expenditures made or incurred by Seller (or
to be made by Seller) from and after January 1, 1997 in
accordance with the 1997 Capital Budget to the extent that such
amounts exceed $3,000,000, regardless of whether such amount was
paid or incurred prior to the Closing Date.
Buyer's obligations under this Section 2.02 will not be subject to
offset or reduction by reason of any actual or alleged breach of any
representation, warranty or covenant contained in this Contract or any
document delivered in connection herewith or any right or alleged
right to indemnification hereunder.
ARTICLE III
Purchase Price
The Purchase Price shall be paid as follows:
SECTION 3.01. Deposit. Concurrently with the execution of
this Contract by Buyer, Buyer shall deliver to Escrow Agent the
Deposit, together with a completed and executed W-9 Form for the
Buyer. Provided that Buyer has not terminated this Contract pursuant
to Section 4.02(b) on or before the last day of the Review Period (as
defined below), the Deposit shall become nonrefundable to Buyer except
as expressly set forth in Section 7.02, Article XIII or Article XIV
hereof.
SECTION 3.02. Cash to Close. The Cash to Close shall be paid
to Seller in accordance with the closing procedure hereinafter set
forth.
<PAGE>
SECTION 3.03. Allocations. Seller shall determine, in its
sole discretion, the allocation of the Purchase Price among the Hotels
consistent with Section 1060 of the Internal Revenue Code, as amended
and the regulations thereunder. Seller shall deliver to Buyer the
allocation of the Purchase Price among the Hotels and, as a component
thereof, a proposed allocation between the real property and Personal
Property at each Hotel (the "Proposed Allocation") as soon as
practicable after the Closing Date. Within 10 days after the receipt
of such Proposed Allocation, Buyer shall propose any changes to such
Proposed Allocation (but not with respect to any allocation other than
Seller's allocation among Land, Improvements and Personal Property).
Any disputes with respect to the Proposed Allocation which Buyer and
Seller, acting in good faith, are thereafter unable to resolve shall
be conclusively resolved by an independent appraisal firm mutually
acceptable to Buyer and Seller. The fees and expenses of such
appraisal firm shall be borne equally by Seller and Buyer. Neither
Buyer nor Seller (nor any of their respective affiliates or
representatives) shall take any position on any tax return, including
Form 8594, or with any taxing authority or in any judicial proceeding
that is inconsistent with the allocation of the Purchase Price as
finally determined pursuant to this Section 3.03. Buyer shall deliver
to Seller, and Seller shall deliver to Buyer, a signed copy of Form
8594 at least 10 days prior to the filing thereof.
ARTICLE IV
Seller's Deliveries; Buyer's Due Diligence
SECTION 4.01. Property Records. Seller has previously
delivered or made available to Buyer the items described on the
attached Exhibit E (the "Delivered Records"), which items have been
reviewed by Buyer. If Seller obtains or becomes aware of any
additional Property Records, Seller shall deliver or make available
such additional Property Records to Buyer as soon as practicable, but
in no event later than June 15, 1997, and such records shall thereupon
become, and be deemed to be part of, the Delivered Records.
SECTION 4.02. Inspection of Hotels; Confidentiality
Agreements. (a) During the period from the Execution Date through and
including June 20, 1997 (the "Review Period"), Buyer and Buyer's
agents and representatives shall be given reasonable access to the
Hotels during normal business hours and shall have the right
<PAGE>
to physically inspect the Property and to conduct, at Buyer's sole
cost and expense, soil tests and other nondestructive inspections
provided that such tests and inspections shall be (i) coordinated
through Seller in advance, (ii) performed by persons reasonably
satisfactory to Seller and who shall have obtained or be otherwise
covered by adequate insurance for any costs, losses or damages arising
while on Seller's property and (iii) performed in a manner that does
not unreasonably interfere with the use and occupancy of the Hotels by
Seller, by guests or patrons of the Hotels, or by tenants. In the
event that the Closing does not occur for any reason, Buyer shall have
the obligation promptly to restore (at Buyer's expense) the Property
to the condition of such Property prior to Buyer's entry (other than
changes in the condition of the Property not caused by Buyer's entry),
which obligation shall survive any termination of this Contract. Buyer
covenants and agrees that the Property shall not be damaged or
impaired in any way as the result of its activities on the Hotels'
premises, and hereby agrees to indemnify and hold Seller and its
Affiliates harmless from and against any claims, causes of action,
damages and expenses (including attorneys' fees) to the extent
incident to, resulting from or in any way arising out of (i) Buyer's
presence (or the presence of) Buyer's agents or representatives in, on
or about the Property, or (ii) out of any test or inspection conducted
by Buyer on the Property. Such indemnity shall survive the Closing or
any termination of this Contract and not be merged therein.
(b) Buyer shall have until the end of the Review Period to
notify Seller in writing of any material adverse conditions relating
solely to (i) the state of title with respect to the Property,(ii) the
status of environmental compliance of the Property or (iii) the
structural or engineering aspects of the Improvements (including the
Hotels) as the property that Buyer has discovered as a result of
Buyer's inspections pursuant to Section 4.02(a) or Buyer's review of
the Delivered Records. If, on or before the end of the Review Period,
Buyer shall notify Seller of any such conditions, Seller may elect to
cure such conditions within 10 days after the date on which Seller
received notice of Buyer's objections and, following such election,
shall use reasonable efforts to cure such conditions no more than 90
days following such election. If Seller shall not have cured such
conditions within such 90 days (the "Cure Period") to Buyer's
reasonable satisfaction, Buyer may terminate this Contract by written
notice to Seller at any time within 10 days after the expiration of
the Cure Period. If Buyer fails to notify Seller of any
<PAGE>
such conditions on or before the end of the Review Period or if Buyer
fails to notify Seller that it is not satisfied with the cure of any
adverse conditions within 10 days after the Cure Period, Buyer shall
be deemed to have approved all such matters and to have waived its
right to terminate this Contract under this Section 4.02. If Buyer
terminates this Contract pursuant to this Section, Seller shall be
entitled to retain (and, to the extent it has not already done so,
Buyer shall deliver to Seller) all Delivered Records, including all
reports and studies prepared by third parties relating to the Property
resulting from the inspection of the Property and all documents
delivered to Buyer pursuant to Section 4.01 hereof. The Deposit shall
be returned to Buyer within five days after any such termination and
neither party shall have any further rights or obligations one to the
other, except for the indemnity set forth in Section 4.02(a). If Buyer
does not terminate this Contract as provided herein, Buyer shall be
deemed to have waived the right to terminate this Contract under this
Section and shall be deemed to have accepted and approved the
condition of the Property, subject to the remaining terms of this
Contract and the Deposit shall become nonrefundable to Buyer, subject
only to Section 7.02, Article XIII and Article XIV hereof.
(c) The terms of this Contract and all information furnished
by Seller to Buyer in accordance with the provisions of this Contract
or obtained by Buyer in the course of its investigations shall be
treated as confidential information by Buyer, except that Buyer may
disclose such information to prospective investors and lenders, as
well as attorneys and other parties assisting or representing Buyer in
connection with the subject transaction (so long as all such persons
agree to be bound by the provisions of this Section 4.02(c)). The
foregoing obligation to treat such information as confidential shall
survive any termination of this Contract but shall not survive the
Closing.
SECTION 4.03. Estoppel Certificates. Seller shall employ
reasonable good-faith efforts to obtain from each tenant under any
space lease affecting the Property (but not from current or
prospective occupants of hotel rooms and suites within the Hotels)
that is binding upon Seller for a period of one year or more after the
Closing Date or is otherwise material to the Property and to deliver
to Buyer not less than five days before the Closing Date, an estoppel
letter substantially in the form attached to this Contract as Exhibit
F. In the event that Seller is unable to obtain an estoppel letter
from any such tenant before the
<PAGE>
Closing Date, Seller shall deliver to Buyer a certificate in which
Seller certifies, to the best of Seller's actual knowledge, the
information required by the form of estoppel letter attached to the
Contract as Exhibit F.
SECTION 4.04. Access to Hotels. After the Review Period,
Buyer and Buyer's authorized representatives and employees shall have
the right, at Buyer's sole cost, risk and expense, from time to time
to enter upon and pass through the Hotels during normal business hours
and upon reasonable prior notice to Seller to view the physical
condition of the Hotels solely for the purpose of confirming the
satisfaction of the conditions described in Sections 7.01(a) and
7.01(c). Buyer and its representatives and employees shall not
unreasonably interfere with the operation of the Hotels or the right
to privacy of guests of the Hotels. Nothing contained herein is deemed
to create a right of the Buyer to terminate this Contract after the
Review Period.
SECTION 4.05. Access to Financial Information. Buyer's
representatives shall have access to all financial and other
information relating to the Hotels to enable them to prepare, at
Buyer's expense, audited financial statements in conformity with
Regulation S-X (as applicable to FelCor Suite Hotels, Inc.) of the
Securities and Exchange Commission (the "SEC") and to enable them to
prepare a registration statement, report or disclosure statement for
filing with the SEC on behalf of FelCor Suite Hotels, Inc., Buyer's
general partner. Seller shall also provide to Buyer's representatives
a signed representation letter sufficient to enable an independent
public accountant to render an opinion on the financial statements
related to the Hotels. Buyer will indemnify Seller and its Affiliates
(under a customary form of indemnity) with respect to any use of such
information.
<PAGE>
ARTICLE V
Seller's Representations
Each Sheraton Subsidiary represents and warrants to Buyer
with respect to the Property to be transferred by such Sheraton
Subsidiary, and Sheraton represents and warrants to Buyer with respect
to all of the Property, as of the date hereof and as of the Closing
Date, as follows (to the extent that such representations and
warranties are expressly qualified by reference to Seller's knowledge,
then, unless otherwise indicated, such reference shall be to the
current, actual knowledge of William Hines, Tom Curley or the general
manager or chief engineer of each Hotel (without any inquiry by Seller
other than of such persons) and the relevant representation and
warranty shall be the joint and several representation and warranty of
Sheraton and the applicable Sheraton Subsidiary as to the particular
Property).
SECTION 5.01. (a) Seller's Existence. Sheraton is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware. Each Sheraton Subsidiary is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation as indicated
on Schedule I hereto. Seller has the corporate power and authority to
execute, deliver and perform this Contract and the other documents and
agreements contemplated hereby. Each Sheraton Subsidiary is duly
licensed or qualified to do business and is in good standing in the
state in which its respective Hotel is located.
(b) Litigation. Except as set forth on Exhibit G, there are
no actions, suits, proceedings or investigations (including
condemnation proceedings) that are material in relation to any Hotel
pending or, to the knowledge of Seller, threatened against the
Property and Seller is not aware of any facts which might result in
any such action, suit or proceeding. If Seller is served with process
or receives notice that any such material litigation may be commenced
against the Property, Seller shall promptly notify Buyer.
(c) Hazardous Material. Except for (i) those matters
specified in Seller's existing environmental reports which form a part
of the Delivered Records and (ii) the handling, use and storage of
Hazardous Material in the ordinary course of operating the Hotels,
which in each instance has been and shall be in material compliance
with
<PAGE>
all applicable Governmental Requirements, (A) Seller has received no
written notice, and has no knowledge, of any discharge, spill, or
disposal of any Hazardous Material on or under the Property and (B)
Seller has received no written notice from any Governmental Authority
or any other party, and has no knowledge, of any violations of
Governmental Requirements regarding Hazardous Materials concerning the
Property or any portion thereof.
(d) No Rights To Purchase. Except as set forth in the
Delivered Records or Exhibit D, no other person, firm, corporation, or
other entity has any right of first refusal or option to acquire the
Property or any portion thereof or lease any space therein.
(e) Assumed Contracts. The schedule of Assumed Contracts
attached to this Contract as Exhibit C (copies of which are included
in the Delivered Records) constitutes a list of all of the material
agreements, leases, or other material contracts affecting the Property
and there are no other agreements, leases or other material contracts
with respect to the Property that (i) are not terminable without
penalty on 30 days' notice or less or (ii) subject Seller or the
Property to an aggregate liability in excess of $50,000. All of the
foregoing agreements, leases, or other contracts are in full force and
effect, and to the best of Seller's knowledge, there is no material
default by any party under any Assumed Contract and no event has
occurred that, with the giving of notice or passage of time, or both,
would constitute a material default thereunder. Seller has received no
notice that any party to any Assumed Contract intends to cancel or
terminate its Assumed Contract. Anything in this Contract to the
contrary notwithstanding, Seller shall not assign any Assumed contract
or any claim or right or any benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the consent of a
third party thereto, would constitute a breach or other contravention
thereof or in any way adversely affect the rights of Buyer or Seller
thereunder. Seller and Buyer will use reasonable best efforts (but
without any payment of money by Seller or Buyer) to obtain the consent
of the other parties to any such Assumed Contract or any claim or
right or any benefit arising thereunder for the assignment thereof to
Buyer as Buyer may reasonably request. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective
or that Buyer would not in fact receive all such rights, Seller and
Buyer will cooperate in a mutually agreeable arrangement under which
Buyer would obtain the benefits and assume the obligations thereunder
in accordance with this Agreement, including sub- contracting,
sub-licensing, or sub-leasing to buyer, or under which Seller would
enforce for the benefit of Buyer, with Buyer assuming Seller's
obligations, any and all rights of Seller against a third party
thereto.
(f) Financial Statements. The financial statements for each
Hotel delivered to Buyer, for the current year and each of the three
years prior to the date of this Contract, were prepared in accordance
with generally accepted accounting principles consistently applied in
all material respects or the Uniform System of Account for Hotels. To
Seller's knowledge, no work of a material nature has been performed at
a Hotel which could give rise to the filing of a mechanic's lien which
is not reflected as a liability on such financial statements.
(g) Notices. Seller has received no written notice from any
Governmental Authority, any insurer, or any other party (A) that
either the Property or the use or operation thereof is currently in
violation of any zoning or other land use regulations, (B) that Seller
is currently in violation, or with the passage of time will be in
violation of the requirements of any ordinance, law, regulation or
order of any Governmental Authority affecting the Property or that any
investigation has commenced or is contemplated regarding any such
possible violation, or (C) asserting that Seller is required to
perform work at the Property or obtain any permit, license,
certificate or authority to cure or avoid any such violation; provided
that Seller shall not be deemed to have breached the representations
in clauses (A) or (B) above unless the applicable violation is
material in relation to any Hotel.
(h) Parties in Possession. Other than (i) Hotel guests and
(ii) as described in the Delivered Records, there are no parties other
than Seller in possession of any portion of the Land or Improvements
as lessees, tenants at sufferance or trespassers.
(i) Commitments to Governmental Authorities. Except as set
forth in the Delivered Records (i) no commitments relating to the
Property that are material in relation to any Hotel have been made to
any Governmental Authority, utility company, school board, church or
other religious body or any homeowner or homeowners association,
merchant's association or any other organization, group or individual
which would impose an obligation upon Buyer or its successors or
assigns to make any contribution or dedication of money or land or to
construct, install or maintain any improvements of a public or private
nature on
<PAGE>
or off the Land and (ii) no Governmental Authority has imposed any
requirement that is material in relation to any Hotel that any owner
of the Land pay directly or indirectly any special fees or
contributions or incur any expenses or obligations in connection with
the Land.
(j) Ownership and Condition of Property. Seller owns good
and insurable title to the Property, subject only to Permitted Liens
and Permitted Exceptions. To Seller's knowledge, except for those
matters set forth in the 1997 Capital Budget or 1997 Operating Budget,
each of the Hotels is in materially good operating condition, and
there is no material defect in the condition of any Hotel, or any
portion thereof, which has not been corrected or which reasonably
could be expected to materially impair the operation of such Hotel. To
Seller's knowledge, except for those matters set forth in the 1997
Capital Budget or 1997 Operating Budget, the Personal Property at
Hotels is in materially good operating condition and of sufficient
quantity and quality for the use on the Closing Date in the usual
course of business of each Hotel.
SECTION 5.02. Survival of Representations and Covenants. All
of the representations and warranties of the Seller set forth in this
Contract shall be true and correct in all material respects as of the
Effective Date, in the case of 5.01(a), 5.01(c) and 5.01(j) only,
shall be deemed to be repeated at and as of the Closing Date, and
shall be true and correct in all material respects as of the Closing
Date, except as disclosed to Buyer prior to such date and (iii) shall
expressly survive the Closing for a period of six months from and
after the Closing Date and shall specifically not merge into the
Closing and delivery of the Deeds and Assignment. Except as expressly
provided herein, all of the covenants and agreements of the Buyer and
Seller set forth in this Contract shall expressly survive for an
indefinite period after the Closing and shall specifically not merge
into the Closing and the delivery of the Deeds and Assignment.
SECTION 5.03. No Other Representations and Warranties by
Seller. Buyer acknowledges that except as specifically stated in this
Contract: (a) Seller has not made any warranties or representations
concerning the Property, the Assumed Liabilities or any component
thereof, including without limitation (i) the operation, the
existence, location, quantity or condition of the Personal Property,
(ii) the completion, status of completion or soundness of the
Improvements, (iii) the zoning or other land use restrictions
affecting the Property, (iv) the
<PAGE>
enforceability of any contract or other agreement or right (including
the Assumed Contracts) assigned hereunder, (v) the compliance of the
Property or any part thereof with any Governmental Requirement or (vi)
the use or existence or prior use or existence of Hazardous Material
on the Property, (b) Buyer has conducted (or has had the opportunity
to make) its own inspection and examination of the Property and all
components thereof, and (c) Buyer acknowledges that it will accept,
subject to the terms hereof, the Property and the Assumed Liabilities
in an "AS IS" condition as of the Effective Date (normal wear and tear
excepted). EXCEPT AS SPECIFICALLY PROVIDED FOR HEREIN, THERE ARE NO
EXPRESSED OR IMPLIED WARRANTIES GIVEN TO BUYER IN CONNECTION WITH THE
SALE OF THE PROPERTY OR THE ASSUMPTION OF THE ASSUMED LIABILITIES.
EXCEPT AS SPECIFICALLY PROVIDED FOR HEREIN, SELLER DOES HEREBY
DISCLAIM ANY AND ALL WARRANTIES OF MERCHANTABILITY, HABITABILITY AND
FITNESS THAT MAY BE DUE FROM SELLER TO BUYER, WHETHER IN REGARD TO THE
IMPROVEMENTS OR THE PERSONAL PROPERTY. THIS SECTION 5.03 SHALL SURVIVE
THE CLOSING.
SECTION 5.04. Obligation To Update. From the period
following the Effective Date to and including the Closing Date, Seller
agrees promptly to notify Buyer upon Seller becoming aware (i) that
any representation or warranty of Seller made herein was not true when
made or (ii) of the occurrence of any event that would make any of
Seller's representations or warranties contained herein untrue if made
as of such later date and, in either case, shall provide Buyer with
reasonable detail with respect thereto.
ARTICLE VI
Covenants and Affirmative Obligations
SECTION 6.01. Maintenance of Property. From and after the
Effective Date, Seller shall not perform any construction or removal
of any Improvements, or make any other change or improvement on or
about the Property, except in accordance with the 1997 Capital Budget
or the 1997 Operating Budget, without the prior written consent of
Buyer. Between the Effective Date and the Closing Date, Seller shall
maintain and operate the Property in substantially the same condition
and manner as the Property is now maintained and operated by the
Seller. All building supplies, maintenance materials, food and
beverage in process, linens and equipment, if any, located at the
Property on the Closing Date will be delivered and
<PAGE>
transferred to the Buyer. The Seller agrees to provide or maintain
normal inventories of such items up to the Closing Date, including at
least a 3-par inventory of linens and towels.
SECTION 6.02. Assumed Contracts. After the Effective Date,
other than agreements terminable without penalty on no more than 30
days' notice, Seller shall not enter into any new Assumed Contract or
extend, replace, renew or terminate any Assumed Contract without the
prior written consent of Buyer, such consent of Buyer not to be
unreasonably withheld.
SECTION 6.03. No Further Encumbrances. After the Effective
Date, Seller shall not create or incur any mortgage, lien, pledge or
other encumbrance affecting the Property other than the exceptions set
forth on the title policies comprising part of the Delivered Records
and Permitted Liens.
SECTION 6.04. Compliance with Obligations. Seller will
perform all of its material obligations under the Assumed Contracts
and will comply in all material respects with all Governmental
Requirements affecting the Property and its use until the Closing
Date.
SECTION 6.05. Notice of Change in Governmental Requirements.
Seller shall, upon notice, or upon becoming aware of any such changes,
notify Buyer promptly of any change in any applicable Governmental
Requirements which might affect the value or use of the Property to
Buyer in a manner that is material in relation to any Hotel.
SECTION 6.06. Insurance. Seller shall maintain in full force
and effect all of its existing insurance (or renew such insurance on
substantially similar terms) until the Closing Date.
SECTION 6.07. Liquor License. The Buyer shall make and
prosecute (and Seller will cooperate in connection therewith)
applications for approval of the transfer of all liquor licenses and
alcoholic beverage licenses necessary to operate the restaurants, bars
and lounges presently located within the Property, from the Seller to
the Buyer (or for the issuance of new licenses in favor of the Buyer
or its designee). The parties agree that they will promptly execute
all transfer forms, applications and other documents required by the
liquor authorities in order to effect such transfer in accordance with
all applicable laws at the earliest possible time after the Closing
Date. Seller will
<PAGE>
reasonably cooperate with the Buyer in keeping open the bars and
lounges and liquor facilities of the Hotel between the Closing Date
and the time when such liquor license transfers actually become
effective, by exercising management and supervision of such facilities
under the existing liquor license; provided, however, that (i) Buyer
shall indemnify and hold Seller harmless from any liability, damages
or claims encountered in connection with such operations during such
period, and Buyer shall procure and pay for dram shop liability
insurance naming Buyer and Seller as insured thereunder, and (ii) the
obligation of Seller to cooperate and keep open the liquor facilities
of any particular Hotel shall terminate on the earlier to occur of (A)
180 days after the Closing and (B) Buyer having obtained liquor
licenses to operate at such Hotel.
SECTION 6.08. Capital Expenditures; Dallas Hotel. (a) Seller
shall commence and use reasonable efforts to complete the capital
expenditures set forth in the 1997 Capital Budget in accordance with
the development timetable set forth therein; provided that Buyer
hereby agrees that all amounts in excess of $3,000,000 paid or
incurred by Seller in 1997 for capital expenditures in respect of the
Hotels shall constitute Assumed Liabilities hereunder and, to the
extent such amounts are paid by Seller prior to the Closing Date, such
amounts shall be included in the Closing Date Adjustment pursuant to
Section 11.01 hereof.
(b) In the event that the Hotel located on the Dallas Land
shall fail to generate Net Operating Income for the portion of fiscal
year 1997 following the Closing Date in excess of 98% of the amount
projected therefor in the 1997 Capital Budget and 1997 Operating
Budget (the amounts in such 1997 Capital Budget and 1997 Operating
Budget being adjusted in a pro rata basis for each day after June 30,
1997 that the Closing Date shall not have occurred), then Seller shall
agree to pay to Buyer an amount equal to all capital expenditures to
be made with respect to such Hotel in accordance with the 1997 Capital
Budget (as so adjusted); provided, however, that in no event shall
Seller's aggregate liability pursuant to this Section 6.08(b) exceed
$1,500,000.
SECTION 6.09. Seller's Indemnity. Subject to the terms of
Section 5.03, Seller agrees to indemnify and hold Buyer and its
Affiliates harmless of and from all liabilities, losses, damages,
costs, expenses (including reasonable attorney's fees) which the Buyer
or any of its Affiliates may suffer or incur by reason of any action
or claim arising from acts or omissions of Seller (or any of
<PAGE>
its Affiliates) prior to the Closing Date in connection with the
Property or the use or operation of the Hotels and all liabilities in
respect of the Property or the operation of the Hotels that are not
Assumed Liabilities or Seller's failure to fulfill any of its
obligations set forth in this Contract.
SECTION 6.10. Buyer's Indemnity. Buyer agrees to indemnify
and hold Seller and its Affiliates harmless of and from all
liabilities, losses, damages, costs, expenses (including reasonable
attorney's fees) which Seller or any of its Affiliates may suffer or
incur by reason of any action or claim arising on or after the Closing
Date from acts or omissions of Buyer or otherwise arising out of the
Property or the use or operation of the Hotels on or after the Closing
Date, including Buyer's failure to discharge any of the Assumed
Liabilities or Buyer's failure to fulfill any of its obligations set
forth in this Contract.
SECTION 6.11. Indemnity Procedures Relating to Third Party
Claims; Exclusivity. (a) The party seeking indemnification under this
Section 6.11 (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party")
of the assertion of any claim, or the commencement of any suit, action
or proceeding in respect of which indemnity may be sought under this
Section. The Indemnifying Party may, and at the request of the
Indemnified Party shall, participate in and control the defense of any
such suit, action or proceeding at its own expense. The Indemnifying
Party shall not be liable under this Section 6.11 for any settlement
effected without its consent of any claim, litigation or proceeding in
respect of which indemnity may be sought hereunder.
(b) After the Closing, Section 6.11 will provide the
exclusive procedures for indemnification for any liabilities, losses,
damages, costs, losses or expenses to third parties arising out of
this Contract, the Property, the business conducted at the Hotel or
the transactions contemplated hereby.
SECTION 6.12. Additional Buyer Obligations. (a) Buyer agrees
that for a period of three years from the date hereof, neither it nor
any of its Affiliates shall, directly or indirectly, alone or with
others, without Seller's prior written consent, (i) in any manner
acquire, agree to acquire or make any proposal to acquire, directly or
indirectly, any securities or assets (other than assets transferred in
the ordinary course of business) of ITT
<PAGE>
Corporation ("ITT") or any of its subsidiaries, (ii) form, join or in
any way participate in a "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934) with respect to any
voting securities of ITT or any of its subsidiaries, (iii) make or
participate in any solicitation of proxies to vote, or seek to advise
or influence any person with respect to the voting of any voting
securities of ITT or any of its subsidiaries (iv) initiate or propose
any shareholder proposal or execute any written consent with respect
to ITT or any of its subsidiaries, (v) submit, propose or publicly
announce or refer to any such takeover proposal with respect to ITT or
any of its subsidiaries or take any other action which might require
ITT or any of its subsidiaries to make a public announcement regarding
the possibility of such takeover proposal or related transaction, (vi)
deposit any securities of ITT or any of its subsidiaries into a voting
trust or subject any such securities to any arrangement or agreement
regarding the voting thereof, (vii) seek election to, or seek the
removal of any member of, the board of directors of ITT or any of its
subsidiaries or otherwise act or seek to control or influence the
Board of directors, management or policies of ITT or any of its
subsidiaries, (viii) disclose any intention, plan or arrangement
inconsistent with the foregoing, (ix) knowingly or intentionally
advise, assist or encourage any other persons in connection with any
of the foregoing or (x) request either ITT or any of its subsidiaries
(or their respective directors, officers, employees, agents or
representatives) to amend or waive any provision of this paragraph or
their charter or by-laws or, in the case of ITT, the Rights Agreement
dated November 1, 1995, between ITT and The Bank of New York, as
Rights Agent.
(b) In addition, Buyer agrees for a period ending earlier to
occur of five years after the Closing Date or termination of the
Management Agreement applicable to the Hotel or Hotels proposed to be
transferred as described below, that it shall not sell, lease,
transfer or otherwise dispose of all or any portion of the Property
except as expressly permitted pursuant to the terms of the Management
Agreement applicable to such Hotel or Hotels.
SECTION 6.13. Seller Approval Rights. Seller and Buyer agree
that from and after the Effective Date, Buyer shall not, without the
prior written consent of Seller, cause or permit Lessee to take or
commit to take, any of the following actions:
(a) agree to incur any debt contrary to the terms of the
Loan Agreement;
<PAGE>
(b) terminate, amend or modify any of the Lease Agreements
or grant any consent to a transfer of any such agreement;
(c) reorganize, terminate, liquidate or wind-up the Lessee;
(d) hypothecate or encumber all or a material part of the
assets or interests of the Lessee contrary to the terms of the
Loan Agreement;
(f) make, execute or deliver for or on behalf of the Lessee
any assignment for the benefit of creditors or any confession of
judgment;
(g) bind the Lessee as surety, guarantor or accommodation
party to any obligation contrary to the terms of the Loan
Agreement (other than of checks in the ordinary course of
collection);
(h) engage the Lessee in any business activity other than
the Hotel operations contemplated by the Lease Agreements;
(i) execute or amend, supplement or modify, any agreement
between the Lessee or an Affiliate of the Lessee except as
specifically contemplated by this Agreement, the Lease
Agreements, the Loan Agreement or the Management Agreements;
(j) take any other action which impairs or would be
reasonably likely to impair the ability of the Lessee to comply
with its obligations under the Loan Agreement or the Management
Agreements.
On the Closing Date, Buyer shall cause Lessee to agree to
the covenants contained in this Section 6.13.
ARTICLE VII
Conditions
SECTION 7.01. Conditions to Buyer's Obligation To Close.
Buyer shall not be obligated to consummate the Closing unless and
until each of the following conditions are either fulfilled or waived
in writing by Buyer:
(a) Delivery of Documents. Seller shall be prepared to
deliver all instruments and documents to be
<PAGE>
delivered at the Closing pursuant to Sections 9.01 and 10.02 of
this Contract.
(b) Representations and Warranties. Seller's representations
and warranties contained in Sections 5.01(a), 5.01(c) and 5.01(j)
shall be true and correct in all material respects as of the
Closing Date without any supplementation after the Effective
Date.
(c) Other Agreements. The Lease Agreements, the Loan
Agreement, the Management Agreements and the Nondisturbance
Agreement shall have been executed by all parties thereto and
shall be in full force and effect.
(d) Public Offering. FelCor Suite Hotels, Inc. shall have
consummated a public offering of its equity securities and shall
have received at least $250,000,000 in net proceeds therefrom.
SECTION 7.02. Failure of Buyer's Conditions. If any of the
conditions to Buyer's obligations have not been satisfied (or deemed
satisfied) on or before the Closing Date other than solely as a result
of Seller's failure to comply with its obligations hereunder for a
period in excess of 30 days after receipt of notice from Buyer of such
failure (in which case, the provisions of Section 14.02 shall be
applicable), and Buyer is otherwise in material compliance with the
terms hereof, Buyer may exercise the remedy granted pursuant to
Section 14.02(i) hereof.
SECTION 7.03. Conditions to Seller's Obligation to Close.
Seller shall not be obligated to consummate the Closing unless and
until each of the following conditions are either fulfilled or waived
by Seller:
(a) Compliance With Covenants. Buyer shall have performed in
all material respects all covenants, agreements and obligations
and complied in all material respects with all conditions
required by this Contract to be performed or complied with by
Buyer prior to the Closing Date.
(b) Delivery of Documents and Cash to Close. Buyer shall be
prepared to deliver all Cash to Close and all instruments and
documents to be delivered by Buyer at the Closing pursuant to
Sections 10.01, 10.02, 11.01 and 11.03 of this Contract.
<PAGE>
(c) Other Agreements. The Lease Agreements, the Loan
Agreement, the Management Agreements and the Nondisturbance
Agreement shall have been executed by all parties thereto and
shall be in full force and effect.
SECTION 7.04. Failure of Seller's Conditions. If any of the
conditions to Seller's obligations have not been satisfied on or
before the Closing Date as a result of Buyer's failure to comply with
its obligations hereunder for a period of 30 days after receipt of
Notice from Seller of such failure, and Seller is otherwise in
material compliance with the terms hereof, Seller may terminate this
Contract and receive the Deposit as liquidated damages pursuant to
Section 14.01 hereof.
ARTICLE VIII
Closing
Subject to all of the provisions of this Contract, Buyer and
Seller shall close the transactions contemplated hereby as soon as
practicable following the satisfaction or waiver of the conditions to
Closing set forth herein, provided that in no event shall the Closing
occur after August 1, 1997. The Closing shall take place on the
Closing Date at 10:00 a.m. in Dallas, Texas at the offices of
Bracewell and Patterson, L.L.P., or at such other location mutually
agreed upon by the parties. Buyer and Seller will each use reasonable
best efforts to cause the Closing to occur on June 30, 1997.
ARTICLE IX
Closing Documents
SECTION 9.01. Seller's Closing Documents. At Closing, Seller
shall execute and deliver the following documents ("Seller's Closing
Documents") in accordance with Section 11.02:
(a) Deeds and Assignment. The Deeds and the Assignment,
which shall be duly executed and acknowledged by Seller so as to
convey to Buyer (or its designee) good and marketable title to
the Property described therein free and clear of all liens,
encumbrances and other conditions of title other than the
Permitted Exceptions and Permitted Liens.
<PAGE>
(b) Closing Date Documents. The Loan Agreement, the
Management Agreements and the Nondisturbance Agreement.
(c) Seller's Affidavits. Affidavits from Seller in form and
content reasonably satisfactory to Buyer and the Title Company to
facilitate the deletion of those standard exceptions on the Title
Company's title insurance commitments which may be deleted solely
by delivery of an affidavit.
(d) Closing Statement. A closing statement setting forth the
Purchase Price and all credits, adjustments and prorations
between Buyer and Seller, and the net Cash to Close due from
Buyer.
(e) Authorizing Resolutions. Certificates of such
resolutions in form and content as the Title Company may
reasonably request evidencing Seller's existence, power and
authority to consummate the transaction herein contemplated,
including copies of all corporate organizational documents or
other reasonable evidence of corporate authority.
(f) FIRPTA. A FIRPTA Non-Foreign Transferor Certificate in
accordance with Section 1445 of the Internal Revenue Code from
Sheraton and each other Seller.
(g) Property Records. The originals, if available, otherwise
copies, of each of the Property Records to the extent not
otherwise covered in this Section.
(h) Vehicle Titles. The necessary certificates of title duly
endorsed for transfer together with any required affidavits and
other documentation necessary for the transfer of title from
Seller to Buyer of any motor vehicles owned by Seller and used in
connection with the Hotels' operations.
SECTION 9.02. Buyer's Closing Documents. At Closing, Buyer
shall execute and deliver the following documents ("Buyer's Closing
Documents") in accordance with Section 11.02:
(a) Assumption Documents. The Lease Agreements and all
documents under this Article IX to be executed by Buyer (or
Buyer's Affiliates).
<PAGE>
(b) Resolutions. Certificate of Resolution of Buyer in form
and content as the Title Company may reasonably request
evidencing authorizing the entering into and execution of this
Contract and the consummation of the transactions contemplated
hereby.
ARTICLE X
Closing Procedure
The Closing shall proceed in the following manner:
SECTION 10.01. Transfer of Funds. Buyer shall pay the Cash
to Close to the Escrow Agent by wire transfer to a depository
designated by the Escrow Agent.
SECTION 10.02. Delivery of Documents. Seller shall deliver
Seller's Closing Documents and Buyer shall deliver Buyer's Closing
Documents to the Escrow Agent.
SECTION 10.03. Disbursement of Funds and Documents. When
Seller and Buyer have delivered all documents and funds to Escrow
Agent as provided in Sections 10.01 and 10.02, then the Escrow Agent
shall disburse (a) the Cash to Close and Deposit, less any interest
earned thereon, to Seller, (b) such interest and the Seller's Closing
Documents to Buyer and (c) and the Buyer's Closing Documents to
Seller.
ARTICLE XI
Prorations and Closing Costs
SECTION 11.01. Prorations. Except as otherwise specified in
clause (a) below, the following items shall be prorated at the Closing
as of midnight preceding the Closing Date, without duplication:
(a) Certain costs and expenses relating to the Property
shall be adjusted as of the Closing Date between Seller and Buyer (the
"Closing Date Adjustment"). The Closing Date Adjustment shall
constitute a composite accounting of the different items described
below in this Section. The intent is to credit or charge, as the case
may be, Seller with all revenues and expenses respecting the Property
which are attributable to operations before the Closing Date and to
credit or charge as the case may be, Buyer with all such revenues and
expenses attributable to
<PAGE>
operations on and after the Closing Date. Unless otherwise provided
for herein, all revenues and expenses shall be separately accounted
for as between Seller and Buyer as of 12:01 a.m. on the Closing Date.
No later than 90 days after the Closing Date, Seller and Buyer shall
review all the amounts and calculations made in respect of the Closing
Date Adjustment and any final corrections shall be made to the Closing
Date Adjustment, and Seller and Buyer at that time shall settle any
funds owed to each other. The following items shall be accounted for
in calculating the Closing Date Adjustment:
(i) Prepaid charges and fees for licenses and permits
transferred by Seller to Buyer shall be prorated as between
Seller and Buyer.
(ii) Prepaid rents and all room and other deposits and
advance payments under booking arrangements and trade-out
agreements for use of the Property facilities after the Closing
Date shall be credited to Buyer.
(iii) With regard to food (other than food in process
including mini-bars and gift shops) and non- alcoholic and
alcoholic beverages (other than opened containers and unopened
containers outside of storage areas), Buyer shall be charged with
the costs of all food and non-alcoholic and alcoholic beverages
at the Property at Seller's cost based upon an inventory of such
items performed jointly by Buyer and Seller as of 12:01 a.m. on
the Closing Date.
(iv) All charges and prepayments relating to the Assumed
Contracts which are assumed by Buyer shall be separately
accounted for as between Seller and Buyer as of 12:01 on the
Closing Date.
(v) All cash in the operating accounts for the Hotel (it
being understood that such accounts refer to "house banks" and
not bank accounts) shall be paid over to Buyer at Closing and
Seller shall receive a credit therefor in the Closing Date
Adjustment.
(vi) With regard to the booking of guest rooms and the
provision of other services at the Property, the parties agree
that Seller shall be entitled to all of the revenue generated by
such operations through and including the night before the
Closing Date; provided that Buyer shall be entitled to one-half
of such revenue (including applicable sales Tax) for the night
before the Closing Date. Seller shall receive a
<PAGE>
credit, without duplication, for all accounts receivable (other
than for the guests' stay that includes the night prior to
Closing) with respect to hotel guests then in occupancy, net of
any travel agent commissions, credit card commissions, or other
similar costs to collect such revenue. Except as expressly
provided for in this subsection (vi), Seller shall own and be
entitled to all collections with respect to accounts receivable
for the period prior to the Closing Date. Buyer agrees, on a
prompt, but no less frequent than a monthly basis, to deliver to
Seller any payments and back-up received or generated with
respect to such accounts receivable. The parties acknowledge that
if Buyer receives a payment which does not specify the invoice
being paid, then all payments shall be applied first to the
current sums due Buyer, if applicable. Buyer has no obligation,
nor responsibility to collect said accounts receivable, however,
Buyer will cooperate with Seller in such collection and shall
give Seller rights to inspect Buyer's books and records at
reasonable times with respect to such accounts receivable.
(vii) The parties shall arrange for Hotel guests to sign new
deposit box or other appropriate receipts on the day before the
Closing with respect to baggage, personal property, laundry,
valet packages and other property of Hotel guests checked or left
in the care of Seller by transient hotel guests or tenants and,
to the extent such receipts are not obtained, such property shall
be sealed, listed in an inventory prepared and signed jointly by
the parties as of the Closing Date, and Buyer shall be
responsible from and after the Closing Date for all such property
listed in said inventory. Notwithstanding the foregoing, to the
extent a hotel guest has not signed a new safe deposit box
receipt, Seller shall continue to be responsible for the contents
thereof and shall indemnify and hold Buyer harmless for any and
all losses, misappropriations, thefts, or otherwise improper
removals from said safe deposit boxes. The provisions of this
Paragraph shall expressly survive the Closing.
(viii) All accrued and unpaid obligations of Seller under
its salary and employee benefits arrangements in place as of
midnight before the Closing for Hotel employees at the Property
as of the Closing Date, including without limitation,
unemployment compensation benefits, pension benefits, salaries,
bonuses, sick leave, vacation and other similar forms of
compensation
<PAGE>
up to the date of the Closing, including all employer Taxes
associated with vacation and sick pay, shall be assumed by Buyer
and credited to Buyer, or at Seller's option, Seller may pay in
full such benefits direct to its manager and employees. Buyer
acknowledges and agrees that: (A) all employees employed at the
Hotel are the employees of Manager, and (B) no employee who
elects to continue employment at the Hotel will be terminated in
violation of, and accordingly no notices will be given pursuant
to, the Worker Adjustment Retraining Notification Act, 29
U.S.C.A. Section 2101, et seq. ("WARN Act"). Further, Buyer
agrees to indemnify, defend and hold Seller harmless from and
against any claim or expense (including but not limited to court
costs and attorney fees) which may be asserted against or
incurred by Seller due to or as a result of any alleged failure
to comply with any provisions of the WARN Act which may be
applicable to Seller. Buyer's agreements in the preceding two
sentences shall survive the Closing.
(ix) All capital expenditures incurred by Seller prior to
Closing that are to be paid by Buyer pursuant to Section 6.08(a)
shall be credited to Seller.
(x) Any excess of $3,000,000 over the aggregate capital
expenditures made by Seller in 1997 in respect of the Hotels
shall be credited to Buyer.
(b) Seller shall pay or credit against the Purchase Price
any of the following that are a lien on the Land or Improvements: all
(A) special assessments relating to the Land and Improvements (to the
extent allocable to periods on or after the Closing) for work
completed or substantially completed as of the Effective Date, and (B)
subject to Section 2.02(a)(iv), all unpaid sales, occupancy, personal
property or real estate Taxes for years prior to Closing, together
with any interest and penalties relating to any of the foregoing.
(c) Seller shall notify the utility companies servicing the
Property prior to Closing that billing to Seller for such utilities
shall be discontinued at the end of the day preceding the Closing
Date, and Buyer shall arrange with such utilities to have such
billings for utility services charged to Buyer from and after the
Closing Date and Seller shall be entitled to the refunds of all
deposits therefor. Seller shall pay all charges with respect to such
utilities for the period prior to the Closing Date and utility charges
since the date of the last
<PAGE>
billing will be adjusted at Closing as of the Closing Date on the
basis of the last bill so rendered, with subsequent adjustment, if
any, when final bills are rendered.
(d) If there is a water meter on the Property, the Seller
shall furnish, at the Closing or as soon thereafter as practicable, a
reading to a date not more than 30 days prior to the Closing Date, and
the unfixed meter charge, the unfixed sewer rent and/or unfixed water
charges, if any, based thereon for the intervening time shall be
apportioned on the basis of such last reading, subject to adjustment
upon receipt of the actual meter charge and sewer rent.
(e) Other costs, expenses and charges which are a lien or
may become a lien against the Property and are of such a type as are
usually involved in and adjusted with regard to property similar to
and located in the locale of the Property, including Taxes in
accordance with Section 2.02(a)(iv). Prorations hereunder shall, where
applicable, be made on the basis of a 365-day year and, for any month,
on the basis of the number of days elapsed. If any of the foregoing
cannot be apportioned at the Closing because of the unavailability of
the amounts which are to be prorated, unless otherwise provided for
herein, a reasonable estimation of the amount of such items shall be
placed in escrow with the Title Company, and such items shall be
prorated as soon as practicable after the Closing Date. The provisions
of this Section 11.01 shall survive the Closing.
(f) To the fullest extent permitted by applicable law, any
controversy, claim or dispute arising out of or relating to the
prorations set forth in this Section 11.01, including any dispute
concerning the scope of this clause (f), shall be resolved exclusively
by the final and binding decision of the Accountants as set forth
herein. In the case of a dispute with respect to such matters, either
party may submit such matter to arbitration which shall be conducted
by the Accountants. The "Accountants" shall be one of three (3) firms
of certified public accountants of recognized international standing
in the hotel industry. Until otherwise agreed to by the parties, the
three (3) firms shall be Arthur Andersen LLP, Coopers and Lybrand, and
Pannell Kerr Forster, notwithstanding any existing relationships which
may exist between Seller and such accounting firms or Buyer and such
accounting firms. The party desiring to submit any matter to
arbitration hereunder shall do so by written notice to the other
party, which notice shall set forth the items to be arbitrated and
such party's choice of one of the three (3) accounting firms.
<PAGE>
The party receiving such notice shall within fifteen (15) days after
receipt of such notice either approve such choice, or designate one of
the remaining two (2) firms by written notice back to the first party,
and the first party shall within fifteen (15) days after receipt of
such notice either approve such choice or disapprove the same. If both
parties shall have approved one of the three (3) firms under the
preceding sentence, then such firm shall be the "Accountants" for the
purposes of arbitrating the dispute; if the parties are unable to
agree on an accounting firm, then the third firm, which was not
designated by either party, shall be the "Accountants" for such
purpose. The Accountants shall be required to render a decision in
accordance with the procedures described below within fifteen (15)
days after being notified of their selection. The fees and expenses of
the Accountants will be paid by the non-prevailing party. In all
arbitration proceedings submitted to the Accountants, the Accountants
shall be required to agree upon and approve the substantive position
advocated by Buyer or Seller with respect to each disputed item. Any
decision rendered by the Accountants that does not reflect the
position advocated by Buyer or Seller shall be beyond the scope of
authority granted to the Accountants and, consequently, may be
overturned by either party. All proceedings by the Accountants shall
be conducted in accordance with the Uniform Arbitration Act, except to
the extent the provisions of such act are modified by this Agreement
or the mutual agreement of the parties. Unless otherwise agreed, all
arbitration proceedings shall be conducted at the Hotel with respect
to which the dispute arose.
SECTION 11.02. Seller's Closing Costs. Seller shall pay for
the following items prior to or at the time of Closing:
(a) 50% of all transfer Taxes, conveyance fees, recording
costs and other documentary stamp Tax related to the transfer of the
Property;
(b) 50% of the premium and other costs and fees payable in
connection with an Owner's Title Insurance Policy obtained by Buyer
covering the Land and the Improvements related thereto, plus the cost
of all endorsements thereto;
(c) One-half of all escrow fees and costs; and
(d) Seller's attorneys' fees.
<PAGE>
SECTION 11.03. Buyer's Closing Costs. Buyer shall pay for
the following items prior to or at the time of Closing:
(a) 50% of the transfer taxes, conveyance fees, recording
costs and documentary stamp Tax related to the transfer of the
Property;
(b) 50% of the premium and other costs and fees payable in
connection with an Owner's Title Insurance Policy obtained by
Buyer covering the Land and the Improvements related thereto,
plus the cost of all endorsements thereto;
(c) The costs and fees payable in connection with any
surveys, or updates of surveys relating to the Property;
(d) One-half of all escrow fees and costs; and
(e) Buyer's attorneys' fees.
SECTION 11.04. Accounts Payable. Seller shall retain and be
responsible for the payment of all accounts payable relating to the
Property (including the Hotels) accrued prior to and as of the Closing
and payable after the Closing. Buyer shall be responsible for the
particular accounts payable relating to the Property (including the
Hotels) accruing on or after the Closing.
ARTICLE XII
Possession; Risk of Loss
Buyer shall be granted full possession of the Property at
Closing subject to (i) Manager's rights under the Management
Agreements, (ii) tenant's rights under any space leases of the
Property assumed by Buyer and (iii) guests in occupancy. All risk of
loss with respect to the Property shall pass to Buyer on and as of the
Closing Date.
<PAGE>
ARTICLE XIII
Condemnation and Damage by Casualty
SECTION 13.01. Condemnation. Excluding the pending
condemnation action disclosed in the definition of "Permitted
Exceptions", in the event of the institution of any proceedings by any
Governmental Authority which shall relate to the proposed taking of
any Material Portion of the Property by eminent domain prior to
Closing, or in the event of the taking of any portion of the Property
by eminent domain prior to Closing, Seller shall promptly notify Buyer
and Buyer shall thereafter have the right and option to terminate this
Contract by giving Seller and the Escrow Agent written notice of
Buyer's election to terminate within 30 days after receipt by Buyer of
the notice from Seller. Seller hereby agrees to furnish Buyer with
written notice of a proposed condemnation within two business days
after Seller's receipt of such notification. Should Buyer terminate
this Contract pursuant to this Section 13.01, the Escrow Agent shall
return to Buyer its Deposit and, except as otherwise provided for
herein, the parties hereto shall be released from their respective
obligations and liabilities hereunder. Should Buyer elect not to
terminate, the parties hereto shall proceed to Closing and Seller
shall assign all of its right, title and interest in all awards in
connection with such taking to Buyer.
SECTION 13.02. Damage by Casualty. (a) If, after the
Effective Date but prior to the Closing Date, any damage other than
Material Damage occurs from fire, windstorm or other casualty to the
Property, Buyer shall be required to close this transaction in
accordance with the Contract, Seller shall assign unto Buyer any and
all insurance proceeds paid or payable with respect to such damage
(other than business interruption insurance for periods prior to the
Closing Date), and Buyer shall receive at Closing a credit in the
amount of any deductible or co- payment amount under such policy. In
such event, Seller shall have no additional obligation if such
insurance proceeds are insufficient or unavailable to repair such
damage.
(b) If, prior to Closing, there is any Material Damage to
the Hotels, Buyer shall have the option to terminate this Contract
provided it delivers written notice to Seller and the Escrow Agent of
its election so to terminate this Contract within 30 days after the
date Seller has delivered Buyer written notice of any such loss or
damage, and in such event the Deposit shall be delivered to
<PAGE>
Buyer and thereafter no party shall have any further obligation or
liability to the other under this Contract.
ARTICLE XIV
Default
SECTION 14.01. Buyer's Default; Liquidated Damages. In the
event that this transaction fails to close solely due to Buyer's
failure to comply with its obligations hereunder (after giving effect
to the cure period in Section 7.04), the Deposit shall be immediately
paid to Seller by the Escrow Agent and Buyer shall have no further
rights with respect thereto. Buyer recognizes that the Property will
be removed from the market during the existence of this Contract and,
if Buyer fails to perform its obligations hereunder, Seller shall be
entitled to compensation for the detriment caused thereby. However,
both parties agree that it is extremely difficult and impractical to
ascertain the extent of the detriment and, to avoid such difficulties,
the parties agree that Seller shall be entitled to retain the Deposit
as liquidated damages (and not as a penalty) in accordance with this
Section 14.01. Both parties agree that such amount stated as
liquidated damages shall be in lieu of any other relief to which
Seller might otherwise be entitled by virtue of this Contract or by
operation of law.
SECTION 14.02. Seller's Default. In the event that this
transaction fails to close solely due to Seller's failure to comply
with its obligations hereunder (after giving effect to the cure period
in Section 7.02), Buyer shall have the right to either (i) terminate
this Contract and receive a refund of the Deposit or (ii) elect to
effect the Closing notwithstanding Seller's default hereunder. If
Buyer elects the option set forth in clause (ii), consummation of the
Closing shall not be deemed a waiver by Buyer of Seller's default
hereunder and Buyer may recover damages from Seller for such breach in
accordance with Sections 6.09 hereof. Further, if Buyer elects to
effect the Closing hereunder and Seller fails to close, Buyer may
pursue any and all remedies against Seller available at law or in
equity, including without limitation, specific performance of Seller's
obligations hereunder, in which event the Escrow Agent shall return
the Deposit to Buyer upon notice.
<PAGE>
ARTICLE XV
Real Estate and Other Commissions and Fees
Seller and Buyer each represent and warrant to the other
that there are no brokers, salespersons, advisors or finders involved
in this transaction by reason of agreement with such representing
party. The provisions of this Article shall survive the Closing or
termination of this Contract.
Seller agrees to, and hereby does, indemnify and save
harmless Buyer and its Affiliates and their respective successors and
assigns against and from any loss, liability or expense, including
reasonable attorneys' fees, arising out of any claim or claims for
commissions or other compensation for bringing about this Contract or
the transactions contemplated hereby, or advice in connection
herewith, made by any broker, finder, consultant or like agent if such
claim or claims made by any such broker, finder, consultant or like
agent are based in whole or in part on any agreements entered into
with such Seller or its representatives for a commission or other
compensation. Buyer agrees to, and hereby does, indemnify and save
harmless Seller, its Affiliates and its successors and assigns against
and from any loss, liability or expense, including reasonable
attorneys' fees, arising out of any claim or claims for commissions or
other compensation for bringing about this Contract or the
transactions contemplated hereby, or advice in connection herewith,
made by any broker, finder, consultant or like agent if such claim or
claims by any such broker, finder, consultant or like agent are based
on any agreements entered into with Buyer or its representatives for a
commission or other compensation.
ARTICLE XVI
Notices
Any notice, request, demand, instruction or other
communication to be given to either party hereunder, except where
required to be delivered at the Closing, shall be in writing and shall
be hand-delivered or sent by Federal Express or a comparable overnight
mail service, or mailed by U.S. registered or certified mail, return
receipt requested, postage prepaid, to Buyer, Seller, Buyer's
Attorney, Seller's Attorney, and Escrow Agent at their respective
addresses set forth in Article I of this Contract. Notice
<PAGE>
shall be deemed to have been given upon receipt or refusal of delivery
of said notice. Notices may be given by confirmed telecopy provided a
hard copy of such notice is sent by another means in accordance with
this Section on the next business day following such telecopy
delivery. The addressees and addresses for the purpose of this
paragraph may be changed by giving notice. Unless and until such
written notice is received, the last addressee and address stated
herein shall be deemed to continue in effect for all purposes
hereunder.
ARTICLE XVII
Assignment
This Contract may not be assigned by Buyer (except to an
Affiliate of Buyer in accordance with the provisions of this Article)
without the prior written consent of Seller. Any Affiliate of Buyer
that receives an assignment hereof without the consent of Seller shall
assume the applicable Assumed Liabilities on the terms and conditions
contained herein and shall otherwise acquire all of the right, title
and interest to the Property that Buyer would have acquired, under the
conditions and subject to the obligations that Buyer would have
undertaken hereunder with respect to the Property purchased by such
Affiliate; provided, however, that Buyer shall remain fully liable to
Seller hereunder as if such transfer and assumption were made directly
to and by Buyer.
ARTICLE XVIII
Escrow Agent
SECTION 18.01. Duties and Authorization. The payment of the
Deposit, Cash to Close and all other funds provided hereunder to the
Escrow Agent is for the accommodation of the parties to this Contract.
The duties of the Escrow Agent shall be determined solely by the
express provisions of this Contract. In the event the Escrow Agent
receives a written demand from either Seller or Buyer for the Deposit
(which demand shall include an explanation setting forth the factual
basis for such party's request for the Deposit), Escrow Agent shall
give 10 days written notice to the other party of such demand and of
Escrow Agent's intention to remit the Deposit to the party making the
demand on the stated date. If Escrow Agent does not receive a written
objection within 10 days after such
<PAGE>
notice, the Escrow Agent is hereby authorized to so remit the Deposit.
If, however, the Escrow Agent receives written objection from the
other party within 10 days after such notice, the Escrow Agent shall
continue to hold the Deposit until otherwise directed by joint written
instructions from Seller and Buyer, or until a final judgment of an
appropriate court is issued. Buyer and Seller authorize the Escrow
Agent, without creating any obligation on the part of the Escrow
Agent, in the event this Contract or the Deposit becomes involved in
litigation, to deposit the Deposit with the clerk of the court in
which the litigation is pending and thereupon the Escrow Agent shall
be fully relieved and discharged of any further responsibility under
this Contract. Buyer and Seller also authorize the Escrow Agent, if it
is threatened with litigation, to interplead all interested parties in
any court of competent jurisdiction and to deposit the Deposit with
the clerk of the court and thereupon the Escrow Agent shall be fully
relieved and discharged of any further responsibility hereunder.
Notwithstanding anything to the contrary contained herein, in the
event there is any controversy as to which party is entitled to the
Deposit and all or any portion of the Deposit is comprised of a letter
of credit then, prior to the expiration of any such letter of credit,
the Escrow Agent shall (i) instruct Seller to submit a drawing under
such letter of credit and deposit the proceeds of such drawing into
the escrow or (ii) accept from Buyer a substituted letter of credit
which is in the same form and as the previously deposited letter of
credit with an expiration date no less than six months after the date
of replacement.
SECTION 18.02. Liability. The Escrow Agent shall not be
liable for any mistake of fact or error of judgment or any acts or
omissions of any kind unless caused by its own wilful misconduct or
negligence. The Escrow Agent shall be entitled to rely on any
instrument or signature believed by it to be genuine and may assume
that any person purporting to give any writing, notice or instruction
in connection with this Contract is duly authorized to do so by the
party on whose behalf such writing, notice, or instruction is given.
SECTION 18.03. Hold Harmless. Buyer and Seller will, and
hereby agree to, jointly and severally, indemnify the Escrow Agent for
and hold it harmless against any loss, liability, or expense,
including Attorneys' Fees, incurred on the part of the Escrow Agent
arising out of or in connection with the acceptance of, or the
performance of, its duties under this Contract, as well as the costs
and
<PAGE>
expenses of defending against any claim or liability arising under
this Contract other than as a result of its own wilful misconduct or
negligence. This provision shall survive the Closing or earlier
termination of this Contract.
SECTION 18.04. FDIC Coverage. The parties are informed that
the Federal Deposit Insurance Corporation (FDIC) coverage applies only
to a maximum amount of One hundred thousand Dollars ($100,000) for
each individual depositor, and that the Escrow Agent assumes no
responsibility for any loss occurring which arises from the fact that
the amount held by the Escrow Agent in any account may cause the
aggregate amount of any individual depositor's accounts to exceed One
hundred thousand Dollars ($100,000) and that the excess amount is not
insured by the Federal Deposit Insurance Corporation.
ARTICLE XIX
Miscellaneous
SECTION 19.01. Counterparts. This Contract may be executed
in any number of counterparts, any one and all of which shall
constitute the contract of the parties and each of which shall be
deemed an original.
SECTION 19.02. Section and Paragraph Headings. The section
and paragraph headings herein contained are for the purposes of
identification only and shall not be considered in construing this
Contract.
SECTION 19.03. Amendment. No modification or amendment of
this Contract shall be of any force or effect unless in writing
executed by both Seller and Buyer.
SECTION 19.04. Attorneys' Fees. If any party obtains a
judgment against any other party by reason of breach of this Contract,
Attorneys' Fees and costs shall be included in such judgment.
SECTION 19.05. Governing Law. This Contract shall be
interpreted in accordance with the internal laws of the State of New
York both substantive and remedial, excluding laws governing conflicts
of laws.
SECTION 19.06. Entire Contract. This Contract, including all
Exhibits which are incorporated by reference, sets forth the entire
agreement between Seller and Buyer relating to the Property and all
subject matter herein and
<PAGE>
supersedes all prior and contemporaneous negotiations, understandings
and agreements, written or oral, between the parties.
SECTION 19.07. Time of the Essence. Time is of the essence
in the performance of all obligations by Buyer and Seller under this
Contract.
SECTION 19.08. Computation of Time. Any reference herein to
time periods of less than six (6) days shall exclude Saturdays,
Sundays and legal holidays in the computation thereof. Any time period
provided for in this Contract which ends on a Saturday, Sunday or
legal holiday shall extend to 5:00 p.m. on the next full business day.
SECTION 19.09. Successors and Assigns. This Contract shall
inure to the benefit of and be binding upon the permitted successors
and assigns of the parties hereto.
SECTION 19.10. No Party Draftsman. This Agreement has been
drafted jointly by Buyer and Seller and, accordingly, shall not be
construed or interpreted against either Buyer or Seller.
SECTION 19.11. No Third Party Benefitted. This Contract is
solely for the benefit of the parties hereto and there shall be no
third party beneficiaries of the terms hereof.
ITT SHERATON CORPORATION,
by /s/ Mark Thomas
-------------------------------
Name: Mark Thomas
Title: Senior Vice President
SHERATON SAVANNAH CORP.,
SHERATON PEACHTREE CORP.,
SHERATON CRESCENT CORP.,
SHERATON DALLAS CORP.,
by /s/ Mark Thomas
------------------------
Name: Mark Thomas
Title: Senior Vice President
<PAGE>
SHERATON GATEWAY SUITES O'HARE
INVESTMENT PARTNERSHIP,
by SHERATON O'HARE CORP.,
as General Partner,
by /s/ Mark Thomas
---------------------
Name: Mark Thomas
Title: Senior Vice President
FELCOR SUITES LIMITED PARTNERSHIP,
by FELCOR SUITE HOTELS, INC., a
Maryland corporation, general
partner, as Buyer,
by /s/ Thomas J. Corcoran, Jr.
Name: Thomas J. Corcoran, Jr.
Title: President
COMMONWEALTH LAND TITLE INSURANCE
COMPANY (as to only those sections of
the Contract pertaining to the Escrow
Agent's rights and responsibilities), as
Escrow Agent,
by /s/ Le Ann Turrentine
Name: Le Ann Turrentine
Title: Assistant Vice President
<PAGE>
EXHIBIT A
Title Descriptions
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT B
Liens and Exceptions
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT C
Assumed Contracts
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT D
Options on Property
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT E
Delivered Records
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT F
Form of Estoppel Certificate
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT G
Litigation
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT H
1997 Capital Budget
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT I
1997 Operating Budget
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT J
**INTENTIONALLY OMITTED**
<PAGE>
EXHIBIT K
Form of Management Agreement
<PAGE>
Exhibit K
MANAGEMENT AGREEMENT
for
SHERATON ___________ HOTEL
June __, 1997
<PAGE>
TABLE OF CONTENTS
RECITALS ..................................................... 1
I. TERM SHEET.................................................... 2
II. APPOINTMENT OF THE OPERATOR................................... 3
2.1 Appointment......................................... 3
III. TERM.......................................................... 3
3.1 Term................................................ 3
3.2 Extensions.......................................... 3
IV. FEES.......................................................... 3
4.1 Operator's Fees..................................... 3
4.2 Payment of Fees..................................... 4
4.3 Subordination of Fees............................... 4
4.4 Adjustment of Fees.................................. 4
V. OBLIGATIONS OF OPERATOR....................................... 4
5.1 Operator's Obligations.............................. 4
a. Standard of Operation........................... 4
b. System Support.................................. 4
c. Consultation with Owner......................... 5
d. Marketing....................................... 5
e. Centralized Services............................ 5
f. Insurance....................................... 5
g. Remittance of Funds............................. 5
VI. OBLIGATIONS OF THE OWNER...................................... 5
6.1 Owner's Obligations................................. 5
a. Maintenance of the Hotel........................ 5
b. Consultation with Operator...................... 6
c. Expenses and Liabilities; Operating Losses...... 6
d. Payment of Taxes................................ 6
e. Working Capital................................. 6
f. Title; Maintenance of Ownership................. 7
<PAGE>
VII. OPERATION OF THE HOTEL........................................ 7
7.1 Operator as Agent of Owner.......................... 8
7.2 Employment Matters.................................. 8
7.2.1 General...................................... 8
7.2.2 Union Relations.............................. 8
7.2.3 Stays by Operator Employees.................. 9
7.2.4 Employees of Owner........................... 9
7.2.5 Employee Benefits............................ 9
7.3 Operating Plan; Rates............................... 10
7.3.1 Operating Plan............................... 10
7.3.2 Failure to Approve Operating Plan............ 10
7.3.3 Budget Variances .......................... 11
7.3.4 Rates........................................ 11
7.4 Agreements.......................................... 12
7.4.1 Leases, Licenses, Concessions................ 12
7.4.2 Contracts.................................... 12
7.5 Marketing and Advertising........................... 13
7.5.1 Marketing.................................... 13
7.5.2 Advertising Costs............................ 13
7.6 Centralized Services................................ 13
7.7 Purchasing.......................................... 14
7.8 Repairs, Maintenance and Capital Improvements....... 15
7.8.1 Repairs and Maintenance...................... 15
7.8.2 Structural Repairs, Changes, Extraordinary
Repairs and Replacements.................. 15
7.8.3 Capital Improvements by Owner................ 16
7.8.4 Capital Improvements by Operator............. 16
7.8.5 Operator Rights.............................. 16
7.9 Books and Records; Financial Statements;
Bank Accounts.................................... 16
7.9.1 Books and Records............................ 16
7.9.2 Financial Statements......................... 17
7.9.3 Bank Accounts................................ 17
7.10 Funding Requirements................................ 17
7.10.1 Funding of Reserve Fund..................... 17
7.10.2 Use and Disbursal of Fund................... 18
7.11 Technical Assistance by Operator and its
Affiliates....................................... 18
7.12 Liquor Licenses..................................... 19
7.13 Standards........................................... 19
VIII. EVENTS OF DEFAULT; REMEDIES................................... 19
8.1 Events of Default................................... 19
8.2 Notice and Right to Cure............................ 21
8.3 Additional Owner Termination Rights................. 21
8.4 Remedies............................................ 22
IX. TERMINATION................................................... 22
9.1 Obligations Upon Termination........................ 22
<PAGE>
9.2 Use of Sheraton Name................................ 23
X. DAMAGE AND DESTRUCTION; CONDEMNATION.......................... 24
10.1 Damage or Destruction............................... 24
10.2 Condemnation........................................ 25
XI. ASSIGNMENT AND TRANSFER....................................... 26
11.1 Sale, Lease or Assignment by Owner.................. 26
11.1.1 Owner's Right to Assign...................... 26
11.1.2 Owner's Right to Sell........................ 26
11.1.3 Notice of Sale or Assignment................. 27
11.2 Assignment by Operator.............................. 27
11.3 Liability After Assignment.......................... 27
XII. INSURANCE..................................................... 28
12.1 Owner Insurance..................................... 28
12.2 Operator Insurance.................................. 28
12.3 Waiver of Subrogation............................... 28
12.4 Separate Operator Insurance......................... 28
XIII. INTELLECTUAL PROPERTY; TRADE NAMES............................ 28
13.1 Use of Intellectual Property........................ 28
13.2 Hotel Name.......................................... 29
13.3 Hotel Logo Goods.................................... 29
XIV. CLAIMS AND INDEMNIFICATION.................................... 29
14.1 Claims and Liability................................ 29
14.2 Indemnification in favor of Owner................... 29
14.3 Indemnification in favor of Operator................ 30
14.4 Limitation with respect to good faith acts.......... 30
14.5 Survival............................................ 31
XV. MISCELLANEOUS................................................. 31
15.1 Casino.............................................. 31
15.2 Financings and Offerings of Owner or its Affiliates. 31
15.3 Notices............................................. 32
15.4 Arbitration......................................... 32
15.5 Performance During Disputes......................... 33
15.6 Events of Force Majeure; Emergencies;
Compliance with Laws.............................. 33
15.7 Gaming Licensure Issues and Compliance with
Any Laws or Regulations Applicable to Operator.... 34
15.8 Employment Solicitation Restriction
Upon Termination.................................. 35
15.9 Set-off............................................. 35
15.10 Press Releases...................................... 35
15.11 Consents............................................ 35
15.12 Partial Invalidity.................................. 35
<PAGE>
15.13 Further Actions..................................... 36
15.14 Paragraph Headings.................................. 36
15.15 Governing Law....................................... 36
15.16 Entire Agreement; Owner has not relied
on representations................................ 36
15.17 Benefits of Agreement; No Third-Party
Rights............................................ 36
15.18 Cooperation with FelCor............................. 36
Exhibits and Schedules
Exhibit A- Legal Description of the Premises
Exhibit B- Definitions
Exhibit C- Insurance Requirements
Exhibit D- Centralized Services and Programs
<PAGE>
This MANAGEMENT AGREEMENT (this "Agreement") is
made as of the Effective Date, by and between FCH/[ ]
LEASING, L.L.C., a Delaware limited liability company
("Owner"), and SHERATON OPERATING CORPORATION, a
Delaware corporation ("Operator").
Recitals
WHEREAS Owner owns a leasehold interest in a first-class
hotel on the land described as set forth in Exhibit A;
WHEREAS Operator is a wholly owned subsidiary of ITT
Sheraton Corporation ("Sheraton"), which is in the business of and
experienced in the ownership, management and operation, by itself and
through subsidiaries, of hotels and resorts throughout the world; and
WHEREAS Owner desires to obtain the benefits of Sheraton
expertise by authorizing Operator to operate, direct, manage and
supervise the Hotel, subject to the rights and obligations of Owner as
hereinafter set forth, and Operator, for a fee, wishes to assume said
responsibility.
NOW, THEREFORE, in consideration of the foregoing and for
good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Owner and Operator agree as follows:
<PAGE>
ARTICLE I
Term Sheet
Definitions: All capitalized terms used herein shall have
the meanings set forth in Exhibit B.
Effective Date: As of June ___, 1997.
Owner's notice address: FCH Leasing/ITT, L.L.C.
Attention: General Counsel
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
Telephone: (972) 444-4900
Telecopy: (972) 444-4949
Operator's notice
address: Sheraton Operating Corporation
Attention: General Counsel
60 State Street
Boston, MA 02109
Telephone: (617) 367-3600
Telecopy: (617) 367-5626
Name of Hotel: Sheraton _______ Hotel
Term: Commencing on the Effective Date
and expiring at 11:59 p.m. on the
twentieth anniversary of the last
day of the month preceding the
Effective Date.
Basic Fee: Two percent (2%) of Total Revenue
for each Accounting Period of the
Operating Term.
Incentive Fee: See definition on Exhibit B.
Initial Working Capital: $25,000.00
Annual Reserve
Fund Contribution: Four (4%) percent of Room Revenues
(as defined in the Lease Agreement
in effect as of the Effective
Date.)
<PAGE>
ARTICLE II
Appointment of the Operator
2.1 Appointment. Owner hereby appoints Operator as its agent
and the exclusive operator of the Hotel, and Operator hereby accepts
its appointment as Owner's agent and as the exclusive operator of the
Hotel, and each party undertakes and agrees to perform all of its
obligations set forth herein and to comply with all the provisions of
this Agreement. Subject to all of the terms and conditions of this
Agreement, Operator shall be responsible for and shall direct the
day-to-day operations and activities of the Hotel, establishing all
policies and procedures relating to the management and operation of
the Hotel, including, without limitation, the determination of
salaries, benefits and labor policies (including the hiring, transfer
and discharge of all Hotel employees), credit policies (including
entering into agreements with credit card organizations),
entertainment and amusements, purchasing, ordinary repairs and
maintenance, legal proceedings, terms of admittance, charges for
rooms, food and beverage policies, and all phases of sales, marketing,
advertising, promotion and publicity related to the Hotel. If the
revenues or lease payments made in connection with any restaurant
space operated or leased by Operator are less than the sum of the
direct expenses and overhead allocable to such space for the period of
any Fiscal Year (all as reasonably determined in good faith by the
mutual agreement of Owner and Operator), Owner shall have the right to
remove the Operator from operating or leasing such space.
ARTICLE III
Term
3.1 Term. The Term of this Agreement shall be a period
commencing on the Effective Date continuing for a term of years as set
forth in the Term Sheet.
3.2 Extensions. The Term may be extended beyond the initial
Term only upon the mutual agreement in writing of Operator and Owner.
<PAGE>
ARTICLE IV
Fees
4.1 Operator's Fees. During each Fiscal Year of the
Operating Term (and proportionately for any partial Fiscal Year),
Operator shall pay itself from the Bank Account for services rendered
under this Agreement, the Basic Fee and the Incentive Fee.
4.2 Payment of Fees. On or before the fifth day of each
Accounting Period during the Operating Term, Operator (1) shall pay
itself the Basic Fee for the preceding Accounting Period, and (2)
shall either (a) pay itself the Incentive Fee based on the Net Income
of Owner for that portion of the current Fiscal Year which ended on
the last day of the preceding Accounting Period to the extent such fee
is reasonably expected to be earned, or (b) return to the Bank Account
any excess Incentive Fee which Operator has already received in
respect of such period, all as reasonably determined by Operator from
the Books and Records. To the extent that there may be insufficient
funds in the Bank Account for such payments, Owner shall pay to
Operator forthwith on demand any insufficiency in the Basic Fee and
Incentive Fee.
4.3 Subordination of Fees. For the period from the Effective
Date through December 31, 1998, Operator's right to payment of the
Basic Fee shall be subordinated to the payment of all rent and other
amounts payable by Owner under the Lease Agreements. Any such Basic
Fees that are paid during the period from the Effective Date through
December 31, 1998, in violation of such subordination shall not be
deemed to be earned by Operator and shall be returned to Owner. Any
such Basic Fees that are not paid by Owner during the period from the
Effective Date through December 31, 1998 as a result of such
subordination shall not be deemed to be earned by Operator. For the
period from January 1, 1999 through the balance of the Operating Term,
the Basic Fee shall have a first priority of payment over all rent and
other amounts payable by Owner under the Lease Agreements.
4.4 Adjustment of Fees. At the end of each Fiscal Year
during the Operating Term and following receipt by Owner of the annual
audit, an adjustment will be made based on such audit, if necessary,
so that Operator shall have received its proper Basic Fee and
Incentive Fee as hereinabove specified for the said Fiscal Year.
Within thirty (30) days of receipt by Owner of such audit, Operator
shall either (a) place in the Bank Account or remit to Owner, as
appropriate, any excess amounts it may have received as fees during
such Fiscal Year, or (b) be paid out of the Bank Account or by Owner,
as appropriate, any deficiency in the amounts it shall have received
as such fees, whichever the case may be.
<PAGE>
ARTICLE V
Obligations of Operator
5.1 Operator's Obligations. Operator, in addition to the
other obligations set forth in this Agreement, shall have the
following obligations, subject to Owner making available adequate
funds (if not produced by Hotel operations) for such purposes:
a. Standard of Operation. Operator shall manage and operate
the Hotel, subject to the terms and conditions of this Agreement, as a
first-class hotel consistent with the operation of similar hotels
managed by Operator in the same geographical area and subject to the
facilities and condition of the Hotel from time to time.
b. System Support. In accordance with the terms of this
Agreement, Operator from time to time or upon reasonable request from
Owner shall arrange for the Hotel to receive the benefits of Sheraton
division or regional headquarters operating reviews which will monitor
and analyze Hotel operating activities, or particular elements thereof
and, when appropriate offer advice, guidance and specific
recommendations. Such reviews may take place at Owner's request as
often as quarterly in each Fiscal Year.
c. Consultation with Owner. Operator shall routinely consult
with Owner as to its activities hereunder and shall keep Owner
generally apprised of the state of operations at the Hotel. Operator
shall be available to consult with and advise Owner, at Owner's
reasonable request, concerning all policies and procedures affecting
all phases of the conduct of business at the Hotel.
d. Marketing. Operator shall arrange and contract for all
advertising and other marketing activities which Operator reasonably
believes to be appropriate for the operation of the Hotel, in
accordance with Section 7.5.
e. Centralized Services. Operator shall enroll the Hotel in
the available Centralized Services in accordance with Section 7.6.
<PAGE>
f. Insurance. Operator shall obtain the Operator Insurance,
as required by Section 12.2.
g. Remittance of Funds. On or before the last day of each
Accounting Period during the Operating Term, after payment of
Operator's Basic Fee and Incentive Fee for the preceding Accounting
Period, payment into the Reserve Account, and retention of working
capital sufficient to assure the uninterrupted and efficient operation
of the Hotel for the foreseeable future, which retention shall be
generally consistent in amount with the level of working capital
reserves previously maintained by the Hotel prior to the Effective
Date (including, if available and requested by Owner, payment of
premiums for Owner Insurance, Property Taxes, and Owner's debt
service), Operator shall transfer all remaining funds into the Bank
Account or another account designated by Owner.
ARTICLE VI
Obligations of the Owner
6.1 Owner's Obligations. Owner, in addition to the other
obligations set forth in this Agreement, shall have the following
obligations:
a. Maintenance of the Hotel. Owner shall at all times take
such actions as shall be necessary to maintain the Hotel as a
first-class hotel and in compliance with all applicable laws and
regulations.
b. Consultation with Operator. Owner shall be available to
consult with and advise Operator, at Operator's reasonable request,
concerning all policies and procedures affecting all phases of the
conduct of business at the Hotel. Owner shall not intercede in the
day-to-day operations of the Hotel and shall direct all contacts and
communications (other than required notices, statements and demands,
which shall be given pursuant to Section 15.3 hereof) concerning
operation of the Hotel only to the General Manager of the Hotel and/or
the Sheraton area or regional manager responsible for the Hotel.
c. Expenses and Liabilities; Operating Losses. Owner shall
have exclusive financial responsibility for all expenses, debts and
liabilities, including employment related expenses and liabilities,
incurred by Operator in performing its duties hereunder, and, except
as set forth in Section 14.2 hereof, Operator shall not be liable for
any such obligations by reason of its management, supervision,
direction and operation of the Hotel for Owner. Operator may so inform
third parties with whom it deals and may take any other reasonable
steps to carry out the intent of this paragraph. Owner acknowledges
that, upon termination of this Agreement for any reason, all such
debts and liabilities, and any which may specifically arise by virtue
of such termination, are expressly the debts and liabilities of Owner
alone.
<PAGE>
d. Payment of Taxes. Owner shall pay, not less than ten (10)
days prior to the dates the same become delinquent (with the right to
pay the same in installments to the extent permitted by law) all
Property Taxes. Owner shall furnish Operator, not less than ten (10)
days prior to the respective dates such taxes will become delinquent,
proof of payment thereof in form satisfactory to Operator, in default
whereof Operator: (a) may pay any such taxes on Owner's behalf, (b)
shall be reimbursed forthwith by Owner for all sums so expended, and
(c) may withdraw such sums for reimbursement from the Bank Account.
e. Working Capital. Owner will provide Operator with the
Initial Working Capital on the Effective Date; and thereafter from
time to time throughout the Operating Term, if and as requested by
Operator, Owner shall promptly furnish to Operator funds which shall
be generally consistent in amount with the level of working capital
reserves previously maintained at the Hotel prior to the Effective
Date and which shall be sufficient in amount to constitute normal
working capital for the uninterrupted and efficient operation of the
Hotel, including payment of all Operating Expenses and current funding
of Operator's Basic Fee and of the Reserve Fund (and, if requested by
Owner, payment of premiums for Owner's Insurance, Property Taxes, and
Owner's debt service). If Operator deems such action necessary, it may
use the funds in the Reserve Fund to defray Operating Expenses of the
Hotel, and Owner shall replace all such funds promptly on demand.
Operator shall in no event be required to advance any of its own funds
for the operation of the Hotel, nor to incur any liability in
connection therewith. However, if Operator shall at any time elect to
advance any funds in payment of Operating Expenses, which Operator
shall have the right but not the obligation to do, Owner shall repay
Operator on demand all of such funds, with interest at a rate of ten
percent (10%) per annum.
f. Title; Maintenance of Ownership. Owner covenants and
agrees that it has, and that throughout the Operating Term it will
maintain full ownership of the Hotel and every component part hereof
(or if Owner's right and interest in the Premises or the Building and
Appurtenances is derived through a lease or other agreement, Owner
agrees to keep and maintain said lease or other agreement in full
force and effect throughout the Operating Term), free and clear of all
liens and encumbrances except those approved in writing by Operator or
which do not materially affect the operation of the Hotel. Owner
covenants that Operator, upon fulfilling its obligations hereunder,
<PAGE>
shall and may peaceably and quietly possess, manage and operate the
Hotel during the Operating Term, and Owner will at its own expense
undertake and prosecute any appropriate action, judicial or otherwise,
to assure such peaceful and quiet possession by Operator. Owner
further agrees that throughout the Operating Term it will pay, keep,
observe and perform all payments, terms, covenants, conditions and
obligations required under any lease, mortgage, or other agreement
creating a lien on the Hotel or any component part thereof. Owner
shall provide or cause to be provided to Operator evidence of the
ownership interest and title of Owner and its Affiliates with respect
to the Premises as Operator may reasonably require from time to time.
ARTICLE VII
Operation of the Hotel
Subject to the applicable Approved Operating Plan and
provided funds are made available therefor, Operator shall, as agent
of Owner and in the name of Owner, perform the following services, or
cause the same to be performed for the Hotel:
7.1 Operator as Agent of Owner. In the performance of its
duties as Operator of the Hotel, Operator shall act solely as agent of
Owner, and Operator may so inform third parties with whom it deals on
behalf of Owner. Nothing herein shall constitute or be construed to be
or create a partnership or joint venture between Owner and Operator.
Owner acknowledges that this Agreement is a management service
contract which is irrevocable and non- terminable by Owner except as
expressly set forth herein. Owner and Operator each acknowledge that
it has significant and substantial duties, powers and obligations
under the terms hereof relating to the ultimate success of the Hotel.
7.2 Employment Matters.
7.2.1 General. Operator shall hire, discharge, promote and
supervise the Hotel's general manager and other senior staff, and
shall supervise through such staff the hiring, discharging, promotion
<PAGE>
and work of all other employees of the Hotel. Operator shall consult
with Owner prior to appointing any new or substitute general manager
at the Hotel and Owner shall have the right to approve any such
appointment, such approval not to be unreasonably withheld or delayed,
provided, however, that Owner may not reject more than three
candidates for such position. Costs associated with the recruitment
and relocation to the Hotel (but not outgoing relocations) of any
Hotel employee (i) shall be an Operating Expense if such employee is
employed by Operator at the Hotel for a period of at least 24 months
and (ii) shall be prorated as an Operating Expense based on the number
of months such employee has been employed at the Hotel divided by 24
if such employee has been employed at the Hotel for a period less than
24 months. In connection with any termination of any of the Hotel
personnel who are on Sheraton's payroll and who are entitled to
termination benefits, the Hotel shall be responsible for the payment
of severance payments to the extent of Sheraton's written severance
policy, but only for that portion of such severance payment equal to a
fraction, the numerator of which is the number of months the
individual was employed at the Hotel during Owner's ownership thereof
and the denominator of which is the total number of months the
individual was employed by Sheraton and/or its Affiliates. Such
payment shall be an Operating Expense.
7.2.2 Union Relations. Operator, with the participation,
advice, assistance and cooperation of Owner, and using counsel
mutually designated by and representing Owner and Operator, shall
negotiate with any labor unions representing employees of the Hotel
including, without limitation, negotiations with any labor union as to
the terms of any applicable collective bargaining agreement or labor
contract. The cost and expenses of such counsel shall be an Operating
Expense. When Hotel employees are included in or covered by any
pension and/or retirement, disability, health, welfare or other
benefit plans pursuant to a collective bargaining agreement or labor
contract, Owner shall be solely responsible for any plan contributions
and/or other obligations or liabilities arising thereunder, and
Operator shall pay such items out of the Bank Account on behalf of
Owner as an Operating Expense. In addition, if there is negotiation of
a labor contract with a union or unions representing Hotel employees
and such negotiation is conducted in the city or local area of the
Hotel on an association basis, and Operator believes being a member of
such association is desirable, then the Operator may seek to enroll
the Hotel as a member of the association and any costs associated with
such membership shall be an Operating Expense.
<PAGE>
7.2.3 Stays by Other Operator Employees. Employees of
Operator or its Affiliates who travel to the Hotel to perform
technical assistance or other services shall be permitted, without
charge, to stay at the Hotel and use its facilities (including food
and beverage consumption). Other employees of Operator or its
Affiliates shall be permitted to stay at the Hotel for non-business
purposes at reduced rates in accordance with Sheraton's policies with
respect to such stays in effect from time to time.
7.2.4 Employees of Owner. Each Hotel employee shall be an
employee of Operator. Every person performing services in connection
with this Agreement, including any agent or employee of Operator,
Sheraton or their Affiliates or any agent or employee of Owner hired
by Operator, shall be acting as the agent of Owner.
7.2.5 Employee Benefits. Operator, in its discretion, may
enroll the Hotel employees in (and remove them from) pension, medical
and health, life insurance and similar employee benefit plans,
including multi-employer plans. Such plans may be joint plans for the
benefit of employees at more than one hotel owned, leased or managed
by Sheraton or any of its Affiliates. Employer contributions to such
plans, reasonable administrative fees which Operator may expend in
connection therewith, and any liabilities relating to multi-employer
pension or welfare plans will be Operating Expenses hereunder. The
contributions, administrative expenses and liabilities of any joint
plans will be equitably apportioned by Sheraton among covered
properties.
7.3 Operating Plan; Rates.
7.3.1 Operating Plan. Not later than sixty (60) days prior
to the commencement of each Fiscal Year (commencing with the Fiscal
Year beginning January 1, 1998), Operator shall submit to Owner a
detailed annual budget for the operation of the Hotel in the form
generally used by Sheraton from time to time in accordance with
Sheraton policy relating to all managed hotels in the Sheraton system,
together with the assumptions on the basis of which such budget and
schedules were prepared in narrative form (collectively, the
"Operating Plan"). The Operating Plan shall also include a proposed
budget for capital improvements during such succeeding Fiscal Year as
set forth in Section 7.8.4. During the preparation of the Operating
<PAGE>
Plan, Operator will solicit comments and suggestions from Owner
regarding the Operating Plan, which Operator shall reasonably consider
in preparation of the Plan. Owner shall have the right to request such
additional information and detail with respect to the Operating Plan
as may be reasonable, and Operator shall promptly provide such
additional information and detail. Operator will review the Operating
Plan with Owner, and subject to the Owner's written approval, which
approval shall be subject to the terms and conditions of this
Agreement and shall not be unreasonably withheld or delayed for more
than thirty (30) days, Operator shall implement the same for the
forthcoming Fiscal Year (during which period the same shall be
referred to as the "Approved Operating Plan").
7.3.2 Failure to Approve Operating Plan. If the Owner does
not approve or disapprove the Operating Plan in writing within such
thirty (30) day period, Owner shall be deemed to have approved the
Operating Plan for the relevant Fiscal Year, and such plan shall be
the Approved Operating Plan. In the event Owner disapproves the
Operating Plan, or any component thereof, Owner shall provide Operator
with written notice thereof within such thirty (30) day period in
reasonable detail specifying those items of the Operating Plan which
Owner disapproves and the reasons for such disapproval. In such event,
the disputed budget item(s) shall be replaced for the Fiscal Year by
an amount equal to such budget item for the prior Fiscal Year, subject
to escalation thereof by a percentage equal to the percentage increase
during the immediately preceding Fiscal Year in the Consumer Price
Index, and Operator or Owner may request that the parties'
disagreement be submitted to arbitration pursuant to Section 15.4. As
so modified, such plan shall be deemed to be the Approved Operating
Plan. Although the Operating Plan will represent Operator's reasonable
estimates relating to the matters contained therein, it will contain
estimates only and Operator makes no representations, assurances or
guarantees that the actual performance of the Hotel shall correspond
to such estimates.
7.3.3 Budget Variances. After an Operating Plan has been
approved by Owner or has otherwise become the Approved Operating Plan
pursuant to the terms of the preceding paragraph, during the Fiscal
Year in which an Approved Operating Plan is applicable, Operator shall
operate and manage the Hotel in accordance with the Approved Operating
Plan and, except as set forth below, Operator will not make
expenditures, without Owner's prior written approval, which exceed a
total of 110% of the aggregate budgeted amount in the Approved
Operating Plan (excluding amounts budgeted for Capital Expenditures).
Notwithstanding
<PAGE>
the foregoing, in the event actual Total Revenue for any Fiscal Year
exceeds (or is reasonably projected to exceed) the Total Revenue for
such Fiscal Year contemplated in the Approved Operating Plan, the
aggregate budgeted amount with respect to expenditures which are
reasonably anticipated to increase in connection with increases in
Total Revenue will automatically be increased by a percentage which is
determined by dividing the actual or reforecasted Total Revenue by the
Total Revenue which was contemplated in the Approved Operating Plan.
In such event, Operator shall promptly give Owner written notice of
such automatic increase, and the basis for such revenue projections.
Owner and Operator on a quarterly basis during the Fiscal Year in
which the Operating Plan is applicable will meet to review the
operating performance of the Hotel as compared to the Approved
Operating Plan and will make such modifications thereto as shall be
reasonable in the circumstances. In addition to the foregoing,
Operator shall have the right to depart from the Approved Operating
Plan in the event such departure is necessary in view of reasonably
unforeseen circumstances such as, but not limited to, the costs of
labor, material, services, utilities and supplies, casualties, force
majeure, operation of law or economic market conditions, provided that
Operator shall notify Owner in writing of any such departure as soon
as is practicable.
7.3.4 Rates. As part of the Operating Plan, Operator will
submit to Owner the rates to be published and charged to members of
the general public for normal transient occupancy of the various
categories of rooms and suites in the Hotel during such Fiscal Year.
It is understood that such rates will not apply to group business or
other categories of business to which Operator may afford a lower rate
and that in its discretion Operator may from time to time permit
individuals to occupy rooms or suites at the Hotel at complimentary
rates or at rates lower than such published rates.
7.4 Agreements.
7.4.1 Leases, Licenses, Concessions. Operator as agent for
Owner shall enter into, terminate, amend and modify leases with
respect to the commercial, retail and office space in the Hotel and
concessions or other arrangements with respect to other non-guestroom
space and facilities at the Hotel, subject to Owner's prior approval
with respect to the entering into, termination or any material
amendment or modification of any such lease which has a term greater
than one year. Operator shall also enter into, terminate, amend and
modify equipment leases with respect to the FF&E, as shall be
reasonably necessary for the proper operation of the Hotel, provided
<PAGE>
that Owner's approval shall be required prior to entering into any
equipment lease requiring aggregate rent payments in excess of $25,000
and any termination or material modification of any equipment lease
requiring aggregate rent payments in excess of $25,000; provided, that
the foregoing amounts may be redetermined by agreement from time to
time to reflect increases in the cost of living, and shall in any
event be increased automatically in each Fiscal Year by the same
percentage as the increase from the Effective Date in the Consumer
Price Index;
7.4.2 Contracts. Operator as agent for Owner shall enter
into, terminate, amend and modify contracts for the furnishing of
utilities, maintenance, supplies, consumables and other services to
the Hotel (including, without limitation, telephone, television,
satellite, cable, and pay-per-view services), as shall be reasonably
necessary for the proper operation and maintenance thereof, provided
that Owner's prior approval shall be required (x) prior to entering
into any contract requiring aggregate payments in excess of $25,000 or
which is for a term of longer than one (1) year and (y) prior to any
termination or material modification of any contract requiring
aggregate payments in excess of $25,000 or which is for a term longer
than one (1) year, other than (i) Centralized Services, (ii) utilities
and (iii) expenses related to employee benefits provided for
hereunder; provided, that the foregoing amounts may be redetermined by
agreement from time to time to reflect increases in the cost of
living, and shall in any event be increased automatically in each
Fiscal Year by the same percentage as the increase from the Effective
Date in the Consumer Price Index.
7.5 Marketing and Advertising.
7.5.1 Marketing. The Sheraton system of hotels is comprised
of several separate and distinct brands. The marketing and advertising
of the Hotel will be consistent with other hotels in the Sheraton
system utilizing the same brand and the Hotel in its marketing and
advertising will use the graphics standards consistent with its brand
identity as such graphics standards are determined from time to time
by Sheraton. Operator as agent for Owner shall arrange and contract
for all advertising and marketing for the Hotel, including, without
limitation, media, internal hotel collateral, yellow pages and
Internet. The Hotel shall participate in Sheraton marketing programs
(including, without limitation, Sheraton Club International and
airline frequent traveler programs in which Sheraton participates),
and in Sheraton's Cooperative Marketing Program, pursuant to which
<PAGE>
the Hotel shall contribute at the current rate of one percent (1%) of
Room Revenues (as such term is defined in the Lease Agreement in
effect on the Effective Date) for each Operating Year to be used in
local, regional and/or national advertising of the Hotel as part of
the Sheraton hotel system in advertisements relating to multiple
Sheraton hotels. The aforesaid rate may be subject to change from time
to time, provided such rate change is generally consistent throughout
the affected division, brand or product segment. The Hotel will also
participate in any new marketing programs instituted from time to
time, provided that such programs are instituted generally on a
system-wide basis or to distinct sub-groups of properties in the
Sheraton system in the country, state or area in which the Hotel is
located.
7.5.2 Advertising Costs. As part of the Operating Plan,
Operator shall deliver to Owner a budget of the estimated advertising
costs of the Hotel for the succeeding Fiscal Year (commencing with the
Fiscal Year beginning January 1, 1998). Such advertising costs shall
require Owner's approval to the extent they exceed, in the aggregate,
a sum equal to 3% of the Total Revenue of the Hotel (inclusive of
contributions to the Cooperative Marketing Program, as described
above) for the previous Fiscal Year (or, for the first full Fiscal
Year, and any initial partial Fiscal Year, a sum equal to 3% of the
projected Total Revenue for such periods), which approval shall not be
unreasonably withheld.
7.6 Centralized Services. Operator shall cause Sheraton
and/or its Affiliates to furnish to the Hotel the benefits of the
"Centralized Services", which phrase shall mean (a) those services,
programs and group benefits as are described in Exhibit D (for so long
as such services are offered generally within the Sheraton system),
and (b) such additional services, programs or group benefits as are,
from time to time, provided generally to all or distinct sub- groups
of properties in the Sheraton system in the country, state or area in
which the Hotel is located, and Owner hereby agrees that Operator may
in its discretion cause the Hotel to participate in any or all such
Centralized Services. Operator and its Affiliates shall be entitled to
be paid for the existing Centralized Services based on the charges set
forth on Exhibit D (as such charges may be increased to reflect
increases in the Consumer Price Index from the Effective Date and to
reflect specific increases in the costs of operating, maintaining and
upgrading such services) and for any new Centralized Services based on
Sheraton's reasonable estimate of the costs and expenses which will be
incurred in providing such services on a system-wide basis to Sheraton
<PAGE>
hotels, which estimate of costs may include, without limitation,
salaries (including payroll taxes and employee benefits) of employees
of Sheraton and its Affiliates, overhead, recovery of development
costs, promotion, costs of operating, upgrading and maintaining such
services, and costs of all equipment employed in the rendition of such
services. The Hotel's costs for participating in such Centralized
Services shall be determined in an equitable manner and on the same
basis as allocated or charged to other Sheraton hotels. In addition,
if equipment is installed and maintained at the Hotel in connection
with the rendition of any Centralized Services, all costs thereof will
be paid by Owner and charged to the operation of the Hotel either as
an Operating Expense (and Operator may pay for same from the Bank
Account) or over a period of years, as determined by Sheraton's
independent public accountant.
7.7 Purchasing. In its management of the Hotel hereunder,
Operator may purchase goods, supplies and services (i) from or through
Sheraton or any of its Affiliates, or (ii) by contracting directly
with suppliers through regional or national purchasing contracts
negotiated by Sheraton or its Affiliates, so long as the prices and
terms thereof (inclusive of the fees described hereafter) are
competitive with the prices and terms of goods and services of equal
quality available from others (including Owner or its suppliers);
provided, however, if such goods or supplies are Capital Expenditures,
the approval of Owner will be required in connection with any
purchases made pursuant to clauses (i) or (ii) where such purchase
exceeds the amount budgeted for such Capital Expenditure in an
Approved Operating Plan. Sheraton and its Affiliates may receive (i)
fees from the Hotel for the negotiation of the purchasing contracts
described above, and/or (ii) rebates or other payments from suppliers
in connection with direct purchases from such independent suppliers of
goods, supplies and services, so long as the prices and terms thereof
after taking into account such fees and rebates are competitive with
the prices and terms of goods and services of equal quality available
from others (including Owner or its suppliers). Any fees charged to
the Hotel shall be on the same basis as is applicable to other hotels
owned, leased or managed by Sheraton or its Affiliates.
7.8 Repairs, Maintenance and Capital Improvements.
7.8.1 Repairs and Maintenance. Operator shall from time to
time cause to be undertaken such repairs and maintenance as it
reasonably determines to be necessary to keep the Hotel in a
first-class condition (excluding structural or otherwise extraordinary
<PAGE>
repairs and changes to the Hotel, and extraordinary repairs to and or
replacement of equipment included in the definition of Building
Appurtenances all of which shall be paid for by the Owner and shall
not be an Operating Expense), subject to the Owner providing the
necessary working capital therefor, as required under this Agreement.
If any such repairs or maintenance shall be made necessary by any
condition against the occurrence of which Owner has received the
guaranty or warranty of the builder of the Hotel or of any supplier of
labor or materials for the construction of the Hotel, then Owner shall
invoke said guarantees or warranties in Owner's name and at its own
expense. Operator will cooperate fully with Owner in the enforcement
thereof.
7.8.2 Structural Repairs, Changes, Extraordinary Repairs and
Replacements. If structural repairs or other extraordinary repairs and
changes to the Hotel, or extraordinary repairs to or replacements of
any equipment included in the definition of Building and Appurtenances
shall be required at any time during the Operating Term to maintain
the Hotel as a first-class hotel or by reason of any laws, ordinances,
rules or regulations now or hereafter in force, or by order of any
governmental or municipal power, department, agency, authority or
officer, or otherwise, or because Operator and Owner jointly agree
upon the desirability thereof, then in such event all such repairs,
changes or replacements shall be made by Owner and at Owner's sole
expense, and shall be made with as little hindrance to the operation
of the Hotel as possible. Notwithstanding the foregoing, Owner shall
have the right to contest the need for any such repairs, changes or
replacements required by any law, ordinance, regulation or order of
governmental authority and may postpone compliance therewith, if so
permitted by law, but in each such event Owner shall protect Operator
from any loss, cost, damage or expense which may result therefrom,
such protection to be in a form satisfactory to Operator.
7.8.3 Capital Improvements by Owner. Owner may from time to
time at its sole expense make such further alterations, additions or
improvements in or to the Hotel as Owner shall determine, provided
that Operator shall have the right to approve (which approval shall
not be unreasonably withheld or delayed) any such alterations,
additions or improvements which Operator reasonably believes could
have an impact on the operation of the Hotel. Owner shall seriously
consider any alterations, additions or improvements recommended by
Operator.
<PAGE>
7.8.4 Capital Improvements by Operator. Operator, at Owner's
sole expense, may also make expenditures for capital improvements to
the Hotel which are (i) included in the capital budget approved by the
Owner as part of the Operating Plan and (ii) otherwise expressly
approved in writing by Owner.
7.8.5 Operator Rights. The provisions of this Section 7.8
are without prejudice to any of Operator's rights or remedies arising
out of any breach by Owner of its obligation under Section 6.1.a. to
maintain a first-class hotel.
7.9 Books and Records; Financial Statements; Bank Accounts.
7.9.1 Books and Records. Operator shall, for the account of
Owner, keep full and adequate books of accounts and other records
("Books and Records") reflecting the results of operation of the Hotel
on an accrual basis, all in accordance with the Uniform System and, if
required, in accordance with any applicable laws and regulations;
provided, that Operator may make such modifications in the Books and
Records as are consistent with Sheraton's standard practice in
accounting for its operations under management contracts generally, so
long as such modifications do not affect the determination of Net
Operating Income. Except for those of the Books and Records which may
be kept in Sheraton's home office or other suitable location pursuant
to the adoption of a central billing or accounting system, the Books
and Records shall be kept at the Hotel. All Books and Records shall be
available to Owner and its representatives at all reasonable times,
upon reasonable notice, for examination, audit, inspection, copying
and transcription. Upon any termination of this Agreement, the Books
and Records shall be turned over to Owner so as to insure the orderly
continuance of the operation of the Hotel, but shall thereafter be
available to Operator at all reasonable times for examination, audit,
inspection, copying and transcription for a period of ten (10) years.
7.9.2 Financial Statements. Operator shall deliver to Owner
a profit and loss statement showing the results of the operation of
the Hotel for the immediately preceding Accounting Period and for the
Fiscal Year to date within fifteen (15) days from the end of such
preceding Accounting Period. Such statement (a) shall be in the form
customarily prepared by Operator or its Affiliates for other hotels
managed by Sheraton, (b) shall be taken from the Books and Records,
and (c) shall follow the general form set forth in the Uniform System.
Operator shall instruct the Independent Public Accountant to deliver
to Owner a certified profit and loss statement, within fifteen (15)
days after the end of each Fiscal Year, showing the results of
operations of the Hotel during such Fiscal Year. Owner shall be deemed
to have waived any objections to said certified statement not
specified to Operator in writing within one hundred and five (105)
days of receipt thereof.
<PAGE>
7.9.3 Bank Accounts. Except as expressly provided for in
this Agreement, (i) all funds received by Operator in connection with
the operation of the Hotel, including working capital furnished by
Owner, shall be deposited in the Bank Account and (ii) all funds set
aside for the Reserve Fund shall be deposited in the Reserve Account.
Such funds shall not be commingled or otherwise mingled with
Operator's other funds. The Bank Account will be established in
Owner's name at a bank of Owner's selection with Owner's and
Operator's designees being authorized signatories on said account.
Operator shall be entitled to withdraw funds from the Bank Account,
however, Operator's sole right to the funds in such accounts shall be
to receive amounts the Operator is entitled to receive as expressly
provided for in this Agreement. The Reserve Account will be
established in Owner's name at a bank of Owner's selection with
Operator's designees being the only authorized signatories on said
account. Operator shall be entitled to withdraw funds from the Reserve
Account as provided for in this Agreement.
7.10 Funding Requirements.
7.10.1 Funding of Reserve Fund. During each Fiscal Year (and
proportionately for any fraction thereof) there shall be deducted in
monthly installments from Total Revenue, the amounts set forth in the
Term Sheet for the Reserve Fund. The amounts so deducted shall be
deposited in the Reserve Account and shall be recorded on the Books
and Records as the Reserve Fund for Replacements, Substitutions and
Additions to Furniture and Equipment. Interest on such account shall
be credited to the Reserve Fund, but shall not reduce the required
contributions thereto under this Agreement.
7.10.2 Use and Disbursal of Fund. Except as otherwise
specified in this Agreement, the Reserve Fund shall be used solely for
the purposes of replacing worn, damaged or obsolete furniture,
furnishings and equipment utilized in the operation of the Hotel, or
for the substitution of, or addition to, such items. Any expenditures
for replacement or substitution of or additions to Furniture and
Equipment made in any Fiscal Year up to the greater of either an
amount equal to the total amount required to be placed in the Reserve
Fund during each Fiscal Year, or the amount then accrued in the Books
and Records for the Reserve Fund, in each case if in accordance with
an Approved Operating Plan, shall be deemed to be made in the ordinary
course and may be made by Operator without Owner's approval. Such
expenditures shall be paid from the Reserve Account including any
unused accumulation from prior years. Any proposed expenditures in any
Fiscal Year from the Reserve Fund in excess of said amount shall be
subject to Owner's approval. All proceeds from the sale of Furniture
and Equipment no longer needed for the operation of the Hotel shall be
credited to the Reserve Fund. All amounts remaining in the Reserve
Fund at the close of each Fiscal Year shall be carried forward and
retained until fully used as herein provided.
<PAGE>
7.11 Technical Assistance by Operator and its Affiliates.
During the Term, Operator shall provide, or shall cause Sheraton or
its Affiliates to provide, advisory, supervisory and control services
and cost-benefit analyses with respect to the Hotel's operating
departments and systems, including, without limitation, front office,
food and beverage, management information systems, communications
systems, purchasing, design and construction services and personnel,
and general life safety and security consultation and advice. Such
services shall be provided without additional charge to Owner, except
that (i) Owner shall be charged for any services requested to be
performed by Sheraton's design and construction technical assistance
services personnel, including life safety and security consultation at
Sheraton's rates then generally prevailing, (ii) with respect to stays
by any other technical services personnel at the Hotel of more than a
total of three (3) days in any one-year period, Owner shall reimburse
Sheraton for the salary and benefits of such personnel for the period
actually spent at the Hotel, and (iii) Owner shall reimburse Sheraton
for out-of-pocket expenses (including, without limitation, travel
expenses) with respect to such services, including the cost of any
third-party consultants engaged for such purposes, and Owner shall pay
for those items which are Centralized Services, in accordance with the
terms of this Agreement. There shall be no charge to Owner for the
operating reviews provided by supervisory operations personnel from
regional and divisional headquarters, as set forth in Section 5.1b.
7.12 Liquor Licenses. Operator shall assist Owner in making
and prosecuting any applications required for approval of the transfer
of all liquor licenses and alcoholic beverage licenses necessary to
operate the restaurants, bars and lounges presently located within the
Hotel.
<PAGE>
7.13 Standards. Owner acknowledges that Sheraton and
Operator have and will from time to time establish and maintain
operational policies and standards of quality, appearance and service,
which shall be adhered to in the operation of the Hotel. Such policies
and standards may be altered, modified, deleted or added to from time
to time by Sheraton or Operator in order to maintain or improve the
public image and reputation of the brand, and to anticipate or respond
to changes in technology, the lodging industry, competition and
guests, needs and expectations. As absolute uniformity of such
policies and standards under many varying conditions may not be
possible or practical in a particular case, Sheraton and Operator
reserve the right, in their sole discretion, to vary standards for
hotels within the system based on conditions which Sheraton determines
to be important to the successful operation of the relevant hotel,
provided, however, that the same varying standard will be uniformly
applied to all Sheraton hotels.
ARTICLE VIII
Events of Default; Remedies
8.1 Events of Default. The following shall constitute events
of default:
a. The failure of Operator to pay any amount to Owner
provided for herein when the same is payable, or the failure of Owner
to pay or furnish to Operator any amount Owner is required to pay or
furnish to Operator in accordance with the terms hereof (including,
without limitation, fees and working capital) when the same is payable
or required to be furnished, or the failure of Owner to pay any amount
payable to Sheraton or any of its Affiliates when such amount is
payable.
b. The filing of a voluntary petition under 11 U.S.C.
Section 101 et seq. (the "Bankruptcy Code") or any successor thereto
or under any other federal or state insolvency law for liquidation or
reorganization by either Owner or Operator.
c. The consent to an involuntary petition under the
Bankruptcy Code or the failure to vacate within sixty (60) days from
the date of entry of an order for relief thereunder or any other order
approving an involuntary petition by either Owner or Operator.
<PAGE>
d. The entry of an order for relief, judgment, or decree by
any court of competent jurisdiction, on the application of a creditor,
under the Bankruptcy Code against either Owner or Operator as a
bankrupt or insolvent or approving a petition seeking reorganization,
liquidation or appointment of a custodian, receiver, trustee or
liquidator of all or a substantial part of such party's assets, and
such order, judgment or decree shall continue without being stayed and
in effect for a period of one hundred twenty (120) consecutive days.
e. The failure of either Owner or Operator to perform, keep
or fulfill any of the other material covenants, undertakings,
obligations or conditions set forth in this Agreement.
f. The failure of either Owner or Operator to pay its
respective debts as they become due.
g. The failure of Owner to obtain new or reinstated liquor
licenses. If the licenses for the sale of alcoholic beverages in the
Hotel are at any time, without the fault of Operator, suspended,
terminated or revoked and such suspension, termination or revocation
shall continue in effect for a period of thirty (30) consecutive days,
then, unless during such period Owner and Operator are able to
negotiate a new fee structure and Operating Plan taking into account
the loss of liquor revenues, such suspension, termination or
revocation shall be a default hereunder.
h. The failure of Owner or any its Affiliates to comply with
all of the provisions of Section 15.2 hereof.
8.2 Notice and Right to Cure. In any of such events of
default specified in Section 8.1, the non-defaulting party may give to
the defaulting party notice of its intention to terminate this
Agreement after the expiration of a period of (i) ten (10) days from
the effective date of such notice in the case of a default pursuant to
the provisions of Section 8.1(a) above and (ii) thirty (30) days in
the case of any other default pursuant to Section 8.1 and, upon the
expiration of such period without such default being cured, the
Operating Term shall expire; provided, however, in case of a default
pursuant to the provisions of Section 8.1(h) above, Operator may
elect, without limiting any other rights of Operator hereunder, to
immediately terminate this Agreement without further notice or an
opportunity to cure, if Operator determines in its sole discretion
that any further delays would have a material adverse effect on
Operator or Sheraton's reputation or name or would create a financial
exposure to either, or to seek injunctive relief, the parties hereby
agreeing that such a default would irreparably harm Operator and could
not be adequately compensated through monetary damages. With respect
to any default referred to in Section 8.1(e) above, if such default is
not susceptible of being cured within such thirty (30) day period, the
defaulting party shall undertake and continue action to cure such
default with all due diligence until the same is cured, provided,
however, such additional period of cure shall not in any event exceed
ninety (90) days from the giving of such notice. Once cure has been
effected as aforesaid such notice shall be of no further force and
effect.
<PAGE>
8.3 Additional Owner Termination Rights. In addition to the
rights contained in Sections 8.1 and 8.2, Owner shall have the right
to terminate this Agreement: (i) on the tenth anniversary of the
Effective Date if the rental payments payable by Owner to FelCor
pursuant to the Lease Agreements during the two then most recently
completed Fiscal Years provide FelCor with less than a 12% Cash-on-
Cash Return; (ii) on the fifteenth anniversary of the Effective Date
if the rental payments payable by Owner to FelCor pursuant to the
Lease Agreements during the two then most recently completed Fiscal
Years provide FelCor with less than a 12% Cash-on-Cash Return; (iii)
if after the 1997 Fiscal Year the Initial Hotels fail to achieve for
any two consecutive Fiscal Years either (a) 90% of their aggregate
budgeted Net Operating Income (which budgets shall be mutually agreed
to between Owner and Operator) or (b) 90% of the Star Report yield
index calculated on an aggregate basis for the Initial Hotels based on
the competitive set of the Hotels (which competitive set shall be
mutually agreed to between Owner and Operator within 30 days from the
Effective Date); or (iv) at the option of Owner, upon the occurrence
of a Change of Control; provided, however, that Owner shall not have
any termination rights pursuant to this Section 8.3 if the conditions
of clauses (i), (ii) or (iii) which gave rise to such termination
rights would not have occurred but for the existence of a Force
Majeure. If Owner elects to exercise any termination right set forth
in this Section 8.3, Owner must give written notice of such election
to Operator within thirty (30) business days of the date that Owner
has received from Operator the certified profit and loss statement for
the relevant Fiscal Year for each of the Initial Hotels (or, in the
case of clause (iv), within 30 days of Owner's receipt of written
notice of the applicable Change of Control). Upon receipt of such
notice of election from Owner (other than with respect to clause
(iii)(b) or (iv) above), Operator and its Affiliates shall have the
right within fifteen (15) business days following such notice to
eliminate Owner's termination right with respect to such notice by
paying to Owner the amount necessary to cure any shortfall in the
rental payments or aggregate budgeted Net Operating Income of the
Initial Hotels which gave rise to such termination right.
<PAGE>
8.4 Remedies. Owner's and Operator's rights of termination
set forth above shall be in addition to, and not in lieu of, any and
all other rights and remedies which such party shall have at law or in
equity, including, without limitation, injunctive relief.
ARTICLE IX
Termination
9.1 Obligations Upon Termination. Upon termination of this
Agreement, Owner acknowledges and agrees as follows:
a. Owner is and will be responsible for and assumes (i) all
obligations and liabilities under any and all contracts (including,
but not limited to, collective bargaining agreements and pension
plans, leases, licenses or concession agreements, maintenance and
service contracts) in existence as of the date of the termination,
(ii) all obligations and liabilities with respect to employees at the
Hotel (including, but not limited to, applicable on-going health
benefits, termination claims or benefits, workers' compensation claims
and any retroactive premiums, and any obligations under any
self-insurance program) and any and all other obligations or
liabilities with respect to the operation of the Hotel, and (iii) all
obligations and liabilities with respect to reservations or bookings
for rooms, lodging, banquets, or other functions reserved in advance
and made by Operator during the Operating Term even though the same
may be for a period which occurs after the termination of this
Agreement.
b. The termination of this Agreement shall not extinguish
Owner's and Operator's obligations relating to (i) the payment of all
sums due or to become due pursuant to this Agreement or any agreements
entered into as a result of this Agreement, (ii) the provisions of
Article XIV of this Agreement, or (iii) those provisions of this
Agreement which, by their very terms (either expressly or implicitly),
survive the termination of this Agreement.
<PAGE>
c. Operator shall have the right to maintain a
representative at the Hotel for a period of sixty (60) days after the
date of termination for the purpose of finalizing the termination of
this Agreement. During such sixty (60) day period, Owner will provide
Operator's representative with a guest room and private office space
at the Hotel at no charge unless such termination is the result of an
event of default by Operator, in which case Operator shall bear the
cost of such room and space. Operator's representative shall have
access to the Hotel's books and records for the period up to the date
of termination and shall also have the right to use the telephone,
computer, copying and other office equipment of the Hotel during
normal business hours and will pay the actual out-of-pocket costs
associated with the use of such equipment.
9.2 Use of Sheraton Name. Upon the termination of this
Agreement, neither Owner nor any other owner or operator of the Hotel
shall have the right to use the word "Sheraton" or any Sheraton
trademarks, emblems, insignia, slogans or distinguishing
characteristics in connection with the operation of the Hotel, except
that Owner shall have the right to use all of the then existing
Operating Equipment and Operating Supplies even though marked with the
name "Sheraton," or with other Sheraton characteristics, until fully
consumed, but in no event for a period in excess of sixty (60) days
whereupon it shall destroy said identity items. Owner shall, at its
own expense within five (5) days of the effective date of any
termination or expiration of this Agreement, remove from the Hotel any
signs or other indicia of any connection with the Sheraton hotel
system. In the event Owner fails to remove such signs and other
indicia within such five (5) day period, Operator shall have the right
and Owner hereby grants Operator a license to enter upon the Premises
and at Owner's expense to remove, or cause to be removed, such signs
and indicia. Notwithstanding the foregoing, if within fifteen (15)
days after termination Operator offers to buy any or all of said
Operating Equipment and Operating Supplies bearing the name Sheraton
or Sheraton trademarks, emblems, insignia or distinguishing
characteristics, at the lesser of actual cost or fair market value,
Owner shall cease to use same and shall sell same to Operator. In the
event of any dispute as to fair market value, the Independent Public
Accountant shall determine such value. Operator shall have the right
to seek injunctive or other relief in a court of competent
jurisdiction, to enforce the foregoing provisions, notwithstanding any
arbitration provisions contained in this Agreement, the parties hereby
agreeing that the failure of Owner to comply with this provision shall
cause Operator irreparable harm which can not be fully compensated by
<PAGE>
monetary damages. Owner shall bear all of Operator's costs, including
reasonable attorneys' fees, in connection with the enforcement of
Operator's rights under this Article IX. The provisions of this
Article IX shall survive termination of this Agreement.
ARTICLE X
Damage and Destruction; Condemnation
10.1 Damage or Destruction. If the Hotel or any portion
thereof shall be damaged or destroyed at any time or times during the
Operating Term by fire, casualty or any other cause, Owner will, at
its own cost and expense and with due diligence, repair, rebuild or
replace the same so that after such repairing, rebuilding, or
replacing, the Hotel shall be substantially the same as prior to such
damage or destruction. If Owner fails to undertake such work within
ninety (90) days after the fire or other casualty, or shall fail to
complete the same diligently, Operator may, at its option, terminate
this Agreement by written notice to Owner, effective as of the date
sent. Notwithstanding the foregoing, if the Hotel is damaged or
destroyed to such an extent that the cost of repairs or restoration,
as reasonably estimated by Operator, exceeds one-third of the original
cost of the Hotel, Operator may terminate this Agreement by written
notice to Owner, or Owner may, if it determines not to repair, rebuild
or replace the Hotel, as aforesaid, terminate this Agreement by such
notice to Operator. In the event Owner is not required to repair,
rebuild or replace the Hotel under the terms hereof, but nevertheless
determines at any time within three (3) years after the date of such
casualty to so repair, rebuild or replace the Hotel, then Operator may
reinstate this Agreement by written notice to Owner within sixty (60)
days after the later of: (a) the commencement of such repairing,
rebuilding or restoring, (b) receipt of written notice from Owner of
the commencement thereof, or (c) receipt of written notice from Owner
of its intention to repair, rebuild or replace the Hotel.
10.2 Condemnation.
a. If the whole of the Hotel shall be taken or condemned in
any eminent domain, condemnation, compulsory acquisition or like
proceeding by any competent authority or if such a portion thereof
shall be taken or condemned as to make it imprudent or unreasonable to
use the remaining portion as a first-class hotel of the type
immediately preceding such taking or condemnation, then the Operating
<PAGE>
Term shall terminate as of the date of such taking or condemnation. If
only a part of the Hotel shall be taken or condemned and the taking or
condemnation of such part does not make it unreasonable or imprudent
to operate the remainder as a first-class hotel of the type
immediately preceding such taking or condemnation, this Agreement
shall not terminate, and Owner shall undertake such alterations or
modifications to the Hotel, or any part thereof, as shall be
reasonably necessary to make the Hotel a satisfactory architectural
unit as a first-class hotel of the type immediately preceding such
taking or condemnation.
b. Operator shall have the right, in the case of either
total or partial taking or condemnation, either to institute or to
intervene in any available administrative proceeding or judicial
action, intended to determine just compensation for such taking, for
the purpose of representing Operator's compensable interest in any
award thereof, arising from this Agreement and more specifically from
Operator's right of quiet enjoyment. Any award that does not recognize
the separate compensable interests of Owner and Operator shall be
apportioned between the parties hereto in consideration, without
limitation, of such factors as: (i) recoupment by Owner of its
investment, (ii) return on investment to date, (iii) actual loss of
income (including Operator's fee income hereunder), (iv) loss of
reasonably anticipated future income (including Operator's fee income
hereunder), (v) length of the unexpired term of this Agreement, and/or
(vi) the proportion that Operator's Basic and Incentive Fees have
historically borne to the return to Owner after payment of such fees.
Any award which does not recognize such separate and compensable
interest in Operator shall be the subject of arbitration between the
parties hereto pursuant to Section 15.4.
ARTICLE XI
Assignment and Transfer
11.1 Sale, Lease or Assignment by Owner.
11.1.1 Owner's Right to Assign. Subject to the provisions of
this Article XI, Owner shall have the right at any time during the
Term to assign its entire interest in this Agreement in connection
with a Change of Ownership, in which event such purchaser shall accept
the assignment of this Agreement and assume in writing all of Owner's
obligations hereunder as of the date of the Change of Ownership. The
execution by the purchaser and Owner of an agreement of such
assignment and assumption in form reasonably satisfactory to
Operator's counsel shall be a condition of the sale or disposition to
such proposed purchaser and Operator shall have the right to enjoin
such sale or disposition in the event that such an agreement has not
been delivered to Operator at least three (3) business days prior to
such sale or disposition. Notwithstanding the foregoing, Owner shall
not have the right to assign its interest hereunder as aforesaid,
<PAGE>
and if Owner does so this Agreement shall be deemed to have been
terminated by Owner, if Operator determines, in its reasonable
judgment, that (a) the proposed purchaser or its beneficial owners do
not have the ability to fulfill Owner's financial obligations
hereunder; (b) the consummation of the proposed transaction would
materially jeopardize any gaming or other license of Operator,
Sheraton, ITT or any of their respective Affiliates or it shall be
contrary to any United States law or regulation for Operator to manage
the Hotel for the proposed Owner; (c) the business reputation of the
proposed purchaser or its beneficial owners is unacceptable; or (d)
the proposed purchaser or its beneficial owners are (or are controlled
by) a hotel management or franchising company which competes with
Operator or its Affiliates. Any deemed termination resulting from a
failure of any of the conditions set forth in this Section 11.1.1
shall be deemed a termination by Owner. Owner shall not otherwise have
the right to assign its interest in this Agreement during the Term,
without Operator's prior written consent, such consent not to be
unreasonably withheld.
11.1.2 Owner's Right to Sell. The partners or other
constituent members of Owner may, upon written notice to Operator
pursuant to Section 11.1.3 below, assign, transfer, or dispose of all
or any part of their interest(s) in Owner from time to time without
the consent of the Operator, provided that such assignment, transfer
or disposition does not constitute a Change of Ownership, subject,
however, to Operator's right to terminate this Agreement in certain
circumstances pursuant to Section 15.7.
11.1.3 Notice of Sale or Assignment. Owner and/or any
partner or other constituent member of Owner desiring to sell or
otherwise dispose of all or any part of its interest in the Hotel or
Owner, as the case may be, shall give Operator not less than
forty-five (45) days' advance written notice of its intention, which
notice shall identify in reasonable detail the owners of the proposed
purchaser and shall be accompanied by the latest available audited and
unaudited financial statements of the proposed purchaser. The
effective date of such notice to Operator shall be the date on which
Operator receives from Owner a detailed description of the proposed
<PAGE>
purchaser and all beneficial owners of the proposed purchaser,
including, without limitation, the latest available audited and
unaudited financial statements of the proposed purchaser and such
beneficial owners.
11.2 Assignment by Operator. Operator shall have the right
to assign all its right, title and interest under this Agreement to
(a) any Affiliate of it or of Sheraton, provided that (i) Operator
shall remain liable for all obligations and liabilities of Operator
hereunder, and (ii) such assignee enjoys the benefits of the Sheraton
organization to the same degree as Operator, or (b) any successor or
assignee of Operator or Sheraton which may result from any merger,
consolidation or reorganization, or any other entity which acquires
all or substantially all of the business and assets of Sheraton, other
than any such transaction constituting a Change of Control. Operator
shall have no right to assign its right, title and interest under this
Agreement except as set forth in this Section 11.2.
11.3 Liability After Assignment. Except as expressly
provided for herein, upon any assignment permitted by this Article and
upon assumption of this Agreement by the assignee, the assignor shall
be relieved of any obligation or liability under this Agreement
incurred or arising subsequent to the date of such assignment.
ARTICLE XII
Insurance
12.1 Owner Insurance. Throughout the Term, Owner shall
obtain, pay for and maintain the insurance identified as "Owner
Insurance" in Exhibit C and shall comply with all of the requirements
of such Exhibit.
12.2 Operator Insurance. Throughout the Term, Operator shall
obtain and maintain the insurance identified as "Operator Insurance"
in Exhibit C, the cost of which shall be an Operating Expense, and
shall comply with all of the requirements of such Exhibit.
12.3 Waiver of Subrogation. Owner hereby waives its right of
subrogation and shall have all policies of insurance provide that the
insurance company will have no right of subrogation against Operator,
Sheraton, ITT or any of their respective Affiliates or the agents or
employees thereof. Owner assumes all risks in connection with the
adequacy of any insurance or self-insurance program required or
permitted under this Agreement, and waives any claim against Operator,
Sheraton, ITT and all of their respective Affiliates for any
liability, cost or expense arising out of any uninsured claim, in part
or in full, of any nature whatsoever.
<PAGE>
12.4 Separate Operator Insurance. Owner acknowledges that
Operator, Sheraton, ITT or any of their respective Affiliates may at
their sole expense, carry insurance coverages separate and distinct
from those required under this Agreement, including any excess
coverage protecting only their separate interests.
ARTICLE XIII
Intellectual Property; Trade Names
13.1 Use of Intellectual Property. Operator shall utilize
the Intellectual Property in connection with the operation of the
Hotel as appropriate for the purpose of carrying out its agreements
and obligations hereunder, but such use shall be strictly on a
non-exclusive basis, and neither such use nor anything contained in
this Agreement shall confer any proprietary rights in the Intellectual
Property upon Owner or any third parties. All advertising, marketing
promotional pieces, public relations and sales materials shall only
use the Sheraton trademark and service marks in an approved manner as
to graphics, formatting, positioning and the like.
13.2 Hotel Name. During the Operating Term, the Hotel shall
at all times be known and designated as indicated in the Term Sheet,
or by such other name as from time to time may be agreed upon by Owner
and Operator. All rights to any such name, exclusive of the name
"Sheraton" or any other term utilized in the name of the Hotel which
is a trade name or trade mark of Sheraton, Operator or any of their
respective Affiliates, or which is commonly used by Sheraton, Operator
or any of their respective Affiliates in connection with a group of
their hotels, or which identifies the general or specific location of
the Hotel, shall belong solely to Owner.
13.3 Hotel Logo Goods. The parties agree that clothing and
other goods bearing the name or logo of the Hotel, or any other right,
trade name, logo or mark used only at the Hotel or specifically making
reference to the Hotel, may be sold at the Hotel and at any other
hotel or facility owned, operated or licensed by Operator, Sheraton,
ITT or any of their respective Affiliates. There shall be no royalty,
license fee or other charge by Operator or Owner in connection with
the use of such rights.
<PAGE>
ARTICLE XIV
Claims and Indemnification
14.1 Claims and Liability. Owner and Operator mutually agree
for the benefit of each other to look only to the appropriate
insurance coverages in effect pursuant to this Agreement in the event
any demand, claim, action, damage, loss, liability or expense occurs
as a result of injury to person or damage to property (collectively, a
"Claim"), regardless whether any such Claim is caused or contributed
to, by or results from the negligence of Owner or Operator or their
respective Affiliates, employees, directors, officers, agents or
independent contractors and regardless whether the injury to person or
damage to property occurs in and about the Hotel or elsewhere as a
result of the performance of this Agreement.
14.2 Indemnification in favor of Owner. In the event the
insurance proceeds are insufficient or there is no insurance coverage
to satisfy such Claims, and provided Operator is made a party to such
proceedings and is given an adequate opportunity to defend itself with
respect to such Claims, Operator shall indemnify and hold Owner and
its Affiliates, officers, directors, employees, agents and independent
contractors harmless, to the extent of the excess liability (including
any deductible amount under any policy of insurance), from and against
any and all Claims which such party may suffer, sustain or incur, if,
and only to the extent, such Claims are determined by the final,
unappealable judgment of a court of competent jurisdiction to result
from the fraud, gross negligence or willful misconduct of Operator's
employees, while such person is acting within the scope of his or her
employment.
14.3 Indemnification in favor of Operator. In the event the
insurance proceeds are insufficient or there is no insurance coverage
to satisfy such Claims, Owner shall indemnify and hold Operator,
Sheraton, ITT, their respective Affiliates, and any officers,
directors, employees, agents or independent contractors of any of
them, harmless from and against any and all Claims, including
reasonable attorneys' fees, except to the extent such Claims are the
responsibility of Operator pursuant to Section 14.2. Owner will, at
Operator's request, assume the defense (with counsel satisfactory to
Operator) of any proceeding brought by any third party to establish
any such liability, the costs of any such defense being an Operating
<PAGE>
Expense hereunder. Operator shall also have the right to engage
separate counsel, at its expense, to monitor the proceedings, and
Owner and Owner's counsel shall fully cooperate with such counsel. Any
liability resulting from, or settlement amount relating to, any Claim
which is not covered by insurance will be an Operating Expense so long
as this Agreement remains in effect. In addition, without limiting any
indemnifications set forth in this Agreement, Owner agrees to
indemnify and hold Operator, Sheraton, ITT, their respective
Affiliates, and any officers, directors, employees, agents or
independent contractors harmless from any and all liability, loss,
damages, costs or expenses (including all reasonable attorneys' fees)
of any kind or nature by reason of any claim which may arise as a
result of a default or other breach by Owner of any of the obligations
and liabilities set forth in Section 9.1.
14.4 Limitation with respect to good faith acts.
Notwithstanding any other provisions of this Agreement, but without
limiting the remainder of this Article XIV, in no event shall Owner
make any claim against Operator, Sheraton, ITT or any of their
respective Affiliates, or any officer, agent or employee of any of
them, nor shall they be liable to Owner or to any other person or
entity, on account of: (i) any act, omission, error of judgment or
allegation thereof in connection with the operation of the Hotel
hereunder by Operator, Sheraton, ITT or any of their respective
Affiliates, or any officer, agent or employee of any of them, which
act, omission, error of judgment or allegation thereof was made in
good faith, or (ii) any negligent, tortious or other act, error or
omission of any officer, employee or agent of Owner (except with
respect to Operator, as set forth herein).
14.5 Survival. The provisions of this Article XIV shall
survive termination of this Agreement.
ARTICLE XV
Miscellaneous
15.1 Casino. No casino shall be operated at the Hotel
without the consent of Owner and Operator. In the event the parties
shall approve a casino for operation at the Hotel, Operator shall have
the exclusive right to operate such casino as a part of the Hotel, and
the excess of the gross amount wagered therein over the total amount
of money won by wagerers will be included in the Total Revenue of the
Hotel and the expenses of operation relating to the casino will be an
Operating Expense.
<PAGE>
15.2 Financings and Offerings of Owner or its Affiliates.
Neither Owner nor any Affiliate of Owner shall represent to any lender
or other participant in any financing or in any public or private
offering of securities by Owner or any Affiliate of Owner that
Operator, Sheraton or any Affiliate of either is in any way
responsible for any of the obligations of Owner or any Affiliate of
Owner in such financing or is in any way participating in any such
offering. Except with respect to public disclosure required by law,
neither Owner nor any Affiliate of Owner shall make use of the name
"Sheraton" or the name of Operator, Sheraton or any Affiliate of
either in connection with any financing or offering other than to
state that the Hotel: (i) will bear the name "Sheraton", (ii) will be
managed by Operator under this Agreement, and (iii) will be part of
the "Sheraton Hotel System". The use of the name "Sheraton" or the
name of Operator, Sheraton or any Affiliate of either in any other
fashion, or the use of any written or oral materials or information
provided by Operator, Sheraton or any Affiliate of either to Owner,
including, but not limited to, financial or any other information
concerning Operator, Sheraton or any Affiliate of either, shall be
subject to the prior written approval of Operator and Sheraton, which
approval may be withheld in such party's sole discretion. Upon
request, Operator and Sheraton will provide Owner with written
requirements which must be complied with as a prerequisite to any
other such use of any such name or the use of any such materials or
information.
15.3 Notices. Any notice, statement or demand required to be
given under this Agreement shall be in writing, sent by hand delivery,
or by certified mail (postage prepaid, return receipt requested), or
by Federal Express or other overnight delivery service, or by
facsimile machine (with an executed original sent the same day by
overnight delivery service), addressed, in the case of Owner, to the
address set forth in the Term Sheet, and in the case of Operator, to
Sixty State Street, Boston, Massachusetts 02109, Attention: General
Counsel, with a copy to the General Manager of the Hotel, sent to the
address of the Hotel, or to such other addresses as Operator or Owner
shall designate in the manner herein provided. Notices shall be deemed
delivered on the first business day following (1) the date that is
three (3) calendar days after the notice is deposited in the U.S. mail
(exclusive of the mailing date) if sent by certified mail, or, (2) if
hand delivered, the date the hand delivery is made, or (3) if
delivered by facsimile machine, the date the transmission is made
(provided the confirmatory original is received the next business day
following), or, (4) if given by an overnight delivery service, the day
after the date that the notice is deposited with the overnight
delivery service.
<PAGE>
15.4 Arbitration. The factual issues referred to in Sections
7.4 and 10.2b. of this Agreement shall be settled by the final and
binding decision of the Accountants as set forth herein. In the case
of a dispute with respect to such matters, either party may submit
such matter to arbitration which shall be conducted by the
Accountants. The "Accountants" shall be one of three (3) firms of
certified public accountants of recognized international standing in
the hotel industry. Until otherwise agreed to by the parties, the
three (3) firms shall be Arthur Andersen LLP, Coopers and Lybrand, and
Pannell Kerr Forster, notwithstanding any existing relationships which
may exist between Owner and such accounting firms or Operator and such
accounting firms. The party desiring to submit any matter to
arbitration hereunder shall do so by written notice to the other
party, which notice shall set forth the items to be arbitrated and
such party's choice of one of the three (3) accounting firms. The
party receiving such notice shall within fifteen (15) days after
receipt of such notice either approve such choice, or designate one of
the remaining two (2) firms by written notice back to the first party,
and the first party shall within fifteen (15) days after receipt of
such notice either approve such choice or disapprove the same. If both
parties shall have approved one of the three (3) firms under the
preceding sentence, then such firm shall be the "Accountants" for the
purposes of arbitrating the dispute; if the parties are unable to
agree on an accounting firm, then the third firm, which was not
designated by either party, shall be the "Accountants" for such
purpose. The Accountants shall be required to render a decision in
accordance with the procedures described below within fifteen (15)
days after being notified of their selection. The fees and expenses of
the Accountants will be paid by the non-prevailing party. In all
arbitration proceedings submitted to the Accountants, the Accountants
shall be required to agree upon and approve the substantive position
advocated by Owner or Operator with respect to each disputed item. Any
decision rendered by the Accountants that does not reflect the
position advocated by Owner or Operator shall be beyond the scope of
authority granted to the Accountants and, consequently, may be
overturned by either party. All proceedings by the Accountants shall
be conducted in accordance with the Uniform Arbitration Act, except to
the extent the provisions of such act are modified by this Agreement
or the mutual agreement of the parties. Unless otherwise agreed, all
arbitration proceedings shall be conducted at the Hotel.
<PAGE>
15.5 Performance During Disputes. It is mutually agreed that
during any kind of controversy, claim, disagreement or dispute,
including a dispute as to the validity of this Agreement, Operator
shall remain in possession of the Hotel as Operator and shall be
entitled to receipt of Basic Fees and Incentive Fees in accordance
with the terms of this Agreement; and Owner and Operator shall
continue their performance of the provisions of this Agreement.
Operator shall be entitled to injunctive relief from a civil court or
other competent authority to maintain possession in the event of a
threatened eviction during any dispute, controversy, claim or
disagreement arising out of this Agreement.
15.6 Events of Force Majeure; Emergencies; Compliance with
Laws. If at any time during the Term Operator is unable to perform
pursuant to the terms of this Agreement or it becomes necessary, in
Operator's opinion, to cease operation of the Hotel in order to
protect the Hotel and/or the health, safety and welfare of the guests
and/or employees of the Hotel for reasons beyond the reasonable
control of Operator, such as, but not limited to, acts of war,
insurrection, civil strife and commotion, labor unrest, governmental
regulations and orders, shortage or lack of adequate supplies or lack
of skilled or unskilled employees, contagious illness, catastrophic
events or acts of God ("Force Majeure"), then in any such event or
similar events Operator may close and cease or partially cease
operation of all or any part of the Hotel, reopening and commencing
operation when Operator deems that such may be done pursuant to laws
or regulations applicable to Sheraton and Operator, and without
jeopardy to the Hotel, its guests and employees. Operator and Owner
agree, except as otherwise provided herein, that the time within which
a party is required to perform an obligation and the Term shall be
extended for a period of time equivalent to the period of delay caused
by an event of Force Majeure. If an emergency condition should exist
which requires that immediate repairs be made for the preservation and
protection of the Hotel, its guests or employees, or to assure the
continued operation of the Hotel, Operator is authorized to take all
actions and to make all expenditures necessary to repair and correct
such condition, regardless whether provisions have been made in the
applicable budget for such emergency expenditures. Expenditures made
by Operator in connection with an emergency shall be paid, in
Operator's sole discretion, out of the Bank Account to the extent
funds are available; and if not, from the Reserve Account. Owner
shall, to the extent required to meet current obligations, immediately
replenish such funds.
<PAGE>
15.7 Gaming Licensure Issues and Compliance with Any Laws or
Regulations Applicable to Operator. Operator and Affiliates of
Operator own and operate or will own and operate casino gaming
facilities in the states of Nevada and New Jersey, and other U.S. and
foreign jurisdictions, which are subject to extensive regulation. If,
in the sole judgment and discretion of Operator, the association with
Operator of Owner or any Affiliate of Owner or any employee, officer
or director of Owner or any transferee of Owner may result in a
disciplinary action or the loss of or inability to reinstate any
registration, application or license or any rights or entitlements
held by Operator or any Affiliate of Operator under any state, local,
United States or foreign gaming laws, or if Owner or any Affiliate or
transferee of Owner is required to qualify or be found suitable under
any gaming laws under which Operator or any Affiliate of Operator is
licensed, registered, qualified or found suitable, and Owner or any
Affiliate or transferee of Owner does not so qualify (at its own
expense) or any of the foregoing shall be unsuitable or unacceptable
for Operator to do business with under any law or regulation
applicable to Operator or any Affiliate of Operator, then Operator may
deliver written notice of the foregoing to Owner, and then Operator
may elect to terminate this Agreement. Owner agrees to provide
Operator with such information and details concerning Owner and
officers, directors and shareholders of Owner as Operator or any
regulatory agency may require in order to establish suitability.
15.8 Employment Solicitation Restriction Upon Termination.
Owner and its Affiliates and their successors hereby agree not to
solicit the employment of the Hotel's general manager, director of
sales or controller or any personnel employed by Operator or an
Affiliate of Operator at any time during the Term without Operator's
prior written approval. Furthermore, Owner and its Affiliates agree
not to solicit or employ the Hotel's general manager, director of
sales or controller or any executive personnel employed by Operator or
an Affiliate of Operator for a period of twelve (12) months after the
termination or expiration of this Agreement, without Operator's prior
written approval.
15.9 Set-off. Without prejudice to Operator's right to
terminate this Agreement pursuant to the provisions of this Agreement,
Operator may at any time during the continuance of an event of default
(as such term is defined in Article VIII) and without notice to Owner
set-off or transfer any sum or sums held by Operator, Sheraton or
their Affiliates to the order of, or on behalf of, Owner, in or
towards satisfaction of any of Owner's liabilities to Operator in
respect of all sums due to Operator under the terms of this Agreement.
<PAGE>
15.10 Press Releases. Except with respect to public
disclosure required by law, no press releases or other written matter
in which the names "Sheraton" or "ITT" are used shall be released or
otherwise used by Owner without Operator's prior written approval of
the timing and content of such release in each and every case, which
approval may be withheld in Operator's sole discretion.
15.11 Consents. Except as herein otherwise provided,
whenever in this Agreement the consent or approval of Operator or
Owner is required, Owner and Operator each agree to act reasonably and
without undue delay with respect to requests for such consent or
approval. Such consent or approval shall be in writing only and shall
be duly executed by an authorized officer or agent of the party
granting such consent or approval.
15.12 Partial Invalidity. In the event that any one or more
of the phrases, sentences, clauses or paragraphs contained in this
Agreement shall be declared invalid by the final and unappealable
order, decree or judgment of any court, this Agreement shall be
construed as if such phrases, sentences, clauses or paragraphs had not
been inserted; provided that if any portion of Article IV or Sections
6.1c., 7.1, or 14.3 shall be so declared invalid, Operator shall have
the option to terminate this Agreement within thirty (30) days
thereafter on written notice to Owner.
15.13 Further Actions. Owner and Operator shall execute and
deliver all other appropriate supplemental agreements and other
instruments, and take any other action necessary to make this
Agreement fully and legally effective, binding, and enforceable as
between them and as against third parties, including Owner's filing in
appropriate governmental offices pursuant to any statute, ordinance,
rule or regulation requiring such filing by persons or entities doing
business in a name other than their own, of a certificate or similar
document indicating that Owner is engaging in the hotel business at
the Hotel under the name of the Hotel. Any fees or expenses incurred
in connection therewith shall be borne by Owner.
15.14 Paragraph Headings. The headings of the titles to the
several articles of this Agreement are inserted for convenience only
and are not intended to affect the meaning of any of the provisions
hereof.
<PAGE>
15.15 Governing Law. This Agreement shall be construed, both
as to its validity and as to the performance of the parties, in
accordance with the laws of the place where the Hotel is located. This
Agreement shall be binding upon and inure to the benefit of Owner and
Operator, and their respective successors and permitted assigns. The
waiver of any of the terms and conditions of this Agreement on any
occasion or occasions shall not be deemed a waiver of such terms and
conditions on any future occasion.
15.16 Entire Agreement; Owner has not relied on
representations. This Agreement, including all exhibits and schedules
hereto which are hereby incorporated by reference, constitutes the
entire agreement between the parties relating to the subject matter
hereof, superseding all prior agreements or undertakings, oral or
written. Owner has not relied on any projection of earnings,
statements as to the possibility of future success or other similar
matter which may have been prepared by Operator, Sheraton, or any of
their respective Affiliates, and understands that no guaranty is made
or implied by Operator, Sheraton or any of their Affiliates as to the
cost or the future financial success of the Hotel.
15.17 Benefits of Agreement; No Third-Party Rights. None of
the provisions of this Agreement shall be for the benefit of or
enforceable by any party other than Owner, Operator or any of either
of their respective Affiliates. Except as expressly provided for
herein, nothing in this Agreement shall be deemed to create any right
by any party other than Owner, Operator and any of either of their
respective Affiliates and this instrument shall not be construed in
any respect to be a contract in whole or in part for the benefit of
any third party nor is this instrument intended to create an interest
in, or lien upon, the Premises.
15.18. Cooperation with FelCor. Operator shall reasonably
cooperate with Owner and FelCor in connection with any financing or
refinancing of any one or more of the Initial Hotels, and shall, upon
not less than ten (10) days prior written request, execute and deliver
to any lender or prospective lender, or purchaser or prospective
purchaser of an interest in FelCor, estoppel certificates regarding
the effectiveness of the Management Agreements and performance by
Owner thereunder and cold comfort letters based upon terms reasonably
acceptable to Operator, to the effect that such lender or purchaser
will receive (i) concurrent notice and opportunity to cure defaults by
Owner under the Management Agreements and (ii) the right to substitute
a new owner reasonably acceptable to Operator if and when such lender
or purchaser obtains title to or possession of the Hotel(s).
<PAGE>
IN WITNESS WHEREOF, Operator and Owner have duly executed
this Agreement the day and year first written above in the Term Sheet.
FCH/[ ] Leasing, L.L.C. SHERATON OPERATING
CORPORATION
By By
------------------------------ --------------------------
Name: Name:
Title: Title:
<PAGE>
Exhibit A
Intentionally Omitted
<PAGE>
EXHIBIT B
DEFINITIONS
For the purposes of this Agreement, the following terms
shall have the following respective meanings:
"Accounting Period" shall mean a period of time not less
than three nor more than six full weeks, as shall be used by Operator
in accounting for the operations of the Hotel.
"Affiliate(s)" shall mean, with respect to any entity, any
natural person or firm, corporation, partnership, limited liability
company, association, trust or other entity which, directly or
indirectly, controls, is controlled by, or is under common control
with, the subject entity; a natural person or entity which has an
entity as an Affiliate under the foregoing shall also be deemed to be
an Affiliate of such entity. For purposes hereof, the term "control"
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any
such entity, or the power to veto major policy decisions of any such
entity, whether through the ownership of voting securities, by
contract, or otherwise.
"Approved Operating Plan" shall mean an Operating Plan which
has been approved or deemed approved by the Owner pursuant to Section
7.3.
"Bank Account" shall mean a bank account designated by Owner
from time to time.
"Basic Fee" shall have the meaning set forth in the Term
Sheet.
"Books and Records" shall have the meaning set forth in
Section 7.9.1.
"Building and Appurtenances" shall mean the building(s) and
appurtenances thereto located on the Premises (including, without
limitation, heating, lighting, air conditioning equipment, and
elevators).
"Capital Expenditure" shall mean all expenditures incurred
with respect to the Hotel during such period that, in accordance with
GAAP, are or should be capitalized rather than expensed, including
items included in "additions to property, plant or equipment" or
similar items reflected in the statement of cash flows.
<PAGE>
"Cash-on-Cash Return" shall mean an amount computed over the
applicable two-year period, reflected as a percentage, equal to (a)
the sum of (i) the aggregate amount of all rental payments under the
Lease Agreements during such period (after payment by FelCor of all
personal and real property taxes and insurance premiums related to any
Initial Hotel for such period), (ii) the aggregate amount of
distributions made (or if not made, cash available for distribution)
by Owner to its members in respect of their ownership interests in
Owner during such period (which, for purposes of clarity, excludes any
payments made to Operator on account of the Incentive Fee) and (iii)
the aggregate Net Operating Income of any of the Initial Hotels for
any portion of the two-year period in which any Lease Agreement is not
then in effect, divided by (b) the sum of (i) the aggregate cost basis
of FelCor in the Initial Hotels (which, for purposes of clarity,
includes the cost basis of any Initial Hotel where the Lease Agreement
relating to such Hotel becomes no longer in effect during the two-year
period) plus (ii) the aggregate amount of all Capital Expenditures
made by FelCor pursuant to Approved Operating Plans under the
Management Agreements.
"Centralized Services" shall mean the services and group
benefits from time to time made available for a fee to all or certain
distinct groups of Sheraton properties, as described in Section 7.6.
"Change of Control" shall mean, at the relevant time, (i)
any event resulting in any "person" or "group" (within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, as amended), directly
or indirectly, of more than 35% of the total voting power of all
classes of capital stock of the ultimate parent, at the relevant time,
of Sheraton then outstanding and entitled to vote generally in
elections of directors ("Voting Stock") and such beneficial ownership
was acquired within a period of two years following a tender offer by
such person (or any of its Affiliates) for shares of Voting Stock of
such parent of Sheraton or a solicitation of proxies with respect to
Voting Stock of such parent of Sheraton by such person, if, in either
case, such tender offer or solicitation of proxies was not approved by
a majority of the Board of Directors of such parent of Sheraton in
office at the time such tender offer or proxy solicitation was
commenced, or (ii) a majority of the Board of Directors of the
ultimate parent, at the relevant time, of Sheraton being constituted
of individuals who were elected pursuant to a solicitation of proxies
with respect to Voting Stock of such parent of Sheraton, if such
solicitation of proxies was not approved by a majority of the Board of
Directors of such parent of Sheraton in office at the time such
solicitation of proxies was commenced.
"Change of Ownership" shall mean (1) any sale or disposition
of all or any part of the Hotel, and/or (2) any sale or disposition of
any interests in the Owner or in the partners or other constituent
<PAGE>
members of the Owner which would result in a change of the controlling
interest in the Owner or in the general partner of the Owner (if the
Owner is a limited partnership), or in any general partner(s) or
venturer(s) of the Owner if the Owner is a general partnership or a
joint venture. For purposes of this definition, "controlling interest"
shall mean, as applicable, (a) management control and/or ownership of
more than forty-nine and nine-tenths percent (49.9%) of all classes of
the voting stock of a corporation, (b) management control and/or
ownership of more than forty-nine and nine- tenths percent (49.9%) of
all outstanding partnership interests of a limited partnership (which
management control shall include, without limitation, management
control and/or ownership of more than forty-nine and nine-tenths
percent (49.9%) of the general partner thereof) and (c) management
control and/or ownership of more than forty-nine and nine- tenths
percent (49.9%) of all outstanding partnership interests of a general
partnership or joint venture.
"Claim" shall have the meaning set forth in Section 14.1.
"Compensation" shall mean the direct salaries and wages paid
to, or accrued for the benefit of, any of the executive level Hotel
personnel or any other Hotel employee to be paid in accordance with
the terms of this Agreement, together with all fringe benefits payable
to, or accrued for the benefit of, such executive level Hotel
personnel or other Hotel employee, including employer's contributions
required pursuant to any legal requirement, or other employment taxes,
retirement, pension plans or pension fund contributions, group life,
accident, disability and health insurance premiums, savings plans,
executive compensation and bonus programs and other similar benefits
to be paid in accordance with the terms of this Agreement and any
expenses not otherwise specifically referred to in this definition
which are referred to as "Administrative and General Expenses" in the
Uniform System; provided, that with respect to the certain senior
hotel personnel who, in accordance with Sheraton policy remain on
Sheraton's payroll, such benefits shall be charged to the Hotel as a
percentage of direct salary, such percentage to be equal to the
percentage of direct salary charged generally at other
Sheraton-managed hotels in the United States from time to time, which
percentage in 1996 is 28% but which percentage may be changed from
time to time by Sheraton.
"Consumer Price Index" shall mean the Consumer Price Index
(1982-1984=100) for Urban Wage Earners and Clerical Workers, as
compiled and published by the Bureau of Labor Statistics of the
<PAGE>
United States Department of Labor for the city or the smallest area
including the city or town in which the Hotel is located for which
such an index is published. In the event that such Consumer Price
Index shall be discontinued or abandoned, the term Consumer Price
Index shall refer to the closest comparable index as may be
substituted by the Bureau of Labor Statistics. If no such index shall
be substituted, then another index generally recognized as
authoritative shall be substituted by agreement of the parties, and if
the parties cannot agree, such index shall be determined by the
Independent Public Accountant.
"Effective Date" shall have the meaning set forth in the
Term Sheet.
"FelCor" shall mean FelCor Suites Limited Partnership.
"Fiscal Year" shall mean the calendar year, except that the
first Fiscal Year shall be that period commencing on the first day of
the Operating Term and ending on December 31 of the same year.
"Force Majeure" shall have the meaning set forth in Section
15.6.
"Full Fiscal Year" shall mean a Fiscal Year containing not
less than 365 days.
"Furniture and Equipment" shall mean all furniture,
furnishings, equipment (including but not limited to audio-visual,
kitchen, bar, office, laundry and dry cleaning equipment), fixtures
(excluding fixtures which, when attached thereto, became a part of the
Building and Appurtenances pursuant to applicable law), wall
coverings, vehicles, engineering and cleaning equipment and other
personal property used in, or held in storage for use in connection
with the operation, maintenance and cleaning of the Hotel, but
excluding Operating Equipment and Operating Supplies.
"GAAP" shall mean generally accepted accounting principles
in the United States in effect from time to time.
"Gross Operating Profit" shall mean, for any Accounting
Period, the excess of Total Revenue over all Operating Expenses for
such period.
"Hotel" shall mean collectively the Premises, Building and
Appurtenances, Furniture and Equipment, Operating Equipment and
Operating Supplies.
<PAGE>
"Incentive Fee" shall mean an amount per Fiscal Year equal
to (i) one divided by the number of Initial Hotels managed by the
Operator pursuant to the Management Agreements multiplied by (ii) the
sum of (x) 100% of the Net Income of Owner, if any, with respect to
all the Initial Hotels up to an aggregate of 2% of Total Revenue
attributable to all the Initial Hotels plus (y) 50% of any remaining
Net Income of Owner, if any, with respect to all the Initial Hotels,
after giving effect to the payment provided in clause (i) of this
definition.
"Independent Public Accountant" shall mean Arthur Andersen
LLP, or any successor firm thereto, or any other reputable national
firm of certified public accountants having substantial hotel
experience as shall be mutually agreed to by the parties.
"Initial Hotels" shall mean collectively, the existing (i)
395-room hotel located College Park, Clayton County, Georgia, (ii)
277-room hotel located in Atlanta, Cobb County, (iii) 297-room hotel
located in Rosemont, Cook County, Illinois, (iv) 342-room hotel
located in Phoenix, Maricopa County, Arizona and (v) 545-room hotel
located in Dallas, Dallas County, Texas, together, in each case, with
all land, improvements and personal property related thereto.
"Initial Working Capital" shall have the meaning set forth
in the Term Sheet.
"Intellectual Property" shall mean (i) proprietary software
in use at one or more of the hotels owned, operated, leased or managed
by Operator, Sheraton or any of their respective Affiliates and
utilized in connection with the operation of such hotels, and all
related documentation, manuals and any enhancements, modifications or
substitutions therefor, (ii) trade secrets, know-how and other
proprietary information relating to the operating methods, procedures
and policies distinctive to such hotels, and (iii) all service marks,
trademarks, trade names, insignias and logos owned and used by
Operator, Sheraton or their respective Affiliates in connection with
the operation of such hotels.
"ITT" shall mean ITT Corporation, a Nevada corporation
having its principal office at 1330 Avenue of the Americas, New York,
New York.
"Lease Agreement" shall mean the lease agreement dated as of
even date herewith between FelCor and FCH/ITT Leasing, L.L.C.
<PAGE>
"Management Agreements" shall mean collectively the five
management agreements dated as of the date this Agreement between
Owner and Operator regarding the management of the Initial Hotels.
"Net Income" shall mean net income as construed in
accordance with GAAP consistently applied.
"Net Operating Income" shall mean Total Revenues less the
sum of Operating Expenses and Specified Fixed Charges. For purposes of
this definition, there shall be excluded from Operating Expenses,
without duplication, (i) expenses for gratuities, service charges,
sales and gross receipts taxes and other similar taxes and
assessments, to the extent that receipts in respect thereof are
excluded from Total Revenues, (ii) any overhead or other costs of
Owner incurred as a result of being the lessee under the Lease
Agreements (iii) any rental payments made by Owner as a result of
being the lessee under the Lease Agreement.
"Operating Equipment" shall mean all necessary chinaware,
glassware, linens, flatware, uniforms, utensils and other items of a
similar nature.
"Operating Expenses" shall mean all costs and expenses of
maintaining, conducting and supervising the operation of the Hotel
incurred by Operator directly or at its request or as otherwise
provided herein which are attributable to the period under
consideration under Operator's system of accounting and are normally
charged as an operating expense under GAAP, which costs and expenses
include without limitation:
(i) the cost of all food and beverages sold or consumed and of all
Operating Equipment (with the exception of the Operating
Equipment initially supplied by Owner at its sole expense
pursuant to this Agreement) and all Operating Supplies;
(ii) Compensation of Hotel personnel;
(iii) the cost of all other goods and services obtained by Operator in
connection with its operation of the Hotel to the extent
equitably allocable to the Hotel;
(iv) the cost of ordinary repairs to and routine maintenance of the
Hotel;
(v) insurance premiums for insurance required pursuant to Section
12.2 of this Agreement and losses incurred on any self-insured
risks (including deductibles) in lieu thereof, provided that (a)
Owner and Operator have approved in advance such self-insurance
to the extent such consent is required herein, or (b) insurance
is unavailable to cover such risks. Premiums on policies for
more than one year will be pro-rated over the period of
insurance and premiums under blanket policies will be allocated
among properties covered;
<PAGE>
(vi) taxes, assessments and other charges (other than income taxes
and business taxes and the like which are not collected from the
guest) payable by or assessed against Operator with respect to
the operation of the Hotel, and all water and sewer charges;
provided, that Operating Expenses shall not -------- include any
Property Taxes, all of which shall be paid by Owner;
(vii) legal fees and fees of the Independent Public Accountant for
services (including in the latter case, fees for the Hotel
annual audit) directly related to the operation of the Hotel;
(viii) expenses for advertising, marketing, sales, promotion and
public relations activities;
(ix) the cost of Centralized Services as provided in Section 7.6;
(x) costs and expenses of employees of the Hotel and of Operator,
Sheraton and any of their Affiliates to attend meetings away
from Operator's principal executive offices (including meetings
with Owner) related to the administration or management of the
Hotel, and costs and expenses of Hotel employees with respect to
training sessions and similar meetings and conferences of
Operator, Sheraton or any of their Affiliates; and
(xi) all other expenses and disbursements determined by the
Independent Public Accountant to have been reasonably, properly
and specifically incurred by Operator, Sheraton or any of their
Affiliates pursuant to, in the course of and directly related
to, the management and operation of the Hotel under this
Agreement, but specifically excluding any and all costs relating
to the headquarters offices maintained by Operator, Sheraton or
any of their Affiliates (other than offices maintained by them
at the Hotel for the management of the Hotel and offices
utilized in connection with the provision of Centralized
Services, the costs of which are reflected in the fees for such
Centralized Services),
<PAGE>
but the term "Operating Expenses" does not include (1) any
depreciation and amortization; (2) interest on any Owner indebtedness
and any lease payment or other rent payable with respect to the Hotel
or any part or component thereof; (3) Property Taxes and premiums and
deductibles paid with respect to Owner Insurance; (4) the cost of any
repairs, replacements or capital improvements required to be paid by
Owner under Section 6.1 or Section 7.8; (5) structural additions or
modifications, extraordinary repairs, non- routine maintenance and
capital improvements and any other thing specified to be done or
provided at Owner's sole expense; or (6) any costs reimbursed to Owner
or Operator by commercial tenants of the Hotel.
"Operating Plan" shall have the meaning set forth in Section
7.3.1.
"Operating Supplies" shall mean the inventories of paper
supplies, cleaning materials and other consumable items used in
connection with the operation of the Hotel.
"Operating Term" shall mean the Term and any extension
thereof, as set forth in Article III.
"Operator Insurance" shall have the meaning set forth in
Article XII.
"Owner Insurance" shall have the meaning set forth in
Article XII.
"Premises" shall mean the lands described in Exhibit A
attached hereto.
"Property Taxes" shall mean all real and personal property
taxes, all betterments and public improvement assessments, and all
other taxes or charges of a similar nature, assessed on the Hotel or
any of its component parts.
"Reserve Account" shall mean the bank account designated by
Operator for the purpose of holding the funds constituting the Reserve
Fund.
"Reserve Fund" shall mean the cash fund created for the
purpose of establishing a reserve for replacements and additions to
Furniture and Equipment in accordance with Section 7.10.
<PAGE>
"Sheraton" shall mean ITT Sheraton Corporation, a Delaware
corporation having its principal place of business at 60 State Street,
Boston, Massachusetts 02109.
"Specified Fixed Charges" shall mean the following cash
expenditures made in connection with the operation of the Hotel:
(1) payments pursuant to any equipment leases or
installment sales contracts approved by Owner;
(2) real estate taxes applicable to the Hotel;
(3) premiums for insurance required to be obtained or
maintained by Owner pursuant to the Lease Agreement;
and
(4) any amounts paid into the Reserve Fund.
"Star Report" shall mean the "Star Report" published by
Smith Travel Research.
"Term" shall mean the period described in Section 3.1.
"Term Sheet" shall mean the list of terms which are specific
to this Agreement as set forth in Article I above.
"Total Revenue" shall mean (1) all income and proceeds of
sales of every kind (whether in cash or on credit) resulting from the
operation of the Hotel and all of the facilities therein including,
without limitation, all amounts received from tenants (other than
costs reimbursed to Owner or Operator by commercial tenants of the
Hotel), transient guests, patrons of Hotel facilities, lessees,
licensees and concessionaires and other persons occupying space at the
Hotel and/or rendering services to the Hotel guests, (2) all income
from catering operations (whether conducted inside or outside of the
Hotel), and (3) the proceeds of use and occupancy (and/or business
interruption) insurance actually received by Operator or Owner with
respect to the operation of the Hotel (after deduction from said
proceeds of all necessary expenses incurred in the adjustment or
collection thereof). The term Total Revenue shall not include (a)
gross receipts of any lessee, licensee, concessionaire or other person
occupying space in the Hotel, (b) payments received at the Hotel for
hotel accommodations, goods or services to be provided at other
hotels, although arranged by, for or on behalf of Operator,
<PAGE>
(c) gratuities paid over to Hotel employees, (d) state and municipal
excise, sales and use taxes collected from patrons or guests of the
Hotel as a part of or based upon the sales price of any goods or
services but does include any business tax or similar imposition of
tax which is based on revenues and not collected from the guest, (e)
condemnation awards (other than awards for temporary use), (f) any
credits or refunds made to customers, guests or patrons, (g) any sums
and credits received by Owner for lost or damaged merchandise, (h)
proceeds from the sale or other disposition of the Hotel, (i) any
interest paid with respect to any Hotel bank accounts, (j) any fire
and extended coverage insurance proceeds, and (k) any proceeds of
financing or refinancing of the Hotel.
"Uniform System" shall mean the "Uniform System of Accounts"
(9th Revised Edition, 1996) as adopted by the American Hotel and Motel
Association, with such exceptions as may be required by the provisions
of this Agreement, as such Uniform System shall be modified from time
to time.
<PAGE>
Exhibit C
INSURANCE REQUIREMENTS
Owner Insurance.
a. "All Risk" insurance (including without limitation, flood and
earthquake to the extent available) for not less than one
hundred percent (100%) of the full replacement value of the
Hotel. Such insurance shall include business interruption
insurance covering loss of income to both Owner and Operator
(including Basic and Incentive Fees) for a minimum period of one
(1) year resulting from interruption of business caused by the
occurrence of any of the risks insured against under the "All
Risk" policy.
b. Boiler and Machinery insurance (including use and occupancy/loss
of income) for all direct loss or damage to property caused by
an accident as defined under a standard Boiler and Machinery
policy including boilers, pressure vessels and mechanical or
electrical equipment. Said coverage shall be in limits of not
less than ten million dollars.
c. Such other additional insurance in such amounts and against such
risks as Operator shall reasonably require with respect to the
buildings, facilities and contents of the Hotel, it being
reasonable for Operator to require insurance of the types and in
the amounts generally carried on hotels owned or operated by
Sheraton or its Affiliates.
Operator Insurance.
a. General liability insurance of not less than $100,000,000 (if
available) against all claims for personal injury (including
bodily injury), death or damage to property of third persons.
Such coverage shall not exclude liability for punitive or
exemplary damages unless such coverage is otherwise unavailable
or such exclusion is required by law. Such insurance shall
include coverage against liability arising out of the ownership
or operation of motor vehicles, and must include, at a minimum,
those coverages contained under the standard broad form
Comprehensive General Liability endorsement which includes
contractual liability, employees as an insured, personal injury
liability (including false arrest, libel, slander, and
defamation or violation of the right of privacy), incidental
medical malpractice, extended bodily injury coverage, and liquor
law (so-called "dram shop") liability coverages. Such coverage
shall also be applicable worldwide, and shall include costs of
legal defense. Operator may, from time to time, increase the
amount of coverage as additional coverage becomes available.
<PAGE>
b. Crime insurance, including bonds covering Hotel employees for a
minimum of $1,000,000 per loss.
c. Statutory worker's compensation benefits and employers liability
insurance in such amounts as may be required by law.
Additional Coverage. Operator may increase the above limits of
insurance coverage and may require Owner to carry other or additional
insurance, it being reasonable for Operator to require insurance of
the types and in the amounts generally carried on hotels owned or
operated by Sheraton or its affiliates.
Insurers and Named Insureds. All insurance shall be in such form and
with such companies as shall be reasonably satisfactory to Operator.
Such All Risk property damage policies shall provide that all
coverages thereunder shall be primary, and that the loss, if any,
payable thereunder shall be adjusted with and payable to Owner (or in
the case of Business Interruption coverage, to Owner and Operator).
All insurance shall be in the name of Owner, Operator, Sheraton, ITT
and their respective Affiliates as the insureds, as their interests
may appear.
Certificates of Insurance. Certificates of all policies placed by each
party shall be delivered to the other: (a) on the Effective Date; and
(b) not less than thirty (30) days prior to the expiration date of all
policies of insurance that must be maintained subsequent to such
expiration dates under the terms of this Agreement. All such
certificates shall specify that the policies to which they relate
cannot be canceled on less than thirty (30) days prior written notice
to each of the named insureds. Should Owner fail to supply Operator
with such certificates within the foregoing time limits, Operator may
provide any such insurance as to which such certificates are not
supplied at Owner's expense. Any advances for such insurance made by
Operator shall be reimbursed by Owner on demand or Operator may deduct
such funds from the Agency Account and/or the Reserve Account.
<PAGE>
Exhibit D
CENTRALIZED SERVICES AND PROGRAMS
RESERVATION
Current reservation fees are equal to the sum of the following:
$8.65 per available room per month (i.e., if the hotel has
500 rooms, the monthly charge for this element would be
$4,325), plus
0.8% of Total Rooms Revenue, plus
$2.00 per domestic reservation transaction ($4.00 for
international), plus
$4.75 per airline system transaction (i.e., Sabre and
Apollo).
SHERATON CLUB INTERNATIONAL: FREQUENCY STAY PROGRAM
The Hotel shall remit to the SCI program an amount equal to
5% of the room, food, beverages, telephone, in-room movies
and valet revenues generated at the Hotel by each paying
Hotel guest who is a member in the SCI program.
PURCHASING RESOURCE: NEGOTIATES NATIONAL CONTRACTS
Funded through vendor, self-liquidating rebates (generally
in the range of 2% per annum). Hotel may elect to utilize
national contract or other Sheraton- related purchase
programs on a case-by-case basis.
SALES OFFICE FUNDING
5-1/2% of group rooms revenue booked through sales center.
Commission based program and Hotel can elect not to accept
business.
ADVERTISING CO-OP
1% of total rooms revenue is contributed to a cooperative
advertising fund.
PARTNER MARKETING PROGRAMS
ITT Sheraton hotels award mileage to members of airline
frequent flier programs paying qualifying rates, upon guest
request, including American, United, Continental and Delta
frequent flyer programs. Expenses generally range from $8.00
to $10.00/transaction.
<PAGE>
CENTRALIZED TRAVEL AGENT COMMISSION PROGRAM
Property pays $.42/reservation transaction. This fee funds
the administration and distribution of travel agent
commission checks.
ITT SHERATON TRAINING
If appropriate for the Hotel, ITT Sheraton courses shall be
provided for certain selected Hotel employees in new
positions. The Hotel is responsible for travel and lodging
costs, and course fee which relates to cost of training
materials with respect to such courses. Attendance at
selected regional and corporate meetings is mandatory and
results in travel, lodging and registration expense.
GUEST SATISFACTION INDEX
Properties are assessed $8.00/room/year to fund the
distribution of guest questionnaires and the compilation of
results on a quarterly basis.
EMPLOYEE SATISFACTION INDEX
Properties are assessed $8.00/employee/year to administer
the annual distribution and collection of surveys. Reports
are produced for each department with metrics for 50
employee satisfaction attributes.
HOTEL AUDITS: LASHNER RUSH & ASSOCIATES
Lashner Rush & Associates' bi-annual property inspections
are estimated at $1,500.
<PAGE>
EXHIBIT L
Form of Lease Agreement
LEASE AGREEMENT
DATED AS OF __________, 1997
BETWEEN
FELCOR SUITES LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP,
AS LESSOR
AND
FCH/ITT LEASING, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY,
AS LESSEE
<PAGE>
(SHERATON [SUITES] HOTEL - _______________, _______________
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I......................................................... 1
1.1 Leased Property...................................... 1
1.2 Term................................................. 2
1.3 Management Agreement................................. 2
ARTICLE II........................................................ 2
2.1 Definitions.......................................... 2
ARTICLE III....................................................... 13
3.1 Rent................................................. 13
3.2 Confirmation of Percentage Rent...................... 16
3.3 Additional Charges................................... 16
3.4 Net Lease Provision.................................. 17
3.5 Annual Budget........................................ 17
3.6 Books and Records.................................... 18
ARTICLE IV........................................................ 18
4.1 Payment of Impositions............................... 18
4.2 Notice of Impositions................................ 19
4.3 Adjustment of Impositions............................ 19
4.4 Utility Charges...................................... 19
4.5 Insurance Premiums................................... 19
ARTICLE V......................................................... 19
5.1 No Termination, Abatement, Etc....................... 19
5.2 Abatement Procedures................................. 20
ARTICLE VI........................................................ 20
6.1 Ownership of the Leased Property..................... 20
6.2 Lessee's Personal Property........................... 20
6.3 Lessor's Lien........................................ 21
ARTICLE VII....................................................... 21
7.1 Condition of the Leased Property..................... 21
7.2 Use of the Leased Property........................... 22
7.3 Lessor to Grant Easements, Etc....................... 22
ARTICLE VIII...................................................... 23
8.1 Compliance with Legal and Insurance Requirements,
Etc................................................. 23
8.2 Legal Requirement Covenants.......................... 23
8.3 Environmental Covenants.............................. 24
ARTICLE IX........................................................ 26
9.1 Maintenance and Repair............................... 26
9.2 Encroachments, Restrictions, Etc..................... 27
ARTICLE X......................................................... 28
10.1 Alterations.......................................... 28
10.2 Salvage.............................................. 28
-ii-
<PAGE>
10.3 Joint Use Agreements................................. 28
10.4 Initial Upgrade of Leased Improvements............... 28
ARTICLE XI........................................................ 28
11.1 Liens................................................ 28
ARTICLE XII....................................................... 29
12.1 Permitted Contests................................... 29
ARTICLE XIII...................................................... 30
13.1 General Insurance Requirements....................... 30
13.2 Replacement Cost..................................... 31
13.3 Worker's Compensation................................ 31
13.4 Waiver of Subrogation................................ 31
13.5 Form Satisfactory, Etc............................... 31
13.6 Increase in Limits................................... 32
13.7 Blanket Policy....................................... 32
13.8 Reports On Insurance Claims.......................... 32
ARTICLE XIV....................................................... 33
14.1 Insurance Proceeds................................... 33
14.2 Reconstruction in the Event of Damage or Destruction
Covered by Insurance................................ 33
14.3 Reconstruction in the Event of Damage or Destruction
Not Covered by Insurance............................ 34
14.4 Lessee's Property.................................... 34
14.5 Abatement of Rent.................................... 34
14.6 Damage Near End of Term.............................. 35
14.7 Waiver............................................... 35
ARTICLE XV........................................................ 35
15.1 Definitions.......................................... 35
15.2 Parties' Rights and Obligations...................... 35
15.3 Total Taking......................................... 35
15.4 Allocation of Award.................................. 36
15.5 Partial Taking....................................... 36
15.6 Temporary Taking..................................... 36
ARTICLE XVI....................................................... 37
16.1 Events of Default.................................... 37
16.2 Surrender............................................ 38
16.3 Damages.............................................. 38
16.4 Waiver............................................... 39
16.5 Application of Funds................................. 39
16.5 Lessee's Right to Assign Lease....................... 39
ARTICLE XVII...................................................... 40
17.1 Lessor's Right to Cure Lessee's Default.............. 40
ARTICLE XVIII..................................................... 40
18.1 Provisions Relating to Purchase of the Leased
Property............................................ 40
ARTICLE XIX....................................................... 40
19.1 Personal Property Limitation......................... 40
19.2 Sublease Rent Limitation............................. 41
-iii-
<PAGE>
19.3 Sublease Tenant Limitation........................... 41
19.4 Lessee Ownership Limitations......................... 41
19.5 Lessee Officer and Employee Limitation............... 41
19.6 Payments to Affiliates of Lessee..................... 42
ARTICLE XX........................................................ 42
20.1 Holding Over......................................... 42
ARTICLE XXI....................................................... 42
21.1 Risk of Loss......................................... 42
ARTICLE XXII...................................................... 42
22.1 Indemnification...................................... 42
ARTICLE XXIII..................................................... 43
23.1 Subletting and Assignment............................ 43
23.2 Attornment........................................... 44
ARTICLE XXIV...................................................... 44
24.1 Officer's Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants........ 44
ARTICLE XXV....................................................... 45
25.1 Lessor's Right to Inspect............................ 45
ARTICLE XXVI...................................................... 45
26.1 No Waiver............................................ 45
ARTICLE XXVII..................................................... 45
27.1 Remedies Cumulative.................................. 45
ARTICLE XXVIII.................................................... 45
28.1 Acceptance of Surrender.............................. 45
ARTICLE XXIX...................................................... 46
29.1 No Merger of Title................................... 46
ARTICLE XXX....................................................... 46
30.1 Conveyance by Lessor................................. 46
30.2 Other Interests...................................... 46
30.3 Lessor's Mortgage Default............................ 49
ARTICLE XXXI...................................................... 46
31.1 Quiet Enjoyment...................................... 46
ARTICLE XXXII..................................................... 47
32.1 Notices.............................................. 47
ARTICLE XXXIII.................................................... 47
33.1 Appraisers........................................... 47
ARTICLE XXXIV..................................................... 48
34.1 Lessor May Grant Liens............................... 48
34.2 Lessee's Right to Cure............................... 48
34.3 Breach by Lessor..................................... 49
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<PAGE>
ARTICLE XXXV...................................................... 49
35.1 Miscellaneous........................................ 49
35.2 Transition Procedures................................ 49
35.3 Waiver of Presentment, Etc........................... 50
ARTICLE XXXVI..................................................... 50
36.1 Memorandum of Lease.................................. 50
ARTICLE XXXVII.................................................... 50
37.1 Lessor's Option to Purchase Assets of Lessee......... 50
ARTICLE XXXVIII................................................... 51
38.1 Lessor's Option to Terminate Lease................... 51
ARTICLE XXXIX..................................................... 51
39.1 Compliance with Management Agreement................. 51
ARTICLE XL........................................................ 52
40.1 Furniture, Fixture and Equipment Allowance........... 52
ARTICLE XLI....................................................... 52
41.1 The Ground Lease..................................... 52
Exhibit A - Legal Description
Exhibit B - Work Letter
-v-
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as
of the _____ day of ____________, 1997, by and between FelCor Suites
Limited Partnership, a Delaware limited partnership (hereinafter
called "Lessor"), and FCH/ITT Leasing, L.L.C., a Delaware limited
liability company (hereinafter called "Lessee"), provides as follows:
AGREEMENT:
Lessor, for and in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by
Lessee, and upon the terms and conditions hereinafter stated, does
hereby rent and lease unto Lessee, and Lessee does hereby rent and
lease from Lessor, the Leased Property.
ARTICLE I
1.1 Leased Property. The Leased Property shall mean and is
comprised of Lessor's interest in the following:
(a) the land located in the City of ____________,
County of _______________, ____________ and described in Exhibit A
attached hereto and by reference incorporated herein (the "Land");
(b) all buildings, structures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
offsite), parking areas and roadways appurtenant to such buildings and
structures presently situated upon the Land (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances relating to
the Land and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items
of property required for or incidental to the use of the Leased
Improvements as a hotel, including all components thereof, now and
hereafter permanently affixed to or incorporated into the Leased
Improvements, including, without limitation, all furnaces, boilers,
heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment,
all of which to the greatest extent permitted by law are hereby deemed
by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto
(collectively, the "Fixtures");
(e) all furniture and furnishings and all other items
of personal property (excluding Inventory and personal property owned
by Lessee) located on, and used in connection with, the operation of
the Leased Improvements as a hotel, together with all replacements,
modifications, alterations and additions thereto; and
(f) all existing leases of space within the Leased
Improvements (including any security deposits or collateral held by
Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT
REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND
SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING
STATE OF TITLE INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS,
EASEMENTS AND OTHER MATTERS OF RECORD INCLUDING ALL APPLICABLE LEGAL
<PAGE>
REQUIREMENTS AND OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN
INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF.
1.2 Term. The term of this Lease (the "Term") shall commence
on the date hereof (the "Commencement Date"), and shall end on the
fifteenth (15th) anniversary of the last day of the month preceding
the month in which the Commencement Date occurs, unless sooner
terminated in accordance with the provisions hereof; provided,
however, that Lessor shall have the option, exercisable by Notice to
Lessee not later than ninety (90) days prior to the scheduled
termination of this Lease, to extend the Term for an additional period
of five (5) years, on the same terms and conditions as set forth
herein.
1.3 Management Agreement. Lessor acknowledges that Lessee
has entered into the Management Agreement, which provides for a term
of twenty (20) years. In the event that Lessor does not exercise its
option to extend the Term for an additional five (5) years, as
permitted under Section 1.2, upon termination of this Lease, Lessor
shall (or shall enter into a new lease with a new lessee, reasonably
acceptable to Manager, who will) accept possession of the Hotel
subject to the Management Agreement, and shall execute such
documentation as may be reasonably requested by Manager to evidence
such assumption. In connection with such assumption by Lessor (or its
substitute lessee), Lessee shall be released from further liability
under the Management Agreement.
ARTICLE II
2.1 Definitions. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires,
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles as are at the time applicable, (c) all
references in this Lease to designated "Articles," "Sections" and
other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease and (d) the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Lease as a
whole and not to any particular Article, Section or other subdivision:
Additional Charges: As defined in Section 3.3.
Affiliate: As used in this Lease the term "Affiliate" of a
Person shall mean (a) any Person that, directly or indirectly,
controls or is controlled by or is under common control with such
Person, (b) any other Person that owns, beneficially, directly or
indirectly, five percent (5%) or more of the outstanding capital
stock, shares or equity interests of such Person, or (c) any officer,
director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person
(excluding trustees and Persons serving in similar capacities who are
not otherwise an Affiliate of such Person). For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
Annual Budget: As used in this Lease, the term "Annual
Budget" shall mean an operating and capital budget prepared by Lessee
and delivered to Lessor in accordance with Section 3.5.
Award: As defined in Section 15.1(a).
Base Rate: The rate of interest announced publicly by
Citibank, N.A., in New York, New York, from time to time, as such
bank's base rate. If no such rate is announced or if such rate becomes
discontinued, then such other rate as Lessor may reasonably designate.
<PAGE>
Base Rent: As defined in Section 3.1(a).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which national banks in the City of New
York, New York, or in the municipality wherein the Leased Property is
located are closed.
CERCLA: The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
Claims: As defined in Section 12.1.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 1.2.
Condemnation, Condemnor: As defined in Section 15.1
Consolidated Financials: For any fiscal year or other
accounting period for Lessee and its consolidated subsidiaries, if
any, statements of earnings and retained earnings and of changes in
financial position for such period and for the period from the
beginning of the respective fiscal year to the end of such period and
the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding
period in the preceding fiscal year, and prepared in accordance with
generally accepted accounting principles and audited by independent
certified public accountants acceptable to Lessor in its sole
discretion.
Consolidated Net Worth: At any time, the sum of the
following for Lessee and any consolidated subsidiaries, on a
consolidated basis determined in accordance with generally accepted
accounting principles:
(a) the amount of capital or stated capital (after deducting
the cost of any shares held in its treasury), plus
(b) the amount of capital surplus and retained earnings (or,
in the case of a capital or retained earnings deficit, minus the
amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions with respect to items already deducted in arriving at
surplus and retained earnings): (1) unamortized debt discount and
expense; and (2) any write-up in the book value of assets resulting
from a revaluation thereof subsequent to the most recent Consolidated
Financials prior to the date thereof, except any net write- up in
value of foreign currency in accordance with generally accepted
accounting principles.
Consumer Price Index: The "U.S. City Average, All Items"
Consumer Price Index for All Urban Consumers published by the Bureau
of Labor Statistics of the United States Department of Labor (Base:
1982-1984=100), or any successor index thereto. If the Consumer Price
Index is hereafter converted to a different standard reference base or
otherwise revised, any determination hereunder that uses the Consumer
Price Index shall be made with the use of such conversion factor,
formula or table for converting the Consumer Price Index as may be
published by the Bureau of Labor Statistics, or, if the Bureau shall
no longer publish the same, then with the use of such conversion
factor, formula or table as may be published by Prentice Hall, Inc.,
or, failing such publication, by any other nationally recognized
publisher of similar statistical information.
Date of Taking: As defined in Section 15.1(d).
Encumbrance: As defined in Article XXXIV.
<PAGE>
Environmental Audit: As defined in Section 8.3(b).
Environmental Authority: Any department, agency or other
body or component of any Government that exercises any form of
jurisdiction or authority under any Environmental Law.
Environmental Authorization: Any license, permit, order,
approval, consent, notice, registration, filing or other form of
permission or authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and
foreign laws and regulations relating to pollution of the environment
(including without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including without
limitation laws and regulations relating to emissions, discharges,
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
Environmental Laws include but are not limited to CERCLA, FIFRA, RCRA,
SARA and TSCA.
Environmental Liabilities: Any and all obligations to pay
the amount of any judgment or settlement, the cost of complying with
any settlement, judgment or order for injunctive or other equitable
relief, the cost of compliance or corrective action in response to any
notice, demand or request from an Environmental Authority, the amount
of any civil penalty or criminal fine, and any court costs and
reasonable amounts for attorney's fees, fees for witnesses and
experts, and costs of investigation and preparation for defense of any
claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted
against or imposed upon Lessor, Lessee, any Predecessor, the Leased
Property or any property used therein and arising out of:
(a) Failure of Lessee, Lessor, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under, at or
in any way affecting the Leased Property;
(c) A Release at any time of any Hazardous Materials on, in,
at, under or in any way affecting the Leased Property;
(d) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any Environmental
Law similar to CERCLA;
(e) Presence at any time of any above-ground and/or
underground storage tanks, as defined in RCRA or in any applicable
Environmental Law on, in, at or under the Leased Property or any
adjacent site or facility; or
(f) Any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or
located at the Leased Property, or resulting from operation thereof or
any adjoining property.
Event of Default: As defined in Section 16.1.
Fair Market Rental: The fair market rental of the Leased
Property means the rental which a willing tenant not compelled to rent
would pay a willing landlord not compelled to lease for the use and
occupancy of such Leased Property pursuant to the Lease for the term
in question, (a) assuming that Lessee is not in default thereunder and
(b) determined in accordance with the appraisal procedures set forth
in Article XIII or in such other manner as shall be mutually
acceptable to Lessor and Lessee.
<PAGE>
Fair Market Value: The fair market value of the Leased
Property means an amount equal to the price that a willing buyer not
compelled to buy would pay a willing seller not compelled to sell for
such Leased Property, (a) assuming the same is unencumbered by this
Lease, (b) determined in accordance with the appraisal procedures set
forth in Article XXXIII or in such other manner as shall be mutually
acceptable to Lessor and Lessee, (c) assuming that such seller must
pay customary closing costs and title premiums, and (d) taking into
account the positive or negative effect on the value of the Leased
Property attributable to the interest rate, amortization schedule,
maturity date, prepayment penalty and other terms and conditions of
any encumbrance that is assumed by the transferee. In addition, in
determining the Fair Market Value with respect to damaged or destroyed
Leased Property such value shall be determined as if such Leased
Property had not been so damaged or destroyed.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide
Act, as amended.
Fiscal Year: The twelve (12) month period from January 1 to
December 31.
Fixtures: As defined in Section 1.1.
Food and Beverage Revenues: All revenues, receipts, and
income of any kind derived directly or indirectly by Lessee from or in
connection with the sale of food, alcoholic and non-alcoholic
beverages, and entertainment from or in a Restaurant or otherwise in
the Hotel (other than any Restaurant Sublease Rent), whether on a cash
basis or credit, paid or collected, determined in accordance with
generally accepted accounting principles, excluding, however: (i)
federal, state and municipal excise, sales, and use taxes collected
directly from patrons and guests or as a part of the sales price of
any goods, services or displays, such as gross receipts, admissions,
cabaret or similar or equivalent taxes and paid over to federal, state
or municipal governments, (ii) the amount of all credits, rebates or
refunds to customers, guests or patrons, and all service charges,
finance charges, interest and discounts attributable to charge
accounts and credit cards, to the extent the same are paid to Lessee
by its customers, guests or patrons, or to the extent the same are
paid for by Lessee to, or charged to Lessee by, credit card companies,
(iii) gratuities or service charges actually paid to employees, (iv)
sales other than sales in the ordinary course of business, (v) the
cost of meals to Lessee's employees, and the cost of charitable,
promotional or other complimentary meals given by Lessee in the
ordinary course of business and in accordance with its normal policies
for giving such meals, as is customary for similar operations, (vi)
revenues derived from vending machines operated by Lessee for the
convenience of its employees, (vii) receipts for returns to shippers,
manufacturers or suppliers, (viii) proceeds of business interruption
or other insurance, and (ix) items constituting "allowances" under the
Uniform System.
Furniture and Equipment: For purposes of this Lease, the
terms "furniture and equipment" shall mean collectively all furniture,
furnishings, wall coverings, fixtures and hotel equipment and systems
located at, or used in connection with, the Hotel, together with all
replacements therefor and additions thereto, including, without
limitation, (i) all equipment and systems required for the operation
of kitchens and bars, laundry and dry cleaning facilities, (ii) office
equipment, (iii) material handling equipment, cleaning and engineering
equipment, (iv) telephone and computerized accounting systems, and (v)
vehicles.
Government: The United States of America, any state,
district or territory thereof, any foreign nation, any state,
district, department, territory or other political division thereof,
or any political subdivision of any of the foregoing.
Gross Operating Expenses: All salaries and employee expense
and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including
life, medical and disability insurance and retirement benefits),
expenditures described in Section 9.1, operational supplies,
utilities, insurance to be provided by Lessee under the terms of this
Lease, governmental fees and assessments, food, beverages, laundry
service expense, the cost of Inventories,
<PAGE>
license fees, advertising, marketing, reservation systems and any and
all other operating expenses as are reasonably necessary for the
proper and efficient operation of the Hotel incurred by Lessee in
accordance with the provisions hereof (excluding, however, (i)
federal, state and municipal excise, sales and use taxes collected
directly from patrons and guests or as a part of the sales price of
any goods, services or displays, such as gross receipts, admissions,
cabaret or similar or equivalent taxes paid over to federal, state or
municipal governments, (ii) the cost of insurance to be provided under
Article XIII, (iii) expenditures by Lessor pursuant to Article XIII
and (iv) payments on any Mortgage or other mortgage or security
instrument on the Hotel); all determined in accordance with generally
accepted accounting principles. No part of Lessee's central office
overhead or general or administrative expense (as opposed to that of
the Hotel) shall be deemed to be a part of Gross Operating Expenses,
as herein provided. Reasonable out-of-pocket expenses of Lessee
incurred for the account of or in connection with the Hotel
operations, including but not limited to postage, telephone charges
and reasonable travel expenses of employees, officers and other
representatives and consultants of Lessee and its Affiliates, shall be
deemed to be a part of Gross Operating Expenses and such persons shall
be afforded reasonable accommodations, food, beverages, laundry, valet
and other such services by and at the Hotel without charge to such
persons or Lessee.
Gross Operating Profit: For any Fiscal Year, the excess of
Gross Revenues for such Fiscal Year over Gross Operating Expenses for
such Fiscal Year.
Gross Revenues: All revenues, receipts, and income of any
kind derived directly or indirectly by Lessee from or in connection
with the Hotel (including rentals or other payments from tenants,
lessees, licensees or concessionaires but not including their gross
receipts) whether on a cash basis or credit, paid or collected,
determined in accordance with generally accepted accounting
principles, excluding, however: (i) funds furnished by Lessor, (ii)
federal, state and municipal excise, sales, and use taxes collected
directly from patrons and guests or as a part of the sales price of
any goods, services or displays, such as gross receipts, admissions,
cabaret or similar or equivalent taxes and paid over to federal, state
or municipal governments, (iii) the amount of all credits, rebates or
refunds to customers, guests or patrons, and all service charges,
finance charges, interest and discounts attributable to charge
accounts and credit cards, to the extent the same are paid to Lessee
by its customers, guests or patrons, or to the extent the same are
paid for by Lessee to, or charged to Lessee by, credit card companies,
(iv) gratuities or service charges actually paid to employees, (v)
proceeds of insurance and condemnation, (vi) proceeds from sales other
than sales in the ordinary course of business, (vii) all loan proceeds
from financing or refinancings of the Hotel or interests therein or
components thereof, (viii) judgments and awards, except any portion
thereof arising from normal business operations of the Hotel, and (ix)
items constituting "allowances" under the Uniform System.
Hazardous Materials: All chemicals, pollutants,
contaminants, wastes and toxic substances, including without
limitation:
(a) Solid or hazardous waste, as defined in RCRA or any
other Environmental Law;
(b) Hazardous substances, as defined in CERCLA or any
other Environmental Law;
(c) Toxic substances, as defined in TSCA or any other
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as
defined in FIFRA or any other Environmental Law; and
(e) Gasoline or any other petroleum product or
byproduct, polychlorinated biphenyl, asbestos and urea formaldehyde.
<PAGE>
Hotel: The hotel and/or other facility offering lodging and
other services or amenities being operated or proposed to be operated
on the Leased Property.
Impositions: Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross
receipts, transaction, privilege, rent or similar taxes as the same
relate to or are imposed upon Lessee or its business conducted upon
the Leased Property), assessments (including, without limitation, all
assessments for public improvements or benefit, whether or not
commenced or completed prior to the date hereof and whether or not to
be completed within the Term), ground rents, water, sewer or other
rents and charges, excises, tax inspection, authorization and similar
fees and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of
every character in respect of the Leased Property or the business
conducted thereon by Lessee (including all interest and penalties
thereon caused by any failure in payment by Lessee), which at any time
prior to, during or with respect to the Term hereof may be assessed or
imposed on or with respect to or be a lien upon (a) Lessor's interest
in the Leased Property, (b) the Leased Property, or any part thereof
or any rent therefrom or any estate, right, title or interest therein,
or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Leased Property, or
the leasing or use of the Leased Property or any part thereof by
Lessee. Nothing contained in this definition of Impositions shall be
construed to require Lessee to pay (1) any tax based on net income
(whether denominated as a franchise or capital stock or other tax)
imposed on Lessor or any other Person, or (2) any net revenue tax of
Lessor or any other Person, or (3) any tax imposed with respect to the
sale, exchange or other disposition by Lessor of any Leased Property
or the proceeds thereof, or (4) any single business, gross receipts
(other than a tax on any rent received by Lessor from Lessee),
transaction, privilege or similar taxes as the same relate to or are
imposed upon Lessor, except to the extent that any tax, assessment,
tax levy or charge that Lessee is obligated to pay pursuant to the
first sentence of this definition and that is in effect at any time
during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (1) or (2) is
levied, assessed or imposed expressly in lieu thereof.
Indemnified Party: Either of a Lessee Indemnified Party or a
Lessor Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an
Indemnified Party pursuant to Sections 8.3 or 22.1.
Insurance Requirements: All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such
policy.
Inventory: All "Inventories of Merchandise" and "Inventories
of Supplies" as defined in the Uniform System.
Land: As defined in Section 1.1.
Lease: This Lease.
Leased Improvements; Leased Property: Each as defined in
Section 1.1.
Legal Requirements: All federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting either the
Leased Property or the maintenance, construction, use or alteration
thereof (whether by Lessee or otherwise), whether now in force or
hereafter enacted and in force, including (a) all laws, rules or
regulations pertaining to the environment, occupational health and
safety and public health, safety or welfare, and (b) any laws, rules
or regulations that may (1) require repairs, modifications or
alterations in or to the Leased Property or (2) in any way adversely
affect the use and enjoyment thereof; and all permits, licenses and
authorizations and regulations relating thereto and all covenants,
agreements, restrictions and encumbrances contained in any
instruments, either of record or known
<PAGE>
to Lessee (other than encumbrances created by Lessor without the
consent of Lessee), at any time in force affecting the Leased
Property.
Lending Institution: Any insurance company, credit company,
federally-insured commercial or savings bank, national banking
association, savings and loan association, employees welfare, pension
or retirement fund or system, corporate profit sharing or pension
trust, college or university, or real estate investment trust,
including any corporation qualified to be treated for federal tax
purposes as a real estate investment trust, such trust having a net
worth of at least $10,000,000.
Lessee: The Lessee designated on this Lease and its
respective permitted successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee,
any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership
interest (including a stockholder's interest) in Lessee, the officers,
directors, stockholders, employees, agents and representatives of
Lessee, and the respective heirs, personal representatives, successors
and assigns of any such officer, director, stockholder, employee,
agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
[Lessee's Work: As defined in Section 10.4.]
Lessor: The Lessor designated on this Lease and its
respective successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor,
any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership
interest (including a stockholder's or partnership interest) in
Lessor, the officers, directors, stockholders, employees, agents and
representatives of the general partner of Lessor and any partner,
agent, or representative of Lessor, and the respective heirs, personal
representatives, successors and assigns of any such officer, director,
partner, stockholder, employee, agent or representative.
Licenses: As defined in Section 35.2.
Management Agreement: The agreement pursuant to which
Manager operates the Hotel.
Manager: Sheraton Operating Corporation, a Delaware
corporation, or any successor manager that is retained by Lessee to
operate the Hotel pursuant to this Lease and the Management Agreement.
Minimum Price: The sum of (a) the equity in the Leased
Property at the time of acquisition of the Leased Property by Lessor,
plus (b) other capital expenditures on the Leased Property by Lessor
after the date hereof (less depreciation and amortization thereof)
plus (c) the unpaid principal balance of all encumbrances against the
Leased Property at the time of purchase of the Leased Property by
Lessee, less (x) all proceeds received by Lessor from any financing or
refinancing of the Leased Property after the date hereof (after
payment of any debt refinanced and net of any costs and expenses
incurred in connection with such financing or refinancing, including,
without limitation, loan points, commitment fees and commissions and
legal fees) and (y) the net amount (after deduction of all reasonable
legal fees and other costs and expenses, including without limitation
expert witness fees, incurred by Lessor in connection with obtaining
any such proceeds or award) of all insurance proceeds received by
Lessor and awards received by Lessor from any partial Taking of the
Leased Property that are not applied to restoration.
Mortgage: As defined in Section 30.2.
Notice: As defined in Article XXXII.
<PAGE>
Officer's Certificate: A certificate of Lessee reasonably
acceptable to Lessor, signed by the chief financial officer or another
officer authorized so to sign by the board of directors or other
governing body of Lessee, or by-laws or operating agreement of Lessee,
or any other person whose power and authority to act has been
authorized by delegation in writing by any such officer.
Overdue Rate: On any date, a rate equal to the Base Rate
plus five percent (5%) per annum, but in no event greater than the
maximum rate then permitted under applicable law.
Payment Date: Any due date for the payment of any
installment of Base Rent.
Percentage Rent: As defined in Section 3.1(b).
Person: Any Government, natural person, corporation, general
or limited partnership, limited liability company, stock company or
association, joint venture, association, company, trust, bank, trust
company, land trust, business trust, or other entity.
Personal Property Taxes: All personal property taxes imposed
on the furniture, furnishings or other items of personal property
located on, and used in connection with, the operation of the Leased
Improvements as a hotel (other than Inventory and other personal
property owned by Lessee), together with all replacement,
modifications, alterations and additions thereto.
Predecessor: Any Person whose liabilities arising under any
Environmental Law have or may have been retained or assumed by Lessor
or Lessee, either contractually or by operation of law, relating to
the Leased Property.
Primary Intended Use: As defined in Section 7.2(b).
Proceeding: Any judicial action, suit or proceeding (whether
civil or criminal), any administrative proceeding (whether formal or
informal), any investigation by a governmental authority or entity
(including a grand jury), and any arbitration, mediation or other
non-judicial process for dispute resolution.
Purchase and Sale Agreement: The Contract for Purchase and
Sale of Hotels dated as of June 5, 1997 by and among ITT Sheraton
Corporation and certain of its affiliates, as Seller, and Lessor, as
Purchaser.
RCRA: The Resource Conservation and Recovery Act, as
amended.
Real Estate Taxes: All real estate taxes, including general
and special assessments, if any, which are imposed upon the Land, and
any improvements thereon.
Rejectable Offer Price: An amount equal to the greater of
(a) the Fair Market Value, determined as of the applicable purchase
date, or (b) the Minimum Price.
Release: A "Release" as defined in CERCLA or in any
Environmental Law, unless such Release has been properly authorized
and permitted in writing by all applicable Environmental Authorities
or is allowed by such Environmental Law without authorizations or
permits.
Rent: Collectively, the Base Rent, Percentage Rent, and
Additional Charges.
Restaurant: Any restaurant or cocktail lounge, together with
a kitchen for those facilities, which may be located in the Hotel at
any time and from time to time.
Restaurant Sublease Rent: The entire net amount of rentals
(including base rent and percentage rent) and other amounts, if any,
received by Lessee under any sublease (or similar
<PAGE>
agreement) of a Restaurant which may be entered into from time to time
between Lessee and any unaffiliated third party, net of any management
fees payable to Manager under the Management Agreement with respect to
such rentals.
Revenues Computation: As defined in Section 3.1(b).
Room Revenue Breakpoint: As defined in Section 3.1(b).
Room Revenues: All revenues, receipts, and income of any
kind derived directly or indirectly by Lessee from or in connection
with the rental of guest rooms or suites, whether to individuals,
groups or transients, at the Hotel, whether on a cash basis or credit,
paid or collected, determined in accordance with generally accepted
accounting principles, excluding the following:
(a) The amount of all credits, rebates or refunds to
customers, guests or patrons, and all service charges, finance
charges, interest and discounts attributable to charge accounts and
credit cards, to the extent the same are paid to Lessee by its
customers, guests or patrons, or to the extent the same are paid for
by Lessee to, or charged to Lessee by, credit card companies;
(b) All sales taxes or any other taxes imposed on the
rental of such guest rooms or suites;
(c) Gratuities or service charges actually paid to
employees;
(d) Proceeds of business interruption and other
insurance; and
(e) Food and Beverage Revenues or Sundry Revenues.
SARA: The Superfund Amendments and Reauthorization Act of
1986, as amended.
State: The state or commonwealth in which the Hotel is
located.
Subsidiaries: Persons in which Lessee owns, directly or
indirectly, more than fifty percent (50%) of the voting stock or
control, as applicable.
Sundry Revenues: All revenues, receipts, and income derived
from the Hotel's meeting rooms, telephones, TV and movie rentals,
check room, washroom, laundry, valet, vending machines, and other
sources not specified herein as Room Revenues or Food and Beverage
Revenues.
Taking: A taking or voluntary conveyance during the Term
hereof of all or part of the Leased Property, or any interest therein
or right accruing thereto or use thereof, as the result of, or in
settlement of, any Condemnation or other eminent domain Proceeding
affecting the Leased Property whether or not the same shall have
actually been commenced.
Term: As defined in Section 1.2.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays due to strikes, lock-outs, labor
unrest, inability to procure materials, power failure, acts of God,
governmental restrictions, enemy action, civil commotion, fire,
unavoidable casualty or other causes beyond the control of the party
responsible for performing an obligation hereunder, provided that lack
of funds shall not be deemed a cause beyond the control of either
party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party under this
Lease or any guaranty of this Lease.
<PAGE>
Uneconomic for its Primary Intended Use: A state or
condition of the Hotel such that, in the good faith judgment of
Lessee, reasonably exercised and evidenced by the resolution of the
board of directors or other governing body of Lessee, the Hotel cannot
be operated on a commercially practicable basis for its Primary
Intended Use, taking into account, among other relevant factors, the
number of usable rooms and projected revenues, such that Lessee
intends to, and shall, complete the cessation of operations from the
Hotel.
Uniform System: The Uniform System of Accounts for Hotels
(9th Revised Edition, 1996) as published by the Hotel Association of
New York City, Inc., as the same may hereafter be revised.
Unsuitable for its Primary Intended Use: A state or
condition of the Hotel such that, in the good faith judgment of
Lessee, reasonably exercised and evidenced by the resolution of the
board of directors or other governing body of Lessee, due to casualty
damage or loss through Condemnation, the Hotel cannot function as an
integrated hotel facility consistent with standards applicable to a
well maintained and operated hotel.
Work Letter: As defined in Section 10.4.
Working Capital: Funds reasonably necessary for the
day-to-day operation of the Hotel's business for a thirty (30) day
period, including, without limitation, amounts sufficient for the
maintenance of change and petty cash funds, operating bank accounts,
payrolls, accounts payable, accrued current liabilities, and funds
required to maintain Inventories.
ARTICLE III
3.1 Rent. Lessee will pay to Lessor in lawful money of the
United States of America which shall be legal tender for the payment
of public and private debts, in immediately available funds, at
Lessor's address set forth in Article XXXII hereof or at such other
place or to such other Person as Lessor from time to time may
designate in a Notice, all Base Rent, Percentage Rent and Additional
Charges, during the Term, as follows:
(a) Base Rent: The annual sum of $_________ (or, in the
case of the fiscal year ending on December 31, 1997, $_____ (pro rated
for any period of less than six months in such fiscal year that this
Lease is in effect)), in both cases as adjusted pursuant to Section
3.1(d) hereof, payable in advance in equal, consecutive monthly
installments, on or before the tenth day of each calendar month of the
Term ("Base Rent"); provided, however, that the first monthly payment
of Base Rent shall be payable during the second calendar month of the
Term, and that the first and last monthly payments of Base Rent shall
be pro rated as to any partial month (subject to adjustment as
provided in Sections 5.2, 14.5 and 15.3);[1] and
(b) Percentage Rent: For each Fiscal Year during the
Term commencing with the Fiscal Year ending December 31, 1997, Lessee
shall pay percentage rent ("Percentage Rent") quarterly in an amount
calculated by the following formula:
The amount equal to the Revenues Computation
less
an amount equal to the Base Rent paid year to date
for the applicable Fiscal Year
- --------
[1] Insert in blanks the amounts set forth for each Hotel on
attached Rent Schedule.
<PAGE>
less
an amount equal to Percentage Rent paid year to date
for the applicable Fiscal Year
equals
Percentage Rent for the applicable quarter.
For the purposes of this formula:
The Revenues Computation is equal to the amount
obtained by adding, for the applicable Fiscal Year, an
amount equal to the sum of (i) seventeen percent
(17.0%) of the first $_______ (or, in the case of the
fiscal year ending on December 31, 1997, $_______ (pro
rated for any period of less than six months in such
fiscal year that this Lease is in effect)) in year to
date Room Revenues ("Room Revenue Breakpoint") and
sixty-five percent (65.0%) of all year to date Room
Revenues in excess of the Room Revenue Breakpoint, plus
(ii) five percent (5.0%) of year to date Food and
Beverage Revenues, plus (iii) ninety-eight percent
(98.0%) of any Restaurant Sublease Rent received by
Lessee year to date; each year the threshold Room
Revenues shall be adjusted by the same percentage that
the Base Rent is adjusted pursuant to Section 3.1(d).
No Percentage Rent shall be payable by Lessee with
respect to Sundry Revenues.[2]
(c) Officer's Certificates. Additionally, an Officer's
Certificate shall be delivered to Lessor quarterly, together with such
quarterly Percentage Rent payment, setting forth the calculation of
such rent payment for such quarter, within forty-five (45) days after
each of the first three quarters of each Fiscal Year (or part thereof)
in the Term. Such quarterly payments shall be based on the formula set
forth in Section 3.1(b). There shall be no reduction in the Base Rent
regardless of the result of the Revenues Computations.
In addition, on or before March 31 of each year, commencing
with March 31, 1998, Lessee shall deliver to Lessor an Officer's
Certificate reasonably acceptable to Lessor setting forth the
computation of the actual Percentage Rent that accrued for each
quarter of the Fiscal Year that ended on the immediately preceding
December 31 and shall pay to Lessor Percentage Rent, if due and
payable, for the last quarter of the applicable Fiscal Year.
Additionally, if the annual Percentage Rent due and payable for any
Fiscal Year (as shown in the applicable Officer's Certificate) exceeds
the amount actually paid as Percentage Rent by Lessee for such year,
Lessee also shall pay such excess to Lessor at the time such
certificate is delivered. If the Percentage Rent actually due and
payable for such Fiscal Year is shown by such certificate to be less
than the amount actually paid as Percentage Rent for the applicable
Fiscal Year, Lessor, at its option, shall reimburse such amount to
Lessee or credit such amount against subsequent months' Base Rent and,
to the extent necessary, subsequent quarters' Percentage Rent
payments. Any such credit to Base Rent shall not be applied for
purposes of calculating Percentage Rent payable for any subsequent
quarter.
Any difference between the annual Percentage Rent due and
payable for any Fiscal Year (as shown in the applicable Officer's
Certificate or as adjusted pursuant to Section 3.3) and the total
amount of quarterly payments for such Fiscal Year actually paid by
Lessee as Percentage Rent, whether in favor of Lessor or Lessee, shall
bear interest at the Overdue Rate, which interest shall accrue from
the due date of the last quarterly payment for the Fiscal Year until
the amount of such difference shall be paid or otherwise discharged.
Any such interest payable to Lessor shall be deemed to be and shall be
payable as Additional Charges.
- --------
[2] Insert in blanks the amounts set forth for each Hotel on
attached Rent Schedule.
<PAGE>
The obligation to pay Percentage Rent shall survive the
expiration or earlier termination of the Term, and a final
reconciliation, taking into account, among other relevant adjustments,
any adjustments which are accrued after such expiration or termination
date but which related to Percentage Rent accrued prior to such
termination date, and Lessee's good faith best estimate of the amount
of any unresolved contractual allowances, shall be made not later than
two (2) years after such expiration or termination date, but Lessee
shall advise Lessor within sixty (60) days after such expiration or
termination date of Lessee's best estimate at that time of the
approximate amount of such adjustments, which estimate shall not be
binding on Lessee or have any legal effect whatsoever.
(d) Annual Adjustments to Base Rent and Percentage
Rent. For each year of the Term beginning on or after January 1, 1998,
the Base Rent shall be adjusted annually to increase (but not
decrease) the Base Rent by one and one-half percent (1.5%) over the
Base Rent for the preceding year. Adjustments in the Base Rent shall
be effective on the first day of the first calendar month of the
Fiscal Year to which such adjusted Base Rent applies. The Room
Revenues Breakpoint then included in the Revenues Computation pursuant
to Section 3.1(b) shall be similarly adjusted, effective with each
such adjustment in the Base Rent.
(e) Manager Fund-up Cure Payments. If and to the extent
that Manager pays amounts to Lessee pursuant to Section 8.3 of the
Management Agreement in order to avoid termination of the Management
Agreement by Lessee for Manager's failure to meet the requirements of
(i) 12% cash-on-cash return to Lessor, or (ii) 90% of Star report
yield index, as described therein, Lessee shall pay such amounts to
Lessor as additional Percentage Rent hereunder.
3.2 Confirmation of Percentage Rent. Lessee shall utilize,
or cause to be utilized, an accounting system for the Leased Property
in accordance with its usual and customary practices, and in
accordance with generally accepted accounting principles, that will
accurately record all data necessary to compute Percentage Rent, and
Lessee shall retain, for at least four (4) years after the expiration
of each Fiscal Year (and in any event until the reconciliation
described in Section 3.1(c) for such Fiscal Year has been made),
reasonably adequate records conforming to such accounting system
showing all data necessary to compute Percentage Rent for the
applicable Fiscal Years. Lessor, at its expense (except as provided
hereinbelow), shall have the right from time to time, upon prior
written notice to Lessee and Manager, by its accountants or
representatives to audit the information that formed the basis for the
data set forth in any Officer's Certificate provided under Section
3.1(c) and, in connection with such audits, to examine all Lessee's
records (including supporting data and sales and excise tax returns)
reasonably required to verify Percentage Rent, subject to any
prohibitions or limitations on disclosure of any such data under Legal
Requirements; provided, however that Lessor may only inspect or audit
records in Manager's possession subject to the terms of Lessee's
access thereto under the Management Agreement. If any such audit
discloses a deficiency in the payment of Percentage Rent, and either
Lessee agrees with the result of such audit or the matter is otherwise
determined or compromised, Lessee shall forthwith pay to Lessor the
amount of the deficiency, as finally agreed or determined, together
with interest at the Overdue Rate from the date when said payment
should have been made to the date of payment thereof; provided,
however, that as to any audit that is commenced more than two (2)
years after the date Percentage Rent for any Fiscal Year is reported
by Lessee to Lessor, the deficiency, if any, with respect to such
Percentage Rent shall bear interest at the Overdue Rate only from the
date such determination of deficiency is made unless such deficiency
is the result of gross negligence or willful misconduct on the part of
Lessee, in which case interest at the Overdue Rate will accrue from
the date such payment should have been made to the date of payment
thereof. If any such audit discloses that the Percentage Rent actually
due from Lessee for any Fiscal Year exceed those reported by Lessee by
more than three percent (3%), Lessee shall pay the cost of such audit
and examination. Any proprietary information obtained by Lessor
pursuant to the provisions of this Section shall be treated as
confidential, except that such information may be used, subject to
appropriate confidentiality safeguards, in any litigation between the
parties and except further that Lessor may disclose such information
to prospective lenders. The obligations of Lessee contained in this
Section shall survive the expiration or earlier termination of this
Lease.
<PAGE>
3.3 Additional Charges. In addition to the Base Rent and
Percentage Rent, (a) Lessee also will pay and discharge as and when
due and payable all other amounts, liabilities, obligations and
Impositions that Lessee assumes or agrees to pay under this Lease, and
(b) in the event of any failure on the part of Lessee to pay any of
those items referred to in clause (a) of this Section 3.3, Lessee also
will promptly pay and discharge every fine, penalty, interest and cost
that may be added for non- payment or late payment of such items (the
items referred to in clauses (a) and (b) of this Section 3.3 being
additional rent hereunder and being referred to herein collectively as
the "Additional Charges"), and Lessor shall have all legal, equitable
and contractual rights, powers and remedies provided either in this
Lease or by statute or otherwise in the case of non-payment of the
Additional Charges as in the case of non-payment of the Base Rent. If
any installment of Base Rent, Percentage Rent or Additional Charges
(but only as to those Additional Charges that are payable directly to
Lessor) shall not be paid on its due date, Lessee will pay Lessor on
demand, as Additional Charges, a late charge (to the extent permitted
by law) computed at the Overdue Rate on the amount of such
installment, from the due date of such installment to the date of
payment thereof. To the extent that Lessee pays any Additional Charges
to Lessor pursuant to any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional Charges to the
entity to which they would otherwise be due and Lessor shall pay same
from monies received from Lessee.
3.4 Net Lease Provision. The Rent shall be paid absolutely
net to Lessor, so that this Lease shall yield to Lessor the full
amount of the installments of Base Rent, Percentage Rent and
Additional Charges throughout the Term, all as more fully set forth in
Article V, but subject to any other provisions of this Lease that
expressly provide for adjustment or abatement of Rent or other charges
or expressly provide that certain expenses or maintenance shall be
paid or performed by Lessor.
3.5 Annual Budget. Not later than thirty (30) days prior to
the commencement of each Fiscal Year, Lessee shall submit the Annual
Budget to Lessor. The Annual Budget shall contain the following, to
the extent included in the operating budgets and capital budgets
provided to Lessee by Manager under the management agreement for the
Hotel:
(a) Lessee's reasonable estimate of Gross Revenues
(including room rates and Room Revenues), Gross Operating Expenses,
and Gross Operating Profits for the forthcoming Fiscal Year itemized
on schedules on a quarterly basis as approved by Lessor and Lessee, as
same may be revised or replaced from time to time by Lessee and
approved by Lessor, together with the assumptions, in narrative form,
forming the basis of such schedules.
(b) An estimate of the amounts to be dedicated to the
repair, replacement, or refurbishment of Furniture and Equipment.
(c) An estimate of any amounts Lessor will be required
to provide for required or desirable capital improvements to the Hotel
or any of its components.
(d) A cash flow projection.
(e) A business plan, which shall describe business
objectives and strategies for the forthcoming Fiscal Year, and shall
include without limitation an analysis of the market area in which the
Hotel competes, a comparison of the Hotel and its business with
competitive hotels, an analysis of categories of potential guests, and
a description of sales and marketing activities designed to achieve
and implement identified objectives and strategies.
3.6 Books and Records. Lessee shall keep full and adequate
books of account and other records reflecting the results of operation
of the Hotel on an accrual basis, all in accordance with generally
accepted accounting principles and the obligations of Lessee under
this Lease Agreement. The books of account and all other records
relating to or reflecting the operation of the Hotel shall be kept
either at the Hotel or at Lessee's offices in Irving, Texas or at
Manager's central offices, and
<PAGE>
shall be available to Lessor and its representatives and its auditors
or accountants, at all reasonable times, upon prior written notice to
Lessee and Manager, for examination, audit, inspection, and
transcription; provided, however that Lessor may only inspect or audit
records in Manager's possession subject to the terms of Lessee's
access thereto under the Management Agreement. All of such books and
records pertaining to the Hotel including, without limitation, books
of account, guest records and front office records, at all times shall
be the property of Lessor and shall not be removed from the Hotel or
Lessee's offices or Manager's central offices (but may be moved among
any of the foregoing) by Lessee without Lessor approval.
ARTICLE IV
4.1 Payment of Impositions. Subject to Article XII (relating
to permitted contests), Lessee will pay, or cause to be paid, all
Impositions (other than Real Estate Taxes and Personal Property Taxes,
which shall be paid by Lessor) before any fine, penalty, interest or
cost may be added for non-payment, such payments to be made directly
to the taxing or other authorities where feasible, and will promptly
furnish to Lessor copies of official receipts or other satisfactory
proof evidencing such payments. Lessee's obligation to pay such
Impositions shall be deemed absolutely fixed upon the date such
Impositions become a lien upon the Leased Property or any part
thereof. If any such Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Lessee may exercise the
option to pay the same (and any accrued interest on the unpaid balance
of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of
contest pursuant to the provisions of Article XII) as the same
respectively become due and before any fine, penalty, premium, further
interest or cost may be added thereto. Lessor, at its expense, shall,
to the extent required or permitted by applicable law, prepare and
file all tax returns in respect of Lessor's net income, gross
receipts, sales and use, single business, transaction privilege, rent,
ad valorem, franchise taxes, Real Estate Taxes, Personal Property
Taxes and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports in
respect of any Imposition as may be required by governmental
authorities. If any refund shall be due from any taxing authority in
respect of any Imposition paid by Lessee, the same shall be paid over
to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. If an Event of Default shall have
occurred and be continuing, any such refund shall be paid over to or
retained by Lessor. Any such funds retained by Lessor due to an Event
of Default shall be applied as provided in Article XVI. Lessor and
Lessee shall, upon request of the other, provide such data as is
maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required
returns and reports. Lessee shall file all Personal Property Tax
returns in such jurisdictions where it is legally required so to file.
Lessor, to the extent it possesses the same, and Lessee, to the extent
it possesses the same, will provide the other party, upon request,
with cost and depreciation records necessary for filing returns for
any property classified as personal property. Where Lessor is legally
required to file Personal Property Tax returns, Lessee shall provide
Lessor with copies of assessment notices in sufficient time for Lessor
to file a protest. Lessor may, upon Notice to Lessee, at Lessor's
option and at Lessor's sole expense, protest, appeal, or institute
such other proceedings (in its or Lessee's name) as Lessor may deem
appropriate to effect a reduction of real estate or personal property
assessments for those Impositions to be paid by Lessor, and Lessee, at
Lessor's expense as aforesaid, shall fully cooperate with Lessor in
such protest, appeal, or other action. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee from and against any
claims, obligations, and liabilities against or incurred by Lessee in
connection with such cooperation. Billings for reimbursement of
Personal Property Taxes by Lessee to Lessor shall be accompanied by
copies of a bill therefor and payments thereof which identify the
personal property with respect to which such payments are made.
Lessor, however, reserves the right to effect any such protest, appeal
or other action and, upon Notice to Lessee, shall control any such
activity, which shall then go forward at Lessor's sole expense. Upon
such Notice, Lessee, at Lessor's expense, shall cooperate fully with
such activities.
<PAGE>
4.2 Notice of Impositions. Lessor shall give prompt Notice
to Lessee of all Impositions payable by Lessee hereunder of which
Lessor at any time has knowledge, provided that Lessor's failure to
give any such Notice shall in no way diminish Lessee's obligations
hereunder to pay such Impositions, but such failure shall obviate any
default hereunder for a reasonable time after Lessee receives Notice
of any Imposition which it is obligated to pay during the first taxing
period applicable thereto.
4.3 Adjustment of Impositions. Impositions imposed in
respect of the tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Lessor and Lessee, whether or
not such Imposition is imposed before or after such termination, and
Lessee's obligation to pay its prorated share thereof after
termination shall survive such termination.
4.4 Utility Charges. Lessee will be solely responsible for
obtaining and maintaining utility services to the Leased Property and
will pay or cause to be paid all charges for electricity, gas, oil,
water, sewer and other utilities used in the Leased Property during
the Term.
4.5 Insurance Premiums. Lessee will pay or cause to be paid
all premiums for the insurance coverages required to be maintained by
it under Article XIII.
ARTICLE V
5.1 No Termination, Abatement, Etc. Except as otherwise
specifically provided in this Lease, and except for loss of the
Management Agreement solely by reason of any action or inaction by
Lessor, Lessee, to the extent permitted by law, shall remain bound by
this Lease in accordance with its terms and shall neither take any
action without the written consent of Lessor (which shall not be
unreasonably withheld or delayed) to modify, surrender or terminate
the same, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of the Rent, or setoff against the Rent, nor
shall the obligations of Lessee be otherwise affected by reason of (a)
any damage to, or destruction of, any Leased Property or any portion
thereof from whatever cause or any Taking of the Leased Property or
any portion thereof, (b) the lawful or unlawful prohibition of, or
restriction upon, Lessee's use of the Leased Property, or any portion
thereof, or the interference with such use by any Person other than
Lessor, (c) any claim which Lessee has or might have against Lessor by
reason of any default or breach of any warranty by Lessor under this
Lease or any other agreement between Lessor and Lessee, or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Lessor or any assignee or
transferee of Lessor, or (e) for any other cause whether similar or
dissimilar to any of the foregoing other than a discharge of Lessee
from any such obligations as a matter of law. Lessee hereby
specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law to
(1) modify, surrender or terminate this Lease or quit or surrender the
Leased Property or any portion thereof, or (2) entitle Lessee to any
abatement, reduction, suspension or deferment of the Rent or other
sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. The obligations of Lessee hereunder shall be
separate and independent covenants and agreements and the Rent and all
other sums payable by Lessee hereunder shall continue to be payable in
all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of
this Lease other than by reason of an Event of Default.
5.2 Abatement Procedures. In the event of a partial Taking
as described in Section 15.5, the Lease shall not terminate, but the
Base Rent shall be abated in the manner and to the extent that is
fair, just and equitable to both Lessee and Lessor, taking into
consideration, among other relevant factors, the number of usable
rooms, the amount of square footage, or the revenues affected by such
partial Taking. If Lessor and Lessee are unable to agree upon the
amount of such abatement within thirty (30) days after such partial
Taking, the matter may be submitted by either party to a court of
competent jurisdiction for resolution.
<PAGE>
ARTICLE VI
6.1 Ownership of the Leased Property. Lessee acknowledges
that the Leased Property is the property of Lessor and that Lessee has
only the right to the possession and use of the Leased Property upon
the terms and conditions of this Lease.
6.2 Lessee's Personal Property. Lessee will acquire and
maintain throughout the Term such Inventory as is required to operate
the Leased Property in the manner contemplated by this Lease. Lessee
may (and shall as provided hereinbelow), at its expense, install,
affix or assemble or place on any parcels of the Land or in any of the
Leased Improvements, any items of personal property (including
Inventory) owned by Lessee. Lessee, at the commencement of the Term,
and from time to time thereafter, shall provide Lessor with an
accurate list of all such items of Lessee's personal property
(collectively, the "Lessee's Personal Property"). Lessee may, subject
to the first sentence of this Section 6.2 and the conditions set forth
below, remove any of Lessee's Personal Property set forth on such list
at any time during the Term or upon the expiration or any prior
termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within ten (10) days following the
expiration or earlier termination of the Term shall be considered
abandoned by Lessee and may be appropriated, sold, destroyed or
otherwise disposed of by Lessor without first giving Notice thereof to
Lessee, without any payment to Lessee and without any obligation to
account therefor. Lessee will, at its expense, restore the Leased
Property to the condition required by Section 9.1(d), including repair
of all damage to the Leased Property caused by the removal of Lessee's
Personal Property, whether effected by Lessee or Lessor. Upon the
expiration or earlier termination of the Term, Lessor or its designee
shall have the option to purchase all Inventory on hand at the Leased
Property at the time of such expiration or termination (other than
Inventory with to respect to which the Manager has exercised any
purchase option under the Management Agreement) for a sale price equal
to the fair market value of such Inventory. Lessee may make such
financing arrangements, title retention agreements, leases or other
agreements with respect to Lessee's Personal Property as it sees fit
provided that Lessee first advises Lessor of any such arrangement and
such arrangement expressly provides that in the event of Lessee's
default thereunder, Lessor (or its designee) may assume Lessee's
obligations and rights under such arrangement.
6.3 Lessor's Lien. To the fullest extent permitted by
applicable law, Lessor is granted a lien and security interest on all
Lessee's personal property now or hereinafter placed in or upon the
Leased Property, and such lien and security interest shall remain
attached to such Lessee's personal property until payment in full of
all Rent and satisfaction of all of Lessee's obligations hereunder;
provided, however, Lessor shall subordinate its lien and security
interest to that of any non-Affiliate of Lessee which finances such
Lessee's personal property or any non-Affiliate conditional seller of
such Lessee's personal property, the terms and conditions of such
subordination to be satisfactory to Lessor in the exercise of
reasonable discretion. Lessee shall, upon the request of Lessor,
execute such financing statements or other documents or instruments
reasonably requested by Lessor to perfect the lien and security
interests herein granted. Lessee hereby authorizes Lessor to execute
and file financing statements signed only be a representative of
Lessor covering the security interest of Lessor in Lessee's personal
property.
ARTICLE VII
7.1 Condition of the Leased Property. Lessee acknowledges
receipt and delivery of possession of the Leased Property. Lessee has
examined and otherwise has knowledge of the condition of the Leased
Property and has found the same to be satisfactory for its purposes
hereunder. Lessee is leasing the Leased Property "as is" in its
present condition. Lessee waives any claim or action against Lessor in
respect of the condition of the Leased Property. LESSOR MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE
LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR
USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, AS
<PAGE>
TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.
LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY
LESSEE AND IS SATISFACTORY TO IT. Provided, however, to the extent
permitted by law, Lessor hereby assigns to Lessee all of Lessor's
rights to proceed against any predecessor in title (other than any
Affiliate of Lessee which conveyed the Property to Lessor) for
breaches of warranties or representations or for latent defects in the
Leased Property. Lessor shall fully cooperate with Lessee in the
prosecution of any such claim, in Lessor's or Lessee's name, all at
Lessee's sole cost and expense. Lessee hereby agrees to indemnify,
defend and hold harmless Lessor from and against any claims,
obligations and liabilities against or incurred by Lessor in
connection with such cooperation.
7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise reasonable efforts to obtain and to
maintain all approvals needed to use and operate the Leased Property
and the Hotel under applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased
Property only as a Sheraton [or Sheraton Suites(R)} hotel facility,
and for such other uses as may be necessary or incidental to such use
or such other use as otherwise approved by Lessor (the "Primary
Intended Use"). Lessee shall not use the Leased Property or any
portion thereof for any other use without the prior written consent of
Lessor, which consent may be granted, denied or conditioned in
Lessor's sole discretion. No use shall be made or permitted to be made
of the Leased Property, and no acts shall be done, which will cause
the cancelation or increase the premium of any insurance policy
covering the Leased Property or any part thereof (unless another
adequate policy satisfactory to Lessor is available and Lessee pays
any premium increase), nor shall Lessee sell or permit to be kept,
used or sold in or about the Leased Property any article which may be
prohibited by law or fire underwriter's regulations. Lessee shall, at
its sole cost, comply with all of the requirements pertaining to the
Leased Property of any insurance board, association, organization or
company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Lessee's Personal Property.
(c) Subject to the provisions of Articles XIV, XV, XXI
and XXII, Lessee covenants and agrees that during the Term it will (1)
operate continuously the Leased Property as a hotel facility, (2) keep
in full force and effect and comply with all the provisions of the
Management Agreement, (3) not terminate or amend the Management
Agreement without the consent of Lessor (which shall not be
unreasonably withheld or delayed), (4) maintain appropriate
certifications and licenses for such use and (5) will seek to maximize
the Gross Revenues generated therefrom consistent with sound business
practices.
(d) Lessee shall not commit or suffer to be committed
any waste on the Leased Property, or in the Hotel, nor shall Lessee
cause or permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased
Property or any portion thereof, or Lessee's Personal Property, to be
used in such a manner as (1) might reasonably tend to impair Lessor's
(or Lessee's, as the case may be) title thereto or to any portion
thereof, or (2) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof,
except as necessary in the ordinary and prudent operation of the Hotel
on the Leased Property.
7.3 Lessor to Grant Easements, Etc. Lessor will, from time
to time, so long as no Event of Default has occurred and is
continuing, at the request of Lessee and at Lessee's cost and expense
(but subject to the approval of Lessor, which approval shall not be
unreasonably withheld or delayed), (a) grant easements and other
rights in the nature of easements with respect to the Leased Property
to third parties, (b) release existing easements or other rights in
the nature of easements which are for the benefit of the Leased
Property, (c) dedicate or transfer unimproved portions of the Leased
<PAGE>
Property for road, highway or other public purposes, (d) execute
petitions to have the Leased Property annexed to any municipal
corporation or utility district, (e) execute amendments to any
covenants and restrictions affecting the Leased Property and (f)
execute and deliver to any Person any instrument appropriate to
confirm or effect such grants, releases, dedications, transfers,
petitions and amendments (to the extent of its interests in the Leased
Property), but only upon delivery to Lessor of an Officer's
Certificate stating that such grant, release, dedication, transfer,
petition or amendment does not interfere with the proper conduct of
the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.
ARTICLE VIII
8.1 Compliance with Legal and Insurance Requirements, Etc.
Subject to Section 8.3(b) below and Article XII (relating to permitted
contests), Lessee, at its expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance Requirements in respect of
the use, operation, maintenance, repair and restoration of the Leased
Property, and (b) procure, maintain and comply with all appropriate
licenses and other authorizations required for any use of the Leased
Property and Lessee's Personal Property then being made, and for the
proper erection, installation, operation and maintenance of the Leased
Property or any part thereof.
8.2 Legal Requirement Covenants. Subject to Section 8.3(b)
and Section 9.1(b) below, Lessee covenants and agrees that the Leased
Property and Lessee's Personal Property shall not be used for any
unlawful purpose, and that Lessee shall not permit or suffer to exist
any unlawful use of the Leased Property by others. Lessee shall
acquire and maintain all appropriate licenses, certifications, permits
and other authorizations and approvals needed to operate the Leased
Property in its customary manner for the Primary Intended Use, and any
other lawful use conducted on the Leased Property as may be permitted
from time to time hereunder. Lessee further covenants and agrees that
Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times
conform to all Legal Requirements, unless the same are finally
determined by a court of competent jurisdiction to be unlawful (and
Lessee shall cause all sub- tenants, invitees or others within its
control so to comply with all Legal Requirements). Lessee may,
however, upon prior Notice to Lessor, contest the legality or
applicability of any such Legal Requirement or any licensure or
certification decision if Lessee maintains such action in good faith,
with due diligence, without prejudice to Lessor's rights hereunder,
and at Lessee's sole expense. If by the terms of any such Legal
Requirement compliance therewith pending the prosecution of any such
proceeding may legally be delayed without the incurrence of any charge
or liability of any kind, or the filing of any lien, against the Hotel
or Lessee's leasehold interest therein and without subjecting Lessee
or Lessor to any liability, civil or criminal, for failure so to
comply therewith, Lessee may delay compliance therewith until the
final determination of such proceeding. If any lien, charge or civil
or criminal liability would be incurred by reason of any such delay,
Lessee, on the prior written consent of Lessor, which consent shall
not be unreasonably withheld or delayed, may nonetheless contest as
aforesaid and delay as aforesaid provided that such delay would not
subject Lessor to criminal liability and Lessee both (a) furnishes to
Lessor security reasonably satisfactory to Lessor against any loss or
injury by reason of such contest or delay and (b) prosecutes the
contest with due diligence and in good faith.
8.3 Environmental Covenants. Lessor and Lessee (in addition
to, and not in diminution of, Lessee's covenants and undertakings in
Sections 8.1 and 8.2 hereof) covenant and agree as follows:
(a) At all times hereafter until the later of (i) such
time as all liabilities, duties or obligations of Lessee to Lessor
under the Lease have been satisfied in full and (ii) such time as
Lessee completely vacates the Leased Property and surrenders
possession of the same to Lessor, Lessee shall fully comply with all
Environmental Laws applicable to the Leased Property and the
operations thereon. Lessee agrees to give Lessor prompt Notice of (1)
all Environmental Liabilities; (2) all pending, threatened or
anticipated Proceedings, and all notices, demands, requests or
investigations,
<PAGE>
relating to any Environmental Liability or relating to the issuance,
revocation or change in any Environmental Authorization required for
operation of the Leased Property; (3) all Releases at, on, in, under
or in any way affecting the Leased Property, or any Release known by
Lessee at, on, in or under any property adjacent to the Leased
Property; and (4) all facts, events or conditions that could
reasonably lead to the occurrence of any of the above-referenced
matters.
(b) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any
and all Environmental Liabilities other than (i) Environmental
Liabilities resulting from conditions disclosed in any environmental
audit obtained by Lessor and provided to Lessee prior to the execution
of this Lease (the "Environmental Audit"), and (ii) Environmental
Liabilities which were caused by the acts or negligent failures to act
of Lessee.
(c) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any
and all Environmental Liabilities which were (i) resulting from
conditions disclosed in the Environmental Audit, and (ii) caused by
the acts or negligent failures to act of Lessee.
(d) If any Proceeding is brought against any
Indemnified Party in respect of an Environmental Liability with
respect to which such Indemnified Party may claim indemnification
under either Section 8.3(b) or (c), the Indemnifying Party, upon
request, shall at its sole expense resist and defend such Proceeding,
or cause the same to be resisted and defended by counsel designated by
the Indemnified Party and approved by the Indemnifying Party, which
approval shall not be unreasonably withheld or delayed; provided,
however, that such approval shall not be required in the case of
defense by counsel designated by any insurance company undertaking
such defense pursuant to any applicable policy of insurance. Each
Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel will be at the sole expense of such
Indemnified Party unless such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld
or delayed. The Indemnifying Party shall not be liable for any
settlement of any such Proceeding made without its consent, which
shall not be unreasonably withheld or delayed, but if settled with the
consent of the Indemnifying Party, or if settled without its consent
(if its consent shall be unreasonably withheld or delayed), or if
there be a final, nonappealable judgment for an adversary party in any
such Proceeding, the Indemnifying Party shall indemnify and hold
harmless the Indemnified Parties from and against any liabilities
incurred by such Indemnified Parties by reason of such settlement or
judgment.
(e) At any time any Indemnified Party has reason to
believe circumstances exist which could reasonably result in an
Environmental Liability, upon reasonable prior Notice to Lessee and
Manager stating such Indemnified Party's basis for such belief, an
Indemnified Party shall be given immediate access to the Leased
Property (including, but not limited to, the right to enter upon,
investigate, drill wells, take soil borings, excavate, monitor, test,
cap and use available land for the testing of remedial technologies),
Lessee's employees, and to all relevant documents and records
regarding the matter as to which a responsibility, liability or
obligation is asserted or which is the subject of any Proceeding;
provided that such access may be conditioned or restricted as may be
reasonably necessary to ensure compliance with law and the safety of
personnel and facilities or to protect confidential or privileged
information. All Indemnified Parties requesting such immediate access
and cooperation shall endeavor to coordinate such efforts to result in
as minimal interruption of the operation of the Leased Property as
practicable.
(f) The indemnification rights and obligations provided
for in this Article VIII shall be in addition to any indemnification
rights and obligations provided for elsewhere in this Lease.
(g) The indemnification rights and obligations provided
for in this Article VIII shall survive the termination of this Lease.
<PAGE>
For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks indemnification shall be computed net of (a)
any actual income tax benefit resulting therefrom to such Indemnified
Party, (b) any insurance proceeds received (net of tax effects) with
respect thereto, and (c) any amounts recovered (net of tax effects)
from any third parties based on claims the Indemnified Party has
against such third parties which reduce the damages that would
otherwise be sustained; provided that in all cases, the timing of the
receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in
determining the amount of reduction of damages. Each Indemnified Party
agrees to use its reasonable efforts to pursue, or assign to Lessee or
Lessor, as the case may be, any claims or rights it may have against
any third party which would materially reduce the amount of damages
otherwise incurred by such Indemnified Party.
Notwithstanding anything to the contrary contained in this
Lease, if Lessor shall become entitled to the possession of the Leased
Property by virtue of the termination of the Lease or repossession of
the Leased Property, then Lessor may assign its indemnification rights
under Section 8.3 of this Lease (but not any other rights hereunder)
to any Person to whom Lessor subsequently transfers the Leased
Property, subject to the following conditions and limitations, each of
which shall be deemed to be incorporated into the terms of such
assignment, whether or not specifically referred to therein:
(1) The indemnification rights referred to in this
section may be assigned only if a known Environmental
Liability then exists or if a Proceeding is then pending or,
to the knowledge of Lessee or Lessor, then threatened with
respect to the Leased Property;
(2) Such indemnification rights shall be limited to
Environmental Liabilities relating to or specifically
affecting the Leased Property; and
(3) Any assignment of such indemnification rights shall
be limited to the immediate transferee of Lessor, and shall
not extend to any such transferee's successors or assigns.
ARTICLE IX
9.1 Maintenance and Repair.
(a) Lessee, at its sole expense, will keep the Leased
Property, and all private roadways, sidewalks and curbs appurtenant
thereto that are under Lessee's control, including windows and plate
glass, mechanical, electrical and plumbing systems and equipment
(including conduit and ductware), and non-load bearing interior walls,
and parking lot surfaces, in good order and repair, except for
ordinary wear and tear (whether or not the need for such repairs
occurred as a result of Lessee's use, any prior use, the elements or
the age of the Leased Property, or any portion thereof), and, except
as otherwise provided in Section 9.1(b), Article XIV or Article XV,
with reasonable promptness, make all necessary and appropriate repairs
replacements, and improvements thereto of every kind and nature,
whether interior or exterior ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a condition existing prior to the
commencement of the Term of this Lease (concealed or otherwise), or
required by any governmental agency having jurisdiction over the
Leased Property, except as to the structural elements of the Leased
Improvements. All repairs shall, to the extent reasonably achievable,
be at least equivalent in quality to the original work. Lessee will
not take or omit to take any action, the taking or omission of which
might materially impair the value or the usefulness of the Leased
Property or any part thereof for its Primary Intended Use.
(b) Notwithstanding Lessee's obligations under Section
9.1(a) above, except to the extent of damage caused by Lessee's
negligence or willful misconduct or that of its employees or agents,
Lessor shall be required to bear the cost of maintaining any
underground utilities and the structural elements of the Leased
Improvements, including exterior walls and the roof of the Hotel
<PAGE>
(but excluding windows and plate glass, mechanical, electrical and
plumbing systems and equipment, including conduit and ductware, and
non-load bearing walls, and parking lot surfaces). Except as set forth
in the preceding sentence and in Article XL, Lessor shall not under
any circumstances be required to build or rebuild any improvement on
the Leased Property, or to make any repairs, replacements,
alterations, restorations or renewals of any nature or description to
the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect
thereto, in connection with this Lease, or to maintain the Leased
Property in any way. Lessee hereby waives, to the extent permitted by
law, the right to make repairs at the expense of Lessor, pursuant to
any law in effect at the time of the execution of this Lease or
hereafter enacted, except following default by Lessor under this
Lease, to the extent of repairs (for which Lessor is obligated
hereunder) required to be made in order for the Hotel, and Lessee's
use thereof, to comply with Lessee's obligations under the Management
Agreement. Lessor shall have the right to give, record and post, as
appropriate, notices of nonresponsibility under any mechanic's lien
laws now or hereafter existing.
(c) Nothing contained in this Lease and no action or
inaction by Lessor shall be construed as (1) constituting the request
of Lessor, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor
or services or the furnishing of any materials or other property for
the construction, alteration, addition, repair or demolition of or to
the Leased Property or any part thereof, or (2) giving Lessee any
right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim
against Lessor in respect thereof or to make any agreement that may
create, or in any way be the basis for any right, title, interest,
lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior
termination of the Term, vacate and surrender the Leased Property to
Lessor in the condition in which the Leased Property was originally
received from Lessor, except as repaired, rebuilt, restored, altered
or added to as permitted or required by the provisions of this Lease
and except for ordinary wear and tear (subject to the obligation of
Lessee to maintain the Leased Property in good order and repair, as
would a prudent owner, during the entire Term of the Lease), or damage
by casualty or Condemnation (subject to the obligations of Lessee to
restore or repair as set forth in the Lease.)
9.2 Encroachments, Restrictions, Etc. Lessor represents and
warrants that the Leased Improvements do not materially encroach upon
any property, street or right-of-way adjacent to the Leased Property,
or violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property,
or any part thereof, or impair the rights of others under any easement
or right-of-way to which the Leased Property is subject. Except to the
extent that such representation and warranty is breached by Lessor, if
any of the Leased Improvements, at any time hereafter, materially
encroach upon any property, street or right-of-way adjacent to the
Leased Property, or violate the agreements or conditions contained in
any lawful restrictive covenant or other agreement affecting the
Leased Property, or any part thereof, or impair the rights of others
under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor or at the behest of
any Person affected by any such encroachment, violation or impairment,
Lessee shall, at its expense, subject to its right to contest the
existence of any encroachment, violation or impairment and in such
case, in the event of an adverse final determination, either (a)
obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or
Lessee or (b) make such changes in the Leased Improvements, and take
such other actions, as Lessee in the good faith exercise of its
judgment deems reasonably practicable to remove such encroachment, and
to end such violation or impairment, including, if necessary, the
alteration of any of the Leased Improvements, and in any event take
all such actions as may be necessary in order to be able to continue
the operation of the Leased Improvements for the Primary Intended Use
substantially in the manner and to the extent the Leased Improvements
were operated prior to the
<PAGE>
assertion of such violation, impairment or encroachment. Any such
alteration shall be made in conformity with the applicable
requirements of Article X. Lessee's obligations under this Section 9.2
shall be in addition to and shall in no way discharge or diminish any
obligation of any insurer under any policy of title or other insurance
held by Lessor.
ARTICLE X
10.1 Alterations. After receiving approval of Lessor, which
approval shall not be unreasonably withheld or delayed, Lessee shall
have the right to make such additions, modifications or improvements
to the Leased Property from time to time as Lessee deems desirable for
its permitted uses and purposes, provided that such action will not
significantly alter the character or purposes or significantly detract
from the value or operating efficiency thereof and will not
significantly impair the revenue-producing capability of the Leased
Property or adversely affect the ability of Lessee to comply with the
provisions of this Lease. The cost of such additions, modifications or
improvements to the Leased Property shall be paid by Lessee, and all
such additions, modifications and improvements shall, without payment
by Lessor at any time, be included under the terms of this Lease and
upon expiration or earlier termination of this Lease shall pass to and
become the property of Lessor.
10.2 Salvage. All materials which are scrapped or removed in
connection with the making of repairs required by Articles IX or X
shall be or become the property of Lessor or Lessee depending on which
party is paying for or providing the financing for such work.
10.3 Joint Use Agreements. If Lessee constructs additional
improvements that are connected to the Leased Property or share
maintenance facilities, HVAC, electrical, plumbing or other systems,
utilities, parking or other amenities, the parties shall enter into a
mutually agreeable cross-easement or joint use agreement, the form of
which has been approved in advance by Lessor, to make available
necessary services and facilities in connection with such additional
improvements, to protect each of their respective interests in the
properties affected, and to provide for separate ownership, use,
and/or financing of such improvements.
[10.4 Initial Upgrade of Leased Improvements. Lessee desires
to install, construct and complete the improvements, alterations,
upgrades and refurbishments in the Leased Improvements (collectively,
"Lessee's Work") necessary to qualify the Leased Improvements to
operate under the Management Agreement as a "Sheraton [Suites]" hotel.
Pursuant to the terms of the Work Letter (the "Work Letter") attached
hereto as Exhibit B, Lessee agrees to perform Lessee's Work; provided,
however, Lessor shall pay the costs actually incurred by Lessee to
perform Lessee's Work, subject to and in accordance with the terms and
conditions of the Work Letter. Lessee shall pay all increased taxes
and insurance on Lessee's Work or attributable thereto.]
ARTICLE XI
11.1 Liens. Subject to the provisions of Article XII
relating to permitted contests, Lessee will not directly or indirectly
create or allow to remain and will promptly discharge at its expense
any lien, encumbrance, attachment, title retention agreement or claim
upon the Leased Property or any attachment, levy, claim or encumbrance
in respect of the Rent, not including, however, (a) this Lease, (b)
the matters included as exceptions in the title policy insuring
Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are consented to in writing by Lessor or any
easements granted pursuant to the provisions of Section 7.3 of this
Lease, (d) liens for those taxes upon Lessor or the Leased Property
which Lessee is not required to pay hereunder, (e) subleases permitted
by Article XXV hereof, (f) liens for Impositions or for sums resulting
from noncompliance with Legal Requirements so long as (1) the same are
not yet payable or are payable without the addition of any fine or
penalty or (2) such liens are in the process of being contested as
permitted by Article XII, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet
due provided that (1) the payment of such sums shall not be postponed
<PAGE>
under any related contract for more than sixty (60) days after the
completion of the action giving rise to such lien and such reserve or
other appropriate provisions as shall be required by law or generally
accepted accounting principles shall have been made therefor or (2)
any such liens are in the process of being contested as permitted by
Article XII hereof, and (h) any liens which are the responsibility of
Lessor pursuant to the provisions of Article XXXIV of this Lease.
ARTICLE XII
12.1 Permitted Contests. Lessee shall have the right to
contest the amount or validity of any Imposition to be paid by Lessee
or any Legal Requirement or Insurance Requirement or any lien,
attachment, levy, encumbrance, charge or claim ("Claims") not
otherwise permitted by Article XI, by appropriate legal proceedings in
good faith and with due diligence (but this shall not be deemed or
construed in any way to relieve, modify or extend Lessee's covenants
to pay or its covenants to cause to be paid any such charges at the
time and in the manner as in this Article provided), on condition,
however, that such legal proceedings shall not operate to relieve
Lessee from its obligations hereunder and shall not cause the sale or
risk the loss of any portion of the Leased Property, or any part
thereof, or cause Lessor or Lessee to be in default under any
mortgage, deed of trust, security deed or other agreement encumbering
the Leased Property or any interest therein. Upon the request of
Lessor, Lessee shall either (a) provide a bond or other assurance
reasonably satisfactory to Lessor that all Claims which may be
assessed against the Leased Property together with interest and
penalties, if any, thereon will be paid, or (b) deposit within the
time otherwise required for payment with a bank or trust company as
trustee upon terms reasonably satisfactory to Lessor, as security for
the payment of such Claims, money in an amount sufficient to pay the
same, together with interest and penalties in connection therewith, as
to all Claims which may be assessed against or become a Claim on the
Leased Property, or any part thereof, in said legal proceedings.
Lessee shall furnish Lessor and any lender of Lessor with reasonable
evidence of such deposit within five (5) days of the same. Lessor
agrees to join in any such proceedings if the same be required legally
to prosecute such contest of the validity of such Claims; provided,
however, that Lessor shall not thereby be subjected to any liability
for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and
save harmless Lessor from any such costs or expenses. Lessee shall be
entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and
for which Lessor has been fully reimbursed. In the event that Lessee
fails to pay any Claims when due or to provide the security therefor
as provided in this Article and diligently to prosecute any contest of
the same, Lessor may, upon ten (10) days' advance Notice to Lessee,
and Lessee's failure to correct the matter within such ten (10) day
period, pay such charges together with any interest and penalties and
the same shall be repayable by Lessee to Lessor as Additional Charges
at the next Payment Date provided for in this Lease; provided,
however, that should Lessor reasonably determine that the giving of
such Notice would risk loss to the Leased Property or cause damage to
Lessor, then Lessor shall give such Notice as is practical under the
circumstances. Lessor reserves the right to contest any of the Claims
at its expense not pursued by Lessee. Lessor and Lessee agree to
cooperate in coordinating the contest of any Claims.
ARTICLE XIII
13.1 General Insurance Requirements. During the Term of this
Lease, Lessor and Lessee shall at all times keep the Leased Property
insured with the kinds and amounts of insurance described below, or
such other insurance coverage(s) as may be required by the Management
Agreement. This insurance shall be written by companies authorized to
issue insurance in the State. The policies must name Lessor and/or
Lessee, as applicable, as the insured or as an additional named
insured, as the case may be. Losses shall be payable to Lessor or
Lessee as provided in this Lease. Any loss adjustment shall require
the written consent of Lessor and Lessee, each acting reasonably and
in good faith. Evidence of insurance shall be deposited with Lessor.
The policies on the Leased Property, including the Leased
Improvements, Fixtures and Lessee's Personal Property, shall include
the following:
<PAGE>
(a) Lessor shall obtain and maintain, at its own
expense:
(i) Building insurance on the "Special Form"
(formerly "All Risk" form) (including earthquake and flood in
reasonable amounts as determined by Lessor) in an amount not less than
100% of the then full replacement cost thereof (as defined in Section
13.2) or such other amount which is acceptable to Lessor and Lessee,
and personal property insurance (on other than Lessee's Personal
Property) on the "Special Form" in the full amount of the replacement
cost thereof;
(ii) Insurance for loss or damage (direct and
indirect) from steam boilers, pressure vessels or similar apparatus,
now or hereafter installed in the Hotel, in the minimum amount of
$5,000,000 or in such greater amounts as are then customary; and
(iii) Loss of income insurance on the "Special
Form", in the amount of one year of Base Rent for the benefit of
Lessor.
(b) Lessee shall obtain and maintain, at its own
expense:
(i) Personal property insurance on Lessee's
Personal Property on the "Special Form" in the full amount of the
replacement cost thereof;
(ii) Comprehensive general liability insurance,
with amounts not less than $10,000,000 covering each of the following:
bodily injury, death, or property damage liability per occurrence,
personal and advertising injury, general aggregate, products and
completed operations, with respect to Lessor, and "all risk legal
liability" (including liquor law or "dram shop" liability, if liquor
or alcoholic beverages are served on the Leased Property) with respect
to Lessor and Lessee;
(iii) Insurance covering such other hazards and in
such amounts as may be customary for comparable properties in the area
of the Leased Property and is available from insurance companies,
insurance pools or other appropriate companies authorized to do
business in the State at rates which are economically practicable in
relation to the risks covered, as may be reasonably requested by
Lessor;
(iv) Fidelity bonds with limits and deductibles as
may be reasonably requested by Lessor, covering Lessee's employees in
job classifications normally bonded under prudent hotel management
practices in the United States or otherwise required by law;
(v) Worker's compensation insurance to the extent
necessary to protect Lessor and the Leased Property against Lessee's
worker's compensation claims;
(vi) Vehicle liability insurance for owned,
non-owned, and hired vehicles, in the amount of $5,000,000; and
(vii) Such other insurance as Lessor may reasonably
request for facilities such as the Leased Property and the operation
thereof.
13.2 Replacement Cost. The term "full replacement cost" as
used herein shall mean the actual replacement cost of the Leased
Property requiring replacement from time to time including an
increased cost of construction endorsement, if available, and the cost
of debris removal. In the event either party believes that full
replacement cost (the then-replacement cost less such exclusions) has
increased or decreased at any time during the Lease Term, it shall
have the right to have such full replacement cost re-determined.
13.3 Worker's Compensation. Lessee, at its sole cost, shall
at all times maintain adequate worker's compensation insurance
coverage for all persons, if any, employed by Lessee on the Leased
<PAGE>
Property. Such worker's compensation insurance shall be in accordance
with the requirements of applicable local, state and federal law.
13.4 Waiver of Subrogation. All insurance policies carried
by Lessor or Lessee covering the Leased Property, the Fixtures, the
Hotel or Lessee's Personal Property, including, without limitation,
contents, fire and casualty insurance, shall expressly waive any right
of subrogation on the part of the insurer against the other party. The
parties hereto agree that their policies will include such waiver
clause or endorsement so long as the same are obtainable without extra
cost, and in the event of such an extra charge the other party, at its
election, may pay the same, but shall not be obligated to do so.
13.5 Form Satisfactory, Etc.
(a) All of the policies of insurance referred to in
this Article XIII to be maintained by Lessee shall be written in a
form, with deductibles and by insurance companies satisfactory to
Lessor. Lessee shall pay all of the premiums therefor, and deliver
such policies or certificates thereof to Lessor prior to their
effective date (and, with respect to any renewal policy, thirty (30)
days prior to the expiration of the existing policy), and in the event
of the failure of Lessee either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such
policies or certificates thereof to Lessor at the times required,
Lessor shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, and Lessee shall reimburse
Lessor for any premium or premiums paid by Lessor for the coverages
required of Lessee under this Article XIII upon written demand
therefor, and Lessee's failure to repay the same within thirty (30)
days after Notice of such failure from Lessor shall constitute an
Event of Default within the meaning of Section 16.1. Each insurer
mentioned in this Article XIII shall agree, by endorsement to the
policy or policies issued by it, or by independent instrument
furnished to Lessor, that it will give to Lessor thirty (30) days'
written notice before the policy or policies in question shall be
materially altered, allowed to expire or canceled.
(b) All of the policies of insurance referred to in
this Article XIII to be maintained by Lessor shall be written in a
form, with deductibles and by insurance companies satisfactory to
Lessee. Lessor shall pay all of the premiums therefor, and deliver
such policies or certificates thereof to Lessee prior to their
effective date (and, with respect to any renewal policy, thirty (30)
days prior to the expiration of the existing policy), and in the event
of the failure of Lessor either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such
policies or certificates thereof to Lessee at the times required,
Lessee shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, and Lessor shall reimburse
Lessee for any premium or premiums paid by Lessee for the coverages
required under this Section upon written demand therefor. Each insurer
mentioned in this Article XIII shall agree, by endorsement to the
policy or policies issued by it, or by independent instrument
furnished to Lessee, that it will give to Lessee thirty (30) days'
written notice before the policy or policies in question shall be
materially altered, allowed to expire or canceled.
13.6 Increase in Limits. If either Lessor or Lessee at any
time deems the limits of the personal injury or property damage under
the comprehensive public liability insurance then carried to be either
excessive or insufficient, Lessor and Lessee shall endeavor in good
faith to agree on the proper and reasonable limits for such insurance
to be carried and such insurance shall thereafter be carried with the
limits thus agreed on until further change pursuant to the provisions
of this Article XIII.
13.7 Blanket Policy. Notwithstanding anything to the
contrary contained in this Article XIII, Lessee or Lessor may bring
the insurance provided for herein within the coverage of a so-called
blanket policy or policies of insurance carried and maintained by
Lessee (or Manager) or Lessor; provided, however, that the coverage
afforded to Lessor and Lessee will not be reduced or diminished or
otherwise be different from that which would exist under a separate
policy meeting all
<PAGE>
other requirements of this Lease by reason of the use of such blanket
policy of insurance, and provided further that the requirements of
this Article XIII are otherwise satisfied.
13.8 Reports On Insurance Claims. Lessee shall promptly
investigate and make a complete and timely written report to the
appropriate insurance company as to all accidents, claims for damage
relating to the ownership, operation, and maintenance of the Hotel,
any damage or destruction to the Hotel and the estimated cost of
repair thereof and shall prepare any and all reports required by any
insurance company in connection therewith. All such reports shall be
timely filed with the insurance company as required under the terms of
the insurance policy involved, and a final copy of such report shall
be furnished to Lessor. Lessee shall be authorized to adjust, settle,
or compromise any insurance loss, or to execute proofs of such loss,
in the aggregate amount of $25,000 or less, with respect to any single
casualty or other event.
ARTICLE XIV
14.1 Insurance Proceeds. Subject to the provisions of
Section 14.6, all proceeds payable by reason of any loss or damage to
the Leased Property, or any portion thereof, and insured under any
policy of insurance required by Article XIII of this Lease shall be
paid to Lessor and held in trust by Lessor in an interest-bearing
account, shall be made available, if applicable, for reconstruction or
repair, as the case may be, of any damage to or destruction of the
Leased Property, or any portion thereof, and, if applicable, shall be
paid out by Lessor from time to time for the reasonable costs of such
reconstruction or repair upon satisfaction of reasonable terms and
conditions specified by Lessor. Any excess proceeds of insurance (and
accrued interest) remaining after the completion of the restoration or
reconstruction of the Leased Property, as hereinafter set forth, shall
be paid to Lessee. If neither Lessor nor Lessee is required or elects
to repair and restore, and the Lease is terminated without purchase by
Lessee as described in Section 14.2, all such insurance proceeds shall
be retained by Lessor. All salvage resulting from any risk covered by
insurance shall belong to Lessor.
14.2 Reconstruction in the Event of Damage or Destruction
Covered by Insurance.
(a) Except as provided in Section 14.6, if during the
Term the Leased Property is totally or partially destroyed by a risk
covered by the insurance described in Article XIII and the Hotel
thereby is rendered Unsuitable for its Primary Intended Use, Lessee
shall, at Lessee's option, either (1) restore the Hotel to
substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of
the Lease, or (2) offer to acquire the Leased Property from Lessor for
a purchase price equal to the Rejectable Offer Price of the Leased
Property. If Lessee restores the Hotel, the insurance proceeds shall
be paid out by Lessor from time to time for the reasonable costs of
such restoration upon satisfaction of reasonable terms and conditions,
and any excess proceeds remaining after such restoration shall be paid
to Lessee. If Lessee acquires the Leased Property, Lessee shall
receive the insurance proceeds. If Lessor does not accept Lessee's
offer so to purchase the Leased Property within ninety (90) days,
Lessee may withdraw its offer to purchase the Leased Property and, if
so withdrawn, Lessee may terminate the Lease with respect to the
Leased Property without further liability hereunder and Lessor shall
be entitled to retain all insurance proceeds.
(b) Except as provided in Section 14.6, if during the
Term the Leased Property is partially destroyed by a risk covered by
the insurance described in Article XIII, but the Hotel is not thereby
rendered Unsuitable for its Primary Intended Use, Lessee shall restore
the Hotel to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the
terms of the Lease. Such damage or destruction shall not terminate
this Lease; provided, however, that if Lessee cannot within a
reasonable time obtain all necessary government approvals, including
building permits, licenses and conditional use permits, after diligent
efforts to do so, to perform all required repair and restoration work
and to operate the Hotel for its Primary Intended Use in substantially
the same manner as that existing immediately prior to such
<PAGE>
damage or destruction and otherwise in accordance with the terms of
the Lease, Lessee may offer to purchase the Leased Property for a
purchase price equal to the Rejectable Offer Price of the Leased
Property, determined without regard to such damage or destruction if
insurance proceeds are available to restore the Hotel. If Lessee makes
such offer and Lessor does not accept the same, Lessee shall withdraw
such offer, in which event this Lease shall remain in full force and
effect and Lessee shall immediately proceed to restore the Hotel to
substantially the same condition as existed immediately before such
damage or destruction and otherwise in accordance with the terms of
the Lease. If Lessee restores the Hotel, the insurance proceeds shall
be paid out by Lessor from time to time for the reasonable costs of
such restoration upon satisfaction of reasonable terms and conditions
specified by Lessor, and any excess proceeds remaining after such
restoration shall be paid to Lessee.
(c) If the cost of the repair or restoration exceeds
the amount of proceeds received by Lessor from the insurance it
maintains as required under Article XIII, Lessee shall be obligated to
contribute any excess amounts needed to restore the Hotel. Such
difference shall be paid by Lessee to Lessor promptly after Lessee
receives Lessor's written invoice therefor, to be held in trust in an
interest-bearing account, together with any other insurance proceeds,
for application to the cost of repair and restoration.
(d) If Lessor accepts Lessee's offer to purchase the
Leased Property under this Article, this Lease shall terminate as to
the Leased Property upon payment of the purchase price, and Lessor
shall remit to Lessee all insurance proceeds pertaining to the Leased
Property being held in trust by Lessor.
14.3 Reconstruction in the Event of Damage or Destruction
Not Covered by Insurance. Except as provided in Section 14.6, if
during the Term the Hotel is totally or materially destroyed by a risk
not covered by the insurance described in Article XIII, whether or not
such damage or destruction renders the Hotel Unsuitable for its
Primary Intended Use, Lessee at its option shall either, (a) at
Lessee's sole cost and expense, restore the Hotel to substantially the
same condition it was in immediately before such damage or destruction
and such damage or destruction shall not terminate this Lease, or (b)
offer to purchase the Leased Property for a purchase price equal to
the Rejectable Offer Price of the Leased Property without regard to
such damage or destruction. If such damage or destruction is not
material, Lessee shall restore the Hotel to substantially the same
condition as existed immediately before the damage or destruction and
otherwise in accordance with the terms of the Lease. If Lessor does
not accept Lessee's offer so to purchase the Leased Property within
ninety (90) days, Lessee may withdraw its offer to purchase the Leased
Property and, if so withdrawn, Lessee may terminate the Lease with
respect to the Leased Property without further liability hereunder.
14.4 Lessee's Property. All insurance proceeds payable by
reason of any loss of or damage to any of Lessee's Personal Property
shall be paid to Lessee; provided, however, no such payments shall
diminish or reduce the insurance payments otherwise payable to or for
the benefit of Lessor hereunder.
14.5 Abatement of Rent. Any damage or destruction due to
casualty notwithstanding, this Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all
other charges required by this Lease shall remain unabated during the
first three (3) months of any period required for the applicable
repair and restoration. Thereafter, Base Rent shall be equitably
abated.
14.6 Damage Near End of Term. Notwithstanding any provisions
of Section 14.2 or 14.3 appearing to the contrary, if damage to or
destruction of the Hotel rendering it unsuitable for its Primary
Intended Use occurs during the last twenty-four (24) months of the
Term, then Lessor or Lessee shall have the right to terminate this
Lease by giving Notice, respectively, to Lessee or Lessor within
thirty (30) days after the date of damage or destruction, whereupon
all accrued Rent shall be
<PAGE>
paid immediately, and this Lease shall automatically terminate five
(5) days after the date of such Notice.
14.7 Waiver. Lessee hereby waives any statutory rights of
termination that may arise by reason of any damage or destruction of
the Hotel that Lessor is obligated to restore or may restore under any
of the provisions of this Lease.
ARTICLE XV
15.1 Definitions.
(a) "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.
(b) "Condemnation" means a Taking resulting from (1)
the exercise of any governmental power, whether by legal proceedings
or otherwise, by a Condemnor, and (2) a voluntary sale or transfer by
Lessor to any Condemnor, either under threat of condemnation or while
legal proceedings for condemnation are pending.
(c) "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.
(d) "Date of Taking" means the date the Condemnor has
the right to possession of the property being condemned.
15.2 Parties' Rights and Obligations. If during the Term
there is any Condemnation of all or any part of the Leased Property or
any interest in this Lease, the rights and obligations of Lessor and
Lessee shall be determined by this Article XV.
15.3 Total Taking. If title to the fee of the whole of the
Leased Property is condemned by any Condemnor, this Lease shall cease
and terminate as of the Date of Taking by the Condemnor. If title to
the fee of less than the whole of the Leased Property is so taken or
condemned, which nevertheless renders the Leased Property Unsuitable
or Uneconomic for its Primary Intended Use, Lessee and Lessor shall
each have the option, by Notice to the other, at any time prior to the
Date of Taking, to terminate this Lease as of the Date of Taking. Upon
such date, if such Notice has been given, this Lease shall thereupon
cease and terminate. All Base Rent, Percentage Rent and Additional
Charges paid or payable by Lessee hereunder shall be apportioned as of
the Date of Taking, and Lessee shall promptly pay Lessor such amounts.
15.4 Allocation of Award. The total Award made with respect
to the Leased Property or for loss of rent, or for Lessor's loss of
business beyond the Term, shall be solely the property of and payable
to Lessor. Any Award made for loss of Lessee's business during the
remaining Term, if any, for the taking of Lessee's Personal Property,
or for removal and relocation expenses of Lessee in any such
proceedings shall be the sole property of and payable to Lessee. In
any Condemnation proceedings Lessor and Lessee shall each seek its
Award in conformity herewith, at its respective expense; provided,
however, Lessee shall not initiate, prosecute or acquiesce in any
proceedings that may result in a diminution of any Award payable to
Lessor.
15.5 Partial Taking. If title to less than the whole of the
Leased Property is condemned, and the Leased Property is not
Unsuitable for its Primary Intended Use, and not Uneconomic for its
Primary Intended Use, or if Lessee or Lessor is entitled but neither
elects to terminate this Lease as provided in Section 15.3, Lessee at
its cost shall with all reasonable dispatch restore the untaken
portion of any Leased Improvements so that such Leased Improvements
constitute a complete architectural unit of the same general character
and condition (as nearly as may be possible under the circumstances)
as the Leased Improvements existing immediately prior to the
Condemnation. Lessor
<PAGE>
shall contribute to the cost of restoration that part of its Award
specifically allocated to such restoration, if any, together with
severance and other damages awarded for the taken Leased Improvements;
provided, however, that the amount of such contribution shall not
exceed such cost.
15.6 Temporary Taking. If the whole or any part of the
Leased Property (other than the fee) or of Lessee's interest under
this Lease is condemned by any Condemnor for its temporary use or
occupancy (which shall mean a period not to exceed two years), this
Lease shall not terminate by reason thereof, and Lessee shall continue
to pay, in the manner and at the terms herein specified, the full
amounts of Base Rent and Additional Charges. In addition, Lessee shall
pay Percentage Rent at a rate equal to the average Percentage Rent
during the last three (3) preceding Fiscal Years (or if three (3)
Fiscal Years shall not have elapsed, the average during the preceding
Fiscal Years). Except only to the extent that Lessee may be prevented
from so doing pursuant to the terms of the order of the Condemnor,
Lessee shall continue to perform and observe all of the other terms,
covenants, conditions and obligations hereof on the part of Lessee to
be performed and observed, as though such Condemnation had not
occurred. In the event of any Condemnation as in this Section 15.6
described, the entire amount of any Award made for such Condemnation
allocable to the Term of this Lease, whether paid by way of damages,
rent or otherwise, shall be paid to Lessee. Lessee covenants that upon
the termination of any such period of temporary use or occupancy it
will, at its sole cost and expense (subject to Lessor's contribution
as set forth below), restore the Leased Property as nearly as may be
reasonably possible to the condition in which the same was immediately
prior to such Condemnation, unless such period of temporary use or
occupancy extends beyond the expiration of the Term, in which case
Lessee shall not be required to make such restoration. If restoration
is required hereunder, Lessor shall contribute to the cost of such
restoration that portion of its entire Award that is specifically
allocated to such restoration in the judgment or order of the court,
if any, and Lessee shall fund the balance of such costs in a manner
reasonably satisfactory to Lessor.
ARTICLE XVI
16.1 Events of Default. If any one or more of the following
events (individually, an "Event of Default") occurs:
(a) if an Event of Default occurs under any other lease
between Lessor or any Affiliate of Lessor and Lessee or any Affiliate
of Lessee; or
(b) if Lessee fails to make payment of the Base Rent
within ten (10) days after the same becomes due and payable; or
(c) if Lessee fails to make payment of Percentage Rent
when the same becomes due and payable and such condition continues for
a period of ninety (90) days after the end of the applicable Fiscal
Year; or
(d) if Lessee fails to observe or perform any other
term, covenant or condition of this Lease and such failure is not
cured by Lessee within a period of thirty (30) days after receipt by
Lessee of Notice thereof from Lessor, unless such failure cannot with
due diligence be cured within a period of thirty (30) days, in which
case it shall not be deemed an Event of Default if Lessee proceeds
promptly and with due diligence to cure the failure and diligently
completes the curing thereof provided, however, in no event shall such
cure period extend beyond ninety (90) days after such Notice; or
(e) if Lessee shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state
bankruptcy law or any similar federal or state law, or shall be
adjudicated a bankrupt or shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts
generally as they become due, or if a petition or answer proposing the
adjudication of Lessee as a bankrupt or its reorganization pursuant to
any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and Lessee shall be
<PAGE>
adjudicated a bankrupt and such adjudication shall not be vacated or
set aside or stayed within sixty (60) days after the entry of an order
in respect thereof, or if a receiver of Lessee or of the whole or
substantially all of the assets of Lessee shall be appointed in any
proceeding brought by Lessee or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against Lessee
and shall not be vacated or set aside or stayed within sixty (60) days
after such appointment; or
(f) if Lessee is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner,
permits the sale or divestiture of substantially all of its assets; or
(g) if, except as expressly permitted herein, the
estate or interest of Lessee in the Leased Property or any part
thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any proceeding (unless Lessee is
contesting such lien or attachment in good faith in accordance with
Article XII hereof); or
(h) if, except as a result of damage, destruction or a
partial or complete Condemnation as contemplated by this Lease, Lessee
voluntarily ceases operations on the Leased Property for a period in
excess of thirty (30) days; or
(i) if an event of default has been declared by the
Manager under the Management Agreement with respect to the Hotel as a
result of any action or failure to act by Lessee or any Person with
whom Lessee contracts for management services at the Hotel, and such
default is not cured by the earlier of (A) ten (10) days following
notice from Lessor or (B) such earlier date as is required for Lessee
to avoid termination of the Management Agreement by Manager;
then, and in any such event, Lessor may exercise one or
more remedies available to it herein or at law or in equity, including
but not limited to its right to terminate this Lease by giving Lessee
not less than ten (10) days' Notice of such termination.
If litigation is commenced with respect to any alleged
default under this Lease, the prevailing party in such litigation
shall receive, in addition to its damages incurred, such sum as the
court shall determine as its reasonable attorneys' fees, and all costs
and expenses incurred in connection therewith.
No Event of Default (other than a failure to make a
payment of money) shall be deemed to exist under clause (d) during any
time the curing thereof is prevented by an Unavoidable Delay, provided
that upon the cessation of such Unavoidable Delay, Lessee remedies
such default or Event of Default without further delay.
16.2 Surrender. If an Event of Default occurs (and the event
giving rise to such Event of Default has not been cured within the
curative period relating thereto as set forth in Section 16.1) and is
continuing, whether or not this Lease has been terminated pursuant to
Section 16.1, Lessee shall, if requested by Lessor so to do,
immediately surrender to Lessor the Leased Property including, without
limitation, any and all books, records, files, licenses, permits and
keys relating thereto, and quit the same and Lessor may enter upon and
repossess the Leased Property by summary proceedings, ejectment or
otherwise, and may remove Lessee and all other persons and any and all
personal property from the Leased Property, subject to rights of any
hotel guests and to any requirement of law. Lessee hereby waives any
and all requirements of applicable laws for service of notice to
re-enter the Leased Property. Lessor shall be under no obligation to,
but may if it so chooses, relet the Leased Property or otherwise
mitigate Lessor's damages.
16.3 Damages. Neither (a) the termination of this Lease, (b)
the repossession of the Leased Property, (c) the failure of Lessor to
relet the Leased Property, nor (d) the reletting of all or any portion
thereof, shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination,
repossession or reletting. In the event of any such termination,
Lessee shall
<PAGE>
forthwith pay to Lessor all Rent due and payable with respect to the
Leased Property to and including the date of such termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as
and for liquidated and agreed current damages for Lessee's default,
either:
(1) Without termination of Lessee's right to possession of
the Leased Property, each installment of Rent (including
Percentage Rent as determined below) and other sums payable by
Lessee to Lessor under the Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the
Overdue Rate, and Lessor may enforce, by action or otherwise, any
other term or covenant of this Lease; or
(2) the sum of:
(A) the unpaid Rent which had been earned at the time
of termination, repossession or reletting, and
(B) the worth at the time of termination, repossession
or reletting of the amount by which the unpaid Rent for the
balance of the Term after the time of termination,
repossession or reletting, exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided and as
reduced for rentals received after the time of termination,
repossession or reletting, if and to the extent required by
applicable law, and
(C) any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to
perform its obligations under this Lease or which in the
ordinary course of things, would be likely to result
therefrom.
The worth at the time of termination, repossession or reletting
of the amount referred to in subparagraph (B) is computed by
discounting such amount at the discount rate of the Federal
Reserve Bank of New York at the time of award plus one percent
(1%). Percentage Rent for the purposes of this Section 16.3 shall
be a sum equal to (i) the average of the annual amounts of the
Percentage Rent for the three (3) Fiscal Years immediately
preceding the Fiscal Year in which the termination, re-entry or
repossession takes place, or (ii) if three (3) Fiscal Years shall
not have elapsed, the average of the Percentage Rent during the
preceding Fiscal Years during which the Lease was in effect, or
(iii) if one Fiscal Year has not elapsed, the amount derived by
annualizing the Percentage Rent from the effective date of this
Lease.
16.4 Waiver. If this Lease is terminated pursuant to Section
16.1, Lessee waives, to the extent permitted by applicable law, (a)
any right to a trial by jury in the event of summary proceedings to
enforce the remedies set forth in this Article XVI, and (b) the
benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt and Lessor waives any right to "pierce
the corporate veil" of Lessee other than to the extent funds shall
have been fraudulently paid by Lessee to any Affiliate of Lessee
following a default resulting in an Event of Default.
16.5 Application of Funds. Any payments received by Lessor
under any of the provisions of this Lease during the existence or
continuance of any Event of Default shall be applied to Lessee's
obligations in the order that Lessor may determine or as may be
prescribed by the laws of the State.
16.6 Lessee's Right to Assign Lease to Manager's Designee.
In the event that Lessor shall give Lessee Notice of Lessor's election
to terminate this Lease pursuant to Section 16.1, Lessee shall notify
Manager of such termination and Manager, provided that it is not in
default of any of its obligations under the Management Agreement,
shall have the right, within thirty (30) days after receipt by Lessee
of the Notice of termination, to designate another lessee to assume
the obligations
<PAGE>
of Lessee under this Lease. If in the reasonable judgment of Lessor
(exercised in good faith), such proposed lessee is substantially
comparable to the Lessee in creditworthiness and financial ability
(measured as of the date hereof), Lessor shall consent to such
assignment. Such designee of Manager shall assume the obligations of
Lessee under the Lease from the date of assumption for the unexpired
Term hereof only and Lessee shall have no further liability hereunder.
ARTICLE XVII
17.1 Lessor's Right to Cure Lessee's Default. If Lessee
fails to make any payment or to perform any act required to be made or
performed under this Lease, including, without limitation, Lessee's
failure to comply with the terms of any Management Agreement, and
fails to cure the same within the relevant time periods provided in
Section 16.1, Lessor, without waiving or releasing any obligation of
Lessee, and without waiving or releasing any obligation or default,
may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of
Lessee, and may, to the extent permitted by law, enter upon the Leased
Property for such purpose and, subject to Section 16.4, take all such
action thereon as, in Lessor's opinion, may be necessary or
appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and
expenses, in each case to the extent permitted by law) so incurred,
together with a late charge thereon (to the extent permitted by law)
at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessors, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in
this Article shall survive the expiration or earlier termination of
this Lease.
ARTICLE XVIII
18.1 Provisions Relating to Purchase of the Leased Property.
If Lessee purchases the Leased Property from Lessor pursuant to any of
the terms of this Lease, Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full payment of any unpaid
Rent due and payable with respect to any period ending on or before
the date of the purchase, deliver to Lessee an appropriate limited or
special warranty deed or other conveyance conveying the entire
interest of Lessor in and to the Leased Property to Lessee free and
clear of all encumbrances other than (a) those that Lessee has agreed
hereunder to pay or discharge, (b) those mortgage liens, if any, that
Lessee has agreed in writing to accept and to take title subject to,
(c) those liens and encumbrances subject to which the Leased Property
was conveyed to Lessor, to the extent not released in connection with
the transactions contemplated by this Lease, (d) encumbrances,
easements, licenses or rights of way required to be imposed on the
Leased Property under Section 7.3, and (e) any other encumbrances
permitted to be imposed on the Leased Property under the provisions of
Section XXXIV that are assumable at no cost to Lessee or to which
Lessee may take subject without cost to Lessee. The difference between
the applicable purchase price and the total of the encumbrances
assumed or taken subject to shall be paid in cash to Lessor or as
Lessor may direct, in federal or other immediately available funds,
except as otherwise mutually agreed by Lessor and Lessee. All expenses
of such conveyance, including, without limitation, the cost of title
examination or title insurance, if desired by Lessee, Lessee's
attorneys' fees incurred in connection with such conveyance and
release, and one- half of any transfer taxes and recording fees, shall
be paid by Lessee. Lessor shall pay one-half of any transfer taxes and
recording fees and its attorney's fees.
ARTICLE XIX
19.1 Personal Property Limitation. Anything contained in
this Lease to the contrary notwithstanding, the average of the
adjusted tax bases of the items of personal property that are leased
to Lessee under this Lease at the beginning and at the end of any
Fiscal Year shall not exceed fifteen percent (15%) of the average of
the aggregate adjusted tax bases of the Leased Property at the
beginning and at the end of such Fiscal Year. This Section 19.1 is
intended to ensure that the Rent qualifies as "rents from real
property," within the meaning of Section 856(d) of the Code, or any
<PAGE>
similar or successor provisions thereto, and shall be interpreted in a
manner consistent with such intent.
19.2 Sublease Rent Limitation. Anything contained in this
Lease to the contrary notwithstanding, Lessee shall not sublet the
Leased Property on any basis such that the rental to be paid by the
sublessee thereunder would be based, in whole or in part, on either
(a) the income or profits derived by the business activities of the
sublessee, or (b) any other formula such that any portion of the Rent
would fail to qualify as "rents from real property" within the meaning
of Section 856(d) of the Code, or any similar or successor provision
thereto.
19.3 Sublease Tenant Limitation. Anything contained in this
Lease to the contrary notwithstanding, Lessee shall not sublease the
Leased Property to any Person in which FelCor Suite Hotels, Inc. owns,
directly or indirectly, a ten percent (10%) or more interest, within
the meaning of Section 856(d)(2)(B) of the Code, or any similar or
successor provisions thereto.
19.4 Lessee Ownership Limitations.
(a) Anything contained in this Lease to the contrary
notwithstanding, neither Lessee nor an Affiliate of Lessee shall
acquire, directly or indirectly, a ten percent (10%) or more interest
in FelCor Suite Hotels, Inc. within the meaning of Section
856(d)(2)(B) of the Code, or any similar or successor provision
thereto.
(b) Lessee shall not own, operate, manage or have any
interest in any hotel or motel property in which Lessor or an
Affiliate of Lessor does not have an interest, pursuant to this Lease
or another lease, agreement or arrangement with Lessor or an Affiliate
of Lessor. Lessor agrees to notify Lessee promptly of the location of
any hotel or motel property in which Lessor or an Affiliate of Lessor
has an interest.
19.5 Lessee Officer and Employee Limitation. If a Person
serves as both (a) a director of Lessee (or any Person who furnishes
or renders services to the tenants of the Leased Property, or manages
or operates the Leased Property) and (b) a director and officer (or
employee) of FelCor Suite Hotels, Inc., that Person shall not receive
any compensation for serving as a director of Lessee (or any Person
who furnishes or renders services to the tenants of the Leased
Property, or manages or operates the Leased Property). Furthermore, if
a Person serves as both (a) a director of FelCor Suite Hotels, Inc.
and (b) a director and officer (or employee) of Lessee (or any Person
who furnishes or renders services to the tenants of the Leased
Property, or manages or operates the Leased Property), that Person
shall not receive any compensation for serving as a director of Lessee
(or any Person who furnishes or renders services to the tenants of the
Leased Property, or manages or operates the Leased Property).
19.6 Payments to Affiliates of Lessee. During the Term,
Lessee shall not pay any fees to any Affiliate of Lessee in connection
with the Hotel, other than payments required to be made to Manager
pursuant to the Management Agreement.
ARTICLE XX
20.1 Holding Over. If Lessee for any reason remains in
possession of the Leased Property after the expiration or earlier
termination of the Term, such possession shall be as a tenant at
sufferance during which time Lessee shall pay as rental each month
150% of the aggregate of (a) one- twelfth of the aggregate Base Rent
and Percentage Rent payable with respect to the last Fiscal Year of
the Term, (b) all Additional Charges accruing during the applicable
month and (c) all other sums, if any, payable by Lessee under this
Lease with respect to the Leased Property. During such period, Lessee
shall be obligated to perform and observe all of the terms, covenants
and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to tenancies at sufferance,
to continue its occupancy and use of the Leased Property. Nothing
contained herein
<PAGE>
shall constitute the consent, express or implied, of Lessor to the
holding over of Lessee after the expiration or earlier termination of
this Lease.
ARTICLE XXI
21.1 Risk of Loss. During the Term, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the
elements, casualties, thefts, riots, wars or otherwise, or in
consequence of foreclosures, attachments, levies or executions (other
than those caused by Lessor and those claiming from, through or under
Lessor) is assumed by Lessee, and, in the absence of gross negligence,
willful misconduct or breach of this Lease by Lessor pursuant to
Section 34.3, Lessor shall in no event be answerable or accountable
therefor, nor shall any of the events mentioned in this Section
entitle Lessee to any abatement of Rent except as specifically
provided in this Lease.
ARTICLE XXII
22.1 Indemnification. Notwithstanding the existence of any
insurance, and without regard to the policy limits of any such
insurance or self-insurance, but subject to Section 16.4 and Article
VIII, Lessee will protect, indemnify, hold harmless and defend Lessor
from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against
Lessor Indemnified Parties by reason of: (a) any accident, injury to
or death of persons or loss of or damage to property occurring on or
about the Leased Property or adjoining sidewalks, including without
limitation any claims under liquor liability, "dram shop" or similar
laws, (b) any use, misuse, non-use, condition, management, maintenance
or repair by Lessee or any of its agents, employees or invitees of the
Leased Property or Lessee's Personal Property during the Term, or any
litigation, proceeding or claim by governmental entities or other
third parties to which a Lessor Indemnified Party is made a party or
participant related to such use, misuse, non- use, condition,
management, maintenance, or repair thereof by Lessee or any of its
agents, employees or invitees, including any failure of lessee or any
of its agents, employees or invitees to perform any obligations under
this Lease or imposed by applicable law (other than arising out of
Condemnation proceedings), (c) any Impositions that are the
obligations of Lessee pursuant to the applicable provisions of this
Lease, (d) any failure on the part of Lessee to perform or comply with
any of the terms of this Lease, and (e) the non-performance of any of
the terms and provisions of any and all existing and future subleases
of the Leased Property to be performed by the landlord thereunder.
Lessor shall indemnify, save harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses
imposed upon or incurred by or asserted against Lessee Indemnified
Parties as a result of (a) the gross negligence or willful misconduct
of Lessor arising in connection with this Lease or (b) any failure on
the part of Lessor to perform or comply with any of the terms of this
Lease. Any amounts that become payable by an Indemnifying Party under
this Section shall be paid within ten (10) days after liability
therefor on the part of the Indemnifying Party is determined by
litigation or otherwise, and if not timely paid, shall bear a late
charge (to the extent permitted by law) at the Overdue Rate from the
date of such determination to the date of payment. An Indemnifying
Party, at its expense, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against the
Indemnified Party. The Indemnified Party, at its expense, shall be
entitled to participate in any such claim, action, or proceeding, and
the Indemnifying Party may not compromise or otherwise dispose of the
same without the consent of the Indemnified Party, which may not be
unreasonably withheld or delayed. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own (or Lessor's)
grossly negligent acts or omissions or willful misconduct.
Lessee's or Lessor's liability for a breach of the
provisions of this Article shall survive any termination of this
Lease.
<PAGE>
ARTICLE XXIII
23.1 Subletting and Assignment. Subject to the provisions of
Article XIX and Section 23.2 and any other express conditions or
limitations set forth herein, Lessee may, but only with the consent of
Lessor (which shall not be unreasonably withheld or delayed), (a)
assign this Lease or sublet all or any part of the Leased Property to
an Affiliate of Lessee, or (b) sublet any retail or restaurant portion
of the Leased Improvements in the normal course of the Primary
Intended Use; provided that any subletting to any party other than an
Affiliate of Lessee shall not individually as to any one such
subletting, or in the aggregate, materially diminish the actual or
potential Percentage Rent payable under this Lease. In the case of a
subletting, the sublessee shall comply with the provisions of Section
23.2, and in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Lease
on the part of Lessee to be kept and performed and shall be, and
become, jointly and severally liable with Lessee for the performance
thereof. Notwithstanding the above, Lessee may assign the Lease to an
Affiliate without the consent of Lessor; provided that any such
assignee assumes in writing and agrees to keep and perform all of the
terms of the Lease on the part of Lessee to be kept and performed and
shall be and become jointly and severally liable with Lessee for the
performance thereof. In case of either an assignment or subletting
made during the Term, Lessee shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent
and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder. An original
counterpart of each such sublease and assignment and assumption, duly
executed by Lessee and such sublessee or assignee, as the case may be,
in form and substance satisfactory to Lessor, shall be delivered
promptly to Lessor.
23.2 Attornment. Lessee shall insert in each sublease
permitted under Section 23.1 provisions to the effect that (a) such
sublease is subject and subordinate to all of the terms and provisions
of this Lease and to the rights of Lessor hereunder, (b) if this Lease
terminates before the expiration of such sublease, the sublessee
thereunder will, at Lessor's option, attorn to Lessor and waive any
right the sublessee may have to terminate the sublease or to surrender
possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists
under this Lease, the sublessee shall thereafter be obligated to pay
all rentals accruing under said sublease directly to the party giving
such Notice, or as such party may direct. All rentals received from
the sublessee by Lessor or Lessor's assignees, if any, as the case may
be, shall be credited against the amounts owing by Lessee under this
Lease.
ARTICLE XXIV
24.1 Officer's Certificates; Financial Statements; Lessor's
Estoppel Certificates and Covenants.
(a) At any time and from time to time upon not less
than ten (10) days Notice by Lessor, Lessee will furnish to Lessor an
Officer's Certificate certifying that this Lease is unmodified and in
full force and effect (or that this Lease is in full force and effect
as modified and setting forth the modifications), the date to which
the Rent has been paid, whether to the knowledge of Lessee there is
any existing default or Event of Default exists thereunder by Lessor
or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may
be relied upon by Lessor, any lender and any prospective purchaser of
the Leased Property.
(b) Lessee will furnish the following statements to
Lessor:
(1) with reasonable promptness, such information
respecting the financial condition and affairs of
Lessee including audited financial statements prepared
by the same certified independent accounting firm that
prepares the returns for Lessor or
<PAGE>
such other accounting firm as may be approved by
Lessor, as Lessor may request from time to time; and
(2) the most recent Consolidated Financials of
Lessee within forty-five (45) days after each quarter
of any Fiscal Year (or, in the case of the final
quarter in any Fiscal Year, the most recent audited
Consolidated Financials of Lessee within ninety (90)
days); and
(3) on or about the 20th day of each month, a
detailed profit and loss statement for the Leased
Property for the preceding month, a balance sheet for
the Leased Property as of the end of the preceding
month, and a detailed accounting of revenues for the
Leased Property for the preceding month, each in form
acceptable to Lessor.
(c) At any time and from time to time upon not less
than ten (10) days Notice by Lessee, Lessor will furnish to Lessee or
to any Person designated by Lessee an estoppel certificate certifying
that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth
the modifications), the date to which Rent has been paid, whether to
the knowledge of Lessor there is any existing default or Event of
Default on Lessee's part hereunder, and such other information as may
be reasonably requested by Lessee.
(d) Lessee covenants that during the Term it will
maintain a ratio of debt (which shall mean indebtedness for borrowed
money, but excluding indebtedness of Lessee to Manager or its
Affiliates that is expressly subordinated to the payment of Rent on
terms and conditions acceptable to Lessor) to Consolidated Net Worth
of fifty percent (50%) or less, exclusive of capitalized leases.
ARTICLE XXV
25.1 Lessor's Right to Inspect. Lessee shall permit Lessor
and its authorized representatives as frequently as reasonably
requested by Lessor to inspect the Leased Property and Lessee's
accounts and records pertaining thereto and make copies thereof,
during usual business hours upon reasonable advance Notice, subject
only to any business confidentiality requirements reasonably requested
by Lessee.
ARTICLE XXVI
26.1 No Waiver. No failure by Lessor or Lessee to insist
upon the strict performance of any term hereof or to exercise any
right, power or remedy consequent upon a breach thereof, and no
acceptance of full or partial payment of Rent during the continuance
of any such breach, shall constitute a waiver of any such breach or of
any such term. To the extent permitted by law, no waiver of any breach
shall affect or alter this Lease, which shall continue in full force
and effect with respect to any other then existing or subsequent
breach.
ARTICLE XXVII
27.1 Remedies Cumulative. To the extent permitted by law and
unless otherwise provided herein to the contrary, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee
now or hereafter provided either in this Lease or by statute or
otherwise shall be cumulative and concurrent and shall be in addition
to every other right, power and remedy and the exercise or beginning
of the exercise by Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the simultaneous or subsequent
exercise by Lessor or Lessee of any or all of such other rights,
powers and remedies.
ARTICLE XXVIII
<PAGE>
28.1 Acceptance of Surrender. No surrender to Lessor of this
Lease or of the Leased Property or any part thereof, or of any
interest therein, shall be valid or effective unless agreed to and
accepted in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such
surrender.
ARTICLE XXIX
29.1 No Merger of Title. There shall be no merger of this
Lease or of the leasehold estate created hereby by reason of the fact
that the same person or entity may acquire, own or hold, directly or
indirectly: (a) this Lease or the leasehold estate created hereby or
any interest in this Lease or such leasehold estate and (b) the fee
estate in the Leased Property.
ARTICLE XXX
30.1 Conveyance by Lessor. If Lessor or any successor owner
of the Leased Property conveys the Leased Property in accordance with
the terms hereof other than as security for a debt, and the grantee or
transferee of the Leased Property expressly assumes all obligations of
Lessor hereunder arising or accruing from and after the date of such
conveyance or transfer, Lessor or such successor owner, as the case
may be, shall thereupon be released from all future liabilities and
obligations of Lessor under this Lease arising or accruing from and
after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall
thereupon be binding upon the new owner.
30.2 Other Interests. This Lease and Lessee's interest
hereunder shall at all times be subject and subordinate to the lien
and security title of any deeds to secure debt, deeds of trust,
mortgages, or other interests heretofore or hereafter granted by
Lessor or which otherwise encumber or affect the Leased Property and
to any and all advances to be made thereunder and to all renewals,
modifications, consolidations, replacements, substitutions, and
extensions thereof (all of which are herein called the "Mortgage");
provided, however, that with respect to any Mortgage hereinafter
granted, such subordination is conditioned upon delivery to Lessee of
a non-disturbance agreement which provides that Lessee shall not be
disturbed in its possession of the Leased Property hereunder following
a foreclosure of such Mortgage (or delivery of a
deed-in-lieu-of-foreclosure) and that the holder of such Mortgage or
the purchaser at a foreclosure sale (or grantee under such
deed-in-lieu-of- foreclosure) shall perform all obligations of Lessor
under this Lease. In confirmation of such subordination, however,
Lessee shall, at Lessor's request, promptly execute, acknowledge and
deliver any instrument which may be required to evidence subordination
to any Mortgage and to the holder thereof. In the event of Lessee's
failure to deliver such subordination and if the Mortgage does not
change any term of the Lease, Lessor may, in addition to any other
remedies for breach of covenant hereunder, execute, acknowledge, and
deliver the instrument as the agent or attorney-in-fact of Lessee, and
Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for
such purpose, Lessee acknowledging that the appointment is coupled
with an interest and is irrevocable.
30.3 Lessor's Mortgage Default. In the event of a default by
Lessor under the Mortgage, which default continues for a period of ten
(10) days following written notice from Lessee to Lessor, Lessee shall
have the right and option, exercisable immediately upon notice to
Lessor, either (i) to terminate this Lease without further obligation
hereunder, except with respect to payment of accrued but unpaid Rent
and other obligations that, by their terms, expressly survive the
expiration or sooner termination of this Lease, or (ii) to cure such
default pursuant to Section 34.2.
ARTICLE XXXI
31.1 Quiet Enjoyment. So long as Lessee pays all Rent as the
same becomes due and complies with all of the terms of this Lease and
performs its obligations hereunder, in each case within the applicable
grace periods, if any, Lessee shall peaceably and quietly have, hold
and enjoy the Leased Property for the Term hereof, free of any claim
or other action by Lessor or anyone claiming
<PAGE>
by, through or under Lessor, but subject to all liens and encumbrances
subject to which the Leased Property was conveyed to Lessor, to the
extent not released in connection with the transactions contemplated
by this Lease, or hereafter consented to by Lessee or provided for
herein. Notwithstanding the foregoing, Lessee shall have the right by
separate and independent action to pursue any claim it may have
against Lessor as a result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Section.
ARTICLE XXXII
32.1 Notices. All notices, demands, requests, consents
approvals and other communications ("Notice" or "Notices") hereunder
shall be in writing and hand-delivered, sent by FedEx or other
nationally recognized overnight courier service, or mailed (by
registered or certified mail, return receipt requested and postage
prepaid), if to Lessor at 545 East John Carpenter Freeway, Suite 1300,
Irving, Texas 75062-3933, Attn: Thomas J. Corcoran, Jr., and if to
Lessee at 545 East John Carpenter Freeway, Suite 1300, Irving, Texas
75062-3933, Attn: Thomas J. Corcoran, Jr., or to such other address or
addresses as either party may hereafter designate. Personally
delivered Notice shall be effective upon receipt, and Notice given by
overnight courier service or by mail shall be complete at the time of
deposit with the courier service or in the U.S. Mail system,
respectively, but any prescribed period of Notice and any right or
duty to do any act or make any response within any prescribed period
or on a date certain after the service of such Notice given by
overnight courier service shall be extended one (1) day and by mail
shall be extended five (5) days.
ARTICLE XXXIII
33.1 Appraisers. If it becomes necessary to determine the
Fair Market Value or Fair Market Rental of the Leased Property for any
purpose of this Lease, the party required or permitted to give Notice
of such required determination shall include in the Notice the name of
a Person selected to act as appraiser on its behalf. Within ten (10)
days after Notice, Lessor (or Lessee, as the case may be) shall by
Notice to Lessee (or Lessor, as the case may be) appoint a second
Person as appraiser on its behalf. The appraisers thus appointed, each
of whom must be a member of the American Institute of Real Estate
Appraisers (or any successor organization thereto) with at least five
(5) years' experience in the State appraising property similar to the
Leased Property, shall, within forty-five (45) days after the date of
the Notice appointing the first appraiser, proceed to appraise the
Leased Property to determine the Fair Market Value or Fair Market
Rental thereof as of the relevant date (giving effect to the impact,
if any, of inflation from the date of their decision to the relevant
date); provided, however, that if only one appraiser shall have been
so appointed, then the determination of such appraiser shall be final
and binding upon the parties. To the extent consistent with sound
appraisal practice as then existing at the time of any such appraisal,
such appraisal shall be made on a basis consistent with the basis on
which the Leased Property was appraised for purposes of determining
its Fair Market Value at the time the Leased Property was acquired by
Lessor. If two (2) appraisers are appointed and if the difference
between the amounts so determined does not exceed five percent (5%) of
the lesser of such amounts, then the Fair Market Value or Fair Market
Rental shall be an amount equal to fifty percent (50%) of the sum of
the amounts so determined. If the difference between the amounts so
determined exceeds five percent (5%) of the lesser of such amounts,
then such two appraisers shall have twenty (20) days to appoint a
third appraiser. If no such appraiser shall have been appointed within
such twenty (20) days or within ninety (90) days of the original
request for a determination of Fair Market Value or Fair Market
Rental, whichever is earlier, either Lessor or Lessee may apply to any
court having jurisdiction to have such appointment made by such court.
Any appraiser appointed by the original appraisers or by such court
shall be instructed to determine the Fair Market Value or Fair Market
Rental within forty-five (45) days after appointment of such
appraiser. The determination of the appraiser which differs most in
the terms of dollar amount from the determinations of the other two
appraisers shall be excluded, and fifty percent (50%) of the sum of
the remaining two determinations shall be final and binding upon
Lessor and Lessee as the Fair Market Value or Fair Market Rental of
the Leased Property, as the case may be. This provision for
determining by appraisal shall be specifically
<PAGE>
enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon
the parties except as otherwise provided by applicable law. Lessor and
Lessee shall each pay the fees and expenses of the appraiser appointed
by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred
in connection with each appraisal.
ARTICLE XXXIV
34.1 Lessor May Grant Liens. Without the consent of Lessee,
Lessor may, subject to the terms and conditions set forth below in
this Section XXXIV, from time to time, directly or indirectly, create
or otherwise cause to exist any lien, encumbrance or title retention
agreement ("Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing. Any such Encumbrance shall (a)
contain the right to prepay (whether or not subject to a prepayment
penalty); (b) provide that it is subject to the rights of Lessee under
this Lease, (c) contain the Agreement by the holder of the Encumbrance
that it will (1) give Lessee the same notice, if any, given to Lessor
of any default or acceleration of any obligation underlying any such
Encumbrance or any sale in foreclosure under such Encumbrance, (2)
permit Lessee to cure any such default on Lessor's behalf within any
applicable cure period, and Lessee shall be reimbursed by Lessor for
any and all costs incurred in effecting such cure, including without
limitation out-of-pocket costs incurred to effect any such cure
(including reasonable attorneys' fees) and (3) permit Lessee to appear
by its representative and to bid at any sale in foreclosure made with
respect to any such Encumbrance or to match any offer of the holder of
the Encumbrance for a deed-in-lieu-of-foreclosure from Lessor. Upon
the request of Lessor, Lessee shall subordinate this Lease to the lien
of a new mortgage on the Leased Property, on the condition that the
proposed mortgagee executes a non-disturbance agreement recognizing
this Lease in accordance with the provisions of Section 30.2, and
agreeing, for itself and its successors and assigns, to comply with
the provisions of this Article XXXIV.
34.2 Lessee's Right to Cure. Subject to the provisions of
Section 34.3, if Lessor breaches any covenant to be performed by it
under this Lease, Lessee, after Notice to and demand upon Lessor,
without waiving or releasing any obligation hereunder, and in addition
to all other remedies available to Lessee, may (but shall be under no
obligation at any time thereafter to) make such payment or perform
such act for the account and at the expense of Lessor. All sums so
paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) so incurred, together with
interest thereon at the Overdue Rate from the date on which such sums
or expenses are paid or incurred by Lessee, shall be paid by Lessor to
Lessee on demand or, following entry of a final, nonappealable
judgment against Lessor for such sums, may be offset by Lessee against
the Base Rent and/or Percentage Rent payments next accruing or coming
due. The rights of Lessee hereunder to cure and to secure payment from
Lessor in accordance with this Section 34.2 shall survive the
termination of this Lease with respect to the Leased Property.
34.3 Breach by Lessor. It shall be a breach of this Lease if
Lessor fails to observe or perform any term, covenant or condition of
this Lease on its part to be performed and such failure continues for
a period of thirty (30) days after Notice thereof from Lessee, unless
such failure cannot with due diligence be cured within a period of
thirty (30) days, in which case such failure shall not be deemed to
continue if Lessor, within such thirty (30) day period, proceeds
promptly and with due diligence to cure the failure and diligently
completes the curing thereof; provided, however, that such default
shall be cured by Lessor in any event prior to the date on which the
default becomes an event of default under the terms of the Management
Agreement for the Hotel. The time within which Lessor shall be
obligated to cure any such failure also shall be subject to extension
of time due to the occurrence of any Unavoidable Delay. If Lessor
fails to cure any such breach within the grace period described above,
Lessee, without waiving or releasing any obligations hereunder, and in
addition to all other remedies available to Lessee at law or in
equity, may purchase the Leased Property from Lessor for a purchase
price equal to the then Fair Market Value. If Lessee elects to
purchase the Leased Property it shall deliver a Notice thereof to
Lessor specifying a settlement date to occur not
<PAGE>
less than ninety (90) days subsequent to the date of such Notice on
which it shall purchase the Leased Property, and the same shall be
thereupon conveyed in accordance with the provisions of Article XVIII;
provided, however, that Lessor shall pay the cost of Lessee's title
insurance and all closing costs associated with such purchase by
Lessee following default by Lessor.
ARTICLE XXXV
35.1 Miscellaneous. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of,
Lessee or Lessor arising prior to any date of termination of this
Lease shall survive such termination. If any term or provision of this
Lease or any application thereof is invalid or unenforceable, the
remainder of this Lease and any other application of such term or
provisions shall not be affected thereby. If any late charges or any
interest rate provided for in any provision of this Lease are based
upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum
permissible rate. Neither this Lease nor any provision hereof may be
changed, waived, discharged or terminated except by a written
instrument in recordable form signed by Lessor and Lessee. All the
terms and provisions of this Lease shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. The headings in this Lease are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. This
Lease shall be governed by and construed in accordance with the laws
of the State, but not including its conflicts of laws rules.
35.2 Transition Procedures. Upon the expiration or
termination of the Term of this Lease, for whatever reason (other than
a purchase of the Leased Property by Lessee), Lessor and Lessee shall
do the following (and the provisions of this Section 35.2 shall
survive the expiration or termination of this Lease until they have
been fully performed) and, in general, shall cooperate in good faith
to effect an orderly transition of the management and/or lease of the
Hotel:
(a) Transfer of Licenses. Lessee shall use reasonable
efforts (i) to transfer to Lessor or Lessor's nominee all licenses,
operating permits and other governmental authorizations and all
contracts, including contracts with governmental or quasi-governmental
entities, that may be necessary for the operation of the Hotel
(collectively, "Licenses"), or (ii) if such transfer is prohibited by
law or Lessor otherwise elects, to cooperate with Lessor or Lessor's
nominee in connection with the processing by Lessor or Lessor's
nominee of any applications for, all Licenses; provided, in either
case, that the costs and expenses of any such transfer or the
processing of any such application shall be paid by Lessor or Lessor's
nominee.
(b) Leases and Concessions. Lessee shall assign to
Lessor or Lessor's nominee simultaneously with the termination of this
Lease, and the assignee shall assume, all leases and concession
agreements in effect with respect to the Hotel then in Lessee's name.
(c) Books and Records. All books and records for the
Hotel kept by Lessee pursuant to Section 3.6 shall be delivered
promptly to Lessor or Lessor's nominee, simultaneously with the
termination of this Lease, but such books and records shall thereafter
be available to Lessee at all reasonable times for inspection, audit,
examination, and transcription for a period of one (1) year and Lessee
may retain (on a confidential basis) copies or computer records
thereof.
(d) Remittance. Lessee shall remit to Lessor or
Lessor's nominee, simultaneously with the termination of this Lease,
all funds remaining, if any, after payment of all accrued Gross
Operating Expenses, and other amounts due Lessee and after deducting
the costs of any scheduled repair, replacement, or refurbishment of
Furniture and Equipment with respect to which deposits have been made.
35.3 Waiver of Presentment, Etc. Lessee waives all
presentments, demands for payment and for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and
<PAGE>
notices of acceptance and waives all notices of the existence,
creation, or incurring of new or additional obligations, except as
expressly granted herein.
ARTICLE XXXVI
36.1 Memorandum of Lease. Lessor and Lessee shall promptly,
upon the request of either party, enter into a short form memorandum
of this Lease, in form suitable for recording under the laws of the
State in which reference to this Lease, and all options contained
herein, shall be made. Lessee shall pay all costs and expenses of
recording such memorandum of this Lease.
ARTICLE XXXVII
37.1 Lessor's Option to Purchase Assets of Lessee. Effective
on not less than ninety (90) days' prior Notice given at any time
within 180 days before the expiration of the Term, but not later than
ninety (90) days prior to such expiration, or upon such shorter Notice
period as shall be appropriate if this Lease is terminated prior to
its expiration date, Lessor shall have the option to purchase all (but
not less than all) of the assets of Lessee, tangible and intangible,
relating to the Leased Property (other than this Lease), at the
expiration or termination of this Lease for an amount (payable in cash
on the expiration date of this Lease) equal to the fair market value
thereof as appraised in conformity with Article XXXIII, except that
the appraisers need not be members of the American Institute of Real
Estate Appraisers, but rather shall be appraisers having at least ten
(10) years' experience in valuing similar assets. Notwithstanding any
such purchase, Lessor shall obtain no rights to any trade name or logo
used in connection with the Management Agreement unless separate
agreement as to such use is reached with the applicable franchisor.
ARTICLE XXXVIII
38.1 Lessor's Option to Terminate Lease. In the event Lessor
enters into a bona fide contract to sell the Leased Property to a
non-Affiliate, Lessor may terminate the Lease by giving not less than
thirty (30) days' prior Notice to Lessee of Lessor's election to
terminate the Lease effective upon the closing under such contract.
Effective upon such closing, this Lease shall terminate and be of no
further force and effect except as to any obligations of the parties
existing as of such date that survive termination of this Lease. As
compensation for the early termination of its leasehold estate under
this Article XXXVIII, Lessor shall at or before such closing either
(a) pay to Lessee the fair market value of Lessee's leasehold estate
hereunder as of the closing of the sale of the Leased Property or (b)
offer to lease to Lessee one or more substitute hotel facilities
pursuant to one or more leases that would create for Lessee leasehold
estates that have an aggregate fair market value of no less than the
fair market value of the original leasehold estate, both such values
as determined as of the closing of the sale of the Leased Property.
Lessor also shall pay to Lessee, or reimburse Lessee for, (i) any
assignment fees, termination fees or other liabilities arising under
the Management Agreement solely as a result of the assignment or
termination of such Management Agreement in connection with the
Lessor's sale of the Hotel and termination of this Lease and (ii) any
termination fees payable by Lessee under any Restaurant sublease
solely as a result of the termination thereof in connection with the
Lessor's sale of the Hotel and termination of this Lease. If Lessor
elects and complies with the option described in (b) above, regardless
of whether Lessee enters into the lease(s) described therein, Lessor
shall have no further obligations to Lessee with respect to
compensation for the early termination of this Lease. In the event
Lessor and Lessee are unable to agree upon the fair market value of an
original or replacement leasehold estate, it shall be determined by
appraisal using the appraisal procedure set forth in Article XXXIII.
For the purposes of this Article, fair market value of the
leasehold estate means, as applicable, an amount equal to the price
that a willing buyer not compelled to buy would pay a willing seller
not compelled to sell for Lessee's leasehold estate under this Lease
or an offered replacement leasehold estate.
<PAGE>
The rights and obligations of the parties hereto are
expressly subject to their respective obligations under the Management
Agreement and the Purchase and Sale Agreement.
ARTICLE XXXIX
39.1 Compliance with Management Agreement. To the extent any
of the provisions of the Management Agreement impose a greater
obligation on Lessee than the corresponding provisions of the Lease,
then Lessee shall be obligated to comply with, and to take all
reasonable actions necessary to prevent breaches or defaults under,
the provisions of the Management Agreement. It is the intent of the
parties hereto that Lessee shall comply in every respect with the
provisions of the Management Agreement so as to avoid any material
default thereunder during the term of this Lease. Lessor and Lessee
agree to cooperate fully with each other in the event it becomes
necessary to obtain a franchise extension or modification or a new
franchise for the Leased Property.
ARTICLE XL
40.1 Furniture, Fixture and Equipment Allowance. Lessor
shall be obligated to pay Lessee, when and as required to meet the
requirements of the Management Agreement for a reserve for periodic
repair, replacement or refurbishing of furniture, fixtures and
equipment that constitute Leased Property, an amount equal to four
percent (4%) of Room Revenues monthly. Upon written request by Lessee
to Lessor stating the specific use to be made and the reasonable
approval thereof by Lessor (or as otherwise required by Manager under
the Management Agreement), such reserve funds (and additional funds of
Lessor, if necessary) shall be made available by Lessor for use by
Lessee for replacement or refurbishing of furniture, fixtures and
equipment that constitute Leased Property in connection with the
Primary Intended Use; provided, however, that no amounts made
available under this Article shall be used to purchase property (other
than "real property" within the meaning of Treasury Regulations
Section 1.8563(d)), to the extent that doing so would cause Lessor to
recognize income other than "rents from real property" as defined in
Section 856(d) of the Code. Lessor's obligation shall be cumulative,
but not compounded, and any amounts that have accrued hereunder shall
be payable in future periods for such uses and in accordance with the
procedure set forth herein. Lessee shall have no interest in any
accrued obligation of Lessor hereunder after the termination of this
Lease.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease by
their duly authorized officers as of the date first above written.
"LESSOR"
FELCOR SUITES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: FelCor Suite Hotels, Inc., a Maryland
corporation, its General Partner
By:
---------------------------------
"LESSEE"
FCH/ITT LEASING, L.L.C., a Delaware limited
liability company
By:
----------------------------------------
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT B
WORK LETTER
This Work Letter describes and specifies the rights and
obligations of FelCor Suites Limited Partnership, a Delaware limited
partnership ("Lessor"), and FCH/_____ Leasing, L.L.C., a Delaware
limited liability company ("Lessee"), with respect to the design,
construction, installation and payment for the completion of Lessee's
Work (as defined in Section 10.4 of the Lease).
1. Definitions. Terms which are defined in that certain
Lease Agreement (the "Lease") executed contemporaneously herewith, by
and between Lessor and Lessee, shall have the same meaning in this
Work Letter. Additionally, as used in this Work Letter, the following
terms (when delineated with initial capital letters) shall have the
respective meaning indicated for each as follows:
(a) "Plans and Specifications" shall mean,
collectively, the plans, specifications and other
information prepared or to be prepared by Lessee's architect
and, where necessary, by Lessee's electrical, mechanical and
structural engineers, which shall detail Lessee's Work and
which shall be approved in writing by both Lessee and Lessor
prior to the commencement of such work. The Plans and
Specifications shall comply with the minimum requirements
established by Lessor.
(b) "Cost of the Work" shall mean the actual contract
costs of all materials and labor for the design,
construction and installation to completion of the Lessee's
Work in accordance with the Plans and Specifications.
(c) "Change Cost" shall mean any increase in the Cost
of the Work attributable to any change in the Plans and
Specifications.
2. Procedure for the Completion of Plans and Specifications.
The Plans and Specifications shall be completed in accordance with the
following procedure:
(a) Design Drawings. Lessee shall submit to Lessor
design drawings specifying the intended design, character
and finishing of Lessee's Work. The design drawings shall
set forth the requirements of Lessee with respect to the
installation of Lessee's Work.
(i) After receipt of design drawings, Lessor shall
return to Lessee Lessor's required modifications and/or
approval.
(ii) If Lessor requires modifications, the design
drawings shall be revised by Lessee and resubmitted to
Lessor for approval. Unless such action is taken,
Lessee will be deemed to have accepted and approved all
of Lessor's comments on the design drawings. This
process will continue until approval of Lessor is
obtained.
(b) Completion of Plans and Specifications. All Plans
and Specifications shall be prepared in strict compliance
with applicable standards and requirements as set forth in
the Lease, this Work Letter and otherwise, and shall also
adhere to the design drawings approved by Lessor. Lessee
shall deliver to Lessor, as soon as practicable after the
date of Lessor's approval of design drawings, the proposed
Plans and Specifications. If the Plans and Specifications
are returned to Lessee with comments, but not bearing
approval of Lessor, the Plans and Specifications shall be
revised by Lessee and resubmitted to Lessor for approval.
This process will continue until approval of Lessor is
obtained.
(c) Compliance with Laws. Lessee shall have the sole
responsibility for compliance of the Plans and
Specifications with all applicable statutes, codes,
ordinances and other regulations. The approval of the Plans
and Specifications or calculations included
<PAGE>
therein by Lessor shall not constitute an indication,
representation or certification by Lessor that such
Plans and Specifications or calculations are in
compliance with said statutes, codes, ordinances and
other regulations. In instances where several sets of
requirements must be met, the requirements of Lessor's
insurance underwriter or the strictest applicable
requirements shall apply where not prohibited by
applicable codes.
3. Pricing. As soon as practicable after finalization of the
Plans and Specifications, as evidenced by Lessor's written approval
thereof, Lessee shall notify Lessor in writing of the Cost of the
Work. Lessor shall either approve the Cost of the Work in writing or
request that the Plans and Specifications and the Cost of the Work be
revised and resubmitted to Lessor for approval. Lessee shall revise
the Plans and Specifications and the Cost of the Work and resubmit
them to Lessor for approval. This procedure shall continue until
Lessor approves the Cost of the Work.
4. Performance of Work and Delays. Lessee shall select one
or more contractors ("Contractors") to furnish labor and/or materials
for the Lessee's Work in substantial accordance with the Plans and
Specifications. Each Contractor and the contract between Lessee and
such Contractor must be approved in advance by Lessor. After Lessor's
approval of the Plans and Specifications, the Cost of the Work,
Contractors and contracts, Lessee agrees to cause the Contractors to
commence the construction and installation of the Lessee's Work as
promptly as reasonably practicable and to proceed with due diligence
to perform Lessee's Work in a good and workmanlike manner. Lessee
warrants to Lessor that all materials and equipment furnished in
constructing and installing the Lessee's Work will be new, unless
otherwise specified to Lessor, and that such work shall be of good
quality, free from faults and defects; provided, however, Lessor's
sole remedy for breach of the above warranty shall be that Lessee, for
a period of twelve (12) months after substantial completion of the
Lessee's Work, at its sole cost and expense, will make all necessary
repairs, replacements and corrections of any nature or description as
may become necessary by reason of faulty construction, labor or
materials in the Lessee's Work. Any delays in the completion of
Lessee's Work shall not justify any abatement or reduction of the rent
payable under the Lease.
5. Payments for Cost of Work. Lessor shall be liable for
payment of the Cost of the Work. Within ten (10) days after Lessor's
receipt of an invoice from Lessee, together with supporting billing
statements, architect certificates and other detailed information
required by the construction contracts with the Contractors, Lessor
shall pay to Lessee the amount of the invoice. Lessee shall pay over
to its Contractors any payments by Lessor to Lessee for the Cost of
the Work. Lessor may, at its option, elect to make its payments for
the Cost of the Work directly to the Contractors rather than to
Lessee. Lessor shall not be obligated to pay for, and Lessee shall not
pay for, any work performed by any of the Contractors or their
mechanics, workmen or subcontractors until Lessor has received a lien
waiver from any said party.
6. Change Orders. All changes and modifications in Lessee's
Work from that contemplated in the Plans and Specifications, whether
or not such change or modification gives rise to a Change Cost, must
be evidenced by a written change order executed by both Lessor and
Lessee. In that regard, Lessee shall submit to Lessor such information
as Lessor shall require with respect to any change order requested by
Lessee. After receipt of any requested change order, together with
such information as Lessor shall require with respect thereto, Lessor
shall return to Lessee either the executed change order, which will
evidence Lessor's approval thereof, or the Plans and Specifications
with respect thereto with Lessor's suggested modifications. Lessee
shall revise the change order and resubmit it to Lessor. This process
will continue until Lessor's approval is obtained.
7. Punch List. Within ten (10) days after Lessor receives
notice from Lessee of the substantial completion of Lessee's Work,
Lessor shall give Lessee written notice specifying any details of
construction, decoration, installation or mechanical adjustment which
remain to be performed with respect to Lessee's Work; and except for
the details contained in such written notice from Lessor, all
obligations of Lessee in regard to Lessee's Work shall be deemed to
have been satisfied. Lessor or its agents, servants, employees or
contractors shall have the right to enter the Leased Improvements
<PAGE>
during the progress and after the completion of the Lessee's Work to
inspect any details of the Lessee's Work, and entry by Lessor, its
agents, servants, employees or contractors for such purpose shall not
relieve Lessee of any of its obligations under the Lease or impose any
liability on Lessor or its agents, servants, employees or contractors.
8. Insurance; Liability. Lessee shall procure and maintain
adequate Workmen's Compensation and public liability insurance for
bodily injury and property damage, all in amounts, with companies and
in forms satisfactory to Lessor. Lessee shall also cause each of the
Contractors to provide and maintain certificates of such insurance and
furnish copies of same to Lessor prior to proceeding with the Lessee's
Work. Lessor shall not be liable in any way for any injury, loss or
damage which may occur in connection with or as a result of the
Lessee's Work, the same being solely at Lessee's risk. Lessee shall
hold Lessor harmless from any claim, demand or action arising from the
construction or installation activities in connection with Lessee's
Work, the Contractors or any workmen, mechanics or subcontractors
working on the Lessee's Work.
9. Whole Agreement; No Oral Modification. This Work Letter
and the Lease embody all representations, warranties and agreements of
Lessor and Lessee with respect to the matter described herein, and
this Work Letter may not be altered or modified except by an agreement
in writing signed by the parties.
10. Paragraph Headings. The paragraph headings contained in
this Work Letter are for convenient reference only and shall not in
any way affect the meaning or interpretation of such paragraphs.
11. Notices. All notices required or contemplated hereunder
shall be given to the parties in the manner specified for giving
notices under the Lease.
12. Binding Effect. This Work Letter shall be construed
under the laws of the State of Texas and shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
13. Conflict. In the event of conflict between this Work
Letter and any other exhibits or addenda to the Lease, this Work
Letter shall prevail.
DATED as of the _______ day of ________________, 19____.
FCH/ITT LEASING, L.L.C., a Delaware limited
liability company
By:
--------------------------------------
FELCOR SUITES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: FelCor Suite Hotels, Inc., a Maryland
corporation, its General Partner
By:
----------------------------------
<PAGE>
Form of Loan Agreement
Exhibit M
REVOLVING CREDIT AGREEMENT
Dated as of June __, 1997
between
[ ]
as Borrower
and
ITT SHERATON CORPORATION
as Lender
<PAGE>
REVOLVING CREDIT AGREEMENT, dated as of June __, 1997,
between FCH/_______ Leasing, L.L.C., a Delaware limited liability
company ("Borrower"), and ITT SHERATON CORPORATION, a Delaware
corporation ("Lender").
WITNESSETH:
WHEREAS, Lender has agreed to make to Borrower revolving
credit loans in an aggregate principal amount outstanding at any one
time of up to $3,270,000, or such lesser amount as is then required by
the terms hereof, for the purposes and upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms. As used in this Agreement, the following
terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms
defined):
"Agreement" means this Revolving Credit Agreement, together
with all Exhibits hereto, as amended, supplemented or otherwise
modified from time to time.
"Borrowing" means a borrowing consisting of a Loan made by
Lender according to its Commitment.
"Business Day" means a day of the year on which commercial
banks are not required or authorized to close in New York, New York,
Boston, Massachusetts, or Dallas, Texas.
"Commitment" means the commitment of Lender to make Loans to
Borrower pursuant to Section 2.1 hereof in an aggregate principal
amount outstanding not to exceed, from time to time, the amount
determined in accordance with Section 2.3 hereof.
"Final Maturity Date" means June 30, 2012.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time set forth in
the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and the
statements and pronouncements of the Financial Accounting Standards
Board, or in such other statements by such other entity as may be in
general use by significant segments of the accounting professions,
which are applicable to the circumstances as of the date of
determination.
<PAGE>
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity duly
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hotels" means any and all of the hotels listed on Exhibit A
attached hereto and incorporated herein by reference.
"Leases" means, with the respect to Borrower, any one or
more of the leases identified on Exhibit A hereto covering the Hotels,
as the same may be amended, supplemented or otherwise modified from
time to time.
"Loan" or "Loans" means the revolving credit loan or loans
made or to be made by Lender to Borrower pursuant to Article II
hereof.
"Loan Documents" means, collectively, this Agreement, the
Note and each other certificate, agreement or document executed by
Borrower and delivered to Lender in connection with or pursuant to any
of the foregoing.
"Net Income (Loss)" means, for any Person for any period,
the aggregate of net income (or loss) of such Person and its
Subsidiaries for such period, determined on a consolidated basis in
conformity with GAAP.
"Note" means a subordinated promissory note of Borrower
payable to the order of Lender in a stated principal amount equal to
the amount of the Commitment, in substantially the form of Exhibit B.
"Notice of Borrowing" has the meaning specified in Section
2.2 hereof.
"Obligations" means the Loans and all other advances, debts,
liabilities, obligations, covenants and duties owing by Borrower to
Lender, of every type and description, present or future, arising
under this Agreement or under any other Loan Document, whether direct
or indirect (including, without limitation, those acquired by
assignment), absolute or contingent, due to become due, now existing
or hereafter arising and however acquired. The term "Obligations"
includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements and any other sum then payable by
Borrower under this Agreement.
"Overhead" has the meaning specified in Section 2.5 hereof.
"Person" means an individual, partnership, corporation
(including, without limitation, a business trust), limited liability
company, joint stock company, trust, unincorporated association, joint
venture or other entity, or a Governmental Authority.
"Requirements of Law" means, as to any Person, the
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and all federal, state and local
laws, rules and regulations, including, without limitation, all
orders, judgments, decrees or other determinations of any Governmental
Authority or arbitrator, applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
<PAGE>
"Stock" means shares of capital stock, limited liability
company or partnership interests, participations or other equivalents
(regardless of how designated) of or in a corporation or similar
entity, whether voting or non-voting, and includes, without
limitation, common stock and preferred stock.
"Subsidiary" means, with respect to any Person, at any date,
any corporation, partnership, limited liability company or other
business entity the accounts of which would be consolidated with those
of such Person in its consolidated financial statements in accordance
with GAAP, if such statements were prepared as of such date.
1.2. Computation of Time Periods. In this Agreement, in the
computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding" and the word
"through" means "to and including".
1.3. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in conformity with GAAP and all
accounting determinations required to be made pursuant hereto shall,
unless expressly otherwise provided herein, be made in conformity with
GAAP.
1.4. Certain Terms. (a) The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement
as a whole, and not to any particular Article, Section, subsection or
clause in this Agreement. References herein to an Exhibit, Article,
Section, subsection or clause refer to the appropriate Exhibit,
Article, Section, subsection or clause in this Agreement.
(b) The term "Lender" includes its successors and each
assignee of such Lender who becomes a party hereto.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
2.1. The Loans. On the terms and subject to the conditions
contained in this Agreement, Lender agrees to make Loans to Borrower,
from time to time, on any Business Day during the period from the date
hereof until the Final Maturity Date, with each such Loan to be in a
principal amount not in excess of the then unfunded balance of the
Commitment. In no event shall Lender be obligated to make any Loan in
a principal amount which, if advanced, would result in the aggregate
principal amount of the then outstanding Loans being in excess of the
then unfunded Commitment, as determined in accordance with Section 2.3
hereof. Each such Loan shall be requested in an amount not to exceed
the amount which will be necessary, within fifteen (15) Business Days
following such request, to enable Borrower to pay when due and payable
its obligations for the payment of rent owing under the Leases. Within
the then limits of the Commitment, amounts repaid pursuant to Section
2.5 or 2.6 may be re-borrowed under this Section 2.1. The Loans shall
be evidenced by the Note, made payable to the order of Lender, which
Note has been duly executed and delivered by Borrower to Lender
concurrently with Lender's execution and delivery of this Agreement.
<PAGE>
2.2. Making the Loans. Borrowing shall be made on written
notice, given by Borrower to Lender not later than 11:00 A.M. (Dallas,
Texas time) on the tenth (10th) Business Day prior to the date of the
proposed Borrowing. Each such notice (a "Notice of Borrowing") shall
be in substantially the form of Exhibit C, specifying therein (i) the
date of such proposed Borrowing, (ii) the aggregate amount of such
proposed Borrowing and (iii) that such Loan will be necessary to
enable Borrower to pay when due rent which is, or within fifteen (15)
Business Days following such request will be, due and payable under
the Leases and any such borrowing shall be subject to Borrower's
continued compliance with the covenants contained herein and there not
being any breach of a representation or warranty hereunder.
2.3. Amount of the Commitment. The Commitment of Lender
shall be re- computed on the date of each Notice of Borrowing and on
the last day of each calendar month, and shall be equal to $3,270,000,
reduced by an amount equal to 12.5% of the Initial Rent (as set forth
opposite the name of the Hotel to which it relates on Exhibit A
attached hereto) applicable to any Lease (i) upon the termination or
expiration of such Lease or upon Borrower ceasing to be liable for the
payment of rent thereunder and (ii) covering any Hotel as to which the
management agreement between Sheraton Operating Corporation and
Borrower has been terminated by or as a result of action of Borrower.
2.4. Termination of the Commitment. The Commitment of Lender
hereunder shall terminate upon the earlier of (i) the Final Maturity
Date and (ii) the date upon which Borrower's Net Income, determined in
accordance with GAAP (but before the payment of rent and other
obligations under the Leases), for the preceding 12 calendar months is
equal to or in excess of 1.25 times the amount of Borrower's rental
and other obligations under the Leases for the same period.
2.5. Repayment. On or before the fifteenth day of each
January, April, July and October, Borrower shall pay, to the extent of
its then available funds, if any, after paying or making adequate
provision for the payment when due of (i) all rent and other
obligations due or to become due under the Leases in respect of such
prior fiscal quarter, (ii) all management fees and other obligations
due or to become due under Borrower's management agreements with
Sheraton Operating Corporation in respect of such prior fiscal
quarter, (iii) all overhead expenses of Borrower ("Overhead"), whether
incurred directly by it or allocated to it by any parent or affiliate
in respect of such prior fiscal quarter; provided, that in no event
shall aggregate Overhead in any fiscal year exceed an amount equal to
$20,000 per year for each Hotel, increased annually (beginning on
December 31, 1998) in direct proportion to any increase in the
Consumer Price Index over that published for December 31, 1997 (or, if
the Consumer Price Index ceases to be published, such other
substantially comparable published index as may be reasonably
designated by Lender), (A) all accrued but unpaid interest on the then
outstanding Loans at the date of such payment and, to the extent of
any excess, (B) the principal amount of the Loans then outstanding.
2.6. Prepayments; Revolving Credit. Borrower shall have the
right to repay the principal amount of any Loan, in whole or in part,
at any time or times, without premium or penalty; provided, however,
that such payments shall not reduce Lender's Commitment hereunder and
Borrower may reborrow such amounts repaid, subject to the terms of
this Agreement.
<PAGE>
2.7. Interest. Simple interest shall accrue on the unpaid
principal amount of each Loan outstanding from the date thereof until
the principal amount thereof shall be paid in full, at the rate of ten
percent (10%) per annum. Simple interest at the rate of fifteen
percent (15%) per annum shall accrue on the unpaid principal amount of
Loans outstanding during any period of time during which Borrower
shall be in default of its obligations to make any payment to Lender
as, and to the extent, required in Sections 2.5 and 5.1 hereof.
2.8. Payments and Computations. (a) Borrower shall make each
payment hereunder and under the Notes on the day when due, in United
States Dollars, to Lender at its address referred to in Section 7.2.
(b) All computations of interest shall be made by Lender on
the basis of a year of 360 days, in each case for the actual number of
days (including the first day but excluding the last day) occurring in
the period for which such interest is payable.
(c) Whenever any payment hereunder or under the Note shall
be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension
of time shall in each such case be included in the computation of
interest.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, Borrower
represents and warrants to Lender that:
3.1. Existence; Compliance with Law; Other. Borrower (i) is
a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware; (ii) is duly
qualified as a limited liability company and in good standing under
the laws of each jurisdiction where such qualification is necessary;
(iii) has all requisite power and authority and the legal right to
own, pledge and mortgage its properties, to lease (as lessee) the
properties that it leases as lessee, to lease or sublease (as lessor)
the properties it owns and/or leases (as lessee) and to conduct its
business as now or currently proposed to be conducted; (iv) is in
compliance with its certificate of formation and regulations; (v) is
in compliance with all other applicable Requirements of Law; (vi) has
all necessary licenses, permits, consents or approvals from or by, has
made all necessary filings with, and has given all necessary notices
to, each Governmental Authority having jurisdiction, to the extent
required for such ownership, leasing and conduct, except for licenses,
permits, consents or approvals which can be obtained by the taking of
ministerial action to secure the grant or transfer thereof or failures
which in the aggregate have no material adverse effect upon Borrower;
(vii) is not an Investment Company, as that term is defined in the
Investment Company Act of 1940, as amended, (viii) has no
Subsidiaries, (ix) is not engaged in any trade or business other than
that relating to the leasing and operation of the Hotels, (x) has
incurred no indebtedness for borrowed money other than under this
Agreement and has incurred no other indebtedness except in the
ordinary and normal course of business of the operation of the Hotels,
and (xi) has granted no liens on any of its property or assets to
secure indebtedness for borrowed money.
<PAGE>
3.2. Power; Authorization; Enforceable Obligations. (a) The
execution, delivery and performance by Borrower of the Loan Documents
to which it is a party and the consummation of the transactions
related to the financing contemplated hereby;
(i) are within Borrower's limited liability company
powers;
(ii) have been duly authorized by all necessary action,
including, without limitation, the consent of members where
required;
(iii) does not and will not contravene Borrower's
certificate of formulation or regulations; and
(iv) does not require the consent of, authorization by,
approval of, notice to, or filing or registration with, any
Governmental Authority or any other Person, other than those
which have been obtained or made and copies of which have
been delivered to Lender.
(b) This Agreement and each of the other Loan Documents has
been duly executed and delivered by Borrower. This Agreement and the
other Loan Documents are the legal, valid and binding obligation of
Borrower, enforceable against it in accordance with its terms except
to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting the enforcement of creditors'
rights and remedies generally.
ARTICLE IV
LENDER'S REPRESENTATIONS AND WARRANTIES
Lender represents and warrants to Borrower that:
4.1. Existence; Compliance with Law. Lender (i) is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (ii) is duly qualified as a
corporation and in good standing under the laws of each jurisdiction
where such qualification is necessary; (iii) has all requisite
corporate power and authority and the legal right to own, dispose of,
pledge and mortgage its properties, and to conduct its business as now
or currently proposed to be conducted; (iv) is in compliance with its
certificate of incorporation and by-laws; (v) is in material
compliance with all other applicable Requirements of Law; and (vi) has
all necessary licenses, permits, consents or approvals from or by, has
made all necessary filings with, and has given all necessary notices
to, each Governmental Authority having jurisdiction, to the extent
required for such ownership, leasing and conduct, except for licenses,
permits, consents or approvals which can be obtained by the taking of
ministerial action to secure the grant or transfer thereof or failures
which in the aggregate have no material adverse effect upon Lender.
<PAGE>
4.2. Power; Authorization; Enforceable Obligations. (a) The
execution, delivery and performance by Lender of the Loan Documents to
which it is a party and the consummation of the transactions related
to the financing contemplated hereby;
(i) are within Lender's corporate powers;
(ii) have been duly authorized by all necessary action,
including, without limitation, the consent of its
stockholder, if required;
(iii) does not and will not contravene Lender's
certificate of incorporation or by-laws; and
(iv) does not require the consent of, authorization by,
approval of, notice to, or filing or registration with, any
Governmental Authority or any other Person, other than those
which have been obtained or made and copies of which have
been delivered to Borrower.
(b) This Agreement and each of the other Loan Documents has
been duly executed and delivered by Lender. This Agreement and the
other Loan Documents are the legal, valid and binding obligation of
Lender, enforceable against it in accordance with its terms except to
the extent that enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting the enforcement of creditors'
rights and remedies generally.
ARTICLE V
BORROWER'S COVENANTS
As long as any of the Obligations or Commitments remain
outstanding, Borrower agrees with Lender that, unless otherwise agreed
to in writing by Lender:
5.1. Distributions. Within thirty (30) days following the
end of each fiscal year, Borrower shall distribute all of its then
available funds, if any, solely in accordance with the following
priorities, subject to the terms of the Leases and the Borrower's
management agreements with Sheraton Operating Corporation covering the
Hotels: (i) FIRST, to the payment of (A) all rent and other
obligations due or to become due under the Leases in respect of such
prior fiscal year, (B) the Basic Fee and other obligations (other than
the Incentive Fee) due or to become due under Borrower's management
agreements with Sheraton Operating Corporation covering the Hotels in
respect of such prior fiscal year, (C) all Overhead expenses of
Borrower covering the Hotels, (D) the Incentive Fee due or to become
due under Borrower's management agreements with Sheraton Operating
Corporation covering the Hotels in respect of such prior fiscal year,
(ii) SECOND, to the payment of all principal and interest then
outstanding in respect of the Loans, and (iii) THIRD, to the holders
of the Stock of the Borrower; provided that upon any default by
Borrower in respect of any of its covenants in this Article V (other
than Section 5.6) or breach by Borrower of any of its representations
or warranties hereunder, then all amounts then outstanding in respect
of principal and interest on the Loans shall be payable prior to the
payment of any amount payable in accordance with this Section 5.1
(other than rent in respect of the Leases) until such default or
breach shall have been cured.
<PAGE>
5.2. Mergers, Asset Sales, Etc. Borrower shall not sell,
convey, transfer, lease or otherwise dispose of all or substantially
all of its assets or properties, and shall not, (i) merge with any
Person, or (ii) consolidate with any Person.
5.3. Indebtedness and Liens. Borrower shall incur no
indebtedness for borrowed money other than under this Agreement and
shall incur no other indebtedness except in the ordinary and normal
course of business of the operation of the Hotels. Borrower shall
grant no liens on any of its property or assets to secure indebtedness
for borrowed money.
5.4. Distributions. Borrower shall not make any
distributions on or in respect of, or repurchase or acquire for value
any of, its Stock, except for the distributions contemplated by
Section 5.1 hereof.
5.5. Related Party Transactions. Except as expressly
permitted by the management agreements between Borrower and Sheraton
Operating Corporation with respect of the Hotels, or as required by
the Leases, Borrower shall not make any investment in or any loan to,
or assume, guaranty or otherwise become liable for the payment of any
obligation of, any Person controlling, controlled by or under common
control with Borrower.
5.6. Inspection of Books and Records. Borrower shall provide
Lender with access, during normal business hours, to its books and
records for the purpose of inspection thereof and shall provide to
Lender, within forty-five (45) days following the end of each fiscal
quarter, an unaudited balance as at the end of, and an operating
statement for such fiscal quarter and for the fiscal year to date.
Within ninety (90) days following the end of each fiscal year, a
balance sheet and operating statement certified by Borrower's chief
accounting officer.
ARTICLE VI
THIRD PARTY BENEFICIARY
6.1. Third Party Beneficiary. Both Borrower and Lender
hereby acknowledge and agree that FelCor Suite Hotels, Inc. or one of
its Subsidiaries is the owner of the Hotels and the lessor thereof
pursuant to the Leases, and shall be deemed to be a third party
beneficiary of the rights of Borrower under this Agreement and shall
have the full right, power and authority, in its own name or in the
name of the Borrower, to enforce each and all of the obligations of
Lender hereunder, including, without limitation, the obligation of
Lender to make Loans.
ARTICLE VII
MISCELLANEOUS
7.1. Amendments, Etc. (a) No amendment or waiver of any
obligation of Borrower under this Agreement nor consent to any
departure by Borrower therefrom shall in any event be effective unless
the same shall be in writing and signed by Lender, and then any such
waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
<PAGE>
(b) Notwithstanding anything set forth herein to the
contrary, no amendment or waiver of any obligation of Lender under
this Agreement nor consent to any departure by Lender therefrom shall
in any event be effective unless the same shall be in writing and
signed by Borrower and by FelCor Suite Hotels, Inc., and then any such
waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
7.2. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including, without
limitation, telecopy) and mailed, telecopied or delivered by hand, if
to Borrower, at its office at 545 East John Carpenter Freeway, Suite
1300, Irving, Texas 75062 (telecopy number: 972-444-4949) (telephone
number: 972-444-4900), Attention: President, with a copy to Attention:
General Counsel; if to Lender, at its office at 60 State Street,
Boston, Massachusetts 02109 (telecopy number: 617-367-5637) (telephone
number: 617-367-3600), Attention: General Counsel; and with respect to
each such notice or communication hereunder, a copy thereof shall be
sent to Hunton & Williams, 951 East Byrd Street, Richmond, Virginia
(telecopy number 804-788-8218) (telephone number 804-788-8793)
Attention: George C. Howell, III, or at such other address as shall be
designated by such party in a written notice to the other parties. All
such notices and communications shall, when mailed, telecopied or
delivered, be effective three (3) Business Days after being deposited
in the mails, telecopied with confirmation of receipt or delivered by
hand to the addressee.
7.3. No Waiver; Remedies. No failure on the part of any
party hereto to exercise, and no delay in exercising, any right
hereunder or under the Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
7.4. Binding Effect. This Agreement is and hereafter shall
be binding upon and inure to the benefit of Borrower, Lender and their
respective permitted successors and assigns. Borrower may not assign
its rights hereunder without the prior written consent of Lender and
any purported assignment without such consent shall be null and void.
7.5 Governing Law; Severability. This Agreement and the Note
and the rights and obligations of the parties hereto and thereto shall
be governed by, and construed and interpreted in accordance with, the
law of the State of New York. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
7.6. Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the
parties hereto.
<PAGE>
7.7. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same agreement.
7.8. Entire Agreement. This Agreement, together with the
other Loan Documents, embody the entire agreement of the parties and
supersedes all prior agreements and understandings relating to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
[ ]
By:
---------------------------
Name:
Title:
ITT SHERATON CORPORATION
By:
---------------------------
Name: Mark Thomas
Title: Senior Vice President
<PAGE>
EXHIBITS
Exhibit A List of Hotels and Initial Rent
Exhibit B Form of Note
Exhibit C Form of Notice of Borrowing
<PAGE>
EXHIBIT A
Hotel Initial Rent
----- ------------
Sheraton Gateway Hotel (Atlanta Airport) College Park, GA $___ million
Sheraton Suites (Cumberland) Atlanta, GA ___ million
Sheraton Gateway Suites (O'Hare Airport) Rosemont, IL ___ million
Sheraton Crescent Hotel Phoenix, AZ ___ million
Sheraton Park Central Hotel in Dallas, TX ___ million
<PAGE>
EXHIBIT B
SUBORDINATED PROMISSORY NOTE
$3,270,000.00 Dallas, Texas June __, 1997
FOR VALUE RECEIVED, the undersigned, [ ] ("Borrower"),
promises to pay to the order of ITT Sheraton Corporation ("Lender"),
at Lender's principal executive office in Boston, Massachusetts, or at
such other place as hereafter directed by Lender, the principal sum of
Three Million Two Hundred Seventy Thousand and NO/100 Dollars
($3,270,000.00), or such lesser sum as has been advanced hereunder and
remains outstanding and unpaid, together with interest on the unpaid
balance, from time to time, at the rate of ten percent (10%) per
annum. This Note is issued under and pursuant to the terms of that
certain Revolving Credit Agreement, dated as of June __, 1997
("Agreement"), between Borrower and Lender and all payments of
principal and interest hereunder shall be made, in United States
currency, in such amounts and at such times as are set forth in the
Agreement. All sums payable hereunder are expressly subordinate in
right of payment to the prior payment in full of all of the
obligations of Borrower for the payment of rent due and owing under
the Leases.
This Note may be prepaid in whole or in part at any time at
the option of Borrower without penalty or premium. All payments or
prepayments made on this Note shall be applied first to the payment of
accrued and unpaid interest, and then to the payment of principal.
This Note and the rights and obligations of the parties
hereunder shall be governed by the laws of the State of New York.
This Note shall be binding upon Borrower, its legal
representatives, successors and assigns, and shall inure to the
benefit of Lender and its legal representatives, successors and
assigns.
This Note may not be changed, amended or modified orally. If
any provision of this Note is held to be invalid or unenforceable by a
court of competent jurisdiction, the other provisions of this Note
shall remain in full force and effect and shall be liberally construed
in favor of Lender. Time is of the essence with respect to all of
Borrower's obligations and agreements under this Note.
[ ]
By:
----------------------------
Name:
Title:
<PAGE>
EXHIBIT C
NOTICE OF BORROWING
TO: ITT Sheraton Corporation
FROM: [ ]
DATE: _________________
RE: Notice of Borrowing under Revolving Credit Agreement between
Lender and Borrower
Notice is hereby given under and in accordance with Section 2.2 of
that certain Revolving Credit Agreement, dated as of June __, 1997
(the "Agreement"), between ITT Sheraton Corporation ("Lender") and [ ]
("Borrower"), the Borrower desires to borrow from Lender, on and as of
____________________, being not less than ten (10) Business Days
following the date hereof, the principal sum of $___________ under and
pursuant to the Agreement.
Borrower hereby represents and warrants to Lender that the
above-requested borrowing will be necessary to enable Borrower to pay
rent that is, or within fifteen Business Days following the date
hereof will be, due and owing under the Leases listed in Exhibit A to
the Agreement and reaffirms, as of the date hereof, the
representations and warranties set forth in the Agreement and that it
is in compliance with the covenants contained in Article V hereof.
Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Agreement.
[ ]
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT N
Nondisturbance Agreement
**INTENTIONALLY OMITTED**
